lOMoARcPSD|7264714
property within its power to contribute for
GENERAL PRINCIPLES TAXATION
TAXATION is the inherent power by which the
sovereign, through its law-making body, raises
revenue to defray the necessary expenses of the
government. It is a manner of apportioning the
costs of the government among those who, in
some measure, are privileged to enjoy its benefits
and must bear its burdens.
INHERENT TO THE STATE: It is inherent in
character because its exercise is guaranteed by
the mere existence of the state. It could be
exercised even in the absence of a constitutional
grant. The power to tax proceeds upon the
theory that the existence of a government is a
necessity and this power is an essential and
inherent attribute of sovereignty, belonging as a
matter of right to every independent state or
government. (Pepsi-Cola Bottling Co. of the
Philippines vs. Municipality of Tanauan, Leyte,
G.R. No. L-31156, February 27, 1976)
SCOPE OF LEGISLATIVE POWER TO TAX
1. The determination of purposes for which taxes
shall be levied provided it is for the benefit of
the public.
2. The determination of subjects of taxation such
as the person, property or occupation within
its jurisdiction.
3. The determination as to the amount or rate of
tax unless constitutionally prohibited.
4. The determination as to the kind of tax to be
collected (i.e. property tax, income tax,
inheritance tax, etc.).
5. The determination of agencies to collect the
taxes.
6. The power to specify or provide for
administrative and judicial remedies.
7. The power to grant tax exemptions and
condonations.
THEORY AND BASIS
1. Life Blood Theory – Taxes are the lifeblood of
the government and so should be collected
without unnecessary hindrance.
(Commissioner of Internal Revenue vs. Algue;
GR No. L-28896; Feb. 17, 1988)
2. Necessity Theory - government is necessary;
however, it cannot continue without the
means of paying for its existence; hence, it
has the right to compel all citizens and
the same purpose. (71 Am. Jur. 2d 346)
The power to tax is an attribute of
sovereignty. It is a power emanating from
necessity. It 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 those which come within the
State's territory, and facilities and protection
which a government is supposed to provide.
(Phil. Guaranty Co., Inc. vs. CIR; GR No. L-
22074; April 30, 965)
3. Symbiotic relationship theory - It is said that
taxes are what we pay for a civilized society.
Without taxes, the government would be
paralyzed for lack of the motive power to
activate and operate it. Hence, despite the
natural reluctance to surrender part of one's
hard earned income to the taxing authorities,
every person who is able to must contribute
his share in the running of the government.
The government for its part, is expected to
respond in the form of tangible and
intangible benefits intended to improve the
lives of the people and enhance their moral
and material values. This symbiotic
relationship is the rationale of taxation and
should dispel the erroneous notion that it is
an arbitrary method of exaction by those in
the seat of power. (Commissioner of Internal
Revenue vs. Algue, supra)
PURPOSE OF TAXATION
1. Primary – to raise revenues; to support the
existence of the State and enable the state to
promote the general welfare.
2. Secondary – non-revenue or sumptuary
a. Promotion of general welfare – taxation
may be used to implement police power
(e.g., grant of VAT exemption and
Discounts to Senior Citizens);
b. Regulation - where taxes are levied on
excises or privileges for purposes of
rehabilitation and stabilization of
threatened industry which is affected by
public interest or to discourage
consumption of harmful products (e.g.,
 lOMoARcPSD|7264714
excise taxes on cigarettes and alcohol);
c. Reduction of Social Inequity – This is
made possible through the progressive
system of taxation where the objective is
to prevent the undue concentration of
wealth in the hands of few individuals.
Progressivity is keystoned on the principle
that those who are able to pay should
shoulder the bigger portion of the tax
burden. (e.g., Income tax)
d. Encouragement of economic growth – tax
incentives and reliefs may be granted to
encourage investment (i.e., Income Tax
Holiday, 5% preferential Gross Income
Tax for PEZA registered entities);
e. Protectionism – for the protection of
local industries, in case of foreign
importations, protective tariffs and
customs duties and fees (e.g., Special
Duties imposed by the Bureau of
Customs)
CHARACTERISTICS OF THE POWER TO TAX (CUPS)
1. Comprehensive – it covers persons,
businesses, activities, professions, rights and
privileges.
2. Unlimited – it is so unlimited in force and
searching in extent that courts scarcely
venture to declare that it is subject to any
restrictions, except those that such rests in
the discretion of the authority which
exercises it. (Tio vs. Videogram Regulatory
Board; GR No. 75697; June 18, 1987)
3. Plenary – it is complete; unqualified; absolute.
Under the Tax Code, the BIR may avail of
certain remedies to ensure collection of taxes.
4. Supreme – insofar as the selection of the
subject of taxation is concerned.
PRINCIPLES OF A SOUND TAX SYSTEM (FAT)
1. Fiscal Adequacy – revenue raised must be
sufficient to meet government/public
expenditures and other public needs. (Chavez
vs. Ongpin; GR No. 76778; June 6, 1990)
2. Administrative Feasibility – tax laws must be
clear and concise; capable of effective and
efficient enforcement; convenient as to time
and manner of payment, must not obstruct
business growth and economic development.
The VAT law cannot be considered as
violative of the Administrative Feasibility
principle because it is principally aimed to
rationalize the system on taxes of goods and
services. Thus, simplifying tax administration
and making the system more equitable to
enable the country to attain economic
recovery. (Kapatiran ng Mga Naglilingkod sa
Pamahalaan v. Tan; June 30, 1988)
3. Theoretical Justice – must take into
consideration the taxpayer’s ability to pay
(Ability to Pay Theory). Art. VI, Sec. 28(1) of
the 1987 Constitution mandates that the rule
on taxation must be uniform and equitable
and that the State evolve a progressive
system of taxation.
4. NOTE: Non-observance of Fiscal Adequacy
and Administrative Feasibility will render the
tax measure unsound but not
unconstitutional. However, non-observance
of the Principle of Theoretical Justice is invalid
because the Constitution itself requires that
taxation must be equitable.
“THE POWER TO TAX IS THE POWER TO
DESTROY”
According to Justice Marshall: The power to
tax includes the power to destroy. Taxation is
a destructive power which interferes with the
personal and property rights of the people
and takes from them a portion of their
property for the support of the government.
(McCulloch vs. Maryland, 4 Wheat, 316 4 L
ed. 579, 607)
However, according to Justice Holmes: The
power to tax is not the power to destroy as
long as this court (Supreme Court) sits.
Taxpayers may seek redress before the courts
in case of illegal imposition of taxes and
irregularities. The Constitution, as the
fundamental law, overrides any legislative or
executive act that runs counter to it. In any
case, therefore, where it can be
demonstrated that the challenged statutory
provision fails to abide by its command, then
the court must declare and adjudge it null.
(Sison Jr. v. Ancheta; G.R. No. L-59431; July
25, 1984)
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IMPRESCRIPTIBILITY OF TAXES: Taxes are
generally imprescriptible, except when the law
provides otherwise, e.g. the statute of limitations
provided under the Tax Code.
DOUBLE TAXATION: means taxing the same
person for the same tax period and the same
activity twice, by the same jurisdiction.
Double taxation in strict sense is when:
1. Both taxes are imposed on the same property
or subject matter;
2. For the same purpose;
3. Imposed by the same taxing authority;
4. Within the same jurisdiction;
5. During the same taxing period;
6. Covering the same kind or character of tax.
Double Taxation in Broad sense is the opposite
of direct double taxation and is not legally
objectionable. The absence of one or more of the
foregoing requisites of obnoxious direct tax
makes it indirect.
Constitutionality of double taxation: Double
taxation in its stricter sense is unconstitutional but
that in the broader sense is not necessarily so.
Our Constitution does not prohibit double
taxation. However, double taxation will not be
allowed if it results in a violation of the equal
protection clause.
Modes of eliminating double taxation
1. Tax Deduction – an amount subtracted from
the gross income to arrive at taxable income.
2. Tax Credit - an amount subtracted from an
individual’s or entity’s tax liability (tax due) to
arrive at the tax liability still due. A deduction
differs from a tax credit, in that a deduction
reduces taxable income while a credit
reduces tax liability.
3. Treaties with other states: a tax treaty sets
out the respective rights to tax of the state
of source (situs) and the state of residence
with regard to certain cases, an exclusive
right to tax is conferred on one of the
contracting states; however, for other items
of income or capital, both states are given
the right to tax, although the amount of tax
that may be imposed by the state of source is
limited.
It applies whenever the state of source is
given full or limited right to tax. The treaty
makes it incumbent upon the state of
residence to allow relief in order to avoid
double taxation.
Note: The BIR issued RMO No. 1-2000, as
amended by RMO No. 72-2010, requiring
taxpayers to file for a Tax Treaty Relief
Application on or before the transaction
date before availing of the provisions of a tax
treaty. However, as held by the Supreme
Court, this administrative requirement
cannot defeat the right of any taxpayer
entitled to the preferential rates in the tax
treaty.
FORMS OF ESCAPE FROM TAXATION
1. Shifting – the burden of payment is
transferred from the statutory taxpayer to
another without violating the law (e.g., VAT);
2. Capitalization – the reduction in the price of
the taxed object equal to the capitalized
value of future taxes the purchaser is
expected to be called upon to pay.
3. Transformation - for manufacturers or
producers, upon whom tax are imposed,
fearing the loss of his market if he should add
to the price, pays the tax and endeavor to
recoup himself by improving his process of
production, thereby producing his units at a
lower cost.
4. Tax Avoidance – exploitation by the taxpayer
of legally permissible alternative tax rates or
methods of assessing taxable property or
income, in order to
avoid or reduce tax liability. Also known as “tax
minimization.” (e.g. utilizing all permissible
allowable deductions)
5. Tax Exemption – grant of immunity to
particular persons or corporations of a
particular class from a tax which persons or
corporations generally within the same rate
or taxing district are obliged to pay.
Basic Principles Regarding Tax Exemption
i. Exemptions are highly disfavored by law
and he who claims an exemption must be
 lOMoARcPSD|7264714
able to justify his claim by the clearest
grant of law. An exemption from the
common burden cannot be permitted to
exist upon vague implication. (Asiatic
Petroleum Co. vs. Llanes, 49 Phil. 466; see
also House vs. Posadas, 53 Phil. 338)."
(Collector of Int. Revenue vs. Manila
Jockey Club, Inc., G.R. No. L-8755, March
24, 1956)
ii. He who claims exemption should prove
his factual and legal basis for exemption.
(Commissioner of Internal Revenue v.
Acesite (Philippines) Hotel Corporation,
G.R. No. 147295, February 16, 2007)
iii. Tax exemptions are strictly construed
against the person claiming it. (Esso
Standard Eastern, Inc. vs. Acting
Commissioner of Customs; GR No. L-
21841; Oct. 28, 1966)
iv. Constitutional grant of exemptions are self-
executing.
v. In the same way that taxes are personal,
tax exemptions are also personal.
vi. Deductions from income tax purposes
partake of the nature of tax exemptions,
therefore should also be construed strictly
against the taxpayer.
(Commissioner of Internal Revenue vs.
General Foods (Phils), Inc.; GR No. 143672;
April 24, 2003)
vii. Same treatments are given to tax refunds.
(Commissioner of Internal Revenue v.
Eastern Telecommunications Phils., Inc.,
G.R. No. 163835, July 7, 2010)
Kinds of Tax Exemption
As to Form:
a. Express - Expressly granted by the
Constitution, statutes, treaties, franchises
or similar legislative acts.
b. Implied - When particular persons,
properties, or exercise are deemed exempt
as they fall outside the scope of the taxing
provision itself.
c. Contractual - Are those agreed to by the
taxing authority in contract lawfully
entered into by them under enabling laws.
As to Basis:
a. Constitutional Exemptions – Immunities
from taxation which originate from the
Constitution.
b. Statutory Exemptions – those which
emanate from legislation.
As to Extent:
a. Total Exemption – connotes absolute
immunity.
b. Partial Exemption – one where a collection
of a part of the tax is dispensed with.
Grounds for Tax Exemption
a. Contract – the grant of tax exemption is
usually contained in the charter of the
corporation to which the exemption is
granted.
b. Public policy - to encourage new and
necessary industries, or to foster charitable
institutions.
c. Reciprocity – to reduce the rigors of
international double or multiple taxation,
tax exemptions maybe granted in treaties.
A tax exemption is a personal privilege of
the grantee and therefore not assignable;
it is generally revocable by the
government, unless founded on contract
and must not be discriminatory.
Revocation of Tax Exemption: If the grant of
an exemption does not constitute a contract,
but merely “a spontaneous concession by the
legislature, not connected with any service or
duty imposed” it is REVOCABLE by the power
which made the grant.
Thus, if the basis of the tax exemptions is by
virtue of a franchise granted by Congress, the
exemption may be revoked.
However, if the tax exemption constitutes a
binding contract and for a valuable
consideration, the government cannot
unilaterally revoke the tax exemption.
6. Tax Evasion – use of a taxpayer of illegal or
fraudulent means to defeat or lessen the
payment of tax. Also known as “tax dodging,”
it presupposes malice, fraud, bad faith, or
willful intent on the part of the taxpayer
either to underdeclare income or overdeclare
deductions to defeat tax liability.
 lOMoARcPSD|7264714
Connotes the integration of 3 Factors:
a. The end to be achieved, i.e. the payment
of less than that known by the taxpayer to
be legally due;
b. An accompanying state of mind which is
described as being “evil”, in “bad faith”,
“willful”, or “deliberate and not merely
accidental”, and
c. A course of action or failure of action
which is unlawful.
7. Compensation or Set-off: as a general rule,
taxes cannot be the subject of a set-off or
compensation because of the lifeblood
doctrine; they are not contractual obligations
but arise out of duty to the government;
and the government and the taxpayer are
not mutually debtors and creditors of each
other. (Francia vs. IAC No. L-67649; June 28,
1988)
Taxes are of a distinct kind, essence and
nature, and these impositions cannot be
classed in merely the same category as
ordinary obligations; the applicable laws and
principles governing each are peculiar, not
necessary common, to each; and public
policy is better subserved if the integrity and
independence of taxes are maintained.
(Republic vs. Mambulao Lumber Co.)
A person cannot refuse to pay tax on the
basis that the government owes him an
amount equal to or greater than the tax
being collected. The collection of a tax
cannot await the results of a lawsuit against
the government. (Philex Mining Corp. v.
Commissioner)
Doctrine of Equitable Recoupment: is a
doctrine in common law applicable where the
taxpayer has a claim for refund but he was not
able to file a written claim due to the lapse of
the prescription period within which to make a
refund.The taxpayer is allowed to credit such
refund to his existing tax liability. This doctrine
is not allowed in the Philippines.
Note that the prescription of tax refunds in
this jurisdiction is generally two years from
the date of payment and the assessment of
taxes is generally 3 years from filing. Thus, if
the taxpayer failed to file a refund within the
2 year period, his liability as assessed by the
BIR cannot be recouped against such
prescribed refund claim.
8. Compromise and Abatement – these are
powers granted to the Commissioner of
Internal Revenue to reduce tax liabilities
and/or penalties. (see Tax Remedies)
9. Tax Amnesty refers to the articulation of the
absolute waiver by a sovereign of its right to
collect taxes and power to impose penalties
on persons or entities guilty of violating a tax
law. Tax amnesty aims to grant a general
reprieve to tax evaders who wish to come
clean by giving them an opportunity to
straighten out their records. (Metropolitan
Bank and Trust Co. v. Commissioner of
Internal Revenue, G.R. No. 178797, 4 August
2009)
Distinguished with tax exemption: Tax
amnesty is an immunity from all criminal and
civil obligations arising from non-payment of
taxes. It is a general pardon given to all
taxpayers. It applies only to past tax periods.
(People vs. Castañeda, G.R. No. L-46881,
September 15, 1988) It applies to past tax
liabilities.
Tax exemption is an immunity from the civil
liability only. It is an immunity or privilege, a
freedom from a charge or burden of which
others are subjected.
(Florer vs. Sheridan, 137 Ind. 28, 36 NE 365). It
applies prospectively after the grant of
exemption or qualification therefrom.
TAX AMNESTY ACT (Republic Act No. 11213):
towards the policy of the State in protecting
and enhancing revenue administration and
collection, the State shall:
a. Provide a one-time opportunity to settle
estate tax obligations through an estate
tax amnesty program that will give
reasonable relief to estates with
deficiency estate taxes
b. Enhance revenue collection by providing a
tax amnesty on delinquencies to minimize
administrative costs in pursuing tax cases
and declog the dockets of the BIR and the
courts; and
 lOMoARcPSD|7264714
c. Provide a more equitable tax system by
adopting a comprehensive tax reform
program that will simplify the
requirements on tax amnesties with the
use of simplified forms and utilization of
information technology in broading the
tax base.
General Amnesty: the law originally includes
a general tax amnesty to cover all other taxes,
but this portion of the law (Title III) was
vetoed entirely by the President stating that
“without the provisions breaking down the
walls of bank secrecy, setting the legal
framework for us to comply with
international standards on exchange of
information for tax purposes, and
safeguarding against those who abuse the
amnesty by declaring an untruthful asset or
net worth, a general amnesty that is
overgenerous and unregulated would create
an environment ripe for future tax evasion,
the very thing we wish to address.”
Estate Tax Amnesty:
a. Coverage: estate of decedents who died
on or before December 31, 2017, with or
without assessments duly issued
therefor, whose estate taxes have
remained unpaid or have accrued as of
December 31, 2017.
b. Exceptions to the Coverage: the Estate
Tax Amnesty shall not extend to cases
which shall have become final and
executory and to properties involved in
cases pending in appropriate courts:
i. Falling under the jurisdiction of the
Presidential Commission on Good
Government;
ii. Involved in unexplained or unlawfully
acquired wealth under RA No. 3019,
or the Anti-Graft and Corrupt Practices
Act, and RA No. 7080 or the Plunder
Act;
iii. Involving violations of RA No. 9160, or
the Anti-Money Laundering Act, as
amended;
iv. Involving tax evasion and criminal
offenses under the Tax Code, as
amended; and
v. Involving felonies of frauds, illegal
exactions and transactions, and
malversation of public funds and
property under the Revised Penal Code.
c. Tax Base:
i. Total net estate at the time of death, or
the gross estate less all allowable
deductions as provided in the Tax
Code, as amended, or the applicable
estate tax laws prevailing at the time of
death of the decedent;
ii. If an estate tax return was previously
filed, the estate tax shall be based on
net undeclared estate.
d. Tax Rate: 6%
e. Tax Due: shall be 6% of the Net Estate as
determined above. However, if allowable
deductions applicable at the time of
death of the decedent exceed the value
of the gross estate, the heirs, executors,
or administrators may avail of the benefits
under the Tax Amnesty Act and pay the
minimum estate amnesty tax of P5,000.
f. Who will avail:
i. The executor or administrator of the
estate, or
ii. if there is no executor or administrator
appointed, the legal heirs, transferees
or beneficiaries
g. Period of availment: 2 years from the
effectivity of the Implementing Rules and
Regulations (IRR) of the Tax Amnesty Act.
h. Where to File: the sworn Estate Tax
Amnesty Return shall be filed with the
RDO of the BIR which has jurisdiction
over the last residence of the decedent.
For non-residents, the return shall be
filed and the tax paid at RDO No. 39, or
any other RDO which shall be indicated
in the IRR.
i. Time of payment: at the time of the filing
of the return.
j. Previous transfers of property: the Tax
Amnesty Act originally provided that if the
estate involved properties which are still
in the name of another decedent or
donor, the present holder, heirs,
executors or administrators shall file only
1 Estate Tax Amnesty Return and pay the
corresponding taxes thereon based on
the total net estate at the time of death of
the LAST decedent covering all accrued
taxes under the Tax Code, arising from the
 lOMoARcPSD|7264714

transfer of such estate from all prior be deemed sufficient proof of availment.
decedents or donors through which the n. Immunities and Privileges: Estates
property/ies comprising the estate shall covered by the Estate Tax Amnesty, which
pass. have fully complied with the conditions
set forth above, including the payment of
The President, however, vetoed such the estate amnesty tax shall be immune
provision, the message providing that the from the payment of all estate taxes for
tax is imposed not because of the taxable year 2017 and prior years, and
property itself but on the privilege of from all appurtenant civil, criminal and
transferring property to the heirs. As the administrative cases and penalties under
message provides, the flat rate of 6% the Tax Code, as amended.
estate amnesty tax, without penalties,
imposed at EVERY STAGE OF TRANSFER is Tax Amnesty on Delinquencies
more than a fair imposition on the a. Coverage: all national internal revenue
privilege. taxes collected by the BIR, including VAT
k. No admission of liability: the availment of and excise taxes collected by the Bureau of
the Estate Tax Amnesty and the issuance Customs.
of the corresponding Acceptance
Payment Form do not imply admission of Delinquencies covered and Applicable
criminal, civil or administrative liability on Rates:
the part of the availing estate.
l. NO Presumption of Correctness of the
Estate Tax Amnesty Returns: the TAA
originally provides that the Estate Tax
Amnesty Returns shall be conclusively
presumed as true, correct and final upon
filing and shall be deemed complete upon
full payment of the amount due.
However, the President vetoed this
provision stating that beyond the transfer
of property, rights and obligations to the
heirs, legatees, and devisees, the
valuation of the subject properties is a
technical aspect that cannot be left to
mere self-declaration and that there must
be an opportunity for implementing
agencies to evaluate the truthfulness of
the declarations made by the taxpayers.
m. Duties of the BIR: the RDO shall issue an
acceptance form for the Authorized Agent
Bank or the revenue collection agent or
municipal treasurer concerned, to accept
the tax amnesty payment.

After payment, a Certificate of Availment

of the Estate Tax Amnesty shall be issued
by the BIR within 15 calendar days from
submission to the BIR of the Acceptance
Payment Form and the Estate Tax
Amnesty Return. Otherwise, the duplicate
copies of the Acceptance Payment Form
and the Estate Tax Amnesty Return shall
 lOMoARcPSD|7264714

Delinquency Applicable Rate

Covered
Delinquencies and assessments, which have become final and 40% of the basic tax
executory, including delinquent tax account, where the application for assessed
A compromise has been requested but was denied by the Regional
Evaluation Board or the National Evaluation Board, as the case may be,
on or before the IRR takes effect.
B Pending criminal cases with the DOJ or the courts for tax evasion and 60% of the basic tax
other criminal offenses under the Tax Code, as amended, with or assessed
without assessments issued.
C Tax cases subject of final and executory judgment by the courts on or 50% of the basic tax
before the IRR takes effect. assessed
D Withholding tax agents who withheld taxes but failed to remit the same 100% of the basic tax
to the BIR assessed

Delinquent Account: pertains to a tax due from a

ILLUSTRATION: B Company received a Final Assessment Notice with a P1,000,000 basic tax deficiency. It applied for compromise and paid P400,000 as the
minimum amount required. If B Company applied for Tax Amnesty, how much would it pay?

Basic Tax per FANP1,000,000

Basic Tax paid per Compromise Settlement Application (400,000) Net Basic Tax prior to the effectivity of the Regulation600,000 Amnesty Rate 40%
Amnesty Tax to be paidP240,000

taxpayer arising from the audit of the BIR which

had been issued Assessment Notices that have
become final and executory due to the following
instances:
i. Failure to file a valid Protest, ii. The computed basic tax liabilities
whether a request for as shown in the criminal complaint
reconsideration or reinvestigation, filed by the BIR with the
within 30 days from receipt thereof. DOJ/Prosecutor’s Office or int eh
ii. Failure to file an appeal with the information filed in the Courts for
CTA or an administrative appeal violations of tax laws and
before the CIR within 30 days regulations; and
from receipt of the decision iii. The basic tax liabilities as per
denying the request for Court’s final and executory decision.
reinvestigation or reconsideration;
or Deficiency Withholding Taxes in
iii. Failure to file an appeal with the assessments or tax cases: the tax rate shall
CTA within 30 days from receipt of still be 100% under letter D above, even in
the decision of the CIR denying the cases of non-remittance of withholding
taxpayer’s administrative appeal to taxes falling under letters A, B and C above.
the FDDA.
With Pending Compromise Settlement
Basic Tax Assessed: refers to: Application under letter A above: if the
i. Tax due shown on the Assessment delinquent tax is subject of an application
Notice, net of any basic tax paid for compromise settlement, whether
prior to the effectivity of RR No. 4- denied or pending, the amount of payment
2019, exclusive of civil penalties; shall be based on the NET basic tax as
 lOMoARcPSD|7264714

certified by the concerned office.

Partial/Installment Payments: the amount
of payment shall be based on the NET
amount as certified by the concerned
office.

b. When and Where to File: Any person,
natural or juridical, who wishes to avail of
the Tax Amnesty on Delinquencies shall,
within one year from the effectivity of the
IRR file with the appropriate office of the
BIR, which has jurisdiction over the
residence or principal place of business of
the taxpayer, a sworn Tax Amnesty on
Delinquencies Return accompanied by a
Certification of Delinquency.
The payment of the amnesty tax shall be
made at the time of the filing of the
Return. Similar to the Estate Tax Amnesty,
the RDO shall issue and endorse an
Acceptance Payment Form authorizing
the authorized agent bank, or in the
absence thereof, the revenue collection
agent or municipal treasurer concerned,
to accept the amnesty tax payment.
c. No admission of liability: the availment of
the Tax Amnesty on Delinquencies and
the issuance of the corresponding
Acceptance Payment Form do not imply
admission of criminal, civil or
administrative liability on the part of the
availing taxpayer.
d. Immunities and Privileges: The tax
delinquency of those who avail of the Tax
Amnesty on Delinquencies and have fully
complied with all the conditions and upon
payment of the amnesty tax shall be
considered settled and the criminal case
under Sec. 18(c) of the Tax Code, as
amended, as such relate to the taxpayer’s
assets, liabilities, networth and internal
revenue taxes that are subject of the tax
amnesty, and from such other
investigations or suits.
e. Proof of Availment and Compliance;
Documents:
Document
Tax Amnesty Return
Acceptance Payment Form
Certificate of
Delinquencies/Tax Liabilities
lOMoARcPSD|7264714
f. effects thereof: Any notices of levy,
attachments and/or warrants of
garnishment issued against the taxpayer
shall be set aside pursuant to the lifting of
notice of levy/garnishment duly issued by
the BIR.
The Authority to Cancel Assessment shall
be issued in favor of the taxpayer within
15 days from submission to the BIR of the
Acceptance Payment Form and the Tax
Amnesty on Delinquencies Return.
Otherwise, the duplicate copies, stamped
as received, of the Acceptance Payment
Form, and the Tax Amnesty on
Delinquencies Return shall be deemed
sufficient proof of availment.
The Form and the Return shall be
submitted to the RDO after complete
payment and the completion of these
requirements shall be deemed full
compliance with the provisions of the
TAA.
After full compliance with all the
conditions and payment of the
corresponding tax on delinquency, the tax
amnesty granted shall become final and
irrevocable.
Confidentiality and Non-Use of Information
and Data: any information or data contained
in, derived from or provided by the taxpayer
in the Tax Amnesty Return and appurtenant
documents shall be confidential in nature
and shall not be used in any investigation or
prosecution before any judicial, quasi-
judicial and administrative bodies.
BIR Form/Reference
BIR Form No. 2118-DA (Annex A of
RR No. 4-19)
BIR Form No. 0621-DA (Annex B of
RR No. 4-19)
Tax Annex C of RR No. 4-2019
 lOMoARcPSD|7264714

Offenses and Penalties:

Offense Penalty
Unlawful Divulgence of Information – any officer or employee of Fine – P50,000 to P100,000;
the BIR who divulges to any person or makes known in any other Imprisonment – 2
manner than may be provided by law, information regarding the years to 5 years; Or
business, income, or estate of any taxpayer, the secrets, both
operations, style of work, or apparatus of any manufacturer or
producer, or confidential information regarding the business of any
taxpayer, knowledge of which was acquired by him in the discharge
of his official duties.
Divulgence in any other manner to any person other than the Fine – P500,000 to P1,000,000;
requesting foreign tax authority information obtained from banks Imprisonment – 2
and financial institutions, knowledge or information acquired by years to 5 years.; Or
him in the discharge of his official duties both
Unlawful Divulgence of Tax Amnesty Return and Appurtenant Fine – P150,000;
Documents – any person having knowledge of the Tax Amnesty Imprisonment – 6
Return and appurtenant documents who discloses any information years to 10 years; Or
relative thereto, and any violation hereof. both

If the offender is an officer or employee of the BIR or any Fine – P50,000 to P100,000;
government entity
CONSTRUCTION AND INTERPRETATION OF TAX
LAWS:
Tax laws must be construed reasonably to carry
out the purpose, intent and the objective of the
law.
As a rule, if the tax law is clear and free of
ambiguity, it will be applied in its literal import. If
there is doubt as to its validity or if it is
ambiguous, the law will be construed strictly
against the Government and liberally in favor of
the taxpayer.
Tax Exemptions; deductions and refund: in case of
ambiguity, the law will be construed strictly against
Imprisonment – 2
years to 5 years; Or
both
Plus perpetual disqualification to
hold public office
the taxpayer and liberally in favor of the
government,
except:
1. Where the statute granting exemption
expressly provides for a liberal interpretation;
2. Special taxes relating to special cases and
affecting only special classes of persons;
3. Property held in private ownership;
4. Traditional exemptees, such as those in favor
of religious and charitable institutions;
5. In favor of the government, its political
subdivisions or instruments; and
6. By clear legislative intent.
Tax exemptions are never presumed. It must be
established and proved by the taxpayer; must be
limited to what the law says; and personal to the
person entitled to the same.

TAXATION AND THE OTHER INHERENT POWERS

1. Taxation is the power of the State to demand maintenance of the government.

from the members of society their 2. Eminent Domain is the power of the State to
proportionate share or contribution in the forcibly acquire private property, upon
 lOMoARcPSD|7264714

payment of just compensation, for some 2. Indispensable in that the State cannot
intended public use continue or be effective unless it is able to
3. Police Power is the power of the State to exercise the same;
regulate liberty and property for the 3. Methods whereby the State interferes with
promotion of general welfare private rights;
4. Presuppose an equivalent compensation,
SIMILARTITIES: tangible or otherwise, for the private rights
1. Inherent in the State and need not be interfered with; and
conferred by the Constitution; 5. Primarily exercised by the legislature.

DIFFERENCES:

Taxation Police Power Eminent Domain

Raise revenue Promote public welfare Facilitate the taking of
Purpose
through regulations private property for public
use
No limit BUT must be Limited to the cost of No specific amount BUT
equal to the needs of the regulation and issuance of just compensation must
Amount of government license or surveillance fees be paid to the owner
Exaction which is equivalent to the
market value of the
property
No direct benefit; only No direct benefit; only a Direct benefit in the form
Benefits
general benefit of healthy economic of just compensation
Received
protection standard of society
Non-impairment Contracts may NOT be Contracts MAY be impaired Contracts MAY be impaired
of Contracts impaired
Transfer of Taxes become part of the No transfer but only Transfer in favor of the
Property Rights public funds restraint in its exercise State
All persons, property and All persons, property and Only upon a particular
Scope
excises privileges property
Only by the government Only by the government May be by (1) the
and its political subdivisions and its political subdivisions government or its political
Who exercises
subdivisions OR (2) public
the power
service companies or public
utilities granted with such
power.
 lOMoARcPSD|7264714

TAXES

TAXES: are enforced proportional contributions c. Excise or privilege – those imposed upon
from the persons and property levied by the law- the performance of an act, enjoyment of a
making body of the State by virtue of its privilege, or engaging in an occupation,
sovereignty in support of government and for profession or business.
public needs. 3. As to incidence:
a. Direct – where the burden for the
ESSENTIAL CHARACTERISTICS OF TAX payment of the tax as well as the impact
1. Imposed by the State which has jurisdiction falls on the same person; as such, the
over the person, property or excises (activity); person who pays is the person who is
2. Levied by the Legislature; statutory liable to pay the tax (e.g.,
3. It is an enforced contribution; income tax);
4. Generally payable in money; b. Indirect – where the incidence falls on one
5. Proportionate in character – based on the person but the burden falls another. (e.g.,
taxpayer’s ability to pay; VAT).
6. Levied on persons, property or excises; 4. As to amount:
7. Levied for public purpose; a. Specific – amounts fixed and is imposed
8. Paid at regular periods of intervals; by the head or number or some
9. Personal to the taxpayer. measurement, hence, no valuation is
needed except for the list of things to be
CLASSIFICATOIN OF TAXES taxed.
1. As to purposes: b. Ad valorem – one which is based on the
a. General/Fiscal or Revenue – purpose is to value of the object to be taxed.
raise revenue for the government’s 5. As to rate/progression:
ordinary needs; a. Progressive – tax rates increase as the tax
b. Special/Regulatory or Sumptuary – purpose base or bracket increases.
is some social or economic ends b. Regressive – tax rate decreases as tax base
irrespective of whether revenue is actually or bracket increases.
raised. c. Proportionate – tax is based on a fixed
2. As to subject matter: percentage of the amount of the property,
a. Personal, poll or capitation – those receipts or other bases to be taxed.
imposed upon residents of a territory, 6. As to authority imposing the tax:
regardless of citizenship, property, a. National – levied by the national
occupation, business. government and enforced by the BIR;
b. Property – those imposed upon real and b. Local – levied by the local government
personal property depending on their through its sanggunian and enforced by
value. the treasurer

TAX VS. LICENSE FEES

Tax License Fee
Basis Taxation power Police power
Purpose Revenue Regulation
Limitation on Amount Subject only to inherent and Limited to the cost of issuance of
constitutional limitations license and cost of inspection and
surveillance
When paid After the start of business Before the start of business

Surrender vis-a-vis Cannot be surrendered except for Lawful consideration not necessary
necessity of lawful consideration
consideration
 lOMoARcPSD|7264714

Effect of non-payment Will not render the business illegal Will render the business illegal
BUT criminal prosecution will result

IMPORTANCE OF DISTINCTION: 4. In Local Government Taxation, Sec. 187 of the

1. Government instrumentality concerned may
not be authorized to exact taxes but IS
authorized to exact license fees
2. Person imposed upon may be exempt from
taxes BUT NOT exempt from license fees
3. Tax, NOT fees, may be claimed as income tax
deduction for income tax purpose. However,
fees may be considered as expenses ordinary
and necessary for business.
Local Government Code covers only “tax”
ordinance. Such that, if the ordinance is
regulatory, it does not come within the
purview of Sec. 187 and the CTA does not
have jurisdiction over the legality of the
same, jurisdiction thereof being under the
RTC.

TAX VS. TOLL

Tax Toll TAX VS. SPECIAL ASSESSMENT

Definitio Demand of Amount charged for
n sovereignty the cost and Tax Special Assessment
for raising maintenance of Definition Demand of Special levy on lands
revenue property used sovereignty comprised within the
Purpose For support of As compensation for for raising territorial jurisdiction
the use of another's revenue of a Province, City or
government property Municipality specially
Determi Determined Determined by the benefitted by public
nation of by the cost of the property works, projects,
Amount sovereign or improvement improvements
Who Imposed by Imposed by the funded by the LGU
may the State government or concerned
impose private individual Subject Imposed Imposed on land only
on lands,
TAX VS. PENALTY persons,
property,
income,
Tax Penalty
business,
Definition Enforced Sanction imposed
etc.
proportional for violation of
Liability Personal Non-personal
contributions laws
from persons Basis Based on Based solely on
and property necessity benefits
(and
Purpose For revenue To regulate
partially on
conduct
benefits)
Authority Imposed only Imposed either
Application General Special to a particular
by the by the
time and place
government government or
by private
individuals or TAX VS. CUSTOMS DUTIES
entities
Tax Custom Duties
Purpose Raising Controlling the flow of
revenue the goods of the country
Broadness Broader Tariff or tax on the
 lOMoARcPSD|7264714

term importation (usually)

or exportation
(unusually) of goods
TAX VS. DEBT demand is made

Tax Debt Authorit Public Private individuals

Basis Law Contract/ judgment y authority
Effect of Civil and Civil liability only Prescrip Determined Determined by the
failure criminal (No imprisonment) tion by the Tax Civil Code
to pay liability Code
Mode of Money Money, property or
payment service
Assignab No Yes SOURCES OF REVENUE: the following are
ility considered national internal revenue taxes:
Subjecti No Yes 1. Income tax;
vity to 2. Estate and donor’s taxes;
Compen 3. Value-added tax;
sation/ 4. Other percentage taxes;
Set-off 5. Excise taxes;
Interest Yes, if General Rule: no 6. Documentary Stamp Taxes; and
deficient or interest, unless 7. Such other taxes as are or hereafter may be
delinquent. expressly imposed and collected by the Bureau of
stipulated or after Internal Revenue

INHERENT LIMITATIONS

destroyed by the fact that the tax law may not be

A. IT MUST BE FOR A PUBLIC PURPOSE
A revenue measure must be laid for a public
purpose determined by the legislature. The
proceeds of the tax must be used either for the
support of the State or for some recognized
objective of government or directly to promote
the welfare of the community.
The public purpose must exist at the time the law
is enacted. (Pascual vs. Secretary of Public Works,
GR No. L-10405; Dec. 29, 1960)
Tests in determining public purpose:
1. Duty Test – whether the thing to be furthered
by the appropriation of public revenue is
something which is the duty of the State, as a
government.
2. Promotion of General Welfare Test – whether
the law providing the tax directly promotes
the welfare of the community in equal
measure.
One sector is not benefited: Public purpose is not
beneficial to one group. The fact that one sector
is benefited and in the process another sector is
being in a way prejudiced would not diminish the
public character of the tax (Tio v. Videogram
Regulatory Board, G.R. 75697, June 1987)
B. EXEMPTION OF GOVERNMENT ENTITIIES,
AGENCIES and INSTRUMENTALITIES
As a rule, the government, its agencies and
instrumentalities performing governmental
function are exempt from VAT. This is because
taxes are financial burdens imposed for the
purpose of raising revenues to defray the cost of
the operation of the Government, and a tax on
property of the Government, whether national or
local, would merely have the effect of taking
money from one pocket to put it in another pocket
(Board of Assessment of Appeals of Laguna vs.
CTA, G.R. No. L-35683, May 7, 1987).
Exceptions:
1. Agencies performing proprietary functions;
2. When the charter creating the agency or
 lOMoARcPSD|7264714
instrumentality or the law provides that
they are subject to tax.
3. If the government wishes to tax itself.
GOCCs: performing proprietary functions are
taxable similar to a corporation. However,
Sec. 27(c) of the Tax Code provides for the
following corporations as exempt:
1. Government Service Insurance System
(GSIS)
2. Social Security System (SSS)
3. Philippine Health Insurance Corporation
(PHIC)
4. Local Water Districts
PAGCOR: is no longer exempt from income
tax by its omission from the above list.
(PAGCOR vs. BIR, GR No. 12087, March 15,
2011) However, PAGCOR remains exempt
from income tax for its income arising from
casino operations which are subject to
franchise tax in lieu of all taxes. (PAGCOR vs.
BIR, GR No. 215427, Dec. 10, 2014)
PCSO: was removed under the TRAIN and is
thus taxable beginning January 1, 2018.
C. THE POWER TO TAX IS INHERENTLY
LEGISLATIVE (NON-DELEGABILITY)
Taxation is the inherent power of the state
and it is exercised primarily by the Legislature
as delegates of the people. In accordance
with the latin maxim, potestas delegatas non
delegare potest, which means, what has been
delegated can no longer be delegated, as a
rule, only the Congress (to whom the
legislative power has been delegated by the
people) can exercise this power.
Exceptions:
1. Delegation to Local Government – the
Constitution, as implemented by the Local
D. INTERNATIONAL COMITY
The principle of international comity
recognizes that States are co-equal
sovereigns such that one cannot exercise its
inherent sovereign powers over another,
including the power to tax.
Government Code, empowers the local
government units (LGU) to create its own
sources of revenue and to levy taxes, fees and
charges which shall accrue exclusively to the
LGU. (Sec. 5, Art. X of the Constitution)
2. Delegation to the President – the
Constitution, as implemented by the Tariff
and Customs Code, allows the President to
fix tariff rates, import and export quotas,
tonnage and wharfage dues and other duties
or imposts. (Sec. 28[2], Art. VI of the
Constitution)
Likewise, the President may exercise
emergency powers (Sec. 23[2], Art. VI of the
Constitution) and enter into executive
agreements or treaties which may contain tax
exemption provisions subject to the
concurrence of the Senate. (Sec. 27, Art. VII of
the Constitution)
3. Delegation to Administrative Agencies –
administrative agencies may issue rules and
regulations to implement tax laws, under
their quasi-legislative powers, subject to the
following tests:
a. Completeness test – in order for the
delegation to be valid, the law must be
complete in all aspects when it leaves the
legislature. The only thing left for the
delegate to do is to implement the law.
b. Sufficiently Determinable Standards test –
there must exist sufficient standards which
should limit the boundaries of the
delegate’s authority by
defining legislative policy and the
circumstance under which it is to be
pursued and implemented.
Technically, no. 3 is not really an exception as
the powers of the administrative agencies are
limited to implementing and/or interpreting
the tax laws issued by Congress.
States find it mutually advantageous to create
self-imposed restraints on their taxing powers
with reference to properties of foreign
governments. Moreover, when on state
enters the territory of another, there is an
implied understanding that the former does
not intend to degrade its dignity by placing
 lOMoARcPSD|7264714

itself under the jurisdiction of the latter, note

that a foreign state cannot be sued without
its consent, thus it would be useless to
impose or assess a tax which cannot be
collected.

E. TERRITORIAL IN APPLICATION (SITUS)

Tax is territorial in application in the sense
that the object and/or subject of the tax must
be within the territorial jurisdiction of a State.
As such, income earned by non-residents and
aliens are not subject to tax in the
Philippines unless they are earned herein –
here the subject of the tax is the income. On
the other hand, resident citizens are subject
to income tax for their worldwide income –
here the object of the tax is the individual
who is subject to the protection of the State.
 lOMoARcPSD|7264714

CONSTITUTIONAL LIMITATIONS

A. DUE PROCESS REQUIREMENT 1984).

4. Section 112 (B) allows a VAT registered
Art. III, Sec. 1: No person shall be deprived of life, liberty or
property without due process of law, nor shall any person be person to apply for the issuance of a tax
denied the equal protection of laws. credit certificate or refund for any unused
Procedural due process: requires that taxpayers input taxes, to the extent that such input
must be notified of the assessment in writing and taxes have not been applied against output
must state the fact and the law upon which it is taxes. The input tax is not a property or
based. Moreover, assessments and collection property right within the constitutional
must not be arbitrary. purview of the due process clause. A VAT-
registered person’s entitlement to the
Substantive due process: requires that creditable input tax is merely a statutory
assessments must not be harsh, oppressive or privilege (Abakada Guro Party List vs. Ermita,
confiscatory; it must be made under authority of Ibid.).
a valid law; and must be imposed within the
territorial jurisdiction of the State. B. EQUAL PROTECTION OF THE LAWS
Art. III, Sec. 1: No person shall be deprived of life, liberty or The requirement of equal protection of the laws
property without due process of law, nor shall any person be
denied the equal protection of laws. requires that the law must apply equally to all
persons within the same class. As such, providing
for a classification and applying the law only to a
Specific Cases: particular class is not violative of the constitutional
1. There is a denial of due process on account of right so long as it comes from a valid
the passage of an ordinance in the City of classification.
Manila which imposes a permit fee of P50.00
on aliens as a condition to employment or Requisites for a valid classification:
engaging in any business or occupation, 1. Must be based upon substantial distinctions;
where it appears that under said ordinance, 2. Must be germane to the purpose of law;
the City Mayor of Manila could withhold or 3. Must apply to both present and future
refuse issuance of such permit at will. Aliens, conditions; and
once admitted in the Philippines, cannot be 4. Must apply equally to all members of a class.
deprived of life without due process of law
and this guarantee includes the means of Two ways by which equal protection clause is
livelihood (Villegas vs. Hiu Chiong Tsai Pao Ho, violated:
G.R. No. L-29646, November 10, 1978) 1. When classification is made when there should
2. Due process was not violated when the VAT be none
law (EO 273) was promulgated. Petitioners 2. When classification is not made when called
failed to show that EO 273 was issued for
capriciously and whimsically
or in arbitrary or despotic manner by passion Specific Cases:
or personal hostility since it appears that a 1. If the ordinance is intended to apply to a
comprehensive study of the VAT was made specific taxpayer and to no one else
before EO 273 was issued (Kapatiran vs. CIR, regardless of whether or not other entities
G.R. No. L-81311, June 30, 1988). belonging to the same class are established in
3. The modified schedular income tax whereby the future, it is a violation of the equal
individual income was classified into three protection clause, but if intended to apply
different classes under different tax rates also to similar entities which may be
(compensation, business/other income and established in the future, then the tax
passive investment income) is not a denial of ordinance is valid (Ormoc Sugar Central vs.
due process because there is no proof of CIR, G.R. No. L-23794, February 17, 1968)
arbitrariness in the imposition of tax rates
(Sison vs. Ancheta, G.R. No. 59431, July 25,
 lOMoARcPSD|7264714

2. The fact that the taxpayer is the only sugar taxed at the same rate. A tax is uniform
central or refinery in the municipality where when it operates with the same force and
the tax ordinance is enacted does not make effect in every place where the subject of it is
said ordinance discriminatory. The reason is found. (Commissioner vs. Lingayen Gulf Elec.
that since other refineries to be established in Co., G.R. No. L-23771, August 4, 1988)
the future would also be taxable, no singling
out of the taxpayer to its disadvantage has Amusement Tax: Uniformity is not disregarded if a
ever taken place (Victorias Milling Co., Inc. vs. tax is levied on admission to cinema, theaters,
Municipality of Victoria, G.R. No. L-21183, vaudeville companies, theatrical shows and
September 27, 1968) boxing exhibitions but does not tax other places
3. The remission of taxes due and payable to the of amusement such as race tracks, cockpits,
exclusion of taxes already collected does not cabarets, concert halls, circuses and other places
constitute unfair discrimination. Each set of of amusement. (Eastern Theatrical Co. vs.
taxes is a class by itself, and the law would be Alfonso, G.R. No. L-1104, May 31, 1949)
open to attack as class legislation only if all
taxpayers belonging to one class were not Uniformity vs. Equitability vs. Equality
treated alike (Juan Luna Subd. Vs. Sarmiento,
G.R. No. L-3538, May 28, 1952)  Uniformity – All taxable property shall be alike
4. A local ordinance which levies an ad valorem to be subjected to tax
tax on motor vehicles registered in Manila  Equitability – The burden of taxation falls to
without also taxing those which are those better able to pay.
registered outside the city but which enters  Equality – When the burden of the tax falls
the city and use its streets occasionally equally and impartially upon all persons and
violates the rule on the equality of taxation property subject to it.
(Assoc. of Customs Brokers vs. Municipality
Board of Manila, G.R. No. L-4375, May 22, PROGRESSIVITY means that the tax rate increases as
1953). the tax base thereof increases. Our income tax
5. With regard to the 5% creditable withholding system is one good example of such progressivity
tax imposed on payments made by the because it is built on the principle of the
government for taxable transactions, Section taxpayer’s ability to pay. Taxation is progressive
114 par. C merely provides a method of when its rate goes up depending on the
collection, or as stated by respondents, a resources of the person affected (Reyes vs.
more simplified VAT withholding system. Almanzor, G.R. Nos. 49839-46, April 26, 1991)
Since it has not been shown that the class
subject to the 5% final withholding tax has
been unreasonably narrowed, there is no
reason to invalidate the provision. Petitioners,
as petroleum dealers, are not the only ones
subjected to the 5% final withholding tax. It
applies to all those who deal with the
government (Abakada Guro Party List vs.
Ermita, Ibid.).

C. UNIFORMITY AND PRGRESSIVITY OF

Art. VI, Sec. 28 (1) The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive system of taxation.

TAXATION
UNIFORMITY means that all taxable articles or
kinds of property of the same classes shall be
 lOMoARcPSD|7264714

D. NO IMPRISONMENT FOR PAYMENT OF POLL Actual and Direct Use is necessary: To be exempt
TAX from tax, the lands, buildings and improvements
must not only be exclusively but also actually and
Art. III, Sec. 20. No person shall be imprisoned for debt or non-
payment of a poll tax. directly used for religious and charitable
purposes (Province of Abra vs. Hernando, G.R.
Poll Tax is a tax on individuals residing within a No. L-49336, August 31, 1981)
specified territory, whether citizens or not,
without regard to their property or the Thus, even if a property is owned by a religious,
occupation in which they may be engaged. educational or charitable institution, if it is
rented out and used for activities other than the
E. EXEMPTION FROM PROPERTY TAX OF main purpose of the institutions, it will be
REGILIOUS, CHARITABLE AND EDUCATIONAL subject to tax and not covered by the
INSTITUTIONS exemption. Note that in Real Property Taxation,
Art. VI, Section 28.
the actual use is determinative of assessment
and taxability NOT OWNERSHIP.
(3) Charitable institutions, churches and parsonages or
convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements, Incidental Use: the exemption likewise covers
actually, directly, and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation.
activities which are incidental to the main
activity. As such, canteens owned and operated
Property Tax: The tax exemption under this
by the school, as well as libraries are covered by
constitutional provision covers property taxes
the exemption extended to schools.
only. As Chief Justice Hilario G. Davide, Jr., then a
member of the 1986 Constitutional Commission,
If the use is not incidental, exemption does not
explained: ". . . what is exempted is not the
apply: While the use of the second floor of the
institution itself . . .; those exempted from real
main building for residential purposes of the
estate taxes are lands, buildings and
Director and his family may find justification
improvements actually, directly and exclusively
under the concept of incidental use, which is
used for religious, charitable or educational
complimentary to the main or primary purpose,
purposes." (Lung Center of the Philippines vs.
i.e., educational, the lease of the first floor to the
Quezon City, GR No. 144104, June 29, 2004)
Northern Marketing Corporation cannot be
considered incidental to the purpose of
Estate and donor’s tax are excise taxes on the
education. Since only a portion is used for the
privilege to transfer property gratuitously.
purpose of commerce, it is only fair that half of
Accordingly, the above exemption does not cover
the assessed tax be returned to the school
estate and donor’s
involved (Abra Valley vs. Aquino, G.R. No. L-
tax unless specifically provided under the Tax
39086, June 15, 1988).
Code. (see Sections 101(A)(3) and 101(B)(2) of the
Tax Code)
Only the portion used for commercial purpose
are subject to the tax: While portions of the
“Exclusive”: is defined as possessed and enjoyed
hospital are used for the treatment of patients
to the exclusion of others; debarred from
and the dispensation of medical services to
participation or enjoyment; and “exclusively” is
them, whether paying or non-paying, other
defined, “in a manner to exclude; as enjoying a
portions thereof are being leased to private
privilege exclusively.” If real property is used for
individuals for their clinics and a canteen.
one or more commercial purposes, it is not
Accordingly, we hold that the portions of the land
exclusively used for the exempted purposes but
leased to private entities as well as those parts of
is subject to taxation. The words “dominant use”
the hospital leased to private individuals are not
or “principal use” cannot be substituted for the
exempt from such taxes. On the other hand, the
words “used exclusively” without doing violence
portions of the land occupied by the hospital and
to the Constitution and the law (Lung Center of
portions of the hospital used for its patients,
the Phil. vs. Quezon City, G.R. No. 144104, June
whether paying or non-paying, are exempt from
29, 2004).
real property taxes. (Lung Center of the Phil. vs.
 lOMoARcPSD|7264714

Quezon City, G.R. No. 144104, June 29, 2004).

While Sec. 30 covers non-stock, non-profit
Receipt of Donation: The institution does not educational institutions, the above limitation on
lose its character as a charitable institution exemption does not apply to it. Thus, even if it
simply because the gift or donation is in the form derives income from activities conducted for
of subsidies granted by the government. profit, the income remains exempt as long as it is
actually, directly and exclusively used for
F. EXEMPTION OF NON-STOCK, NON-PROFIT educational purposes. (Commissioner of Internal
EDUCATIONAL INSTITUTIONS Revenue vs. De La Salle University, Inc., GR No.
Art. XIV, Sec. 4(3): All revenues and assets of non-stock, non- 196596, November 9, 2016)
profit educational institutions used actually, directly, and exclusively
for educational purposes shall be exempt from taxes and duties.
Upon the dissolution or cessation of the corporate existence of such Proprietary educational institutions: are subject
institutions, their assets shall be disposed of in the manner to 10% income tax on their taxable income under
provided by law.
Sec. 27(B) of the Tax Code. The same provision
Proprietary educational institutions, including those cooperatively
owned, may likewise be entitled to such exemptions subject to the
provides that if income from unrelated trade,
limitations provided by law including restrictions on dividends and business or other activity exceeds 50% of the
provisions for reinvestment.
total gross income, the tax shall be the 30%
Coverage: the above exemption does not only Regular Corporate Income Tax.
cover property tax but also income tax unlike the
exemption of religious and educational G. GRANT OF EXEMPTION REQUIRES THE
institutions provided under (E) above which MAJORITY VOTE OF CONGRESS
covers only property taxes.
Art. VI, Sec. 28(4): No law granting any tax exemption shall be
passed without the concurrence of a majority of all the Members of
The tax exemption granted is conditioned only on the Congress.
the actual, direct and exclusive USE of their
revenues and assets for educational purposes.
Rationale: in order to prevent the indiscriminate
Revenues: the exemption extends to the non- grant of tax exemptions.
stock, non-profit educational institution on all
revenues that is USED for educational purposes, H. PROHIBITION ON TAX LEVIED FOR SPECIAL
regardless of its source. PURPOSE
Art. VI, Sec. 29(3): All money collected or any tax levied for
Assets: the property, to be considered exempt special purposes shall be treated as special fund and paid out for
such purpose only. If the purpose for which a special fund was
from real property tax, the test is USE also, not created has been fulfilled or abandoned, the balance, if any, shall
ownership.
I. VETO POWER OF THE PRESIDENT
Thus, if the institution earns rental income from a Art. VI, Sec. 27(2): The President shall have the power to veto
any particular item or items in an appropriation, revenue or tariff
commercial entity but uses such rental for bill but the veto shall not affect the item or items which he does
educational purposes, it is exempt from income not object.
tax, local business tax, and/or VAT, but NOT real
property tax.
J. REVENUE OR TARIFF BILL MUST EXCLUSIVELY
Limitation under Section 30 of the Tax Code: the
ORIGINATE FROM THE LOWER HOUSE
last paragraph of Sec. 30 (Exempt Entities) under
the Tax Code provides that “income from Art. VI, Sec. 24: All appropriation, revenue or tariff bills, bills
authorizing the increase of public debts, bills of local
whatever kind and character of the foregoing application and private bills, shall originate exclusively in the
corporations from any of their properties, real or House of Representatives, but the Senate may propose or concur
with amendments.
personal, or from any of their activities
conducted for profit regardless of the disposition
made of such income, shall be subject to tax”.
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Revocability of Tax Exemption: A law which

K. LOCAL GOVERNMENT’S POWER TO TAX changes the terms of the contract by making new
conditions, or changing those in the contract, or
Art. X, Sec. 5: Each local government unit shall have the power to dispenses with those expressed, impairs the
create its own sources of revenues and to levy taxes, fees and obligation.
charges subject to such guidelines and limitations as the Congress
may provide, consistent with the basic policy of local autonomy.
Such taxes, fees, and charges shall accrue exclusively to the local
governments.
However, the non-impairment rule does not
apply to public utility franchises since a franchise
is subject to amendment, alteration or repeal by
L. NO APPROPRIATION FOR RELIGIOUS
the Congress when the public interest so
PURPOSES requires (Article XII, Section 11). This is so
Art. VI, Sec. 29(2): No public money or property shall be
appropriated applied, paid or employed, directly or indirectly, for
because under the Constitution [now Section 11,
the use, benefit or support of any sect, church, denomination, Article XII, 1987 Constitution], the legislature can
sectarian institution or system of religion, or of any priest, preacher,
minister, other religious teacher, or dignitary as such, except when
impair a grantee’s franchise since a franchise is
such priest, preacher, minister, or dignitary is assigned to the subject to amendment, alteration or repeal by
armed forces, or to any penal institution, or government orphanage
or leprosarium.
the Congress when the public interest so
requires. (Cagayan Electric Power & Light Co.,
Inc. vs. CIR, G.R. No. L-60126, September 25,
M. RELIGIOUS FREEDOM 1985)
Art. III, Sec. 5: No law shall be made respecting an establishment Rules applicable to revocation:
of religion, or prohibiting the free exercise thereof. The free
exercise and enjoyment of religious profession and worship, a. When the exemption is unilaterally granted by
without discrimination or preference, shall forever be allowed. No
religious test shall be required for the exercise of civil or political
law and the same is withdrawn by virtue of
rights. another law, there is no violation.
b. When the exemption is bilaterally agreed upon
Sale of Bibles at cost or at a low premium: The between the government and the taxpayer, it
Constitutional guaranty of the free exercise of cannot be withdrawn without impairing the
religion carries with it the right to disseminate contract.
religious information. Any restraint on such right c. When the exemption is granted under a
can only be justified on the ground that there is a franchise, it may be revoked because a
clear and present danger of any substantive evil franchise is subject to amendment, alteration,
which the State has the right to prevent. or repeal by Congress.

Activities simply and purely for propagation of O. NON-IMPAIRMENT OF THE JURISDICTION OF

faith are exempt (i.e., sale of bibles and religious THE SUPREME COURT
articles by non-stock, non-profit organizations at Art. VIII, Sec. 5[2]: The Supreme Court shall have the power
to review, revise, modify or affirm on appeal or certiorari as the
minimal profit). A license tax, which, unlike an law or the Rules of Court may provide, final judgments and orders
ordinary tax, is mainly for regulation. Its of lower courts in all cases involving the legality of any tax, impost,
assessment, or toll, or any penalty imposed in relation thereto.
imposition on the press is unconstitutional
because it lays a prior restraint on the exercise of
Thus, Congress cannot enact a law which
its right. Hence, although its application to others
makes the decisions of the Court of Tax
is valid, its application to the press or to religious
Appeals final and non-appealable to the
groups, such as the Jehovah’s Witnesses, in
Supreme Court.
connection with the latter’s sale of religious
books and pamphlets, is unconstitutional
(American Bible Society v. City of Manila, G.R. L-
9637, April 1957)

N. NON-IMPAIRMENT OF CONTRACTS
Art. III, Sec. 10: No law impairing the obligation of contracts
shall be passed.
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STAGES OF TAXATION

1. LEVY

The determination by Congress of the subject and

object of taxation as well as the rate (Domondon,
9th ed, p. 29). It refers to the enactment of tax
laws or statutes (Dimaampao, 2011 ed, p. 14).

Note: This is NOT the “Levy” under Sec. 207 of

NIRC, which refers to the remedy of the
Government to collect taxes.

2. ASSESSMENT AND COLLECTION

Assessment is a notice to the effect that the

amount therein stated is due as tax and a demand
for payment thereof.

Rules governing assessment and collection of

taxes to prevent its abuse
1. The tax law must designate which agency will
collect the taxes
2. The circulars or regulations issued by the
Secretary of Finance or the Commissioner of
the Internal Revenue must be in accordance
with the tax measures imposed by Congress

Collection is the final stage and goal of tax

administration.

3. PAYMENT

The act of compliance by the taxpayer, including

such options, schemes or remedies as may be
legally open or available to him.

4. REFUND

The taxpayer asks for restitution of the money

paid as tax which is either excessive or erroneous.