FUNDAMENTAL POWERS OF THE ESTATE

Q. What are the inherent powers of the state?

ANS: The inherent powers of the state are:
1. Police Power;
2. Power of Eminent Domain; and
3. The Power of Taxation
They are considered inherent because they belong to the very essence of government and
without them no government can exist. A constitution does not grant these powers (BERNAS,
1987 Philippine Constitution: A Comprehensive Reviewer (2011), p.23 [hereinafter
BERNAS, Reviewer]). They are supposed to co-exist with the State. The moment the State
comes into being, it is deemed invested with these three powers as its innate attributes
(CRUZ, Law on Public Officers, supra at 80).
Q. What are the similarities among the fundamental powers of the State?
ANS: The similarities among the fundamental powers of the State:
1. Inherent in the State and may be exercised by it without need of express constitutional
grant;
2. Methods by which the State interferes with private rights;
3. Necessary and indispensable in governance;
4. Enduring and indestructible as the State itself;
5. Presuppose equivalent compensation; and
6. Exercised primarily by the legislature (CRUZ, Constitutional Law, p. 80-81).
Q. What is Police Power?
ANS: Police Power pertains to the state’s authority to enact legislation that may interfere with
personal liberty or property in order to promote the general welfare (Edu v. Ericta, G.R. No. L-
32096 October 24, 1970). It is the most pervasive, the least limitable, and the most demanding of
the three fundamental powers of the State. The justification is found in the Latin maxims salus
populi est suprema lex (the welfare of the people is the supreme law) and sic utere tuo ut
alienum non laedas (so use your property as not to injure the property of others). As an inherent
attribute of sovereignty, which virtually extends to all public needs, police power grants a wide
panoply of instruments through which the State, as parens patriae, gives effect to a host of its
regulatory powers (Gerochi, et al., v. DOE, G.R. No. 159796, July 17, 2007).
Q. What are the characteristics of Police Power?
ANS: Police Power has been properly characterized as the most essential, insistent, and the least
limitable of all powers, extending as it does to all the great public needs (Ermita-Malate Hotel
and Motel Operators Ass’n., Inc., v. City Mayor of Manila, G.R. No. L-24693, July 31, 1967).
Q. What are the basic limitations on the exercise of Police Power?
ANS: The basic limitations on the exercise of Police Power are:
1. Due Process Clause; and
2. Equal protection Clause (CONST. Art. III, Sec. 1)
Q. What are the requisites for the valid exercise of Police Power?
ANS: The requisites for the lawful exercise of Police Power are lawful subject and lawful means.
1. Lawful subject – the power will be exercised to promote the interests of the public in
general, as distinguished from those of a particular class.
2. Lawful means – the means employed are reasonably necessary for the accomplishment
of the purpose and not unduly oppressive on individuals (Planters Products, Inc., v.
Fertiphil Corporation, G.R. No. 156278, March 29, 2004).
Q. What are the tests to determine the validity of an ordinance?
ANS: For an ordinance to be valid, it must not only be within the corporate powers of the local
government unit to enact and pass according to the procedure prescribed by law, it must also
conform to the following substantive requirements: (CUP²GU)
1. Must not Contravene the Constitution or any statute;
2. Must not be Unfair or oppressive;
3. Must not be Partial or discriminatory;
4. Must not Prohibit but may regulate trade;
5. Must be General and consistent with public policy; and
6. Must not be Unreasonable (White Light Corporation v. City of Manila, G.R. No. 122846,
January 20, 2009).
Q. What is the power of Eminent Domain?
ANS: The inherent power of the State to take or appropriate private property for public use. The
Constitution requires that private property shall not be taken without due process of law and
payment of just compensation (Manila Memorial Park v. Sec of DSWD, G.R. No. 175356,
December 3, 2013).
(Please refer to page 107 for further discussion on Eminent Domain under the Bill of Rights.)
Q. What is the difference between Police Power and the Power of Eminent Domain?
ANS: In the exercise of police power, a property right is impaired by regulation, or the use of
property is merely prohibited, regulated or restricted to promote public welfare. In such cases,
there is no compensable taking, hence, payment of just compensation is not required. On the
other hand, in the exercise of the power of eminent domain, property interests are appropriated
and applied to some public purpose which necessitates the payment of just compensation
therefore (Manila Memorial Park, Inc., v. Secretary of DSWD, G.R. No. 175356, December 3,
2013).
Q. What is the distinction between property condemned under police power and one under
eminent domain?
ANS: Property condemned under the police power is noxius or intended for a noxius purpose,
such as a building on the verge of collapse, while property condemned under eminent domain is
wholesome and intended for a public use (Association of Small Landowners in the Philippines,
Inc., v. Secretary of Agrarian Reform, G.R. No. 78742, July 14, 1989).
Police Power Eminent Domain
Effect of Property Apppropriated and applied to
Impaired by regulation
Rights some public purpose
Payment of Just Not required (no compensable
Necessary
Compensation taking)
Nature of Property
Noxius Wholesome
Condemned
(Association of Small Landowners in the Philippines, Inc., v. Secretary of Agrarian
Reform, G.R. No. 78742, July 14, 1989).

Q. When does regulation of property require compensation?

ANS: A taking can be found if government regulation of the use of property went “too far.”
When regulation reaches a certain and compensation to support the act. (City of Manila v.
Laguio, Jr., G.R. No. 118127, April 12, 2005).
Q. May the Power of Eminent Domain be used as an implement of Police Power?
ANS: Yes. There are traditional distinctions between the Police Power and the Power of Eminent
Domain that logically preclude the application of both powers at the same time on the same
subject. Recent trends, however, would indicate not a polarization but a mingling of the police
power and the power of eminent domain, with the latter being used as an implement of the
former (Association of Small Landowners in the Philippines, Inc., v. Secretary of Agrarian
Reform, G.R. No. 78742, July 14, 1989).
GENERAL PRINCIPLES OF TAXATION
A. Definition, Characteristics, and Purpose of Taxation
Q. What is taxation?
ANS: The term “taxation” defines the power by which the sovereign raises revenue to defray
the necessary expenses of government. Taxation is merely a way of apportioning the cost of
government among those who in some measure are privileged to enjoy its benefits and must
bear its burdens (51 Am. Jur. 341; 1 Cooley 72-93).
Q. What is the rationale of taxation?
ANS: It is said that taxes are what we pay for civilized society. Without taxes, 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 (CIR v. Algue, inc. G.R.
No. L-28896, February 17, 1988).
Q. What is the nature of the power of taxation?
ANS: The power of taxation may be described as follows:
1. It is an inherent attribute of sovereignty – The power of taxation is an essential and
inherent attribute of sovereignty, belonging as a matter of right to every independent
government, without being expressly conferred by the people (Pepsi-Cola Bottling
Company of the Philippines v. Municipality of Tanauan, Leyte, G.R. No. L-31156,
February 27, 1976).

Note: However, the taxing power of provinces, cities, municipalities and barangays is
not clothed with inherent power of taxation unlike a sovereign state. And the power,
when granted, is to be construed in strictissimi juris (Pelizloy Realty Corp. v.
Province of Benguet, G.R. No. 183137, April 10, 2013).

2. It is legislative in character – Taxation is a power that is purely legislative.

Essentially, this means that in the legislature primarily lies in the discretion to
determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and
situs (place) of taxation. It has the authority to prescribe a certain tax at as specific
rate for a particular public purpose on persons or things within its jurisdiction. In
other words, the legislature wields the power to define what tax shall be imposed,
why it should be imposed, how much tax shall be imposed, against whom (or what) it
shall be imposed and where it shall be imposed (Chamber of Real Estate and
Builders’ Associations, Inc., v. Romulo, G.R. No. 160756, March 9, 2010).

3. It is subject to constitutional and inherent limitations (MAMALATEO, Reviewer on

Taxation (2019), p. 5 [hereinafter, MAMALATEO, Reviewer]).
Q. What are the stages or aspects of taxation? (LACo-PaRe)
ANS: The stages or aspects of taxation are as follows:
1. Levy or Imposition (Tax Legislation) – the act of imposition by the legislature of tax on
person, property, or excises. It includes the:
a. Discretion as to purposes for which taxes shall be levied;
b. Discretion as to subjects of taxation;
c. Discretion as to amount or rate of tax; and
d. Discretion as to the manner, means and agencies of collection of taxes
(DIMAAMPAO, Tax Principles and Remedies, supra at 16-19);

2. Assessment and Collection (Tax Administration) – the act of administration and

implementation of the tax law by the executive through its administrative agencies. The
term “assessment” here means notice and demand for payment of tax liability (VITUG &
ACOSTA, Tax Law and Jurisprudence (2014), p. 26 [hereinafter VITUG & ACOSTA,
Tax Law and Jurisprudence]);

3. Payment – the act of compliance by the taxpayer, including such options, schemes or
remedies as may be legally available to him (ld.); and

4. Refund – the recovery of any tax alleged to have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been collected without authority, or of any
sum alleged to have been excessively, or in any manner wrongfully collected (ld.).

Q. What are the characteristics of the taxing power? (CUPS)

ANS: The characteristics are the following:
1. Comprehensive – It covers persons, businesses, activities, professions, rights, and
privileges (DIMAAMPAO, Tax Principles and Remedies (2018), p. 30, [hereinafter,
DIMAAMPAO, Tax Principles]);

2. Unlimited – The power to tax is one so unlimited in force and so searching extent that the
courts scarcely venture to declare that it is subject to any restriction whatever, except
such as rest in the discretion of the authority which exercises it (Tio v. Videogram
Regulatory Board, G.R. No. 75697, June 19, 1987).

3. Plenary – It is complete. Under the National Internal Revenue Code (NIRC), the BIR
may avail of certain remedies to ensure the collection of taxes (DIMAAMPAO, Tax
Principles, supra at 30); and
 4. Supreme – It is supreme insofar as the selection of the subject of taxation is concerned
since it has been repeatedly held that inequities which result from a singling out of one
particular class for taxation or exemption infringe no constitutional limitation (Tio v.
Videogram Regulatory Board, G.R. No. 75697, June 19, 1987).

Q. How is the power to tax a “power to destroy”?

ANS: As a general rule, the power to tax is an incident of sovereignty and is 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 constituency who is to
pay it. So potent indeed is the power that it was once opined that “the power to tax involves the
power to destroy” (Marshall Doctrine) (Philippine Health Care Providers, Inc., v. CIR, G.R. No.
167330 (Resolution), September 18, 2009).
Note: However, “the web of unreality spun from Marshall’s famous dictum was brushed away
by one stroke of Mr. Justice Holmes’s pen: ‘The power to tax is not the power destroy while this
Court sits.’” (Holmes Doctrine) So it is in the Philippines (Sison, Jr. v. Ancheta, G.R. No. L-
59431, July 25, 1984).
Q. What are the purposes and objectives of taxation?
ANS: The purposes of taxation are as follows:
1. Primary Purpose: Revenue-raising – A tax is imposed under the taxing power of the
government principally for the purpose of raising revenues to fund public expenditures
(Diaz v. Secretary of Finance, G.R. No. 193007, July 19, 2011).

2. Secondary Purposes: Non-revenue/Sumptuary purposes, including: (PR²EP)

a. Promotion of general welfare – taxing power may be used as an implement of police

power (Gerochi v. DOE, G.R. No. 159796, July 17, 2007);
b. Regulation – taxes may be levied with as regulatory purpose to provide means for the
rehabilitation and stabilization of a threatened industry which is affected with public
interest as to be within the police power of the state (Caltex Philippines, Inc., v. COA,
G.R. No. 92585, May 8, 1992);
c. Reduction of social inequality – 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 a few individuals. Progressivity is based on the principle that those who are
able to pay should shoulder bigger portion of the tax burden. This is also known as
the compensatory purpose (ABAN, Law of Basic Taxation in the Philippines (2001),
p. 6 [hereinafter, ABAN Law of Basic Taxation]);
d. Encourage economic growth – in the realm of tax exemptions and tax reliefs, the
purpose is to grant incentives or exemptions in order encourage investments and
thereby promote the country’s economic growth. (ld. at p. 6);
 e. Protectionism – in case of foreign importations, protective tariffs and customs are
imposed for the protection of local industries (ld. at 6-7).

B. Power of Taxation as Distinguished from Police Power and Eminent Domain

Q. Distinguish the “power of taxation” from “eminent domain” and “police power”.
ANS: They are distinguished as follows:
Taxation Eminent Domain Police Power
May be:
1. Exercised by the
May be exercised only government or its political May be exercised only
As to authority who
by the government or its subdivisions; or by the government or its
exercises power
political subdivisions. 2. Granted to public political subdivisions.
service companies or
utilities
To raise revenue; the The use of the property
property (generally in The property is "taken" for is "regulated" for the
As to purpose the form of money) is public use; it must be purpose of promoting the
taken for the support of compensated. general welfare; it is not
the government compensable.
Operates upon a Operates on an individual Operates upon a
As to persons
community or class of as the owner of a community or class of
affected
individuals. particular property. individuals.
 Taxation Eminent Domain Police Power
There is no transfer of
The money contributed
There is transfer of the title, but only restraint on
As to effect becomes part of the
right to property. the exercise of property
public funds.
rights.
Indirect benefit; it is Indirect benefit; The
assumed that the person affected receives
Direct benefit; He
individual receives the indirect benefits as may
As to benefits receives the market value
equivalent of the tax in arise from the
received of the property taken from
the form of protection maintenance of a healthy
him.
and benefits he receives economic standard of
from the government society.
Amount imposed should
No amount imposed but
Generally, there is no not be more than
As to amount of rather the owner is paid
limit on the amount of sufficient to cover the
imposition the market value of the
tax that may be imposed cost of the license and
property taken.
necessary expenses.
Inferior to the impairment
Is subject to certain prohibition; government
Relatively free from
constitutional limitations, cannot expropriate private
constitutional limitations;
In relation to the including the prohibition property, which under a
superior to the
Constitution against impairment of contract it had previously
impairment of contract
the obligation of bound itself to purchase
provision.
contracts. from the other contracting
party.
C (MAMALATEO, Reviewer, supra at 18-19).

Q. How is the power of taxation used as an implement of the police power?

ANS: Taxation is no longer envisioned as a measure merely to raise revenue to support the
existence of the government; taxes may be levied with a regulatory purpose to provide means for
the rehabilitation and stabilization of a threatened industry which is affected with public interest
as to be within the police power of the state. (Caltex Philippines, Inc., v. COA, G.R. No. 92585,
May 8, 1992).
Q. How is police power used as an implement of the power of taxation?
ANS: Fees may also be regarded as taxes even though they also serve as an instrument of
regulation. If the purpose is primarily revenue, or if revenue is, at least, one of the real and
substantial purposes, then the exaction is properly called a tax (Philippine Airlines Inc., v. Edu,
G.R. No. L-41383, August 15, 1988). Thus:
 1. Where a permit collected from alien job applicants is in excess of the cost of regulation,
the exaction is a tax (Villegas v. Hiu Chiong Tsai Pao Ho, G.R. No. L-29646, November
10, 1978).
2. A charge of a fixed sum which bears no relation at all to the cost of inspection and
regulation may be held to be a tax rather than an exercise of the police power
(Progressive Development Corporation v. Quezon City, G.R. No. 36081, April 24, 1989).
Q: What is the determining factor in distinguishing “tax” and “regulation” as a form of police
power”?
ANS: In distinguishing tax and regulation as a form of police power, the determining factor is the purpose
of the implemented measure. If the purpose is primarily to raise revenue, then it will be deemed a tax
even though the measure results in some form of regulation. On the other hand, if the purpose is primarily
to regulate, then it is deemed a regulation and an exercise of the police power of the state, even though
incidentally revenue is generated (Angeles University Foundation v. City of Angeles, G.R. No.189999,
June 27, 2012). Thus:
1. The collection of a universal charge under R.A. No. 9136 otherwise known as the EPIRA Law is
an exercise of police power, not of the taxing power (Betoy v. National Power Corporation, G.R.
Nos. 156556-57, October 4, 2011).

2. The 20% senior citizen discount is an exercise of police power. The discount may be properly
viewed as belonging to the category of price regulatory measures which affect the profitability of
establishments subjected thereto. On this face, therefore, the subject regulation is a police power
measure (Manila Memorial Park v. Secretary of of DSWD, G.R. No. 175356, December 3, 2013).

C. SCOPE AND LIMITATIONS OF TAXATION

Inherent and Constitutional Limitations of Taxation
Q: What is the extent of the power of taxation by a State?
ANS: It is a settled principle that the power of taxation by the state is plenary. Comprehensive and
supreme, the principal check upon its abuse resting in the responsibility of the members of the legislature
to their constituents. However, there are two kinds of limitations on the power of taxation: the inherent
limitations and the constitutional limitations (Planters Products, Inc., v. Fertiphil Corp., G.R. No. 166006
March 14, 2008).
Q: What are the inherent limitations of taxation? (PINES)
ANS: Inherent limitations are those limitations which exist despite the absence of an express
constitutional provision. They are as follows:
1. Taxes must be exacted for a Public purpose
2. International comity;
3. The power to tax is inherently legislative in nature/ Non-delegability of the taxing power;
 4. Government entities, agencies and instrumentalities are generally Exempt from taxation; and
5. Territoriality or Situs (MAMALATEO, Reviewer, supra at 51).

Q: What is the effect of a violation of the inherent limitations of taxation?

ANS: A violation of these inherent limitations can amount to the taking of property without due process
of law (Pepsi-Cola v. Municipality of Tanauan, Leyte, G.R. No. L-31156, February 27, 1976). Hence, in
this sense, it can be said that any tax law contravening any limitation of taxation, in effect, will likewise
be unconstitutional (VITUG & ACOSTA, Tax Law and Jurisprudence, supra at 4-5).
Q: When is tax considered for “public purpose”?
ANS: Jurisprudence states that “public purpose” should be given a broad interpretation. It does not only
pertain to those purposes which are traditionally viewed as essentially government functions, such as
building roads and delivery of basic services, but also includes those purposes designed to promote social
justice. Public purpose is the heart of a tax law. When a tax law is only a mask to exact funds from the
public when its true intention is to give undue benefit and advantage to a public enterprise, the law will
not satisfy the requirement of public purpose (Planters Products, Inc., V. Fertiphil Corp., G.R. No.
166006, March 14, 2008)
Q: ls there a minimum number of persons that must be benefited in order for a tax to be considered as
being for public purpose?
ANS: No it is the essential character of the direct object of the expenditure which must determine its
validity as justifying tax, and not the magnitude of the interests to be affected nor the degree to which the
general advantage of the community, and thus the public welfare, may be ultimately benefited by their
promotion (Pascual v Secretary of Public Works and Communications, G.R. No. L-10405, December 29,
1960).
Q: What is the principle of international comity?
ANS: Under the principle of international comity, a state must recognize the generally accepted tenets of
international law, among which are the principles off sovereign equality among states and of their
freedom from suit without their consent, that limit the authority of a government to effectively impose
taxes on a sovereign state and its instrumentalities, as well as on its property held, and activities
undertaken, in that capacity (VITUG & ACOSTA, Tax Law and Jurisprudence, supra at 11).
Q: What are the bases of the rule of international comity?
ANS: The bases of the rule of International Comity are as follows:
1. The Philippines adopts the generally accepted principles of international law as part of the law of
the land (CONST. Art I, Sec, 2%

2. Doctrine of Sovereign Equality among the states (par in parem non habet Imperium)
(DIMAAMPAO, Tax Principles and Remedies, supra at 52); and

3. Doctrine of Sovereign Immunity, which states that a foreign government may not be sued without
its consent (Air Transportation Office v. Sps. David, G.R.No. 159402, February 23, 2011).
Q: What is the rule on non-delegability of the power to tax?
ANS: Taxation is a power that is purely legislative (Chamber of Real Estate and Builders’ Association,
Inc., v. Romulo, G.R. No. 160756, March 9, 2010). One of the settled maxims in constitutional law is that
the power conferred upon the legislature to make laws cannot be delegated by that department to any
other body or authority. Where the sovereign power of the state has located the authority, there it must
remain; and by the constitutional agency alone the laws must be made until the Constitution itself is
changed (Abakada Guro Party List v. Ermita, G.R. No. 168056, September 1, 2005).
Note: This is embodied in the Latin maxim Pote stas Delegata Non Delegari Potest which means, what
has been delegated may not be delegated (Quezon City PTCA Federation, Inc., v. Department of
Education, G.R. No. 188720, February 23, 2016).
Q: What are the exceptions to the rule on non-delegability of the power to tax? (LPA)
ANS: The power to tax may be delegated in the following instances: (LPA)
1. Delegation to Local governments (CONST. Art. X., Sec. 5);
2. Delegation to the President of tariff powers by Congress under the Flexible Tariff Clause
(CONST. Art. VI, Sec. 28, Par. 2) and Emergency Powers (CONST. Art. \VI, Sec. 23, Par. 2); and
4. Delegation to Administrative agencies of the power to promulgate administrative rules and
regulations (i.e. to the CIR and Secretary of Finance under Sec. 244 of the NIRC).

Q: What is the rationale of the exemption of government entities from taxation?

ANS: It is a matter of public policy (51 Am. Jur. 503). The State cannot be taxed without consent and
such consent, being in derogation of its sovereignty, is to be strictly construed (Gomez v. Palomar, G.R.
No. L-23645, October 29, 1968).
Further, properties of the National Government as well as those of the LGUs are not subject to tax as it
will result in the absurd situation of the government taking money from one pocket and putting it in
another (Board of Assessment Appeals of Laguna v. CTA G.R. No. L-18125, May 31, 1963)
Q: When are government agencies exempt from taxes?
ANS: Agencies performing governmental functions are exempt from tax unless expressly taxed. On the
other hand, agencies performing proprietary functions are subject to tax unless expressly exempted
(DIMAAMPAO, Tax Principles and Remedies, supra at 59).
Q: Why may the government tax its agencies even if they are performing governmental functions?
ANS: Nothing can prevent Congress from decreeing that even instrumentalities or agencies of the
government performing governmental functions may be subject to tax. Where it is done precisely to fulfill
a constitutional mandate and national policy, no one can doubt its wisdom (Mactan Cebu International
Airport Authority v. Marcos, G.R. No. 120082, September 11, 1996).
Q: In the Philippines, are all government entities exempt from INCOME TAX?
ANS: No. Generally, all corporations, agencies, or instrumentalities owned or controlled by the
Government are subject to income tax at such rate of tax upon their taxable income as are imposed upon
corporations or associations engaged in a similar business, industry or activity except:
1. Government Service Insurance System (GSIS);
2. Social Security System (SSS);
3. Philippine Health Insurance Corporation (PHIC); and
4. Local water districts (NIRC, Sec. 27 (C), as amended).
5. Home Development Mutual Fund (NIRC, as amended by R.A. No. 11534 otherwise known as
the Corporate Recovery and Tax Incentives for Enterprises (CREATE) act, Sec. 27).
Q: In the Philippines, are all government entities exempt from REAL PROPERTY TAX?
ANS: No. Under Section 133(o) of the LGC on the common limitations of the taxing Power of LGUs,
unless otherwise provided, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of taxes, fees or charges of any kind on the National Government,
its agencies and instrumentalities and local government units. Thus, only government owned and
controlled corporations are subject to real property tax (LGC, Sec. 133 (o)).
Q: What is the doctrine of supremacy of the national government?
ANS: The doctrine provides that no state or political subdivision can regulate a (federal) instrumentality
in such a way as to prevent it from consummating its (federal) responsibilities, or even to seriously
burden it in the accomplishment of them. Otherwise mere creatures of the State can defeat National
policies thru extermination of what local authorities may perceive to be undesirable activities or
enterprise using the power to tax as “a tool for regulation.”
In other words, the power to tax which was called by Justice Marshall as the “power to destroy” (Me
Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity
which has the inherent power to wield it (Manila International Airport Authority v. CA, G.R. No. 155650,
July 20, 2006).
Q: What is a government instrumentality (NEVEA)?
ANS: A government instrumentality refers to any agency of the National Government:
1. Not integrated within the department framework;
2. Vested with special functions or jurisdiction by law;
3. Endowed with some if not all corporate powers;
4. Administering special funds; and
5. Enjoying operational autonomy, usually through a charter.
This term includes regulatory agencies, chartered institutions and government-owned or controlled
corporations (E.O. No. 292, Introductory Provisions, Sec. 2(10)).
Q: When government instrumentality is vested with corporate powers, is it ipso Facto considered a
government-owned or controlled corporation?
ANS: No. When the law vests in government instrumentality corporate powers the instrumentality does
not become a corporation, Unless the government instrumentality is organized as a stock or non-stock
corporation, it remains government instrumentality exercising not only governmental but also corporate.
powers. Many government instrumentalities are vested with corporate powers but they do not become
stock or non- stock corporations These government instrumentalities are sometimes loosely called
government corporate entities (Manila International Airport Authority V. CA, G.R. No. 155650, July 20,
2006).
Q: What are the recognized government instrumentalities (or government corporate entities) exempt
from real property tax?
ANS: The following are the recognized government instrumentalities or government corporate entities
exempt from real property tax:
1. Manila International Airport Authority
2. Mactan International Airport Authority:
3. University of the Philippines:
4. Bangko Sentral ng Pilipinas
5. Philippine Rice Research Institute;
6. Laguna Lake Development Authority
7. Fisheries Development Authority;
8. Bases Conversion Development Authority;
9. Philippine Ports Authority;
10. Cagayan de Oro Port Authority;
11. San Fernando Port Authority;
12. Cebu Port Authority;
13. Philippine National Railways;
14. Philippine Economic Zone Authority;
15. Government Service Insurance System; and
16. Social Security Commission (Manila International Airport Authority v.CA, G.R. No. 155650,
July 20, 2006).
Note: The list is not exclusive. As long as the government entity has the characteristics of an
instrumentality (recall: NEVEA), and is not organized as a stock or non-stock corporation, it is exempt
from real property tax.
Q: What are the constitutional limitations of the taxing power?
ANS: Constitutional Limitations may either be:
1. Provisions directly affecting taxation: (P²UTO-SERV-JAIL)

a. Prohibition against imprisonment for non-payment of poll tax;

b. Progressive system of taxation;
c. Uniformity and equality of taxation;
d. Delegated authority of the President to impose Tariff rates, import and export quotas, tonnage
and wharfage dues (Flexible Tariff Clause);
e. Origin of revenue and tariff bills and appropriations;
f. Prohibition on use of tax levied for Special purpose;
g. Votes required to grant tax Exemptions;
h. Tax exemption of Religious, charitable, and educational entities;
i. President’s Veto power;
j. Non-impairment of Supreme Court’s Jurisdiction:
k. Non-Appropriation or use of public money for religious purposes;
l. Non-taxability of non-stock, non-profit educational Institutions; and
m. LGU’s power to create its own sources of revenue
2. Provisions indirectly affecting taxation: (DENR FPJ)
a. Due process;
b. Equal protection;
c. Non-impairment of obligations of contracts;
d. Religious freedom,
e. Freedom of speech and expression;
f. Presidential power to grant reprieves, commutations, and pardons, and remit fines and forfeitures
after conviction by final judgement; and
g. No taking of private-property for public use without Just compensation
Q: What is a Poll Tax?
ANS: Poll Tax (also known as “community tax”) is a tax of a fixed amount on individuals residing within
a specified (territory, whether citizens or not, without regard to their property or the occupation in which
they may be engaged (51 Am, Jur, 660 cited in Villanueva v. City of lloilo, No. L-26521, December 28,
1968)
Q: What is the rationale for the rule that no person sat shall de be imprisoned prisoned for for non-
Payment of poll tax?
ANS: One cannot be imprisoned for nonpayment of poll tax because payment thereof is not mandatory
(SABABAN, Taxation Law Review (2008), p. 14 [hereinafter SABABAN Taxation Law Review]). While a
person may not be imprisoned for non-payment of a cedula or poll tax, he may be imprisoned for non-
payment of other kinds of taxes where the law so expressly provides (DIMAAMPAO, Tax Principles and
Remedies, supra at 51).
Q. What is a progressive system of taxation?
ANS: Progressive taxation is built on the principle of the taxpayer’s ability to pay. This principle was also
lifted from Adam Smith’s Canons of Taxation, and it states: The Subjects of every state ought to
contribute towards the support of the government, as nearly as possible, in proportion to their respective
abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the
state. Taxation is progressive when its rate goes up depending on the resources of the, person affected
(Abakada Guro Party List v. Ermita, G.R. No. 168056, September 1, 2005).
Q: What is the effect if a tax is not progressive in nature?
ANS: The tax remains valid. The Constitution does not really prohibit the imposition of indirect taxes
which, like the VAT, are regressive. What it simply provides is that Congress shall evolve a progressive
system of taxation. The constitutional provision has been interpreted to mean simply that direct taxes are
to be preferred and as much as possible, indirect taxes should be minimized. The mandate to Congress is
NOT to prescribe, but to evolve, a progressive tax system (Tolentino v. Secretary of Finance, G.R. No.
115455, October 30, 1995).
Q. What does uniformity of taxation mean?
ANS: Uniformity in taxation means that all taxable articles or kinds of property of the same classes shall
be taxed at the same rate. A tax is uniform when it operates with the same force and effect in every place
where the subject of it is found (Churchill v. Concepcion, G.R. No. 11572, September 22, 1916).
Q. When is taxation equitable?
ANS: Taxation is said to be equitable when its burden falls on those better able to pay (Reyes v.
Almanzor, G.R. Nos. L-49839-46, April 26, 1991).
Q. What is the Flexible Tariff Clause?
ANS: The Congress may, by law, authorize the President to fix, within specified limits, and subject to
such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and
wharfage dues, and other duties and imposts, within the framework of the national development program
of the Government (CONST. Art. VI, Sec. 28, Par. 2).
Q: Which body of Congress should initiate the filing of revenue or tariff bills?
ANS: All appropriation, revenue or tariff bills, bills authorizing the increase of the public debt, bills of
local application and private bills shall originate exclusively in the House of representatives but the
Senate may propose or /concur with amendments (CONST. Art. VI, Sec. 24).
Note: It is not the law, but the bill which is required to originate exclusively from the House of
Representatives. A bill originating in the House may undergo such extensive changes in the Senate that
the result may be rewriting of the whole (Tolentino V. Secretary of Finance G.R. No. 115455, August- 25,
1994).
Q: What is the nature of the money collected on tax levied for a special purpose?
ANS: All money collected on any tax levied for a special purpose shall be treated as special fund and paid
out for such purpose only. If the purpose for which a special fund was created has been fulfilled or
abandoned, the balance, if any, shall be transferred to the general funds of the Government (CONST. Aft,
VI, Sec. 29, Par. 3).
Q: What is the required vote of Congress for the granting of tax exemptions?
ANS: No law granting any tax exemption shall be passed without the concurrence of majority of all the
Members of the Congress (CÒNST. Art. VI, Sec. 28, Par. 4). The phrase majority of all the members of
the Congress” means at least ‘% plus 1 of all the members voting separately.
Note: In granting tax exemptions, an absolute majority of the members of Congress is required, while in
cases of withdrawal of such tax exemption, a relative majority is sufficient (DIMAAMPAO, Tax
Principles and Remedies, supra at 125).
Q: What is the rule on exemption of charitable, religious, and educational institutions from
taxation?
ANS: Charitable institutions, churches and parsonages or convents appurtenant thereto mosques, non-
profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for
religious, charitable, or educational purposes shall be exempt from taxation (CONST. Art. VI, Sec. 28,
Par. 3).
Q: What kind of tax is covered by the exemption of charitable, religious, and Educational institutions?
ANS: The exemption is only from the payment of taxes assessed on such properties enumerated, as
property taxes, as contra-distinguished from excise taxes (Lladoc v. CIR, G.R. No. L-19201, June 16,
1965).
Q: What is the test of exemption from property tax of the charitable, religious, and educational
institutions?
ANS: The test of exemption is the use of the property and not ownership (Abra Valley College, Inc., v.
Aquino, G.R. No. 39086, June 15, 1988). The properties must be actually directly, and exclusively used
for religious, charitable, or educational purposes (Lladoc v. CIR, G.R. No. L-19201, June 16, 1965).
Q: What is meant by actual, direct, and exclusive use?
ANS: What is meant by actual, direct and exclusive use of the property for charitable institutions is direct
application of the property itself to the purposes for which the charitable institution is organized. It is
NOT the use of the income from the real property that is determinative of whether the property is used for
tax-exempt purposes. Thus, only the portions of real property actually, directly, and exclusively used for
charitable purposes are exempt from real property taxes, while those portions leased to private entities
and individuals are not exempt from real property taxes (Lung Center of the Philippines v. Quezon City,
G.R. No. 144104, June 29, 2004).
Q: What is the extent of the veto power of the President in relation to taxation?
ANS: 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 (CONST.
Art. VI, Sec. 27, Par. 2).
Note: The item or items vetoed shall be returned to the Lower House of Congress together with the
objections of the President. If after a reconsideration two-thirds (2/3) of all the members of such House
shall agree to pass the bill, it shall be sent, together with the objection, to the other House by which it
shall likewise be reconsidered, and if approved by two-thirds (2/3) of all the Members of that House, it
shall become a law (DIMAAMPAO, Tax Principles and Remedies, supra at 107).

Q: What is the jurisdiction of the Supreme Court in tax cases?

ANS: The Supreme Court shall have the power to review, revise, reverse, modify, or affirm on appeal or
certiorari judgments or orders of lower courts in all cases involving
1. The legality of any tax, impost, assessment, or toll; and
2. The legality of any penalty Imposed in relation thereto (CONST. Art. VIl, Sec.5, Par. B).
Q: What is the Principle of Judicial Non-Interference?
ANS: Under the Principle of Judicial Non-Interference, the courts cannot inquire into the wisdom of a
taxing act unless there is a violation of constitutional limitations or restrictions (CIR v. Lingayen Gulf
Electronic Power Co., Inc., G.R. No. L-23771, August 4, 1968). The courts cannot inquire into the
wisdom, morality or expediency of policies adopted by the political departments of government in areas
which fall within their authority, except only when such policies pose a clear and present danger to the
life, liberty or property of the individual (Basco v. Philippine Amusements and Gaming Corp., G.R. No.
91649, May 14, 1991).
Q: What is the rule on the prohibition of appropriation of public money for religious purposes?
ANS: No public money or property shall be appropriated, applied, paid, or employed, directly or
indirectly, for the use, benefit, or support of any sect, church, denomination, 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 (CONST. Art.VI, Sec. 29 (2).
Q. What is covered by the constitutional prohibition on the appropriation or use of public money for
religious purposes?
ANS: What is prohibited is the use of public money or property for the sole purpose of benefiting or
supporting any church. The prohibition contemplates a scenario where the appropriation is primarily
intended for the furtherance of a particular church. It does not inhibit the use of public property for
religious purposes when the religious character of such use is merely incidental to a temporary use which
is available indiscriminately to the public in general (Re: Tony Q. Valenciano, A.M. No. 10-4-19-SC
(Resolution), March 7, 2017).
Q: How are non-stock, non-profit educational institutions taxed?
ANS: All revenues and assets of non-stock, non-profit educational institutions used actually, directly and
exclusively for educational purposes shall be exempt from taxes and duties. Subject to conditions
prescribed by law, all grants, endowments, donations or contributions, used actually, directly and
exclusively for educational purposes shall be exempt from tax (CONST. Art. XIV, Sec. 4, Pars. 3 and 4).
Q: What are the requisites for the exemption to apply?
ANS: It must prove with substantial evidence that (1) it falls under the classification non- stock, non-
profit educational institution; and (2) the-income it seeks to be exempted from taxation is used actually,
directly, and exclusively for educational purposes (CIR v. Court of Appeals, G.R. No. 124043, October-
14, 1998).

Q: What is an “educational institution”?

ANS: It is settled that the term “educational institution,” when used in laws granting tax exemptions,
refers to a “school seminary, college or educational establishment” (CIR v. Court of Appeals, G.R. No.
124043, October 14, 1998).
Q: On what taxes are non-stock, non-profit educational institutions exempt?
ANS: The exemption of non-stock, non-profit educational institutions refers to internal revenue taxes
imposed by the National Government on all revenues and assets used actually, directly and exclusively
for educational purposes (R.M. C. No. 76-03).
Q: Must revenues be earned from educational activities to be exempt from tax?
ANS: No. A simple reading of the Constitution would show that Article XIV, Section 4 (3) does not
require that the revenues and income must have also been earned from educational activities or activities
related to the purposes of an educational institution. The phrase “all revenues” is unqualified by any
reference to the source of revenues. Thus, so long as the revenues and income are used actually, directly
and exclusively for educational purposes, then said revenues and income shall be exempt from taxes and
duties (La Sallian Educational Innovators Foundation, Inc., v. CIR G.R. No. 202792, February 27, 2019).
Q: What is the nature of the local government units’ power to tax?
ANS: The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be
exercised by local legislative bodies, no longer merely by virtue of a valid delegation as before, but
pursuant to direct authority conferred by Section 5, Article X of The Constitution. Under the latter, the
exercise of the power may be subject to such guidelines and limitations as the Congress may provide
which, however, must be consistent with the basic policy of local autonomy. The LGC, enacted pursuant
to Section 3, Article X of the Constitution, provides for the exercise by local government units of their
power to tax, the scope thereof or its limitations, and the exemptions from taxation. Section 133 of the
LGC prescribes the common limitations on the taxing powers of local government units (Mactan Cebu
International Airport Authority v. Marcos, G.R. No. 120082, September 11, 1996).
Q: When may the due process clause be invoked against the taxing power?
ANS: The due process clause may be invoked where a taxing statute is so arbitrary that it finds no support
in the Constitution. An obvious example is where it can be shown to amount to the confiscation of
property. That would be a clear abuse of power. It then becomes the duty of this Court to say that such an
arbitrary act amounted to the exercise of an authority not conferred. That properly calls for the application
of the Holmes dictum. It has also been held that where the assailed tax measure is beyond the jurisdiction
of the state, or is not for a public purpose, or, in case a retroactive statute is so harsh and unreasonable, it
is subject to attack on due process grounds (Sison, Jr. V. Ancheta, G.R. No. L-59431, July 25, 1984).
Q: Is the conduct of prior public hearings required for the validity of tax laws?
ANS: No. While the Sanggunians are required to conduct public hearings prior to the enactment of tax
ordinances and revenue measures (LGC, Secs. 186 and 187), the National Legislature, on the other hand,
has the discretion, whether or not they would conduct public hearings before the enactment of tax laws
(SABABAN, Taxation Law Review, supra at 9).

Q: How is the equal protection clause satisfied in relation to taxation?

ANS: Equal protection neither requires equal rates of taxation on different classes of property, nor
prohibits unequal taxation so long as the inequality is not based upon arbitrary classification. It merely
requires that all persons or property of the same class subjected to such legislation shall be treated alike,
under like circumstances and conditions, both in the privileges conferred and in the liabilities imposed
(COOLEY, cited in Sison, Jr. V. Ancheta, G.R. No. L-59431, July 25, 1984; Uy Matiao & Co., Inc., v.
City of Cebu, G.R. No. L-4887, May 30, 1953).
Q: What does the non-impairment clause require in relation to taxation?
ANS: The power of taxation cannot be exercised in a manner that would impair the obligation of
contracts. What is prohibited is that a taxing statute be passed that would alter the relative rights of the
parties with each other. The mere fact that a tax makes the conduct of a business more expensive or
makes an activity more difficult does not result in the impairment of the obligation of contracts. Contract
is impaired only if the relative position of the parties to a contract is disturbed by the operating statute
(MAMALATEO Reviewer, supra at 76-77).
Q: When may the non-impairment clause not be invoked?
ANS: The non-impairment clause is not applicable to tax exemptions granted by franchises or licenses.
Specifically, it does not apply to:
1. Public utility franchisees – Under Sec. 11, Art. XII of the Constitution, the legislature can
impair a grantee’s franchise since a franchise or right is subject to amendment, alteration or
repeal by the Congress when public interest so requires (Cagayan Electric Power & Light Co.,
Inc., v. CIR, G.R. No. 60126 September 25, 1985); and
2. Licensees – The licensee takes his license subject to such conditions as the grantor sees fit to
impose, including its revocation at pleasure. A license can thus be revoked at any time since it
does not confer an absolute right (Republic v. Caguioa, G.R. No. 168584, October 15, 2007).
Q: How has the constitutional limitations on religious freedom been applied to taxation by the courts?
ANS: In applying the constitutional limitations on religious freedom, namely, that no law shall be made
respecting an establishment of religion or prohibiting the free exercise thereof (non-establishment clause);
and that the free exercise and enjoyment of religious profession and worship, without discrimination or
preference, shall forever be allowed (free exercise clause) (CONST. Art. /I, Sec. 5), the Court has ruled.
1. That a municipal license tax on sale of bibles and religious articles by non-stock, nonprofit
missionary organization at minimal profit constitutes curtailment of religious freedom and
worship which is guaranteed by the Constitution (American Bible Society v. City ot Manila, G.R.
No. L-9637, April 30, 1957);
 2. But the VAT registration requirement does not curtail religious freedom because the registration
fee is not imposed for the exercise a privilege but only for the purpose of defraying part of the
cost of registration (Tolentino v. Secretary of Finance, G.R. No. 115455, August 25, 1994).
Q: How may the constitutional limitation on the freedom of speech be transgressed through taxation?
ANS: There is curtailment of press freedom and freedom of thought and expression if a tax is levied in
order to suppress basic rights and impose a prior restraint thereto. A license fee may not be imposed on
the press because it lays a prior restraint on the exercise of its right (Tolentino v. Secretary of Finance,
G.R. No. 115455, August 25, 1994).
Territoriality Principle and Situs of Taxation
Q: What is the principle of territoriality of taxation?
ANS: The power to tax can only be exercised within the territorial jurisdiction of a taxing authority. The
State may not tax property lying outside its borders or lay an excise or privilege tax upon the exercise or
enjoyment of a right or privilege derived from the laws of another state and therein exercised or enjoyed.
It is imposed by the State on persons, property, or excises within its jurisdiction, in accordance with the
principle of territoriality (MAMALATEO, Reviewer, supra at 11).
Note: The power of taxation may not be exercised within the premises of embassies and diplomatic
missions of a sending state located in the host or receiving state which is considered, by fiction of
international law, as an extension of the territorial jurisdiction of the sending state, thereby granting the
sending state exclusive sovereignty within its premises (ld. At 11).
Q: Over what subjects and objects does a State have the power to tax?
ANS: The taxing power of a state does not extend beyond its territorial limits, but within such limits it
may tax persons, property, income, or business. No state may tax anything not within its jurisdiction
without violating the due process clause of the constitution (Manila Gas Corp. V. CIR, G.R. No. 42780,
January 17, 1936).
Q: What is meant by “situs of taxation”?
ANS: Situs is the place or authority that has the right to impose and collect taxes. It is also called “place
of taxation” (ABAN, Law of Basic Taxation, supra at 57).
Q: What is the rule on situs of taxation?
ANS: Under the rule on situs of taxation, a State may not tax property lying outside its borders or lay an
excise or privilege tax upon the exercise or enjoyment of a right or privilege derived from the laws of
another state and therein exercised or enjoyed (51 Am. Jur. 87-88).
Q: What is the reason for the rule on situs of taxation?
ANS: The reason behind the rule is that the taxing power of a country is limited to person and property
within and subject to its jurisdiction (DIMAAMPAO, Tax Principles and Remedies, supra at 52).
Q: What are the rules on situs of property taxes?
ANS: The place of imposition and collection of property taxes shall be determined according to the
following rules:
 1. Real Property – where the property is located, regardless of whether the owner is a resident or a
non-resident (Lex rei sitae or lex situs) (First National Bank v. Maine, 284 U. S. 312.77 ALR 401
as cited in DIMAAMPAO, Tax Principles and Remedies, supra at 47);
2. Personal Property – if the personal property is:
a. Tangible Personal Property – where the property is physically located although the owner
resides in another jurisdiction (51 Am. Jur.);
b. Intangible Personal Property – as a general rule, the situs is the domicile of the owner,
applying the principle of mobilia sequuntur personam (movables follow the person).
Except:
i. When the property has acquired a business situs in another jurisdiction; or
ii. When the law provides for the situs of the subject of tax (NIRC, Sec. 104).
Q: What is “mobilia sequuntur personam”?
ANS: The maxim mobilia sequuntur personam means “movables follow the person.” According to this
maxim, the situs of personal property is the domicile of the owner (ABAN, Law of Basic Taxation, supra
at 59).
Note: The maxim mobila sequuntur personam has been decried as a mere “fiction of law having its origin
in considerations of general convenience and public policy, and cannot be applied to limit or control the
right of the state to tax property within its jurisdiction”, and must “yield to established fact of legal
ownership, actual presence and control elsewhere and cannot be applied if to do so would result in
inescapable and patent injustice” (Wells Fargo Bank and Union Trust v. CIR, G.R. No. 46720, June 28,
1940).
Q: What are the rules on situs of income tax?
ANS: The place of imposition and collection of income taxes shall be determined by considering three
factors:
1. Nationality of the taxpayer;
2. Residence of the taxpayer; and
3. Source of the income (Tan v. Del Rosario Jr., G.R. No. 109289, October 3, 1994).
Q: What are the rules on situs of transfer tax?
ANS: The place of imposition and collection of estate and donor’s taxes shall be determined by
considering three factors, namely:
1. Location of the property;
2. Nationality of the taxpayer; and
3. Residence of the taxpayer (NIRC, Secs. 98 and 104).
Q: What are the rules on situs of business tax?
ANS: The place of imposition and collection of business taxes shall be determined according to the
following rules:
1. On the sale of:
a. Real Property – where the real property is located; and
b. Personal Property – where the sale is perfected and consummated (NIRC, Sec. 104).
 2. VAT – the place where the transaction was made, i.e., where the property is sold and consumed
or where the service is performed or to be performed
(Cross-border Doctrine/Destination Principle) (CIR v. American Express International, Inc., June 29,
2005)
D. REQUISITES OF A VALID TAX
Q: What are taxes?
ANS: Taxes are enforced proportional from persons and properties exacted by the State by virtue of its
sovereignty for the support of government and for all public needs. Based on this definition, taxation has
three elements, namely:
1. It is an enforced proportional contribution from persons and properties;
2. It is imposed by the State by virtue of its sovereignty; and
3. It is levied for the support of the government (Republic v. COCOFED, G.R Nos. 147062-64,
December 14, 2001)
Q: What are the requisites of a valid tax? (JAPUL)
ANS: The requisites of a valid tax are the following
1. Either the person or property taxed must be within the Jurisdiction of the taxing authority
(Reagan v. CIR, G.R. No. L-26379, December 27, 1969);
2. The Assessment and collection of certain kinds of taxes must guarantee against injustice to
individuals, especially by providing notice and opportunity for hearing (compliance with due
process) (VITUG & ACOSTA, Tax Law and Jurisprudence, supra at 12);
3. It should be for a Public purpose (Pascual v. Secretary of Public Works and Communications,
G.R. No: L-10405; December 29, 1960);
4. It should be Uniform and equitable (CONST. Art. VI, $ec. 28, Par. 1); and
5. The tax must not impinge on the inherent and constitutional Limitations on the power of taxation
(Basco v. Philippine Amusements and Gaming Corp. G.R. No. 91649, May 14, 1991).
Q: What are the characteristics of taxes? (SLFP⁶)
ANS: The attributes or characteristics of taxes are.
1. It is levied by the State which has jurisdiction over the person or property;
2. It is levied by the Law-making (legislative) body of the state (ABAN, Law of Basic Taxation,
supra at 2);
3. It is a Forced charge. Imposition, or contribution; it operates in invitum, and is in no way
dependent upon the will or contractual assent, express or implied, of the person taxed (Panay
Electric Co., Inc., v. Collector of Internal Revenue, G.R. No. L-10574, May 28, 1958);
4. It is generally Payable in money;
5. It is Proportionate in character (ABAN, Law of Basic Taxation, supra at 2);
6. It is levied on Persons and property;
7. It is levied for Public purpose/s;
8. It is Paid at regular periods or intervals; and
9. It is Personal to the taxpayer (Id. At 3)
Q: Explain the principles of a sound tax system. (FAT)
ANS: The following principles have been suggested in order to make a sound tax system, but not
necessarily to make the tax law valid:
1. Fiscal Adequacy which means that sources of government revenue must be sufficient to meet
government expenditures and other public needs (Chavez v. Ongpin, G.R. No. 76778, June 6,
1990);
2. Administrative Feasibility which means that the tax law should be capable of convenient, just,
and effective administration, as well as easy compliance by taxpayer (MAMALATEO, Reviewer,
supra at 15); and
3. Theoretical Justice which means that the tax burden should be proportionate to the taxpayer’s
ability to pay. Taxation must be uniform and equitable (CONST. Art.VI, Sec. 28, Par. 1).
Q: What is the effect if the principles of a sound tax system are not complied with?
ANS: A tax law will retain its validity even if it is not in consonance with the principles of fiscal
adequacy and administrative feasibility because the Constitution does not expressly require so. These
principles are only designed to make our tax system sound. However, if a tax law runs contrary to the
principle of theoretical justice, such violation will render the law unconstitutional considering that under
the Constitution, the rule of taxation should be uniform and equitable (DIMAAMPAO, Tax Principles and
Remedies, supra at 32).

E. TAX AS DISTINGUISHED FROM OTHER FORMS OF EXACTIONS

Q: Distinguish taxes from debt.
ANS: Taxes are distinguished from debt as follows:

Tax Debt
As to basis Based on law Based on contract or judgment
Taxpayer may be imprisoned for
As to effect of Non- No imprisonment for failure to
his failure to pay the tax (except
payment pay debt
poll tax)
Payable in money, property, or
As to mode of Generally payable in money
services
As to assignability Not assignable Assignable
Does not draw interest unless Draws interest if stipulated or
As to interest
delinquent delayed

As to authority Imposed by public authority Imposed by private individuals

As to prescription Determined by NIRC Determined by the Civil Code
(MAMALATEO, Reviewer, supra at 21)

Q: Distinguish taxes from toll fees

ANS: Taxes are distinguished from toll fees as follows:

Tax Toll Fee

Enforced proportional A consideration which is paid for
As to definition contributions from persons and the use of a property which is of
property a public nature
 As to amount Determined by the legislature

As to authority

Q: Distinguish tax from license fee

ANS: Taxes are distinguished from license fees as follows:

Tax License fee

As to purpose Imposed for revenue purposes
Imposed under the power of
As to basis
taxation
As to amount No limit
Normally paid after the start of
As to time of payment
business operations
Does not make the business
As to effect of non-payment
illegal
Taxes, being the lifeblood of the
As to nature state cannot be surrendered
except for lawful consideration
(MAMALATEO, Reviewer, supra at 22)
Imposed for regulatory purposes
lmposed under the police power of
the state
Limited to the cost of the following:
1. Issuance of license; and
2. Inspection and surveillance
except for non-useful occupation
(Physical Therapy Organization
of the PHIL, Inc. v. Municipality
Board of the City of Manila,
G.R. No. L-10448, August 30,
1957)
Normally paid before
commencement of the business
operations
Makes the business illegal
License fee may be with or
without consideration

Q: What is the test in determining whether the imposition is a tax or fee?

ANS: The Primary Purpose Test is used to determine whether an imposition is a tax or a fee. Under the
primary purpose test, if the generating of revenue is the primary purpose and regulation is merely
incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidental revenue
is also obtained does not make the imposition a tax (Progressive Development Corp. V. Quezon City,
G.R. No. L-36081, April 24, 1989).

Q: Distinguish taxes from penalty.

ANS: Taxes are distinguished from penalty as follows:

Tax Penalty
Sanction imposed as punishment
Enforced proportional
for violation of law or acts deemed
As to definition contributions from persons and
injurious; violation of tax laws may
property
give rise to imposition of penalty
As to purpose Intended to raise revenue Designed to regulate conduct
May be imposed by the
May be imposed only by the
As to authority government or private individuals
government
or entities
(MAMALATEO, Reviewer, supra at 25).

Q: Distinguish taxes from special assessments

ANS: Taxes are distinguished from special assessment as follows:

Tax Special Assessment

Enforced proportional contributions
Enforced proportional
from owner of lands especially or
As to definition contributions from persons and
peculiarly benefited by public
property
improvements
Taxes are levied on land,
As to subject persons, property, income, Levied only on land
business, etc.
Cannot be made a personal liability
As to liability Personal liability of the taxpayer
of the person assessed
Based on necessity and partially
As to basis Based solely on benefits
on benefits
Special application only as to
As to application General application
particular time and place
(ABAN, Law of Basic Taxation, supra at 15).
Q: Distinguish taxes from tariff.
ANS: A tax is an all-embracing term to include various kinds of enforced contributions from persons for
the attainment of public purposes. Tariff, on the other hand, is a kind of tax imposed on articles which are
traded internationally (Id. At 23).

Q: Distinguish taxes from revenue.

ANS: A tax is a source of revenue of the government while a revenue is a broad term that includes not
only taxes but income from other sources as well (ld. At 23).
Q: Distinguish taxes from subsidy.
ANS: A tax is levied by the law-making body of the State for the support of the government and for
public needs. A subsidy is a legislative grant of money in aid of a private enterprise deemed to promote
the public welfare (Id. At 22).
Q: Distinguish taxes from compromise penalty
ANS: A tax is a basic imposition on persons, property, and excises. Compromise penalties are those
collected as compromise in cases involving violations of tax laws, rules, or regulations (Id. At 15).
Q: Why is it important to distinguish taxes from other exactions?
ANS: It is important to differentiate taxes and other exactions, especially when it comes to problems and
issues on double taxation and tax exemptions and the jurisdiction of the Court of Appeals:
1. If an exaction is not a tax, then the defense of the taxpayer of double taxation will necessarily fail;
2. In the same manner, a tax-exempt individual or corporation is generally only exempt from paying
taxes; hence, if the exaction is not a tax, then the individual or corporation must still pay the
exaction (INGLES, Tax Made Less Taxing: A Reviewer with Codals and Cases (2018), p. 4
[hereinafter, INGLES, Reviewer]).

F. KINDS OF TAXES
Q: What are the kinds of taxes?
ANS: Taxes may be classified according to the following:
1. As to Subject Matter or Object
a. Personal, Capitation, or Poll Tax - a tax of a fixed amount imposed upon all persons of
a certain class within the jurisdiction of the taxing power without regard to the amount of
their property, or the occupations or businesses in which they may be engaged (e.g.
Community tax).
 b. Property Tax – a tax imposed on all property or all property of a certain class within the
jurisdiction of the taxing power (e.g. Real estate tax).
c. Excise or Privilege Tax – a charge imposed upon the performance of an act, the
enjoyment of a privilege/or engaging in an occupation, profession or business (e.g.,
Donor’s tax) (ABAN, Law of Basic Taxation, supra at 23-24).
2. As to who bears the Burden or Incidence
a. Direct tax – one which is demanded from the very person intended to be the payor,
although it may ultimately be shifted to another (e.g. Income Tax)
b. Indirect tax – a tax_ which is demanded from one person in the expectation and
intention that he shall indemnify himself at the expense of another (e.g. VAT) (Maceda
v. Macaraig, G.R. No. 88291, May 31, 1991).
3. As to Determination of Amount or Tax Rates
a. Specific tax – a tax of a fixed amount imposed by the head or number or by some
standard of weight or measurement; it requires no valuation other than a listing or
classification of the objects to be taxed (e.g. taxes on distilled spirits, wines, and
fermented liquors).
b. Ad Valorem tax – a tax of a fixed portion of the value of the property with respect to
which the tax is assessed; it requires the intervention of assessors or appraisers to
estimate the value of such property before the amount due from each taxpayer can be
determined (e.g. real property tax, customs duties).
c. Mixed tax – a tax having both the characteristics of specific tax and ad valorem tax
(ABAN, Law of Basic Taxation, supra at 27).

4. As to Purpose
a) General or Fiscal – a tax imposed for the general or ordinary purposes of the
Government, to raise revenue for governmental needs (e.g. Income tax).
b) Special, Regulatory, of Sumptuary - a tax imposed for purpose, to achieve some social
or economic ends irrespective of special whether revenue is actually raised or not (ABAN,
Law of Basic Taxation, supra at 26-27).
5. As to Scope or Authority Imposing the tax
a) National (Internal Revenue Taxes) – a tax levied by the National Government, through
Congress, and administered by the Bureau of Internal Revenue (BIR) or the Bureau of
Customs (BOC)
b) Local or Municipal (Real Property Tax, Municipal Tax) – a tax levied by the local
government, through their respective Sanggunians, and administered by the local
executive government through the local treasurer (ld.).
6. As to Rate
a) Progressive tax – one where the tax rate increases as the tax base or bracket increases
b) Regressive tax – one where the tax rate decreases as the tax base increases (e.g. VAT).
c) Proportionate tax – one where tax rate is based on a fixed percentage of the amount of
the property, receipts or other bases to be taxed (ld. at 27-28).
G. DOCTRINES IN TAXATION
Lifeblood Theory
Q: What are the different theories of taxation?
ANS: The theories of taxation are
 1. Lifeblood Theory (CIR v. Algue, Inc., G.R. No. L-28896, February 17, 1988);
2. Necessity Theory (Philippine Guaranty Co., Inc., v. CIR, G.R. No. L-22074, April 30, 1965); and
3. Benefits-Protection Theory or Doctrine of Symbiotic Relationship (CIR v. Algue, Inc., G.R. No.
L-28896, February 17, 1988)
Q: What is the “Lifeblood Theory”?
ANS: The “lifeblood theory” considers taxes as the lifeblood of the nation through which the government
agencies continue to operate and with which the State effects its functions for the welfare of its
constituents (CIR v. CA, G.R. No. 106611, July 21, 1994). Taxes are the lifeblood of the government and
so should be collected without unnecessary hindrance. On the other hand, such collection should be made
in accordance with law as any arbitrariness will negate the very reason for government itself (CIR V.
Algue, Inc., G.R, No. L-28896, February 17, 1988).

Q: What is the “Necessity Theory”?

ANS: The “necessity theory” considers taxation as 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 (Philippine Guaranty
Co., Inc., v. CIR, G.R., No. L-22074, April 30, 1965). Without taxes, government cannot fulfill its
mandate of promoting the general welfare and well-being of the people (CIR v. Bank of the Philippine
Islands, G.R. No. 134062, April 17, 2007)
Q: What is the “Benefits-Protection Theory” (Doctrine of Symbiotic Relationship)?
ANS: Under the “benefits-protection theory”, taxation arises because of the reciprocal relation of
protection and support between the state and the taxpayers. The state gives protection and for it to
continue giving protection, it must be supported by taxpayers in the form of taxes (CIR V. Algue, Inc.,
G.R. No. L-28896, February 17, 1988). Such enjoyment also extends to those members of a State who do
not pay a taxes because they are not able to do so (ABAN, supra at 7).
Construction and Interpretation of Tax Laws, Rules, and Regulations
Q: What are the sources of Tax Laws?
ANS: The sources of tax laws are as follows: (CLeCAJI)
1. 1987 Constitution;
2. Legislation, tax treaties and tax ordinances
3. Contemporaneous construction by executive or administrative officers including Revenue
Regulations by the Department of Finance and administrative issuances by the BIR or the BOC;
4. Administrative regulations and rulings or opinions of tax officials, including opinions of the
Secretary of Justice;
5. Judicial Decisions (CIVIL CODE, Art. 8); and
6. Interpretation of American Courts (Bañas v: Court of Appeals, G.R. No. 102967, February 10,
2000).
Q: How are tax laws construed?
ANS: Tax laws are construed in accordance with the following rules:
1. Tax laws are prospective in operation, unless the language of the statute clearly provides
otherwise (CIR v. Acosta, G.R. No. 148191, November 25, 2003)
2. Where the language is plain – If the provision of the law is clear and speaks categorically, the
need for interpretation is obviated, no plausible pretense being entertained to justify non-
compliance. All that has to be done is to apply it in every case that falls within its terms (Sea-
Land Service, Inc., v. Court of Appeals, et al., G.R. No./122605, April 30, 2001);
3. Where there is doubt – Tax Maws must be construed strictly against the government and in
favor of the taxpayer. This is because taxes are burdens on the taxpayer, and should not be unduly
imposed or presumed beyond what the statutes expressly and clearly import (CIR v. Philippine
American Accident Insurance Co., Inc., G.R. No. 141658, March 18, 2005);
4. Legislative intention must be considered – Tax statutes should receive a sensible construction,
such as will give effect to the legislative intention and so as to avoid an unjust or absurd
conclusion (People v. Rivera, G.R. Nos. 38125 & 38216, December 22, 1933 cited in CIR v. TMX
Sales, G.R. No. 83736, January 15, 1992);
5. Public purpose is always presumed – This is in consonance with the doctrine that like any other
statute, tax legislation carries a presumption of constitutionality (Chamber of Real Estate and
Builders’ Associations, Inc., v. Romulo, G.R. No. 160756, March 9, 2010);
6. Tax laws are special laws and prevail over general laws (Republic v. Gancayco, G.R. No. L-
18307, June 30, 1964);
7. Principle of Legislative Approval by Re-enactment – it means that the re-enactment of a
statute substantially unchanged is persuasive indication of the adoption by Congress of a prior
executive construction (RECALDE, A Treatise on Tax Principles and Remedies, p. 24
[hereinafter RECALDE])
Q. What is the general rule on the construction of tax exemptions?
ANS: Tax exemptions and exclusions are regarded as derogation of sovereign authority and to be
construed strictissimi juris against the person or entity claiming the exemption (CIR v. Eastern
Telecommunications Philippines, Inc., G.R. No. 163835, July 7, 2010).
Q: What are the exceptions on strict construction of tax exemptions?
ANS: As exceptions, tax exemptions are construed liberally in favor of the taxpayer in the following
instances:
1. When the statute granting exemption provides for liberal construction thereof;
2. In case of special taxes relating to special cases and affecting only special classes of persons (DE
LEON, The Fundamentals of Taxation, supra at 69);
3. If exemptions refer to public property (DIMAAMPAO, Tax Principles and Remedies, supra at
121);
4. In cases of exemptions granted to traditional persons who are exempt, such as religious,
charitable and educational institutions (ABAN, Law of Basic Taxation, supra at 119);
5. In cases of exemptions in favor of the government, its political subdivisions or instrumentalities
(Maceda v. Macaraig, Jr., G.R. No. 88291, May 31, 1991); or
6. If the taxpayer falls within the purview of exemption by clear legislative intent (CIR v. Arnoldus
Carpentry Shop, G.R. No. 71122, March 25, 1988).
Q: What are the rules on the construction of tax exclusions?
ANS: The rule that tax exemption should be applied in strictissimi juris against the taxpayer and liberally
in favor of the government applies equally to tax exclusions (Philippine Long Distance Telephone
Company Inc., V. City of Davao, G.R. No. 143867, March 25, 2003).
Q: How are penal provisions of tax laws construed?
ANS: Penal provisions are given strict construction so as not to extend the plain terms hereof that might
create offenses by mere implication not so intended by the legislative body (People v. Martin, G.R. No. L-
38019, May 16, 1980).

Prospectivity of Tax Laws

Q: What is the doctrine of prospectivity of tax laws?
ANS: The general rule under the Civil Code that laws shall have prospective application applies to tax
laws. Thus, tax laws are prospective in application, unless their retroactive application is expressly
provided (CIR v. Philippine National Bank, G.R. No. 195147, July 11, 2016). A tax law may be
retroactive in application if the language of the statute clearly demands or expresses that it shall have a
retroactive effect (Lorenzo v. Posadas, Jr., G.R. No. 43082, June 18, 1937).
Q: What is the general rule on the application of the ex post facto rule to tax laws?
ANS: Tax laws are neither political nor penal in nature, and they are deemed laws of the occupied
territory rather than of the occupying enemy (Hilado v. Collector of Internal Revenue, G.R. No. L-9408,
October 31, 1956). A legislation merely imposing taxes, without strictly penal sanctions for violations
thereof, may have a retrospective operation, without being an ex post facto law (Commissioner of
Customs v. Caltex Philippines, Inc., G.R. No. L-24192, May 22, 1968).
Q: When is retroactive application of tax laws not allowed?
ANS: As an exception, a harsh retroactivity of the law may make it inequitable and violative of the
Constitution; similarly, due process is violated if the tax is oppressive (Welch v. Henry, 305 U.S. 134
(1938)).
Q. What is the principle of non-retroactivity of tax rulings?
ANS: Under the principle of non-retroactivity of tax rulings, any revocation modification or reversal of
any of the rules and regulations or any of the rulings or circulars promulgated by the Commissioner shall
not be given retroactive application if the revocation, modification ot reversal will be prejudicial to the
taxpayers (NIRC, Sec. 246).
Q: What are the exceptions to the non-retroactive application of tax rulings? (MD²B)
ANS: Revocation, modification, or reversal of any tax rulings may be given retroactive application
despite being prejudicial to the taxpayers:
1. Where the taxpayer Misstates or omits material facts from his return or any document required of
him by the BIR;
 2. Where the facts subsequently gathered by the BIR are materially Different from the facts on
which the ruling is based;
3. Where it is the court and not the Commissioner which Declared null and void a BIR issuance
(Philippine Bank of Communications v, CIR, G.R. No. 112024, January 28, 1999); or
4. Where the taxpayer acted in Bad faith (NIRC, Sec. 246).
Imprescriptibility of Taxes
Q: What is the doctrine of imprescriptibility of taxes?
ANS: The doctrine of imprescriptibility of taxes is a well-settled doctrine both in this jurisdiction as well
as in that of the United States, that, unless expressly provided by law, the statutes of limitation do not run
against the State, and that this principle is applicable to actions brought for the collection of taxes (Estate
of Juan De La Viña v. Government, G.R. No. 42669, January 29, 1938). The law of prescription being a
remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of
affording protection to the taxpayer (Republic v. Ablaza, G.R. No. L-14519, July 26, 1960).
Double Taxation
Q: What is double taxation?
ANS: Double taxation is defined as taxing the same person twice by the same jurisdiction for the same
thing (Victorias Miling v Municipality of Victoria, Negros Occidental, G.R. No. L-21183, September 27,
1968).
Q: Is double taxation unconstitutional?
ANS: No. There is no constitutional prohibition against double taxation in the Philippines. It is something
not favored, but is permissible, provided some other constitutional requirement is not thereby violated,
such as the requirement that taxes must be uniform (Villanueva v. City of lloilo, G.R. No. L-26521,
December 28, 1968).
Q: What are the two kinds of double taxation?
ANS: The two kinds of double taxation are:
1. Direct double taxation (strict sense); and
2. Indirect double taxation (broad sense)
Q: What constitutes direct double taxation?
ANS: In order to constitute double taxation in the objectionable or prohibited sense:
1. The same property must be taxed twice when it should be taxed but once; and
2. Both taxes must be imposed:
a) On the same property or subject-matter;
b) For the same purpose;
c) By the same State, Government, or taxing authority;
d) Within the same jurisdiction or taxing district;
e) During the same taxing period; and
f) They must be the same kind or character of tax (Villanueva v. City of Iloilo, G.R. No. L-
26521, December 28, 1968).
Q: What constitutes indirect double taxation?
ANS: It extends to all cases in which there is a burden of two or more pecuniary impositions. It is usually
allowed as long as there is no violation of the equal protection and uniformity clauses of the Constitution
(VALENCIA & ROXAS, supra at 31).
Q: What are the types of indirect double taxation?
ANS: Indirect double taxation may be classified as follows:
1. International Juridical Double Taxation – the imposition of comparable taxes in two or more
states o the same matter and for identical periods (CIR v. SC Johnson & Son, Inc., G.R. No.
127105, June 25, 1999)
2. Local Double Taxation – happens when an LGU will impose a tax that is already imposed by
the National Government or by another LGU that has territorial jurisdiction over such LGU
(RECALDE, supra at 65).
Q: What is the pre-emption rule in relation to avoiding local double taxation?
ANS: To avoid local double taxation, Congress prevents LGUs from imposing taxes which are already
imposed by the National Government “unless otherwise provided in the LGC.” This limitation, known as
the pre-emption rule, is common to all LGUs (Id. At 66).
Q: What are the modes of eliminating double taxation? (CREDT)
ANS: The measures that are normally adopted by sovereign taxing authorities in order to avoid the
resulting inequalities of double taxation, include:
1. Tax Credits – an amount subtracted from an individual’s or entity’s tax liability to arrive at the
total tax liability; a tax credit reduces the tax due, including whenever applicable, the income tax
that is determined after applying the corresponding tax rates to taxable income (CIR v. Central
Luzon Drug Corp. G.R. No. 159647, April 15, 2005);
2. Reduction of the Philippine Income Tax Rate – the tax rate applicable to dividends received by a
nonresident foreign corporation (NRFC) within the Philippines is imposed a lower rate of 15%
(in lieu of the 30%), on the condition that the country in which the NRFC is domiciled shall allow
a credit against the tax due from the NRFC, which taxes are deemed to have been paid in the
Philippines (NIRC, Sec. 28(B)(5)(b); CIR v. Procter & Gamble PHL Manufacturing Corp., G.R.
No. 66838, December 2, 1991);
3. Tax Exemptions – an immunity or privilege; it is freedom from a charge or burden to which
others are subjected (Philippine Long Distance Telephone Co. V. City of Bacolod, G.R. No.
149179, July 15, 2005);
4. Tax Deductions – an amount that is allowed by law to reduce income prior to the application of
the tax rate to compute the amount of tax which is due (CIR v. Central Luzon Drug Corp., G.R.
No. 159647, April 15, 2005); and
5. Tax Treaties – agreement between two countries specifying what items of income will be taxed
by the authorities of the country where the income is earned (Air Canada v. CIR, G.R. No.
169507, January 11, 2016).
Q: What is international juridical double taxation?
ANS: International juridical double taxation is the imposition of comparable taxes in two or more states
on the same taxpayer in respect of the same subject matter and for identical periods. This double taxation
usually takes place when a person is a resident of the first contracting State and derives income from or
owns capital in the other contracting State and both States impose taxes on such income and capital (CIR
v. S.C. Johnson &Son, Inc., G.R. No. 127105, June 25, 1999).
Q: How is international juridical double taxation eliminated?
ANS: In order to eliminate double taxation, the two contracting States enter into a tax treaty (CIR v. S.C.
Johnson & Son, Inc., G.R. No. 127105, June 25, 1999).

Q: What is the reason for avoiding international juridical double taxation?

ANS: The apparent rationale for doing away with double taxation is to encourage the free flow of goods
and services and the movement of capital, technology and persons between countries, conditions deemed
vital in creating robust and dynamic economies (CIR v. S.C. Johnson & Son, nc., G.R. No. 127105, June
25, 1999).
Q: What are the methods by which a tax treaty eliminates double taxation?
ANS: In order to eliminate double taxation, a tax treaty resorts to the following methods:
1. First Method: It sets out the respective rights to tax of the state of source of situs and of the state
of residence with regard to certain classes of income or capital. In some 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.
2. Second Method: The state of source is given a full or limited right to tax together with the state
of residence. In this case, the treaties make it incumbent upon the state of residence to allow relief
in order to avoid double taxation. There are two methods of relief under the second method.
These are:
a) Exemption Method – The income or capital which is taxable in the state of source or
situs is exempted in the state of residence;
b) Credit Method – Although the income or capital which is taxed in the state of source is
still taxable in the state of residence, the tax paid in the former is credited against the tax
levied in the latter (CIR v. S.C. Johnson & Son, Inc., G.R. No. 127105, June 25, 1999).

Exemption from Taxation

Q: What is a tax exemption?
ANS: Tax exemption is the grant of (immunity, express or implied (or contractual), to particular persons
or corporations or to persons or corporations of a particular class from a tax which persons or
corporations generally within the same state or taxing district are obliged to pay (Philippine Long
Distance Co., v. City of Bacolod, G.R. No. 149179, July 15, 2005). It is freedom from a charge or burden
to which others are subjected (Greenfield v. Meer, G.R. No. 156, September 27, 1946).
Q: What are the principles governing tax exemptions?
ANS: Tax exemptions, including its equivalent provisions such as deductions, tax amnesty, and tax
condonations, shall be governed by the following principles:
1. The power of taxation is a high prerogative of sovereignty, the relinquishment is never presumed
(Floro Cement Corporation v. Gorospe, G.R. No. L-46787, August 12, 1991);
2. Any claim for exemption from the tax statute should be strictly construed against the taxpayer
(Luzon Stevedoring Corporation v. CTA, G.R. No. L-30232, July 29, 1988);
3. They are highly disfavored and may almost be said to be directly contrary to the intention of the
tax laws (Manila Electric Company v. Vera, G.R. No. L- 29987, October 22, 1975); and
4. He who claims tax exemptions must be able to justify his claim or right (CIR v. P.J. Kiener Co.,
LTD, G.R. No. L-24754, July 18, 1975).
Q: What is the principle of strictissimi juris in tax exemption?
ANS: The principle of strictissimi juris means that laws granting tax exemption are construed strictly
against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the
exception. The law does not look with favor on tax exemptions and that he who would seek to be
privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted
(Philippine Amusement and Gaming Corporation v. BIR, G.R. No. 172087, March 15, 2011).
Q: What are the kinds of tax exemptions?
ANS: Tax exemptions may be classified as follows:
1. As to Basis
a) Constitutional Exemptions – immunities from taxation which originate from the
Constitution; or
b) Statutory Exemptions – those which emanates from legislation

2. As to Form
a) Express – when exemptions are expressly granted by the Constitution, statutes, treaties,
ordinances, franchises or contracts,
b) Implied – whenever particular persons, properties or excises are deemed exempt as they fall
outside the scope of the taxing provision itself (DE LEON, The Fundamentals of Taxation
(2004), p. 62), [hereinafter, DE LEON, Fundamentals of Taxation]); or
c) Contractual – Exemptions in consideration of a contractual agreement with the government
(VITUG & ACOSTA, Tax Law and Jurisprudence, supra at 35).
3. As to Extent
a) Total Exemption – Connotes absolute immunity; or
b) Partial Exemption – One where collection of a part of the tax is dispensed with (ABAN, Law
of Basic Taxation, supra at 17).
Q: What is the general rule on the revocation of tax exemptions?
ANS: A grant of exemption is an act of liberality which could be taken back by the government. Since
taxation is the rule and exemption is the exception, the exemption may thus be withdrawn at the pleasure
of the taxing authority (Mactan Cebu Int’l. Airport Authority v. Marcos, G.R. No. 120082, September 11,
1996).
Q: When are tax exemptions irrevocable?
ANS: Tax exemptions are irrevocable when:
1. Where the exemption was granted to private parties based on material consideration of a mutual
nature, which then becomes contractual and is thus covered by the non-impairment claim of the
Constitution (Mactan Cebu International Airport Authority v. Marcos, G.R. No. 120082,
September 11, 1996).
2. Where the tax exemption is granted by the Constitution, its revocation may be effected through
constitutional amendment only (Meralco v. Province of Laguna, G.R. No. 131358, May 5, 1999)
3. Where the tax exemption is in the form of a special law and not by a general law, the special and
local statute applicable to the particular case is not repealed by the later statute which is general in
its terms, provisions, and application even if the terms of the general act are broad enough to
include the cases in the special law unless there is manifest intent to repeal or alter the special law
(Province of Misamis Oriental v. Cagayan Electric Power & Light Co. Inc., G.R. No. L-45355,
January 12, 1990).

Escape from Taxation

Q: What are the forms of escape from taxation?
ANS: The “doctrine of tax by escape from taxation’ permits the of taxpayer from to minimize (if not to
escape) payment of tax by lawful means. The forms of escape from taxation are the following : (SAvE-
CTEx)
1. Shifting of tax burden;
2. Tax Avoidance;
3. Tax Evasion;
4. Capitalization;
5. Transformation; and
6. Tax Exemption (VALENCIA & ROXAS, Income Taxation (2016), p. 32 [hereinafter, VALENCIA
& ROXAS, Income Taxation])
Q: What is the concept of shifting the tax burden?
ANS: 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 (ld. at 34).
Q: To what kind of taxes does shifting apply?
ANS: Based on the possibility of shifting the. Incidence of taxation, or as to who shall bear the burden of
taxation, taxes may be classified into either direct tax or indirect tax. It is upon indirect taxes wherein the
liability for the payment of the tax falls on one person but the burden thereof can be shifted or passed on
to another, person, such as when the tax is imposed upon goods before reaching the consumer who
ultimately pays for it. When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden,
not the liability to pay it, to the purchaser as part of the price of goods sold or services rendered (CIR v.
Philippine Long Distance Telephone Co., G.R. N0. 140230, December 15, 2005).
Q: Distinguish tax avoidance from tax evasion.
ANS: Tax avoidance (or tax minimization) is distinguished from tax evasion (or tax dodging) as follows:

Tax Avoidance Tax Evasion

Tax saving device within the
The Tax evasion is a term that
means sanctioned by law. This
connotes fraud through the use of
As to nature method should be used by the
pretenses and forbidden devices to
taxpayer in good faith and at
lessen or defeat taxes
 As to legality

As to effect Minimization of taxes

Q: What are the elements of tax evasion? (ESC)

ANS: Tax evasion connotes the integration of 3 factors:
1. Ends to be achieved, i.e., payment of less than that what is known by the taxpayer to be legally
due, or non-payment of tax when it is shown that the tax is due;
2. An accompanying State of mind which is described as being evil, in bad faith, willful, or
deliberate and not coincidental; and
3. A Course of action which is unlawful (CIR v, Estate of Benigno Toda Jr., G.R. No. 147188,
September 14, 2004).
Q: What is the willful blindness doctrine?
ANS: The willful blindness doctrine means that the taxpayer’s deliberate refusal or avoidance to verify
the contents of his or her Income Tax Return (ITR) and other documents constitutes “willful blindness”
on his or her part. It is by reason of this doctrine that taxpayers cannot simply invoke reliance on mere
representations of their accountants or authorized representatives in order to avoid liability for failure to
pay the correct taxes. It is a rule that ignorance of the law excuses no one from compliance therewith. In
order to be liable, it is enough that the taxpayer knows his or her obligation to file the required return and
he has failed to comply thereto in the manner required by law (People v. Kintanar, CTA EB Crim. No.
006, December 3, 2010).
Q: What is tax capitalization?
ANS: Tax capitalization refers to the reduction in the price of taxed object equal to the capitalized value
of the future taxes which the purchaser expects to be called upon to pay. It is made when the price of the
property is lowered to accommodate the exclusion of tax which is expected to be paid by the seller as a
result of sale transaction (VALENCIA & ROXAS, Income Taxation, supra at 35).
Q: When is there tax transformation?
ANS: There is a tax transformation when the producer absorbs the payment of tax to reduce prices and to
maintain market share. The producer recovers his additional tax expense by improving the process of
production. The tax, therefore, is transformed into a gain through the medium of production (ld.)
Equitable Recoupment
Q: What is the doctrine of equitable recoupment?
ANS: Under the doctrine of equitable recoupment, a tax claim for refund which is prevented by
prescription, may be allowed to be used as payment for unsettled tax liabilities if both taxes arise from the
same transaction in which overpayment is made and underpayment is due (VALENCIA & ROXAS, supra
at 38).
Q: Why is the doctrine of equitable recoupment not applicable in the Philippines?
ANS: This is a common law principle and is not binding on our courts and there is nothing in our laws
authorizing its acceptance and application because if it will be allowed, both the collecting agency and the
taxpayer might be tempted to delay and neglect the pursuitof their respective claims within the period
prescribed by law (Collector of Internal Revenue v. University of Santo Tomas, G.R. No. L-11274,
November 28, 1958).

Prohibition on Compensation and Set-Off

Q: When does compensation or set-off take place?
ANS: Compensation or set-off takes place when two persons, in their own right, are creditors and debtors
of each other (CIVIL CODE, Art. 1278).
Q: What is the general rule on the compensation or set-off of taxes?
ANS: As a general rule, no set-off is admissible against the demands for taxes levied for general or local
governmental purposes since a tax liability is a legal, not a contractual obligation. Taxes cannot be subject
to compensation because the government and the taxpayer are not creditors and debtors of each other
(Philex Mining Corp. V. CIR, G.R. No. 125704, August 28, 1998).
Q: When may taxes be subject to offsetting?
ANS: As exceptions to the general rule, taxes may be subject to compensation or set-off:
1. When the determination of the taxpayer’s liability is intertwined with the resolution of the claim
for tax refund of erroneously or illegally collected taxes under Section 229 of the NIRC (CIR V.
Toledo Power Company, G.R. No. 196415, December 02, 2015); or
2. Where both claims of the government and the taxpayer against each other have already become
due, demandable and fully liquidated (Domingo V. Garlitos, G.R. No. L-18994, June 29, 1963).
Q: What is meant by compromise?
ANS: A compromise is a contract whereby the parties, by making reciprocal concessions, avoid litigation
or put an end to one already commenced (CIVIL CODE, Art. 2028)
Q: Distinguish compromise from abatement.
ANS: Compromise involves a reduction of the taxpayer’s liability, while abatement of tax means that the
entire tax liability of the taxpayer is cancelled (ABAN, Law of Basic Taxation, supra at 235).
Q: When is compromise allowed in taxation?
ANS: Compromises are allowed and enforceable when the subject matter thereof is not prohibited from
being compromised and the person entering into it is duly authorized to do so (VITUG & ACOSTA, Tax
Law and Jurisprudence, supra at 48).
Q: Who are the persons allowed to enter into compromise in behalf of the government?
ANS: The following persons are allowed to enter/ into compromise in behalf of the government:
1. Commissioner of Internal Revenue - may enter, under certain conditions into a compromise for
both the civil and criminal liabilities of the taxpayer (NIRC, Sec. 204); and
2. Customs Commissioner - subject to the approval of the Secretary of Finance, in administrative
cases involving the imposition of fines and surcharges, including those arising from the conduct
of a post clearance audit, unless otherwise specified by law (Customs Modernization and Tariff
Act, Sec. 1131).

Q: What is tax amnesty?

ANS: Tax amnesty is a general pardon or the intentional overlooking by the State of its authority to
impose penalties on persons otherwise guilty of violating a tax law. It partakes an absolute waiver by the
government of its right to collect what is due it and to give tax evaders who wish to relent a chance to
start with a clean slate (Asia International Auctioneers, Inc., v. CIR, G.R. No. 179115, September 26,
2012). A tax amnesty, much like a tax exemption, is never favored or presumed in law. The grant of tax
amnesty, similar to a tax exemption, must be construed strictly against the taxpayer and liberally in favor
of the taxing authority (CIR v. Philippine Aluminum Wheels, Inc., G.R. No. 216161, August 9, 2017).
Q: What are the purposes of tax amnesty?
ANS: The purposes of tax amnesty are as follows:
1. To give tax evaders who wish to relent a chance to start a clean slate;
2. To give the government a chance to collect uncollected tax from tax evaders without having to go
through the tedious process of a tax case (Bañas, Jr. v. Court of Appeals, G.R. No. 102967,
February 10, 2000).
Q: Distinguish tax amnesty from tax exemption
ANS: Tax amnesty is distinguished from tax exemption as follows:

Tax Amnesty Tax Exemption

Tax amnesty operates as a
general pardon. It is an absolute
Tax exemption is freedom,
forgiveness or waiver by the
immunity, or privelage from the
government of its right to collect
burden of taxation to which others
what is due it ang to give tax
As to nature are subjected (Philippine Long
evaders who wish to relent a
Distance Telephone Co. v. City
chance to start with a clean slate
of Bacolod, G.R. No. 149179,
(CIR v. Transfield Philippines,
July 15, 2005).
Inc, G.R. No. 211449, January
16, 2019 )
It is immunity from all criminal,
civil, and administrative liabilities Tax exemption is immunity from
As to scope
arising from non-payment of civil liability only.
taxes.
It applies to past tax periods,
As to application Has prospective application
hence of retroactive application
(DIMAAMPAO, Tax Principles and Remedies, supra at 122).