Constitutional limitations
1. Due process clause (Art.III, Sec.1)
- Section 1. No person shall be deprived of life, liberty,
or property without due process of law, nor shall any
person be denied the equal protection of the laws
A. Substantive- (Public Purpose, with authority, with
legal basis)
B. Procedural- not arbitrary in assessment and
collection
2. Equal Protection of the law- Those under same
circumstances to be treated alike.
3. Rule on Uniformity and equity (Art. VI., Sec. 28 par.1)
- SECTION 28. (1) The rule of taxation shall be uniform
and equitable. The Congress shall evolve a progressive
system of taxation.
A. Uniform- Valid classification based on substantial
distinction. Applicable to those under dissimilar
circumstances
B. Equitable- Based on a progressive system of taxation
4. non-impairment clause (Art. III, Sec. 10)
-Section 10. No law impairing the obligation of
contracts shall be passed.
5. Veto power of the president (Art. VI, Sec. 27 (2))
- (2) 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.
6. Exemption from PROPERTY tax of religious,
charitable, educational entities, non-profit cemeteries,
churches, parsonages, convents appurtenant thereto.
(Art. VI, Sec. 28, par.3)
- (3)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.
Note: with exemption of all revenues and assets of a
non-stock, non-profit educational institution (Art. XIV,
Sec. 4 (3)).
-(3) All revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt
from taxes and duties. Upon the dissolution or
cessation of the corporate existence of such
institutions, their assets shall be disposed of in the
manner provided by law
7. No public money for religious purposes (Art.VI, Sec.
29)
- (2) 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.
8. Tax exemption- by majority of congress (Art. VI, Sec.
28)
(4) No law granting any tax exemption shall be passed
without the concurrence of a majority of all the
Members of the Congress.
9. Supreme Court’s final decision on LEGALITY of taxes
(Art. VIII, Sec. 5)
SECTION 5. The Supreme Court shall have the following
powers: (b) All cases involving the legality of any tax,
impost, assessment, or toll, or any penalty imposed in
relation thereto.
10. Non-imprisonment for non-payment of debt and
poll taxes (Art. III, Sec. 20)
SECTION 20. No person shall be imprisoned for debt or
non-payment of a poll tax.
11. Tax treated as general funds of the government (Art.
VI, Sec. 29)
- (3) All money collected on any tax levied for a special
purpose shall be treated as a 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.
12. Free worship rule (Art.III, Sec.5)
SECTION 5. No law shall be made respecting an
establishment of religion, or prohibiting the free
exercise thereof. The free exercise and enjoyment of
religious profession and worship, without
discrimination or preference, shall forever be allowed.
No religious test shall be required for the exercise of
civil or political rights.
Stages/Aspects of Taxation
1. Levy
2. Assessment
3. Payment or collection
Doctrines in taxation
1. Prospective application of tax laws
- Like other statutes, tax laws operate prospectively,
whether they enact, amend or repeal, unless the
purpose of the legislature to give retrospective effect is
expressly declared or may be implied from the language
used (Lorenzo v. Posadas, 64 Phil. 353)
2. Taxes are imprescriptible
- The principle of imprescriptibility of taxes provides
that taxes will not prescribe against the government
because of the principle that taxes are the lifeblood of
the government and their prompt and certain
availability is an imperious need.
3. Double taxation
- What the law prohibits is the imposition of two taxes
on the same subject matter, for the same purpose, by
the same taxing authority, within the same jurisdiction
and during the same taxing period; thus, double
taxation must be of the same kind or character to be a
valid issue.
- In applying this definition, the CTA stated that while
the business tax and the franchise tax are both based on
gross receipts and sales, they are different in nature or
character. The franchise tax is imposed on the exercise
of enjoying a franchise, while the business tax is
imposed on the privilege of engaging in one’s line of
business.
4. Escape from taxation (tax evasion vs. avoidance)
- Tax avoidance and tax evasion are the two most
common ways used by taxpayers in escaping from
taxation.
- Tax avoidance is the tax saving device within the
means sanctioned by law. This method should be used
by the taxpayer in good faith and at arms-length.
- Tax evasion, on the other hand, is a scheme used
outside of those lawful means and when availed of, it
usually subjects the taxpayer to further or additional
civil or criminal liabilities (Commissioner of Internal
Revenue v. The Estate Of Benigno P. Toda, Jr., G.R. NO.
147188 : September 14, 2004)
5. Exemption from taxation
- "Laws granting exemption from tax are construed
strictissimi juris 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 thus privileged must
justify it by words too plain to be mistaken and too
categorical to be misinterpreted." (Sea-Land Service,
Inc. v. CA, G.R. No. 122605 April 30, 2001)
6. Equitable recoupment
- The doctrine of equitable recoupment allows a
taxpayer whose claim for refund has prescribed to
offset tax liabilities with his claim of overpayment.
- Tax refund cases are based on the civil law principle of
solutio indebiti. Jurisprudence holds that the time-
honored doctrine that no person shall unjustly enrich
himself or herself at the expense of another is
enshrined in the basic legal principles. The government
is not exempted from the application of this doctrine
(The Tax Disputes and Litigation Review, Chap.22:
Philippines)
7. Set-off of taxes
- Taxes are not debts.
- Taxes arise from compulsory obligation imposed upon
citizens or inhabitants of the state.
- If a taxpayer owes something to the government by
way of taxes, and the government has a debt which it
has to pay to the taxpayer, set-off or compensation is
not allowed.
- Taxpayers and the government do not have a debtor
and creditor relationship. Taxes cannot operate like a
debt or indebtedness of a taxpayer
- It is not subject to set-off or compensation.
8. Taxpayer suit
- A taxpayer's suit is an action filed by a taxpayer to
challenge an unlawful disbursement of funds raised by
taxation.
- “In the case of taxpayers’ suits, the party suing as a
taxpayer must prove that he has sufficient interest in
preventing the illegal expenditure of money raised by
taxation.
- Thus, taxpayers have been allowed to sue where there
is a claim that public funds are illegally disbursed or that
public money is being deflected to any improper
purpose, or that public funds are wasted through the
enforcement of an invalid or unconstitutional law
- More particularly, the taxpayer must establish that he
has a personal and substantial interest in the case and
that he has sustained or will sustain direct injury as a
result of its enforcement or that he stands to be
benefited or injured by the judgment in the case, or is
entitled to the avails of the suit.” (G.R. No. 125509,
January 31, 2007)
9. Compromises
- A tax compromise is an agreement whereby the
taxpayer offers to pay something less than what is due
and the government accepts it as a full settlement of his
tax liability.
- Section 204 of the NIRC authorizes the CIR to
compromise, abate, and refund or credit taxes.
10. Tax amnesty
- A tax amnesty can be defined as a limited time offer by
the government to a specified group of taxpayers to pay
a defined amount, in exchange for forgiveness of a tax
liability

11. Power to destroy vs. power to build

 Situs/place of taxation
-situs of taxation literally means place of taxation.
- The general rule is that the taxing power cannot go
beyond the territorial limits of the taxing authority.
- Basically, the state where the subject to be taxed
has a situs may rightfully levy and collect the tax.

Principles of a sound tax system

1. Fiscal adequacy- means the sources of revenue must
be sufficient to meet government expenditures and
other public needs
2. Theoretical justice- means that a sound tax system
must be based on the taxpayers’ ability to pay.
3. Administrative feasibility- means tax laws and
regulations must be capable of being effectively
enforced with the least inconvenience to the
taxpayer.