Professional Documents
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Taxation Defined
The exercise of the sovereign power to raise revenues for the expenses of the government.
Taxation covers three (3) separate areas or aspects of government activity, namely:
1. Levying or imposition of the tax. This involves the passage of tax laws which is generally
a legislative act. In the Philippines, the taxing power is exercised by Congress.
3. Collection and payment – the act of compliance with the tax law by the taxpayer.
Subject to inherent and constitutional limitations, the power of taxation is regarded as supreme,
plenary, unlimited, and comprehensive.1 As long as the legislature, in imposing a tax, does
not violate applicable constitutional limitations or restrictions, the courts have no concern with
the wisdom or policy of the exaction, the political or other collateral motives behind it, the
amount to be raised, or the persons, property, or other privileges to be taxed.2
Police Power
Police power is the inherent power of a sovereign state to legislate for the protection of the
health, general welfare, safety, and morals of the public. It involves the power to regulate both
liberty and property for the promotion of the public good.
Note: The police power of the State may be exercised through taxation because taxes may be
levied for the promotion of the welfare of the public.3
1
To say that “the power to tax is the power to destroy” is to describe not the purpose for which the taxing
power may be used but the degree of vigor with which the taxing power may be employed in order to
raise revenue (1 Cooley 179-181).
2
51 Am. Jur. 77-78.
3
Lutz v. Araneta, 98 PHIL. 148.
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The power of eminent domain is the inherent power of a sovereign state to take private
property for a public purpose. The Constitution limits the exercise of this power by providing
that: “Private property shall not be taken for public use without just compensation.”4
A) Purpose:
B) Amount of Exaction
Taxation No limit.
Police Power Limited to the cost of regulation, issuance of the license, and/or
surveillance.
Eminent Domain No exaction but private property is taken for public use.
C) Benefits Received
D) Non-Impairment of Contracts
4
Art. III, Sec. 9, 1987 Philippine Constitution.
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F) Scope
(a) 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.5
(b) The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.6
Uniformity – persons or properties falling under the same class should be taxed the
same kind and rate of tax.
Equality – the same means and methods be applied impartially to all the members of
each class
Equal protection of the law – means equality before the law. However, such equality
does not deny to the state the power to recognize factual
differences between individuals and classes. It
recognizes that inherent in the right to legislate is the
right to classify, provided that it is a valid and reasonable
classification. If the groupings are characterized by
substantial distinctions that make real differences, one
class may be treated and regulated differently from
another.7
5
Art. III, Sec. 1.
6
Art. VI, Sec. 28(1).
7
Tiu v. CA, G.R. No. 127410.
8
Art. III, Sec. 20.
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Note: The exemption referred to here is exemption from the real property tax which is
a local tax levied by a province or city (not by the National Government).
(e) No law granting any tax exemption shall be passed without the concurrence of a
majority of all the members of Congress.10
i) When the tax exemption is bilaterally agreed upon between the government and
the taxpayer, the exemption cannot be withdrawn without violating the non-
impairment clause.
ii) However, when the tax exemption is unilaterally granted by law, the same may be
withdrawn by virtue of another law without violating the non-impairment clause.
Ex. When the tax exemption is granted under a franchise embodied in a law, the
same may be withdrawn at any time.
(g) No law shall be made respecting an establishment of a religion or prohibiting the free
exercise thereof.12
(h) All appropriation, revenue or tariff bills xxxxxxx shall originate exclusively in the
House of Representatives, but the Senate may propose or concur with amendments.14
(i) The Congress may, by law, authorize the President to fix within specified limits, and
subject to such limitations and restrictions as it may impose, tariff rates, import and
export quotas, tonnage and wharfage dues, and other duties or imposts within the
framework of the national development program of the Government.15
(j) The Supreme Court shall have the power to review, revise, reverse, modify, or affirm
on appeal or certiorari as the law or the Rules of Court may provide, final judgments
9
Art. VI, Sec. 10. Exempt from real property taxation.
10
Art. VI, Sec 28(4).
11
Art. III, Sec. 10.
12
Art. III, Sec. 5.
13
Art. VI, Sec. 29 (2).
14
Art. VI, Sec. 24.
15
Art. VI, Sec. 28 (2).
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and orders of lower courts in xxxx all cases involving the legality of any tax, impost,
assessment, or toll, or any penalty imposed in relation thereto.16
(k) 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.17
(l) 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.18
(m) All money collected or 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.19
(2) Inherent limitations. These are restrictions arising from the very nature of the power to
tax itself. They are:
(a) The levy must apply within territorial limits for the exercise of effective tax
jurisdiction.
(c) Exemption from taxation of the government, any political subdivision thereof, or
agencies performing purely governmental functions. Ex. City government of
Makati.
EXC: The Government Service Insurance System (GSIS), the Social Security System
(SSS), Home Development Mutual Fund (Pag-Ibig), the Philippine Health
Insurance Corporation (PHIC or Philhealth), and local water districts (LWDs);
are exempt from the income tax imposed under Section 27 of the National
Internal Revenue Code (“NIRC”).
16
Art. VIII, Sec. (5) (2) (b).
17
Real properties of non-stock, non-profit educational institutions are exempt from real property taxes which are
imposed by the local government. Provided such properties are actually, directly, and exclusively used for
educational purposes.
Moreover, income of a non-stock, non-profit educational institution derived from any activity or property shall be
exempt from income taxation as long as such income is used actually, directly, and exclusively for educational
purposes (CIR vs. De La Salle, Inc., Supreme Court G.R. No. 196596, November 2, 2016).
18
Art. VI, Sec. 27 (2).
19
Art. VI, Sec. 29 (3).
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(d) As a general rule, the taxing power of the legislature may not be delegated.
Exceptions to this non-delegability rule are:
i) The authority of the President to fix tariff rates, import and export quotas, tonnage
and wharfage dues, and other duties and imposts (Art. VI, Sec. 28 (2), 1987
Constitution).
ii) Each local government unit shall have the power to create its own sources of
revenues and to levy taxes, fees, and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue exclusively to the local
governments (Art. X, Sec. 5, 1987 Constitution). Ex. Real property taxes.
iii) Delegation to administrative agencies for implementation of the tax laws, and
collection of the tax to the BIR.
This principle limits the authority of the 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. As a rule, the Philippine government cannot tax foreign
ambassadors nor impose real property taxes upon foreign embassies.
(f) Double Taxation. Two types of double taxation are direct double and indirect double
taxation.
Indirect double taxation, which lacks one or more of the elements of direct double
taxation, is also permissible.
1. Fiscal Adequacy – which means that the sources of revenue should be sufficient to meet
the demands of public expenditures;
2. Equality or Theoretical Justice – which means that the tax imposed should be
proportionate to the taxpayer’s ability to pay; and
3. Administrative Feasibility – which means that the tax laws should be capable of
convenient, just, and effective administration
1) Life-blood Theory.
- Taxes are the lifeblood of the government. Without taxes, no government can
function.
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Classification of Taxes
d) According to purpose
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Specific Ad Valorem
Measured by number, or based on weight Based on the value of the property and may require the
or physical measurement intervention of assessors and appraisers
Exs. Excise tax on lubricating oils, waxes, Exs. RPT; excise tax on liquors, cigarettes packed by
petroleum, etc. machine, and automobiles
1. Tax laws are prospective, generally, but can have retrospective application.
The constitutional prohibition against the passage of laws having retrospective application
(also called ex post facto legislation) is limited to penal or criminal statutes.
Tax laws are not penal in character. Being civil in nature, the constitutional prohibition
against ex post facto legislation does not apply to tax laws.20 They can therefore be given
retrospective application if expressly declared by the tax law.
However, tax laws, like other statutes, are to be construed as having only a prospective
operation unless the purpose and intention of the legislature to give retrospective effect is
expressly declared or is necessarily implied from the language used.21
A tax creates a civil obligation or liability on the part of the taxpayer, although the non-
payment thereof creates a criminal liability, which could be the subject of criminal
prosecution under existing laws. In short, in taxation, it is one’s civil liability to pay taxes
that gives rise to criminal liability.22
2. A statute will not be construed as imposing a tax unless it does so clearly, and
unambiguously.
A tax cannot be imposed without clear and express words for that purpose. Accordingly,
the provisions of a taxing act are not to be extended by implication.23
20
Law of Basic Taxation in the Philippines, Benjamin Aban; citing Republic v. Oasan Vda. de Fernandez,
et al., 99 Phil. 934; Ex Parte Garland, 18 Law Ed. 366.
21
Lorenzo v. Posadas, 64 Phil. 353.
22
Republic v. Patanao, L-22356, July 21, 1967.
23
Marinduque Mines Agents v. Municipal Council of Hinabangan, L-18924; Commissioner v. CA, GR
115349, April 18, 1997.
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In case of doubt, statutes imposing a tax are construed most strongly against the
Government, and liberally in favor of the citizen because burdens are not to be imposed
beyond what the statutes expressly can clearly import.24
Legal provisions providing for tax exemptions are to be construed strictly against the grant
and liberally in favor of the taxing power.25
Exemption from taxation is construed strictissimi juris, i.e. strictly against exemption.
Hence, exemption must be anchored firmly on an express provision of law. He who claims
exemption must be able to justify his claims by the clearest grant of organic and statute
law.26
Our internal revenue laws are not political in nature and as such were continued in force
during the period of enemy occupation and in effect were actually enforced by the
occupation government.27
6. Tax laws are special laws, and prevail over general laws.29
24
Manila Railroad v. Collector of Customs, GR 10214; CIR v. La Tondeña, Inc. et. al., L-10431.
25
Phil. Int’l. Fair, Inc. v. Collector, G.R. L-12928 and L-12932, 1962.
26
Collector v. Manila Jockey Club, Inc., 53 O.G. 3762.
27
Emilio Y. Hilado v. Collector, G.R. No. L-9408, October 31, 1956.
28
51 Am. Jur. 361.
29
Republic v. Gancayco, L-18307, June 30, 1964.
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2. Capitalization. By not selling property which has increased in value, the owner avoids
the income tax to be paid on the gain if the same is sold. An increase in the value of an
asset is merely an unrealized increase (gain) in capital.
3. Transformation. The manufacturer or producer upon whom the tax has been imposed,
fearing the loss of his market if he should add the tax to the price, pays the tax. He then
endeavors to recoup the tax paid by making his production more efficient and lowering his
cost of production.
4. Tax exemption. Exemption from taxation is the freedom from the burden of paying tax.
5. Tax avoidance. Tax avoidance occurs when the means used to minimize taxes are legal
and not prohibited by law.
6. Tax evasion. Tax evasion connotes fraud through the use of pretenses and forbidden
devices to lessen or defeat taxes.30
Tax License
Purpose To raise revenue To regulate action, businesses,
industries, professions
Limitations on taxation Subject to constitutional and inherent Not subject to the limitations on
limitations on the power to tax taxation
Amount Unlimited Limited to the cost of regulation
(licensing, inspection, surveillance)
Effect of non-payment Does not make the business illegal Makes the business illegal
A special assessment is in the nature of a tax upon property levied according to benefits
conferred on the property. The whole theory of a special assessment is based on the doctrine
that the property against which it is levied derives some special benefit from the improvement
xxxxxxx their property being increased in value by the expenditure to an amount at least equal
to the sum they are required to pay.31
30
Yutivo Sons Hardware v. CTA, L-13203, January 28, 1961, 1 SCRA 160.
31
1 Cooley on Taxation, 105.
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Tax Debt
Source of obligations Law Contract
Obligee Due to the government in Due to obligee under a contract; May be due to
its sovereign capacity the government in its corporate capacity
Form of payment Money Money, property, or services
Interest No interest except in cases If stipulated or if the payment is in delay
of delinquency
Assignability Not assignable Generally assignable
Compensation/Set-off No Yes
Incarceration for non- Yes, except for non- No person can be imprisoned for non-payment
payment payment of poll tax of debts (Constitution).
Tax Toll
Demand for sovereignty Demand of ownership or proprietorship
Imposed by the government May be imposed by private persons or entities
May be based on income or on the value Largely based on the cost of the property used, or on
of the property the cost of the improvement used
Forced contribution Compensation charged by the owner for the
voluntary use of the property/improvements
Tax Administration
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2. Power to decide disputed assessments, refunds of internal revenue taxes, fees and other
charges, penalties imposed in relation thereto, other matters arising under the National
Internal Revenue Code (“NIRC”) or other laws or portions thereof administered by the
Bureau of Internal Revenue (“BIR”), subject to the exclusive appellate jurisdiction of the
Court of Tax Appeals (“CTA”);
3. Power to examine any book, paper, record, or other data which may be relevant or material
to a tax inquiry;
4. Power to obtain information from any person other than the person whose internal revenue
tax liability is subject to audit or investigation or from any office or officer of the national
or local governments, government agencies and instrumentalities;
5. Power to summon the person liable for tax or required to file a return, or any officer or
employee of such person, or any person having possession, custody, or care of the books
of accounts and other accounting records;
6. Power to take such testimony of the person concerned, under oath, as may be relevant or
material to such inquiry;
8. Power to prescribe real property values by dividing the country into different zones and
determining the FMV of real properties located in each zone;
9. The Commissioner is authorized to inquire into the bank deposits and other related
information held by financial institutions of:
(a) A decedent to determine his gross estate;
(b) A taxpayer who has filed an application for compromise of his tax liability by
reason of financial incapacity to pay his tax liability; and
(c) A taxpayer who is subject of a request for the supply of tax information from a
foreign tax authority pursuant to an international agreement or treaty.
10. The Commissioner has the authority to accredit and register individuals and general
professional partnerships (GPPs) and their representatives who prepare and file tax returns,
statements, reports and other papers, or who appear before the BIR, for taxpayers.
32
The BIR shall have a chief to be known as the Commissioner of Internal Revenue (CIR), and four (4) assistant
chiefs to be known as Deputy Commissioners (Sec. 4, NIRC).
12