DISTINCTION TAX WITH POLICE [POWER AND EMINENT DOMAIN

PAGE 15
Tax
Inherent limitations
1. It must be exacted for public pur[pose- not just for government
functions such as building of bridges and buildings but for the
promotion of social justice
2. International Comity – the state must recognize the generally
accepted tenets of international law such as the sovereign equality
among states limit the government to effectively imposed taxes on
sovereign states and its instrumentalities as well as their property
held and activities undertaken in that capacity
3. Non-delegability of taxing power - it is exclusively vested in the
legislative body. Potestas Delegata non Delegari Potest . and that
delegated [power should be exercised by its own judgment and not
by others
4. Government entities and instrumentalities are exempted from
taxation
5. Territoriality or situs – taxation may be exercised only within the
territorial jurisdiction of the taxing authority
Constitutional limitations
1. Uniformity of taxation – all objects and subjects of taxation similarly
situated are to be treated alike both in privileges and liabilities
Distinguish tax from police power and eminent domain
The determining factor is the purpose of the implemented measure, if the
purpose is to raise revenue then it is deemed a tax though the measure
result in some form of regulation. On the other hand, if the purpose is to
regulate then it is deemed a regulation and an exercise of the police power
of the state even though incidentally revenue is generated.
Requisites of a valid Tax
 1. That either the person or the property tax be within the jurisdiction
of the taxing authority
2. That the assessment and collection of certain kinds of taxes
guarantee against injustice to individuals by providing notice and
opportunity to be heard
3. That the rules of taxation be uniform

TAX AS DISTINGUISHED FROM OTHER FORMS OF EXACTIONS

Tax vs. Tariff
All-embracing term to include various kinds of enforced contributions upon
persons for the attainment of public purpose
Tariff - A kind of tax imposed on articles that are traded internationally.
Tariff may be used in one of three (3) senses: 1. A book of rates drawn
usually in alphabetical order containing the names of several kinds of
merchandise with the corresponding duties to be paid for the same; or 2.
The duties payable on goods imported or exported; or 3. The system or
principle of imposing duties on the importation (or exportation of goods)

Tax vs. Toll

Tax Paid for the support of the government Demand of sovereignty
Generally, no limit on the amount collected as long as it is not excessive,
unreasonable, or confiscatory Imposed only by the government
Toll - Paid for the use of another’s property. The demand of proprietorship
Amount paid depends upon the cost of construction or maintenance of the
public improvement used. Imposed by the government or by private
individuals or entities. A toll is a sum of money for the use of something,
generally applied to the consideration which is paid for the use of a road,
bridge, or the like, of a public nature.

Tax vs. License Fee

Imposed under the taxing power of the state for purposes of revenue
Forced contributions for the purpose of maintaining government functions
Generally unlimited as to amount. Imposed on persons, property and the
right to exercise a privilege Failure to pay does not necessarily make the
act or business illegal. Penalty for nonpayment: Surcharges; or
Imprisonment (except poll tax)

License and Regulatory Fees. Levied under the police power of the state
Exacted primarily to regulate certain businesses or occupations. Should not
unreasonably exceed the expenses of issuing the license and of supervision
Imposed only on the right to exercise a privilege Failure to pay makes the
act or business illegal. License or permit fee is a charge imposed under the
police power for purposes of regulation. License is in the nature of a
special privilege, of a permission or authority to do what is within its terms.
It makes lawful an act which would otherwise be unlawful. A license
granted by the State is always revocable. [Gonzalo Sy Trading v. Central
Bank of the Phil., G.R. No. L-41480 (1976)]
Importance of the distinctions 1. It is necessary to determine whether a
particular imposition is a tax or a license fee because some limitations
apply only to one and not to the other, and for the reason that exemption
from taxes may not include exemption from license fee. 2. The power to
regulate as an exercise of police power does not include the power to
impose fees for revenue purposes. [Progressive Development Corp. v.
Quezon City, G.R. No. L-36081 (1989)] 3. An exaction, however, may be
considered both a tax and a license fee. This is true in the case of car
registration fees which may be regarded as taxes even as they also serve
as an instrument of regulation. If the purpose is primarily revenue, or if
revenue is, at least, one of the real an
ubstantial purposes, then the exaction is properl
called a tax. [Phil. Airlines, Inc. v. Edu, G.R. No. L- 41383 (1988)] 4. But it
is possible that a tax may only have a regulatory purpose. The general
rule, however, is that the imposition is a tax if its primary purpose is to
generate revenue, and regulation is merely incidental; but if regulation is
the primary purpose, the fact that incidentally revenue is also obtained
does not make the imposition a tax. [Progressive Development Corp. v.
Quezon City, supra
Tax vs. Special Assessment
Levied not only on land Imposed regardless of public improvements
Contribution of a taxpayer for the support of the government It has
general application both as to time and place
Special Assessment
Levied only on land Imposed because of an increase in value of land
benefited by public improvement Contribution of a person for the
construction of a public improvement Exceptional both as to time and
locality A special assessment is not a personal liability of the person
assessed, i.e., his liability is limited only to the land involved. It is based
wholly on benefits (not necessity). A charge imposed only on property
owners benefited is a special assessment rather than a tax notwithstanding
that the statute calls it a tax. The rule is that an exemption from taxation
does not include exemption from special assessment. But the power to tax
carries with it the power to levy a special assessment. Note: The term
"special levy" is the name used in the present Local Government Code (RA.
No. 7160). A province, city, or municipality, or the National Government,
may impose a special levy on lands especially benefited by public works or
improvements financed by it. [Sec. 240, RA 7160
TAX AND DEBT
Tax Based on laws Generally cannot be assigned Cannot be a subject of set
off or compensation Imprisonment is a sanction for nonpayment of tax,
except poll tax Governed by the special prescriptive periods provided for in
the NIRC Does not draw interest except only when delinquent Imposed
only by public authority

Debt
Generally based on contract, express or implied; Assignable; May be paid
in kind; Can be a subject of set off or compensation (see Art. 1279, Civil
Code; A person cannot be imprisoned for nonpayment of debt (except
when it arises from a crime); Governed by the ordinary periods of
prescription; Draws interest when it is so stipulated or where there is
default; Can be imposed by private individual
When the distinction of exercise of powers is relevant The distinction is
important when the one exercising it is the LGU (mere delegated
authority). Since Congress has the power to exercise the State inherent
powers of Police Power, Eminent Domain and Taxation, the distinction
between police power and the power to tax xxx would not be of any
moment when Congress itself exercises the power. [NTC v. CA, G.R. No.
127937 (1999

KINDS OF TAXES

As to object
a. Personal, Poll or Capitation Tax – tax of a fixed amount imposed on
persons residing within a specified territory, whether citizens or not,
without regard to their property or the occupation or business in which
they may be engaged (e.g. community (formerly residence) tax).
b. Property Tax – tax imposed on property, real or personal, in proportion
to its value or in accordance with some other reasonable method of
apportionment (e.g., real estate tax). The obligation to pay the tax is
absolute and unavoidable and is not based upon the voluntary action of the
person assessed.
c. Privilege/Excise Tax – it is said that an excise tax is a charge imposed
upon: i. the performance of an act, ii. the enjoyment of a privilege, or iii.
the engagement in an occupation, profession, or business. The obligation
to pay excise tax is based on the voluntary action of the person taxed in
performing the act or engaging in the activity which is subject to the
excise. The term “excise tax” is synonymous with “privilege tax” and the
two are often used interchangeably (e.g., income tax, value added tax,
estate tax, donor’s tax).
2. As to burden or incidence
a. Direct Taxes – taxes which are demanded from persons who also
shoulder them; taxes for which the taxpayer is directly or primarily liable,
or which he cannot shift to another. The liability for the payment of the tax
(incidence) and the burden (impact) of the tax falls on the same person.
(e.g., income tax, estate tax, donor’s tax, community tax)
b. Indirect Taxes – taxes which are demanded from one person in the
expectation and intention that he shall indemnify himself at the expense of
another, falling finally upon the ultimate purchaser or consumer; taxes
levied upon transactions or activities before the articles subject matter
thereof, reach the consumers who ultimately pay for them not as taxes but
as part of the purchase price. Thus, the person who absorbs or bears the
burden of the tax is other than the one on whom it is imposed and
required by law to pay the tax. Practically all business taxes are indirect
(e.g., VAT, percentage tax, excise taxes on specified goods, customs
duties).
3. As to tax rates
a. Specific Tax – a tax of a fixed amount imposed by the head or number
or by some other standard of weight or measurement. It requires no
assessment (valuation) other than the listing or classification of the objects
to be taxed (e.g., taxes on distilled spirits, wines, and fermented liquors;
cigars and cigarettes)
b. Ad Valorem Tax – a tax of a fixed proportion 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. The phrase “ad
valorem” means literally, “according to value.” (e.g., real estate tax, excise
tax on automobiles, non-essential goods such as jewelry and perfumes,
customs duties.
c. Mixed – a tax that has both the chara

4. As to purpose
a. General or Fiscal Tax – levied for the general or ordinary purposes of the
Government, i.e., to raise revenue for governmental needs (e.g., income
tax, VAT, and almost all taxes).
b. Special/Regulatory/Sumptuary Tax – levied for special purposes, i.e., to
achieve some social or economic ends irrespective of whether revenue is
actually raised or not (e.g., protective tariffs or customs duties on imported
goods to enable similar products manufactured locally to compete with
such imports in the domestic market). Tariff duties intended mainly as a
source of revenue are relatively low so as not to discourage imports.
5. As to scope (or authority imposing the tax)
a. National – taxes imposed by the national government, through Congress
and administered by the Bureau of Internal Revenue (BIR) or the Bureau
of Customs (BOC) (e.g., national internal revenue taxes, customs duties,
and national taxes imposed by laws).
b. Municipal or Local – taxes imposed by local governments, through their
respective Sanggunians, and administered by the local executive through
the local treasurer (e.g., business taxes that may be imposed under the
Local Government Code, professional tax).
6. As to graduation
a. Progressive – The rate of tax increases as the tax base or bracket
increases, e.g., income tax, estate tax, donor’s tax.
b. Regressive – The rate of tax decreases as the tax base or bracket
increases. There is no regressive tax inon a fixed percentage of the amount
of the property, receipts or other basis to be taxed, e.g., real estate tax,
VAT, and other percentage taxes.
d. Digressive – A fixed rate is imposed on a certain amount and diminishes
gradually on sums below it. The tax rate in this case is arbitrary because
the increase in tax rate is not proportionate to the increase of tax base.
Regressive/Progressive system of taxation A regressive tax must not be
confused with the regressive system of taxation. In a society where the
majority of the people have low incomes, a regressive taxation system
exists when there are more indirect taxes imposed than direct taxes. Since
the lowincome sector of the population as a whole buys more consumption
goods on which the indirect taxes are collected, the burden of indirect
taxes rests more on them than on the more affluent groups. A progressive
tax is, therefore, also different from a progressive system of taxation.
Regressivity is not a negative standard for courts to enforce. What
Congress is required by the Constitution to do is to "evolve a progressive
system of taxation." These provisions are put in the Constitution as moral
incentives to legislation, not as judicially enforceable rights. [Tolentino v.
Secretary of Finance, GR No. 115455, 25 August 1994 the Philippines. c.
Proportionate – The rate of tax is basedcteristics of specific tax and
advalorem tax

CONSTRUCTION AND INTERPRETATION OF TAX LAWS

General Rule: Tax laws are construed strictly against the government and
liberally in favor of the taxpayer. [Manila Railroad Co. v. Coll. of Customs,
G.R. No. L-30264 (1929)]. No person or property is subject to taxation
unless within the terms or plain import of a taxing statute. [see 72 Am. Jur.
2d 44] Taxes, being burdens, are not to be presumed beyond what the
statute expressly and clearly declares. [Coll. v. La Tondena, G.R. No.
L10431 (1962)]. Thus, a tax payable by “individuals” does not apply to
“corporations.
Tax statutes offering rewards are liberally construed in favor of informers.
[Penid v. Virata, G.R. No. L-44004 (1983)].
Exceptions:
a. The rule of strict construction as against the government is not
applicable where the language of the statute is plain and there is no doubt
as to the legislative intent [see 51 Am. Jur. 368]. E.g. Word “individual”
was changed by the law to “person”. This clearly indicates that the tax
applies to both natural and juridical persons, unless otherwise expressly
provided.
b. The rule does not apply where the taxpayer claims exemption from the
tax. Tax statutes are to receive a reasonable construction or interpretation
with a view to carrying out their purpose and intent. They should not be
construed as to permit the taxpayer easily to evade the payment of tax.
[Carbon Steel Co. v. Lewellyn, 251 U.S. 201]. Thus, the good faith of the
taxpayer is not a sufficient justification for exemption from the payment of
surcharges imposed by the law for failing to pay tax within the period
required by law

IMPRESCRIPTIBILITY OF TAX (page 33)

Unless otherwise provided by law, taxes are imprescriptible. [CIR v. Ayala

Securities Corporation G.R. No. L-29485 (1980)]
The law on prescription, being a remedial measure, should be liberally
construed in order to afford such protection. As a corollary, the exceptions
to the law on prescription should perforce be strictly construed.
[Commissioner v. Standard Chartered Bank, G.R. No. 192173 (2015)]
a. Prescriptions found in statutes
(1) National Internal Revenue Code – statute of limitations in the
assessment and collection of taxes therein imposed.
Summary of prescription on assessment and collection:
3 YEARS Prescription of assessment AND collection from:
(a) the prescribed last day of filing of returns (even if the return was filed
earlier than the deadline); OR
(b) the day when the return was actually filed if filed later than the last day
of filing [Sec. 203, NIRC], whichever comes later.
10 YEARS Prescription of assessment in cases of:
(a) false or fraudulent return with intent to evade tax; OR
(b) failure or omission to file a return [Sec. 222, NIRC] Counted from the
discovery of the fraud, falsity, or omission
5 YEARS Prescription of collection of tax if:
(1) assessed within the 3-year and 10-year prescriptive periods;
(2) assessed within the extended period agreed upon by the Commissioner
and taxpayer (waiver of the prescriptive period); and
(3) Collected by distraint, levy, or by a proceeding in court. [Sec. 222,
NIRC] Note: The prescriptive period from final liquidation is three (3) years,
except in cases of: 1. Tentative liquidation; 2. Payment under protest; 3.
Fraud; and 4. Compliance audit.

5 YEARS Prescription of collection of tax if:

(1) assessed within the 3-year and 10-year prescriptive periods;
(2) assessed within the extended period agreed upon by the Commissioner
and taxpayer (waiver of the prescriptive period); and
(3) Collected by distraint, levy, or by a proceeding in court. [Sec. 222,
NIRC] Note: The prescriptive period from final liquidation is three (3) years,
except in cases of:
1. Tentative liquidation;
2. Payment under protest;
3. Fraud; and
4. Compliance audit.
 PROSPECTIVITY OF TAX LAWS (32)

Prospectivity of Tax Laws General rule:

Tax laws are prospective in operation.
Reason: Nature and amount of the tax under tax laws enacted after the
transaction could not have been foreseen and understood by the taxpayer
at the time of the transaction.
Exception: Tax laws may be applied retroactively provided it is expressly
declared or it is clearly the legislative intent (e.g., increase taxes on income
already earned) except when retroactive application would be so harsh and
oppressive. [Republic v. Fernandez, G.R. No. L-9141 (1956)]
Statutes are prospective and not retroactive in their operation, laws being
the formulation of rules for the future, not the past. [Curata v. Philippine
Ports Authority, G.R. Nos. 154211- 12 (2009)] The language of the statute
must clearly demand or press that it shall have a retroactive effect.
[Lorenzo v. Posadas, supra]
Exception to the exception: Collection of interest in tax cases is not penal
in nature; it is but a just compensation to the State. Thus, the
constitutional prohibition against ex post facto laws is not applicable to the
collection of interest on back taxes. [Central Azucarera v. CTA, G.R. No. L-
23236 (1967)] Non-retroactivity of rulings [Sec. 246, NIRC] General rule:
Rulings do not have retroactive application if the revocation, modification,
or reversal will be prejudicial to the taxpayer. Exceptions: a. Taxpayer’s
deliberate misstatement or omission of facts b. BIR’s gathered facts is
materially different from the facts from which the ruling was based on c.
Taxpayer acted in bad faith Note: The rule on non-retroactivity of rulings
may be applied only if the parties in the ruling involve the taxpayer
himself/itself. The taxpayer cannot invoke the rulings granted i favor of the
other taxpayers.
DOUBLE TAXATION (36)

4. Double Taxation Double taxation means taxing the same property

twice when it should be taxed only once; that is, “taxing the same
person twice by the same jurisdiction for the same thing.” [Swedish
Match Phils., Inc. v. Treasurer, G.R. No. 181277 (2013)

a. Strict sense (Direct Duplicate Taxation) The same property must be

taxed twice when it should be taxed once. The requisites are: 1. Both
taxes must be imposed on the same property or subject matter; 2.
For the same purpose; 3. By the same Sta te, Government, or taxing
authority; 4. Within the same territory, jurisdiction or taxing district;
5. During the same taxing period; and6. Of the same kind or
character of tax. [Swedish Match Phils., Inc. v. Treasurer, supra]

b. b. Broad sense (Indirect Duplicate Taxation) There is double taxation

in the broad sense or indirect duplicate taxation if any of the
elements for direct duplicate taxation is absent

It extends to all cases in which there is a burden of two or more pecuniary

impositions. For example, a tax upon the same property imposed by two
different states.

Double taxation, standing alone and not being forbidden by our

fundamental law, is not a valid defense against the legality of a tax
measure [Pepsi Cola v. Mun. of Tanauan, G.R. No.

Constitutionality of double taxation 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. [Villanueva v. City of Iloilo, G.R. No. L-26521 (1968)] If
the tax law follows the constitutional rule on uniformity, there can be no
valid objection to taxing the same income, business or property twice.
[China Banking Corp. v. CA, G.R. No. 146749 (2003)] Double taxation in its
narrow sense is undoubtedly unconstitutional but in the broader sense is
not necessarily so. [DE LEON, citing 26 R.C.L 264-265]. Where double
taxation (in its narrow sense) occurs, the taxpayer may seek relief under
the uniformity rule or the equal protection guarantee. [DE LEON, citing 84
C.J.S.138]

International Double Taxation Double taxation usually takes place when a

person is resident of a contracting state and derives income from, or owns
capital in, the other contracting state and both states impose tax on that
income or capital. In order to eliminate double taxation, a tax treaty resorts
to several methods

The purpose of these international agreements is to reconcile the national

fiscal legislations of the contracting parties in order to help the taxpayer
avoid simultaneous taxation in two different jurisdictions. More precisely,
the tax conventions are drafted with a view towards the elimination of
international juridical double taxation, which is defined as 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

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. SC Johnson & Sons, Inc.,
G.R. No. 127105 (1999)] Modes of eliminating double taxation a. Allowing
reciprocal exemption either by law or by treaty; b. Allowance of tax credit
for foreign taxes paid; c. Allowance of deductions such as for foreign taxes
paid, and vanishing deductions in estate tax; or d. Reduction of Philippine
tax rate