LIMITATIONS ON THE EXERCISE

OF TAXING POWER
 A. i. Public purpose
ii. Inherently legislative
iii. Territoriality
INHERENT
iv. International Comity
LIMITATIONS v. Tax exemption of the
government
 What are INHERENT LIMITATIONS?

-Also known as the elements or characteristics of

taxation

A violation of the inherent limitations constitutes

taking without due process of law.
(Pepsi-Cola v. Municipality of Tanauan)
PUBLIC PURPOSE
 When is tax considered for a
PUBLIC PURPOSE?

1.When it is for the welfare of the nation and/or for

greater portion of the population

2.When it affects the area as a community rather than as

individuals

3. When it is designed to support the services of the

government for some of its recognized objects
 Tests in determining PUBLIC
PURPOSE

1.Duty Test
-whether the thing to be furthered by the appropriation of public
revenue is something which is the duty of the State as a government
to provide

2. Promotion of General Welfare Test

-whether the proceeds of the tax will directly promote the welfare
of the community in equal measure
 The right of taxation can only be used in aid of a public purpose (Pascual v. Secretary
of Public Works). Public purpose does not only pertain to those purposes which are
traditionally viewed as essentially government functions but also includes those purposes
designed to promote social justice (Planters Products, Inc. v. Fertiphil Corporation).

Also, police power and taxation may be exercised to protect a large industry
constituting one of the great sources of the state’s wealth directly or indirectly affecting
the welfare of a great a portion of the population of the State (Lutz v. Araneta). Lastly, the
eradication of a dreaded disease is a public purpose, but if by public purpose the
petitioner means benefit to a taxpayer as a return for what he pays, then it is sufficient to
say that the only benefit to which the taxpayer is entitled is that derived from his
enjoyment of the privileges of living in an organized society, established and
safeguarded by the devotion of taxes to public purpose (Gomez v. Palomar).
INHERENTLY LEGISLATIVE
 Coverage, Object, Nature, Extent, Situs of Taxation
Coverage: Taxation is comprehensive. It covers persons, businesses, activities, professions, rights and
privileges.

Object: Its primary purpose is to raise revenue to promote the general welfare and protection of the
citizens. Its secondary purpose is to (1) reduce social inequality, (2) encourage the growth of local
industries, (3) protect our local industries against unfair competition, (4) implement the police power of
the state (regulatory purpose).

Nature: Taxation is an inherent attribute of sovereignty and it is also legislative in character.

Extent: The power of taxation reaches to every trade or occupation; to every object of industry, use,
enjoyment; to every species of possession, and it imposes a burden which in case of failure to discharge
the same may be followed by seizure, confiscation or forfeiture of the property.

Situs: There is lawful exercise of taxing power when either the person or property taxed is within the
jurisdiction of the government levying the tax.
 General Rule:

The power to tax is purely legislative and cannot be delegated to other branches of the government. (Pepsi-Cola v. Municipality of Tanauan)

Exceptions:
1. Delegation to local governments
2. Delegation allowed by the Constitution
3. Delegation for purely administrative functions
 Exception: Delegation to Local Government Units

Pursuant to Art. X, Sec. 5 of the Constitution and Sec. 129 of the Local
Government Code,

“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.”
 Exception: Delegation Allowed by the Constitution

1. 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. (CONST. Art. VI, Sec. 28 (2))

2. 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.(CONST. Art. X, Sec. 5)

3. In times of war or other national emergency, the Congress may, by law, authorize the
President, for a limited period and subject to such restrictions as it may prescribe, to exercise
powers necessary and proper to carry out a declared national policy. (CONST. Art. VI, Sec. 23
(2))
 Exception: Delegation for Purely Administrative Functions

Subordinate Legislation of Administrative Agencies

-the power to adopt rules necessary to implement the policy, within
the limits provided by the law 

For the delegation to be valid it must comply with the

COMPLETENESS TEST and SUFFICIENT STANDARD TEST.
TERRITORIALITY
 Situs of Taxation
It is the place or authority that has the right to
impose and collect taxes.
(Commissioner v. Marubeni)

Basis: Benefits-Protection Theory/ Symbiotic

Relationship Doctrine
It involves the power of the State to demand and receive taxes
based on the reciprocal duties of support and protection
between the State and its citizen.
 EXCEPTION:

GENERAL RULE: 1. Where tax laws operate outside

territorial jurisdiction
The taxing power of a
country is limited to persons
2. Where tax laws do not operate within
and property within and the territorial jurisdiction of the state
subject to its jurisdiction.
a. when exempted by treaty obligations;
or

b. when exempted by international

comity
FACTORS 1. Residence of the taxpayer
THAT 2. Citizenship of the taxpayer
3. Nature of the tax
DETERMINE
4. Subject matter of the tax
SITUS 5. Source of income
 Situs of Income Tax
a. Citizenship of taxpayer
b. Residence or domicile of taxpayer
c. Source of the income
From sources within From sources Partly within and
the Philippines without the partly without the
Philippines Philippines
All kinds of taxpayers are Only resident citizens Determined by processes
subject to income tax and domestic of formulas of general
corporations are liable to apportionment
income tax prescribed by the
Secretary of Finance
(NIRC, Sec. 23)
 Situs of Property Taxes
1. Situs of Taxes on Real Property
- Where the property is located (lex situs)
2. Situs of Taxes on Personal Property
If the property is TANGIBLE If the property is INTANGIBLE
Where the property is physically GENERAL RULE: Domicile of the owner
located although the owner resides in EXCEPTIONS:
another jurisdiction 1. Where the intangible personal property
has acquired a business situs in another
jurisdiction
2. when the law provides the situs of the
subject of the tax
 Situs of Excise Tax
- Where the transaction was performed
- Where the business or occupation is being conducted

Same rule applies to both donor and estate tax

For citizens, whether resident or For non-resident aliens
non-resident, and resident
aliens
Taxed on properties wherever Taxed on properties situated in the
situated Philippines
 Situs of Business Taxes

Sales of REAL Sales of PERSONAL Value-Added Tax

property property (VAT)
Where the real Where the sales are Where the
property is located perfected and transaction is made
consummated either where the
property is sold and
consumed or where
the service is to be
performed
INTERNATIONAL COMITY
 International Comity

It is the respect accorded by nations to each

other because they are sovereign equals.

The property or income of a foreign state or

government may not be subject of taxation by
another state.
 International Comity
Basis: Doctrine of Sovereign Equality and Doctrine
of Sovereign Immunity

Tax treaties are entered into to minimize the harshness of

international double taxation.

The obligation to comply with a tax treaty must take

precedence over an administrative issuance.
TAX EXEMPTION OF THE GOVERNMENT
 Tax Exemption of the Government

The inherent limitation of exemption of government from

tax covers:
i. Government entities;
ii. Government agencies; and
iii. Government instrumentalities

Properties of the national government as well as those of the

local government units are NOT subject to tax, otherwise, it will
result in the absurd situation of the government “taking money from
one pocket and putting it in another.” Hence, it would not serve the
purpose of taxation (SSS v. City of Bacolod).
 Tax Exemption of the Government

Art. 423 of the NCC divides properties of province, city or municipality

into public and patrimonial. Properties for public use are provincial road,
city streets, municipal streets, squares, fountains, public waters, public
works for public service paid for said province, city or municipality. All
other property possessed by them is deemed patrimonial without
prejudice to provisions of special laws.

Real properties used for public purpose or public service are exempt
from taxation. If the public works is not for free public service and not
open to use by the general public, it is a patrimonial property which is
subject to taxation (LRTA v. CBAA).
 Taxability of Government Agencies

1. Agencies performing governmental

functions are exempt from tax unless expressly
taxed.

2. Agencies performing proprietary functions

are subject to tax unless expressly exempted.
 Taxability of Government Agencies

When is a Government-Owned or Controlled Corporation deemed to be

performing proprietary function or performing a governmental function?

Government-owned or controlled corporations may perform governmental or

proprietary functions or both, depending on the purpose for which they have been
created.  If the purpose is to obtain special corporate benefits or earn pecuniary
profit, the function is proprietary.  If it is in the interest of health, safety and for the
advancement of public good and welfare, affecting the public in general, the
function is governmental.  Powers classified as “proprietary” are those intended for
private advantage and benefit.  (Blaquera v. Alcala)
 Taxability of Government Agencies

In 2006, the Supreme Court ruled en banc that the Manila International Airport
Authority (MIAA) is an instrumentality of a national government and thus exempt
from local taxation. The real properties of MIAA are owned by the Republic of the
Philippines therefore exempt from real estate tax.

Sec. 133 (o) Local Government Code provides that the exercise of taxing power
shall not extend to the levy of taxes, fees or charges of any kind on the National
Government, its agencies and local government units.

However, real property even if owned by the Republic or any of its subdivisions
may still be subject to real property tax if the beneficial use of the real property was
granted to a taxable person.
 I. Due Process of Law (Art. III, Sec. 1).
B. II. Equal Protection Clause (Art. III,
Sec. 1).
III. Freedom of Religion (Art. III, Sec. 5).
CONSTITUTIONAL IV. Uniformity and Equality of
LIMITATIONS Taxation and Progressive System
Of Taxation (Art. VI, Sec. 28[1]).
V. Non-imprisonment for Non-
payment of Poll Taxes (Art. III,
Sec. 20).
 What are CONSTITUTIONAL LIMITATIONS?

- Those provided for in the Constitution or

implied from its provisions
- The power of taxation of the State is also
limited by the Constitution
DUE PROCESS OF LAW
 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 (Article III, Section 1).
 Why is it a limitation to the
power to tax?
Tax laws and their enforcement must comply with
substantive and procedural due process.
 Substantive due process requires that a tax statute must be
within the constitutional authority of Congress to pass and
that it be reasonable, fair and for a public purpose.
 Procedural due process requires that there must be no
arbitrariness in the assessment and collection; that the
prescribed rules must be followed.
 Why is it a limitation to the
power to tax?

Tax law is constitutional. Uniformity of taxation, like the

hindered concept of equal protection, merely require that all
subjects or objects of taxation similarly situated are to be
treated alike both privileges and liabilities. Uniformity, does
not offend classification as long as it rest on substantial
distinctions, it is germane to the purpose of the law.
(Tan v. Del Rosario, G.R. No. 109289 October 3, 1994)
 When may violation of due process be
invoked by the taxpayer?

The due process clause may be invoked where

a taxing statute is so arbitrary that it finds no
support in the Constitution, as where it can be
shown to amount to a confiscation of property.
(Reyes v. Almanzor, G.R. Nos. L-49839-46 April
26, 1991).
EQUAL PROTECTION OF LAWS
No person shall be denied
the equal protection of the
laws (Article III, Section 1).
 Equal Protection of the Law

All persons subjected to such legislation

shall be treated alike, under like
circumstances and conditions, both in the
privileges conferred and liabilities imposed.
 Equal Protection of the Law

It suffices then that the laws operate equally and

uniformly on all persons under similar
circumstances or that all persons must be treated in
the same manner, he conditions not being different,
both in the privileges conferred and liabilities
imposed.
(Sison Jr. v. Ancheta, G.R. No. 59431, July 25, 1984.)
 Equal Protection of the Law

Requisites for a valid classification:

1. Apply both to present and future conditions

2. Apply equally to all members of the same class
3. Must be germane to the purposes of the law
4. Must be based on substantial distinction
 Rational Basis Test

• Applied to gauge the constitutionality of an assailed

law in the face of an equal protection challenge.
• It is sufficient that the legislative classification is
rationally related to achieving some legitimate State
interest. (British American Tobacco v. Camacho and
Parayno, GR No. 163583, April 15, 2009).
FREEDOM OF RELIGION
 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 (Article III, Section 5).
 Freedom of Religion

1. Freedom to choose religion

2. Freedom to exercise one’s religion
3. Prohibition upon the national
government to establish a national
religion
 Freedom of Religion
The constitutional guaranty of the free exercise and enjoyment of
religious profession and worship carries with it the right to disseminate
religious information.

• Any restraints of such right can only be justified like other

restraints of freedom of expression on the grounds that there is a
clear and present danger of any substantive evil which the State
has the right to prevent.

• Hence, the tax imposed on the distribution and sale of bibles

suppresses the constitutional right of free exercise of religion. The
tax imposed is invalid. (American Bible Society v. City of Manila,
G.R. No. L- 9637, April 30, 1957)
 Is the imposition of fixed license fee a prior restraint
on the freedom of the press and religious freedom?

YES. As a license fee is fixed in the amount and

unrelated to the receipts of the taxpayer, the
license fee, when applied to a religious sect, is
actually being imposed as a condition for the
exercise of the sect’s right under the Constitution
(Tolentino v. Secretary of Finance, G.R. No. 115873,
August 25, 1994).
UNIFORMITY AND EQUALITY OF TAXATION
AND PROGRESSIVE SYSTEM OF TAXATION
 The rule of taxation shall be
uniform and equitable.
The Congress shall evolve a
progressive system of taxation
(Article VI, Section 28[1]).
 UNIFORMITY AND EQUALITY OF TAXATION

Taxes are uniform and equal when imposed

upon all property of the same class or
character within the taxing authority.
(Villanueva vs. City of Iloilo, G.R. No. L-
26521, December 28, 1968)
UNIFORMITY AND EQUALITY OF TAXATION

• However, the classification must still be

valid and reasonable according to the
rules on equal protection.
• If the classification is unreasonable, then
the rule on uniformity will be void. (Pepsi-
Cola Bottling vs. City of Butuan, G.R. No.
L-22814, August 28, 1968)
 UNIFORMITY AND EQUALITY OF TAXATION
UNIFORMITY EQUALITY
• The tax is uniform when it • The concept of equality in taxation
operates with the same force requires that the apportionment of the
and effect in every place tax burden be more or less just in the
where the subject of it is light of the taxpayer’s ability to
shoulder the tax burden and if
found. warranted, on the basis of the benefits
• Uniformity does not require received from the government. Its
the same treatment; it simply cornerstone is the taxpayer’s ability to
requires reasonable basis for pay.
classification. • Taxation is said to be equitable when
its burden falls on those better able to
pay.
 PROGRESSIVE TAXATION

• Taxation is progressive when tax rate

increases as the income of the
taxpayer increases.
• It is based on the principle that those
who are able to pay more should
shoulder the bigger portion of the tax
burden.
 Does the Constitution prohibit
regressive taxes?
NO, the Constitution does not really
prohibit the imposition of regressive
taxes. What it simply provides is
that Congress shall evolve a
progressive system of taxation.
 Meaning of “evolve” as used in
the Constitution

"direct taxes are to be preferred and

as much as possible, indirect taxes
should be minimized.”
 Meaning of “evolve” as used in the
Constitution

The mandate of Congress is not to prescribe

but to evolve a progressive tax system. This
is a mere directive upon Congress, not a
justiciable right or a legally enforceable one.
We cannot avoid regressive taxes but only
minimize them (Tolentino et.al. v. Secretary
of Finance, G.R. No. 115455, Oct. 30, 1995).
 NON-IMPRISONMENT FOR
NON-PAYMENT OF POLL TAXES
No person shall be imprisoned
for debt or non-payment of a
poll tax (Article III, Section 20).
Why is it a limitation to the power to
tax?

Congress is prohibited from passing a law

penalizing with imprisonment a person who
does not pay poll tax.
 What is a poll tax?

It is one levied on persons who are

residents within the territory of the taxing
authority without regard to their property,
business or occupation.
 What is a poll tax?

NOTE: The constitutional protection only

applies to poll taxes; hence, people can still
be imprisoned for non-payment of other
kinds of taxes where the law expressly
provides.
 May a person be imprisoned for
nonpayment of tax?
GENERAL RULE: A person may be imprisoned
for nonpayment of internal revenue taxes,
such as income tax as well as other taxes that
are not poll taxes if expressly provided by law.

EXCEPTION: A person cannot be sent to

prison for failure to pay the community tax.