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TAXES

Enforced proportional contributions from persons and property levied


by the law-making body of the State by virtue of its sovereignty for the
support of the government and for public needs(1Cooley62)
They are not arbitrary exaction but contributions levied by authority of
law, and by some rule of contribution and just apportionment of the
burdens of government (1 Cooley 64)
Attributes or Essential Characteristics (SLEP)
1. It is imposed by the State which has jurisdiction over the person,
property, or excises.
2. It is levied by the Law-making(legislatve) body of the state.
3. It is an Enforced contribution-not dependent on the will of the
person taxed, not a contract but a ositive act of the government.
4. It is generally Payable in money-generally, it is a pecuniary
burden payable in money, but back pay certificates may be used
in payment of tax (Borja v Gella)
REASON: The taxpayer is not allowed to settle his tax liability by
conveying property in view of the problem of assigning value to such
property.
5. It is a Proportionate in character- taxes must be based in ability
to pay in accordance with the constitutional mandate to
Congress to evolve a progressive system of taxation.
6. It is levied on Persons, property and excise
7. It is levied for Public purposes.
8. It is paid at regular Periods or intervals
Examples:
a. Income taxes are paid quarterly and annually
b. Value added taxes are paid monthly and quarterly.
9. It is personal to the taxpayer
Examples:
a. restitution by the heirs in case of estate tax deficiency (TAX
CODE sec 9(1c)
b. Exemptions from liability of stockholders in case of the
corporations tax delinquency
EXCEPTIONS:
1. stockholders may be held liable for the unpaid
taxes of a dissolved corporation if its appears that
the corporate assets have passed into their hands
2. When stockholders have unpaid subscriptions to
the capital of the corporation, they can be made
liable to the extent of their unpaid subscriptions.
REQUISITES OF A VALID TAX (JAPUL)
1. that either the person of property taxed be within the Jurisdiction
of the taxing authority;

2. That the assessment and collection of certain kinds of taxes


guarantee against injustice to individuals especially by providing
notice and opportunity for hearing;
3. That it should be for a Public purpose;
4. The rule of taxation shall be Uniform; and
5. The tax must not impinge on the inherent and Constitutional
limitations on the power of taxation.
CLASSIFICATION or KINDS of TAXES
1. As to subject matter
a. Personal, poll or capitation- tax of a fixed amount imposed
upon persons residing within a specified territory, whether
citizens or not, without regard to their property, occupation or
business in which they may be engaged (e.g community tax)
b. PROPERTY- tax imposed on property. Whether real or personal,
in proportion either to its value or some other reasonable rule
of apportionment (e.g real property tax)
c. Excise or privilege- change imposed upon the performance of
an act the enjoyment of a privilege or engaging in an
occupation, profession or business (e.g Donors tax, estate
tax, VAT, Income tax)
2. as to who bears the burden and incidence
a. DIRECT-taxes which are exacted from the very person who, it is
intended or desired, should pay them (DIMAAMPAO, supra at
135). The liability for the payment of the tax (incidence), as well
as the impact (burden) of the tax, falls on the same person (e.g
income tax, estate tax, donors tax)
b. INDERECT- tax wherein the inicidence or liability for the payment
falls on one person but the burden may be shifted or passed on
to another not as a tax but as part of the purchase price (e.g VAT,
excise tax, percentage tax). The imposition of indirect taxes is
not a violation of the principle of that taxes are personal
liabilities, the payment of which cannot be transferred to another
person. When the seller passes on the tax to his buyer he is only
shifting the tax burden (not the liability to pay it) to the
purchases as part of the costs of the goods sold or services
rendered. (ABAN, supra at 24)
The Constitution does not prohibit the imposition of the indirect
taxes like the VAT. The Constitution has been interpreted to mean
simply that direct taxes are to be preferred and as much as
possible, indirect taxes should be minimized (Tolentino vs
Secretary of Finance)
3. As to purpose

a. general, fiscal or revenue-tax imposed for the general or ordinary


purposes of the Government, to raise revenue for governmental
needs (e.g income tax, donors tax estate tax, and VAT)
b. Special, regulatory, sumptuary- tax levied for special purposes,
such as the addition 1% real estate tax levied under R.A 5447
(now Section 235, Local Government Code) for the benefit of the
public school system (ABAN supra at 27).
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 (CONST ART VI sec. 29 Par
3)
4. as to how amount is determined
a. SPECIFIC- 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 tax on fermented liquors, cigars, distilled spirits)
b. Ad Valorem (Value)- tax based upon this value of the articles
subject to tax (VITUG & ACOSTA supra at 28). 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)
c. MIXED-tax having both the characteristics of specific tax and ad
valorem tax.
5. as to taxing authority
a. National-levied by the National Government through Congress,
and administered by the BIR through Congress, and administered
by the BIR or the BOC (e.g NIRC taxes, customs duties)
b. Local or municipal- levied by the LGUs through their respective
Sanggunians, and administered by the local executive
government through the local treasures (e.g real property tax,
business taxes, imposed under the LGC (VITUG & ACOSTA, supra
at 29)
NOTE: the power to impose a tax, fee, or charge or to
generate revenue under the LGC shall be exercised by
the Sangunian of the local government unit concerned
through an appropriate ordinance (LGC 132)
6. as to rate
a. Progressive or graduated-the rate or amount increases as the
amount of the income or earning to be taxed increased (e.g
income tax on individuals estate tax and and donors tax).

b. Regressive- the tax rate is based on a fixed proportion of the


value of the subject being taxed (e.g real property tax, VAT
and 3% percentage tax) ABAN, supra at 27-28)
Distinction of Tax from other forms of Exactions
I.

Tax v Debt

II.

Tax v Toll

III.

Tax v Special assessment

IV.

Tax v License Fee

V.

Tax v Penalty

VI.

Tax v Tarif

VII.

Tax v Compromise Penalty

VIII.

Tax v Subsidy

IX.

Tax v Revenue

DOCTRINES OF TAXATION
I.

Impressibility of taxes
GENERAL RULE: the right to assess and collect are
imprescriptible (CIR v Ayala Securities Corporation)
EXCEPTION: when the laws otherwise provide.
EXAMPLES
1. National Internal Revenue Code- assessment of internal
revenue taxes within three (3) years after the last day
prescribed by law for filing of the return (TAX CODE, Sec.
203); and ten (10) years in cases of fraud (TAX CODE, Sec.
222)
2. Tarif and Customs Code- entry and passage free of duty,
after the expiration of the (3) years from the date of the
final payment of duties, in the absence of fraud or protest,
be final and conclusive upon all parties, unless the
liquidation of the import entry was merely tentative
(TARIFF CODE, Sec 1603, as amended by R.A 9135, Sec 4).

3. Local Government Code- five (5) year prescriptive period


for assessment and collection (LGC sec 194 and 270).
II.

Prospectivity of Tax Laws


Taxes must only be imposed prospectively, unless otherwise
provided by such law (CIVIL CODE, Art 4; Hydro resources v
CA)
The legislative intent evincing that a tax statute should
operate retroactively should be explicit and perfectly clear.
Thus, a statute should be considered as prosepective in its
operation, whether it enacts, amends or repeals, unless the
language of the statute clearly demands or language of the
statute clearly demands or express that it shall have a
retroactive efect (Lorenzo vs posadas)
Retroactive application of revenue laws may also be allowed if
will not deny due process. There is violation of due process
when the tax law imposes harsh and oppressive tax
(DIMAAMPAO, supra at 146)
NON-RETROACTIVITY OF RULINGS
GENERAL RULE: Any revocation, modification or reversal of
any of the rules and regulations, rulings and circulars
promulgated by the Commissioner shall not be given
retroactive application if it will be prejudicial to the taxpayers.
EXCEPTIONS:
1. where the taxpayer deliberately misstates or omits
material facts from this return or any document;
2. where the facts subsequently gathered by the BIR are
materially diferent from the facts on which the ruling is
based; or
3. where the taxpayer acted in bad faith (TAX CODE, Sec 246)

III.

DOCTRINE OF EQUITABLE RECOUPMENT


Where the refund of a tax illegally or erroneously collected or
overpaid by taxpayer is barred by prescription, a tax presently
being assessed against a taxpayer may be recouped or set-of
against the tax already barred by prescription (SABABAN,
supra at 14)
This doctrine is pertinent only to taxes arising from the same
transaction on which an overpayment is made and
underpayment is due.

When available: Equitable recoupment is allowed only in


common law countries, not in the Philippine (SABABAN, supra
at 15)
Reason: if allowed, both the collecting agency and the
taxpayer might be tempted to delay and neglect the pursuit
of their respective claims within the period prescribed by law
(Collector v UST)
IV.

Compensation or Set-of
Compensation shall take place when two persons, in their own
right, are creditors and debtors of each other (CIVIL CODE Art.
1278).
The presupposes mutual obligations between the parties, and
that they are mutual creditors and debtors of each other.

COMPENSATION OR SET-OFF IN TAXATION


The Government may be allowed to set-of a taxpayer claim for refund
that has been finally adjudged by the courts in favor of the taxpayer as
against a tax assessment that the Government issued to such taxpayer
even if such assessment is not yet final and executory (CIR v CEBU
PORTLAND CEMENT)
On the other hand, the taxpayer cannot claim the defense of
compensation of its claim for refund that is not yet finally adjudged by
the courts as against a tax assessment (RECALDA, supra at 14)
GENERAL RULE: Taxes are not subject to set-of or legal compensation
(Republic v Mambulao)
REASON: Taxes and debts are of diferent nature and character. The
taxes assessed are the obligations of the taxpayer arising from law,
while the money judgment against the government is an obligation
arising from contract, whether express or implied (Francia v IAC)
Taxes are not in the nature of contracts between the parties but grow
out of duty to, and are positive acts of the government to the making
and enforcing of which, the personal consent of the individual
taxpayers is not required. (REPUBLIC VS MABULAO)
EXCEPTION: When the set-of took place because both the claim of the
Government for inheritance taxes and the claim of the estate for
services rendered have already become overdue, demandable, and
fully liquidated. Further, an amount for the claim of the estate had
already been appropriated by the government by virtue of a law.
(Domingo vs Garlitos)

There can be legal compensation for tax purposes as long as all the
requisites under Article 1279 of the Civil Code are present. The claims
of the taxpayer and the government (RECALDE, supra at 32)
V.
COMPROMISE
A contract whereby the parties, by making reciprocal concessions,
avoid litigation or put an end to one already commended (CIVIL
CODE ATY 2028)
RULE: Compromises are allowed and enforceable when the subject
matter thereof is not expressly prohibited from being compromised
and the public official entering into it is duly authorized by law
(Vitug and Acosta supra at 48).
PERSONS ALLOWED TO COMPROMISE
1. Commissioner of the Internal Revenue- may enter under certain
conditions into a compromise for both the civil and criminal
liabilities of the taxpayer (TAX CODE, Sec 204)
2. Collector of Customs- with respect to customs duties and limited
to cases where legitimate authority is specifically granted, such
as in the remission of duties (TARIFF CODE, SEC 709)
3. Customs Commissioner- subject to the approval of the Secretary
of Finance on cases involving the imposition of fines, surcharges
and forfeitures (TARIFF CODE SEC 2316)
4. Local Government Code-no provision regarding compromise,
however, tax (not criminal) liability is not prohibited from being
compromised (CIVIL CODE, Arts 2034&2035). It could be legally
feasible to provide for and allow tax compromises and to name
the proper official to enter into the compromise (VITUG &
ACOSTA supra at 49)
VI.

Taxpayers Suit
Only one who will sustain a direct injury in consequence of its
enforcement may contest the validity of a statute (RECALDE,
supra at 37)
BASIS: the right is based on the fact that expenditure of public
funds by an officer for the purpose of administering or
implementing an invalid or unconstitutional law is a
misapplication of such funds.
WHEN AVAILABLE: it is only when an act complained of, which
may include a legislative enactment, directly involves the
illegal disbursement of public funds derived from taxation that
the taxpayers suit may be allowed (VITUG & ACOSTA, supra
citing Pascual v Secretary of Public Works)

REQUISITES OF A TAXPAYERs SUIT:


1. Public funds derived form taxation are disbursed by a
political subdivision or instrumentality and in doing so, a
law is violated or some irregularity is committed; and
2. Petitioner is directly afected by the alleged act
(BAGATSING v SAN JUAN)
Although the construction of the town center would be
primarily sourced from the proceeds of the bonds, which
respondents insist are not taxpayers money, a
government support in the amount of P187 million would
still be spent for paying the interest of the bonds. Records
also show that the governor requested the Sanggunian to
appropriate an amount of P25 million for the interest of the
bond. Clearly, the first requisite has been met (Mamba v
Lara)
As to the second requisite, the Court, in recent cases, has
relaxed the stringent direct injury test bearing in mind
that locus standi is a procedural technically. In cases where
serious legal issues were raised or where public
expenditures of millions of pesos were involved, the Court
did not hesitate to give standing to taxpayers. The court
finds no reason to deviate from the jurisprudential trend.
The amount involved in this case is substantial. Under the
various arguments ratified by the Sanggunian the province
would incur costs totaling P231,908,232.39.
DOCTRINE OF TRANSCENDENTAL IMPORTANCE
In cases of paramount importance where serious
constitutional questions are involved, the standing
requirements may be relaxed and a suit may be allowed to
prosper even where there is no direct injury to the party
claiming the right of judicial review (Coconut Oil Refiners
Association Inc. v Torres)
VII.

RULE OF NO ESTOPPEL AGAINST THE GOVERNMENT


GENERAL RULE: The Government is not bound by the errors
committed by its agents. In the performance of its
government functions, the State cannot be estopped by the
neglect of its agents and officers (CIR v CTA)
REASON: Upon taxation depends the Governments ability to
serve people for whose benefit taxes are collected. To
safeguard such interest, neglect or omission of government

officials entrusted with the collection of taxes should not be


allowed to bring harm or detriment to the people (RECALDE
supra at 33)
EXCEPTION: The CIR is precluded from adopting a position
inconsistent with the one previously taken where injustice
would result thereform or where there has been a
misrepresentation to the taxpayer (Balmaceda v Corominas
and Co., Inc)
VIII.

Escapes from Taxation (ShiCa-TEx-AvE)


1. SHIfting- the transfer of the burden of tax by the original
payer or the one on whom the tax was assessed (impact of
taxation/statutory taxpayer) or imposed to another or
someone else (incidence of taxation).
Only indirect taxes, as opposed to direct taxes, may be
shifted. Indirect taxes are those that are demanded in the
first instance from one person in the expectation and
intention that he can shift the burden to someone else, not
as a tax but as part of the purchase price(e.g VAT, excise
tax, other percentage tax, documentary stamp tax). The
liability for the payment of the tax remains with the
taxpayer, but the burden thereof is shifted or passed on to
the purchaser. Direct taxes, on the other hand, which
cannot be shifted, are those that are exacted from the very
person who. It is intended or desired, should pay them
intended or desired, should pay them (DIMAAMPAO supra
at 135).
A tax cannot be shifted when it is purely personal or when
it has no relation to any business dealings of the taxpayer
(SCHULTS & HARRIS American Public Finance)
IMPACT OF TAXATION
Point on which tax is originally imposed or the one on
whom the tax is formally assessed.
INCIDENCE OF TAXATION
Point on which the tax burden finally rests or settles down.
ILLUSTRATION: VAT. The seller is required by law to pay tax,
but the burden is actually shifted or passed on the buyer.
KINDS of Shifting:
a. Forward Shifting- when the burden of tax is transferred
from a factor of production through the factors of

distribution until it finally settles on the ultimate purchaser


or consumer
b. Backward Shifting- when the burden is transferred from the
consumer through the factors of distribution to factors of
production
c. Onward shifting- when the tax is shifted two or more times
either forward or backward (SELIGMAN, The Shifting and
Incidence of Taxation (1927), p.3
2. Capitalization- the reduction in the price of the taxed object
is equal to the capitalized value of future taxes, which the
purchaser expects to be called upon to pay.
Example: Capital expenses incurred by private educational
institutions for the expansion of school facilities (TAX
CODE, Sec 34(A)(2))
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 and
endeavors to recoup himself by improving his process of
production, thereby producing his units at a lower costs.
4. Tax Exemption- 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 person or corporations generally within the same
state or taxing district are obliged to pay (Greenfield v.
Meer)
REASON: the inherent power of the state to impose taxes
naturally carries with it the power to grant tax exemptions.
The power to exempt from taxation, as well as the power to
tax, is an essential attribute of sovereignty, and may be
exercised in the Constitution expressly or by implication
(DIMAAMPAO, Tax Principles and remedies{2002}). It may
arise through pardon by the government, reciprocity
between states, necessity and convenience, contractual
agreement, or mere generosity.
PRINCIPLE OF STRICTISSIMI JURIS
Laws granting tax exemption are construed in 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).

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