of failure to discharge it, may be followed by seizure and sale or confiscation of property.
No attribute
General Principles of Taxation
A. Taxation in General
a.1. Taxation concept inherent power of the State, through the legislative body, to raise revenues
for the purpose of defraying the expenses of government
Q: Does the Constitution contain a provision granting taxation power to the State?
A: There is no provision in the Constitution granting such power. The power to tax is inherent in the
State and therefore requires no constitutional grant in order to exercise the same. What the
Constitution contains are provisions limiting such power of taxation.
Q: What is meant by the power to tax is the power to destroy and is it applicable in the
Philippine jurisdiction?
A: The power to tax is the power to destroy is in reference to the fact that taxation is plenary and
therefore generally unlimited, so that it applies to anything that can be subjected to tax, even income
arising from an illegal enterprise and even to the extent that it becomes confiscatory. However, while
the power to tax is the power to destroy, this is not so while the Supreme Court sits, because such
power is still subject to judicial review. So that, in sum, the principle that the power to tax is the
power to destroy refers to the vigor with which the power may be exercised and not to its purpose.
Moreover, this theory only applies in Philippine jurisdiction on the presumption that such power is
validly exercised. Such power is validly exercised if it does not contravene the limitations imposed by
the Constitution and by law.
a.2. Nature and Scope of the Power of Taxation
Art. V, Section 28(20): Legislative Powers (Plenary)
Art. X, Section 5: Taxation Power of LGU
NATURE:
an attribute of sovereignty
inherent
legislative in character
SCOPE:
Legislative taxing power extends to the following:
subject of taxation (person, property or occupation, excises and privileges)
rates or amount
kinds
purpose (must be for a public purpose)
situs (jurisdiction)
method of collection
Churchill and Tait v. Concepcion, G.R. No. 11572, Sept. 22, 1916
The power to impose taxes is one so unlimited in force and so searching in extent, that the courts
scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in the
discretion of the authority which exercises it. It reaches to every trade or occupation; to every object
of industry, use, or enjoyment; to every species of possession; and it imposes a burden which, in case
of sovereignty is more pervading, and at no point does the power of the government affect more
constantly and intimately all the relations of life than through the exactions made under it." (Cooley's
Constitutional Limitations, 6th Edition, p. 587.)
a.3. Theory of Taxation, Basis or Rationale of Taxation
THEORY:
o Necessity Theory the government is necessary since the exercise of governmental functions
redounds to the benefit of society; this can only be achieved by raising revenues
o Symbiotic Theory (Benefits-Protection) government needs revenues to defray expenses; the public
benefit from government
BASIS: Life-blood Theory (taxes are necessary)
RATIONALE:
o Symbiotic relationship between State and tax-paying public
o State has jurisdiction over the taxpayer
NPC v. City of Cabanatuan, G.R. No. 149110, April 9, 2003
Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor
endure. A principal attribute of sovereignty, the exercise of taxing power derives its source from the
very existence of the state whose social contract with its citizens obliges it to promote public interest
and common good. The theory behind the exercise of the power to tax emanates from necessity;
without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being
of the people.
CIR v. Algue, G.R. No. L-28896, Feb. 17, 1988
It is said that taxes are what we pay for civilized society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard-earned income to the taxing authorities, every person who
is able to must contribute his share in the running of the government. The government for its part, is
expected to respond in the form of tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. This symbiotic relationship is the rationale
of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure.
If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For
all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can
demonstrate, as it has here, that the law has not been observed.
Phil. Bank of Communications v. CIR, G.R. No. 112024, Jan. 28, 1999
Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate
funds for the State to finance the needs of the citizenry and to advance the common weal. [Napocor
vs. Province of Albay, 186 SCRA 198 (1990), at p. 207.] Due process of law under the Constitution does
not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation
that the government chiefly relies to obtain the means to carry on its operations and it is of utmost
importance that the modes adopted to enforce the collection of taxes levied should be summary and
interfered with as little as possible. [Teodoro and de Leon, Law on Income Taxation, 1993 ed., at 485.]
fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its
officials or agents.
a.4. Extent of the Taxing Power
Tio v. Videogram Regulatory Board, G.R. No. L-75697, June 18, 1987
a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters
the activities taxed. The power to impose taxes is one so unlimited in force and so searching in extent,
that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such
as rest in the discretion of the authority which exercises it. In imposing a tax, the legislature acts upon
its constituents. This is, in general, a sufficient security against erroneous and oppressive taxation.
It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been
repeatedly held that inequities which result from a singling out of one particular class for taxation or
exemption infringe no constitutional limitation. Taxation has been made the implement of the states
police power.
a.5. Purpose and Objectives of Taxation
raise revenue
regulate
promote general welfare
reduce social inequality
encourage economic growth compensatory because the power to tax necessarily includes the
power to grant tax exemption, providing tax incentives for investors
implement of eminent domain
Sumptuary Purpose of Taxation non-revenue raising purpose of taxation; refers to regulatory
purpose
Caltex Philippines, Inc. v. COA, G.R. No. 92585, May 8, 1992
POLICE POWER: Taxation is no longer envisioned as a measure merely to raise revenue to support the
existence of the government; taxes may be levied with a regulatory purpose to provide means for the
rehabilitation and stabilization of a threatened industry which is affected with public interest as to be
within the police power of the state.
NO OFFSET: It is settled that a taxpayer may not offset taxes due from the claims that he may have
against he government. Taxes cannot be the subject of compensation because the government and
taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a
debt, demand, contract or judgment as is allowed to be set-off.
Batangas Power Corp. v. Batangas City, G.R. No. 152675, April 28, 2004
SOCIAL JUSTICE AND EQUITABLE DISTRIBUTION OF WEALTH: In recent years, the increasing social
challenges of the times expanded the scope of state activity, and taxation has become a tool to
realize social justice and the equitable distribution of wealth, economic progress and the protection of
local industries as well as public welfare and similar objectives. Taxation assumes even greater
significance with the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer
vested exclusively on Congress; local legislative bodies are now given direct authority to levy taxes,
fees and other charges pursuant to Article X, section 5 of the 1987 Constitution.
Southern Cross Cement Corp. v. Cement Manufacturers Association of the Phils., G.R. No. 158540,
Aug. 3, 2005
(HOLY CRAP, CHECK OUT THE INTRO!!!! ^.^)
Cement is hardly an exciting subject for litigation. Still, the parties in this case have done their best
to put up a spirited advocacy of their respective positions, throwing in everything including the
proverbial kitchen sink. At present, the burden of passion, if not proof, has shifted to public
respondents Department of Trade and Industry (DTI) and private respondent Philippine Cement
Manufacturers Corporation (Philcemcor),[1] who now seek reconsideration of our Decision dated 8
July 2004 (Decision), which granted the petition of petitioner Southern Cross Cement Corporation
(Southern Cross).
This case, of course, is ultimately not just about cement. For respondents, it is about love of country
and the future of the domestic industry in the face of foreign competition. For this Court, it is about
elementary statutory construction, constitutional limitations on the executive power to impose tariffs
and similar measures, and obedience to the law. Just as much was asserted in the Decision, and the
same holds true with this present Resolution.
POWER OF PRESIDENT TO IMPOSE TARIFF RATES: Without Section 28(2), Article VI, the executive
branch has no authority to impose tariffs and other similar tax levies involving the importation of
foreign goods. Assuming that Section 28(2) Article VI did not exist, the enactment of the SMA by
Congress would be voided on the ground that it would constitute an undue delegation of the
legislative power to tax. The constitutional provision shields such delegation from constitutional
infirmity, and should be recognized as an exceptional grant of legislative power to the President,
rather than the affirmation of an inherent executive power.
QUALIFIERS: This being the case, the qualifiers mandated by the Constitution on this presidential
authority attain primordial consideration: (1) there must be a law; (2) there must be specified limits;
and (3) Congress may impose limitations and restrictions on this presidential authority.
POWER EXERCISED BY ALTER EGOS OF PRES: The Court recognizes that the authority delegated to the
President under Section 28(2), Article VI may be exercised, in accordance with legislative sanction, by
the alter egos of the President, such as department secretaries. Indeed, for purposes of the
Presidents exercise of power to impose tariffs under Article VI, Section 28(2), it is generally the
Secretary of Finance who acts as alter ego of the President. The SMA provides an exceptional instance
wherein it is the DTI or Agriculture Secretary who is tasked by Congress, in their capacities as alter
egos of the President, to impose such measures. Certainly, the DTI Secretary has no inherent power,
even as alter ego of the President, to levy tariffs and imports.
TARIFF COMMISSION AND DTI SEC ARE AGENTS: Concurrently, the tasking of the Tariff Commission
under the SMA should be likewise construed within the same context as part and parcel of the
legislative delegation of its inherent power to impose tariffs and imposts to the executive branch,
subject to limitations and restrictions. In that regard, both the Tariff Commission and the DTI
Secretary may be regarded as agents of Congress within their limited respective spheres, as ordained
in the SMA, in the implementation of the said law which significantly draws its strength from the
plenary legislative power of taxation. Indeed, even the President may be considered as an agent of
Congress for the purpose of imposing safeguard measures. It is Congress, not the President, which
possesses inherent powers to impose tariffs and imposts. Without legislative authorization through
statute, the President has no power, authority or right to impose such safeguard measures because
taxation is inherently legislative, not executive.
When Congress tasks the President or his/her alter egos to impose safeguard measures under the
delineated conditions, the President or the alter egos may be properly deemed as agents of Congress
to perform an act that inherently belongs as a matter of right to the legislature. It is basic agency law
that the agent may not act beyond the specifically delegated powers or disregard the restrictions 1.
imposed by the principal. In short, Congress may establish the procedural framework under which 2.
such safeguard measures may be imposed, and assign the various offices in the government 3.
bureaucracy respective tasks pursuant to the imposition of such measures, the task assignment
including the factual determination of whether the necessary conditions exists to warrant such
impositions. Under the SMA, Congress assigned the DTI Secretary and the Tariff Commission their
respective functions in the legislatures scheme of things.
1.
There is only one viable ground for challenging the legality of the limitations and restrictions imposed
by Congress under Section 28(2) Article VI, and that is such limitations and restrictions are themselves 2.
violative of the Constitution. Thus, no matter how distasteful or noxious these limitations and
restrictions may seem, the Court has no choice but to uphold their validity unless their constitutional
infirmity can be demonstrated.
What are these limitations and restrictions that are material to the present case? The entire SMA
provides for a limited framework under which the President, through the DTI and Agriculture
Secretaries, may impose safeguard measures in the form of tariffs and similar imposts. 1.
2.
POWER BELONGS TO CONGRESS: the cited passage from Fr. Bernas actually states, Since the
Constitution has given the President the power of control, with all its awesome implications, it is the 3.
Constitution alone which can curtail such power. Does the President have such tariff powers under
the Constitution in the first place which may be curtailed by the executive power of control? At the 4.
risk of redundancy, we quote Section 28(2), Article VI: The Congress may, by law, authorize the
President to fix within specified limits, and subject to such limitations and restrictions as it may 5.
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. Clearly the
power to impose tariffs belongs to Congress and not to the President.
CIR v. Central Luzon Drug Corp., G.R. No. 159647, April 15, 2005 1.
EMINENT DOMAIN: The concept of public use is no longer confined to the traditional notion of use by 2.
the public, but held synonymous with public interest, public benefit, public welfare, and public
convenience. The discount privilege to which our senior citizens are entitled is actually a benefit 3.
enjoyed by the general public to which these citizens belong. The discounts given would have entered
the coffers and formed part of the gross sales of the private establishments concerned, were it not for 4.
RA 7432. The permanent reduction in their total revenues is a forced subsidy corresponding to the
taking of private property for public use or benefit. 5.
As a result of the 20 percent discount imposed by RA 7432, respondent becomes entitled to a just
compensation. This term refers not only to the issuance of a tax credit certificate indicating the
correct amount of the discounts given, but also to the promptness in its release. Equivalent to the
payment of property taken by the State, such issuance -- when not done within a reasonable time
from the grant of the discounts -- cannot be considered as just compensation.
Besides, the taxation power can also be used as an implement for the exercise of the power of
eminent domain. Tax measures are but enforced contributions exacted on pain of penal sanctions
and clearly imposed for a public purpose. In recent years, the power to tax has indeed become a
most effective tool to realize social justice, public welfare, and the equitable distribution of wealth.
a.6. Characteristics of a Sound Tax System
Fiscal Adequacy meet requirements of government
Theoretical Justice progressivity; based on taxpayers ability to pay
Administrative Feasibility enforcement should be effective and simple
a.7. Aspects of Taxation
Levy determine persons, property or excises to be taxed, their amount and due date, time and
manner (taxation proper)
Collection manner of enforcement; includes assessment and administration by BIR (subordinate
legislation) (tax administration)
a.8. Taxation distinguished
v. POLICE POWER (code: PABAT)
As to purpose Taxation is to raise revenue; Police Power is to promote public welfare.
As to amount Taxation has no limit; Police Power is limited to the cost of regulation, issuance of
license or surveillance
As to benefits Taxation offers no special or direct benefit other than benefit to the general public;
Police Power is to promote a healthy economic standard.
As to applicability of non-impairment of contracts clause It applies in taxation; It does not apply in
police power, EXCEPT if the grant of franchise was for a valuable consideration.
As to transfer of property rights Taxation involves transfer of public funds or money; Police Power
does not contemplate a transfer but merely restraint on property taken or destroyed.
v. POWER OF EMINENT DOMAIN (code: NCAPA)
As to nature Taxation is the power to raise revenue; Eminent Domain is the taking of property for
public use.
As to compensation Compensation for taxation takes the form of a general benefit to the public; in
eminent domain, there must be just compensation.
As to applicability of non-impairment of contracts clause It applies in taxation; it does not apply in
eminent domain.
As to persons affected Taxation affects all subject to the States jurisdiction; eminent domain
affects only the particular property.
As to authority Taxation is exercised by the government; Eminent Domain may be exercised by
private entities exercising public functions.
B. Limitations of the Taxing Power
b.1. Inherent Limitations
(1) Public Purpose this is presumed
Gomez v. Palomar, G.R. No. L-23645, Oct. 29, 1968
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 answer to say that the only
benefit which the taxpayer is constitutionally 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 purposes
Pascual v. Secretary of Public Works, G.R. No. L-10405, Dec. 29, 1960
In accordance with the rule that the taxing power must be exercised for public purposes only, money
raised by taxation can be expanded only for public purposes and not for the advantage of private
individuals.
Public funds may be used for a public purpose. The right of the legislature to appropriate funds is
correlative with its right to tax, under constitutional provisions against taxation except for public
purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another
purpose, no appropriation of state funds can be made for other than a public purpose.
(2) Observe International Comity there must be reciprocity
Art. II, Section 2. The Philippines renounces war as an instrument of national policy, adopts the
generally accepted principles of international law as part of the law of the land and adheres to the
policy of peace, equality, justice, freedom, cooperation, and amity with all nations.
Sec. 32(B)(7)(a), NIRC: Income Derived by Foreign Government. - Income derived from investments in
the Philippines in loans, stocks, bonds or other domestic securities, or from interest on deposits in
banks in the Philippines by (i) foreign governments, (ii) financing institutions owned, controlled, or
enjoying refinancing from foreign governments, and (iii) international or regional financial
institutions established by foreign governments.
(3) No Improper Delegation, exceptions
- under Flexible Tariff Clause, President may fix:
tariff rates
import-export quotas
tonnage and wharfage duties
other duties and imposts within the framework of the national government program
- LGU (General Welfare Clause)
- administrative agencies:
fix the value of property
assess and collect taxes
perform details of computation
appraisement and adjustment
(4) Limited to the Territorial Jurisdiction
SITUS (Sec. 23, NIRC)
Citizens
o Resident Citizens taxed on all sources of income inside or outside the Philippines (based on
nationality principle)
o Non-resident Citizens taxed on all sources within the Philippines
Aliens
o Resident Aliens taxed on all sources within the Philippines
o Non-resident Aliens (whether engaged in business or not) taxed on all sources within the
Philippines
NOTA BENE: Only resident citizens are taxed on all sources of income within or without the
Philippines.
FACTORS AFFECTING SITUS OF TAXATION:
o kind or classification of tax
o situs of the thing or property taxed
o domicile or residence of the person taxed
o citizenship or nationality of the person taxed
o source of the income taxed
o situs of the excise, privilege, business or occupation being taxed
NOTA BENE: Situs of taxation for personal property follows the principle of mobilia sequuntur
personam (personal property follows the person), EXCEPT shares of stock the situs of which is based
on where the corporation has its principal place of business. Situs of taxation for real property is lex
rei sitae (where the property is located).
CIR v. Japan Airlines, Inc., G.R. No. 60714, Oct. 4, 1991
The source of income is the property, activity or service that produced the income. For the source of
income to be considered as coming from the Philippines, it is sufficient that the income is derived
from activity within the Philippines. In BOACs case, the sale of tickets in the Philippines is the activity
that produces the income. The tickets exchanged hands here and payments for fares were also made
here in the Philippine currency. The situs of the source of payments is the Philippines. The flow of
wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by
the Philippine government. In consideration of such protection, the flow of wealth should share the
burden of supporting the government.
The absence of flight operations to and from the Philippines is not determinative of the source of
income or the situs of income taxation. The test of taxability is the source; and the source of an
income is that activity which produced the income.
South African Airways v. CIR, CTA 6760, June 9, 2005
It has been consistently ruled that the source of income is the property, activity or service that
produced the income and, in order that the source of income to be considered as coming from the
Philippines, it is enough that the income is derived from activity within the Philippines.
The absence of flight operations to and from the Philippines is not determinative of the source of
income or the situs of income taxation. Petitioner admitted that it sells passage documents in the
Philippines through its sales agent. Petitioner, thus, is deriving revenues from the conduct of its
business activity regularly pursued within the Philippines. Petitioner is therefore a resident foreign
corporation engaged in trade or business in the country within the purview of our tax law and is
therefore subject to tax. As held in Commissioner of Internal Revenue vs. American Airlines, Inc.:
xxx foreign airline companies which sold tickets in the Philippines through their local agents, whether
called liaison offices, agencies or branches, were considered resident foreign corporations engaged in
trade or business in the country. Such activities show continuity of commercial dealings or
arrangements and performance of acts or works or the exercise of some functions normally incident
to and in progressive prosecution of commercial gain or for the purpose and object of the business
organization.
National Development Co. v. CIR, G.R. No. L-53961, June 30, 1987
The Japanese shipbuilders were liable to tax on the interest remitted to them. The petitioner argues
that the Japanese shipbuilders were not subject to tax under the above provision because all the
related activities the signing of the contract, the construction of the vessels, the payment of the
stipulated price, and their delivery to the NDC were done in Tokyo. The law, however, does not
speak of activity but of source, which in this case is the NDC. This is a domestic and resident
corporation with principal offices in Manila.
The Governments right to levy and collect income tax on interest received by foreign corporations not
engaged in trade or business within the Philippine sis not planted upon the condition that the activity
or labor and the sale form which the (interest) income flowed had its situs in the Philippines. The
law specifies: interest derived from sources within the Philippines. Nothing there speaks of the act longer period than fifty years. Neither shall any such franchise or right be granted except under the
or activity of non-resident corporations in the Philippines, or place where the contract is signed. The
residence of the obligor who pays the interest rather than the physical location of the securities,
bonds, or notes or the place of payment, is the determining factor of the source of interest income.
(5) Exemption of Government Entities inherent exemption, but Government may tax itself
Sec. 27(C), NIRC: Government-owned or Controlled-Corporations, Agencies or Instrumentalities. -
The provisions of existing special or general laws to the contrary notwithstanding, all corporations,
agencies, or instrumentalities owned or controlled by the Government, except the Government
Service Insurance System (GSIS), the Social Security System (SSS), the Philippine Health Insurance
Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO) and the Philippine Amusement
and Gaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable income as are
imposed by this Section upon corporations or associations engaged in s similar business, industry, or
activity.
Sec. 32(B)(7)(b), NIRC: Income Derived by the Government or its Political Subdivisions. - Income
derived from any public utility or from the exercise of any essential governmental function accruing
to the Government of the Philippines or to any political subdivision thereof.
Sec. 30(1), NIRC
b.2. Constitutional Limitations
(1) Indirect
a) Due Process and Equal Protection Clause
Art. III, 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.
b) Freedom of the Press
Art. III, Section 4. No law shall be passed abridging the freedom of speech, of expression, or of the
press, or the right of the people peaceably to assemble and petition the government for redress of
grievances.
c) Religious Freedom
Art. III, 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.
d) Non-impairment Clause
Art. III, Section 10. No law impairing the obligation of contracts shall be passed.
Art. XII, Section 11. No franchise, certificate, or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by
such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a
condition that it shall be subject to amendment, alteration, or repeal by the Congress when the
common good so requires. The State shall encourage equity participation in public utilities by the
general public. The participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in its capital, and all the executive and
managing officers of such corporation or association must be citizens of the Philippines.
e) Law-Making Process
Art. VI, Section 26. (1) Every bill passed by the Congress shall embrace only one subject which shall
be expressed in the title thereof.
(2) No bill passed by either House shall be come a law unless it has passed three readings on
separate days, and printed copies thereof in its final form have been distributed to its Members
three days before its passage, except when the President certifies to the necessity of its immediate
enactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment
thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and the yeas
and nays entered in the Journal.
(2) Direct
a) Non-Imprisonment
Art. III, Section 20. No person shall be imprisoned for debt or non-payment of a poll tax.
b) Uniform & Equitable
Art. VI, Section 28. (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve
a progressive system of taxation.
(2) 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.
(3) Charitable institutions, churches and personages 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.
(4) No law granting any tax exemption shall be passed without the concurrence of a majority of all
the Members of the Congress.
c) Progressive System (Sec. 28 (1), Art. VI)
d) ART Bill
Art. VI, Section 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public
debt, bills of local application, and private bills, shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments.
e) Presidents Power to Veto
Art. VI, Section 27 (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.
f) Delegated Authority of the President (Sec. 28 (2), Art. VI)
g) Exemption from Tax (Sec. 28 (3), Art. VI)
h) Congress concurrence (Sec. 28 (4), Art. VI)
i) No religious purpose
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, 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.
j) Special purpose
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.
k) Judicial Review
Art. VIII, Section 5. The Supreme Court shall have the following powers:
1) Exercise original jurisdiction over cases affecting ambassadors, other public ministers and consuls,
and over petitions for certiorari, prohibition, mandamus, quo warranto, and habeas corpus.
(2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of Court
may provide, final judgments and orders of lower courts in:
(a) All cases in which the constitutionality or validity of any treaty, international or executive
agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in
question.
(b) All cases involving the legality of any tax, impost, assessment, or toll, or any penalty imposed in
relation thereto.
(c) All cases in which the jurisdiction of any lower court is in issue.
(d) All criminal cases in which the penalty imposed is reclusion perpetua or higher.
(e) All cases in which only an error or question of law is involved.
(3) Assign temporarily judges of lower courts to other stations as public interest may require. Such
temporary assignment shall not exceed six months without the consent of the judge concerned.
(4) Order a change of venue or place of trial to avoid a miscarriage of justice.
(5) Promulgate rules concerning the protection and enforcement of constitutional rights, pleading,
practice, and procedure in all courts, the admission to the practice of law, the integrated bar, and
legal assistance to the under-privileged. Such rules shall provide a simplified and inexpensive
procedure for the speedy disposition of cases, shall be uniform for all courts of the same grade, and
shall not diminish, increase, or modify substantive rights. Rules of procedure of special courts and
quasi-judicial bodies shall remain effective unless disapproved by the Supreme Court.
(6) Appoint all officials and employees of the Judiciary in accordance with the Civil Service Law.
TAX PAYERS SUIT proper when there is illegal disbursement of public funds derived from taxation.
But note that even if the taxpayer questions the constitutionality of the law, he is not excused from
paying his taxes because of the life-blood theory.
l) Delegated authority to LGU
Art. X, Section 5. 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, Section 6. Local government units shall have a just share, as determined by law, in the national
taxes which shall be automatically released to them.
m) Tax exemptions
Art. XIV, Sec. 4 (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.
Sec. 30(H), NIRC: Exemptions from Tax on Corporations -- A nonstock and nonprofit educational
institution.

NOTA BENE: Income from school canteens and bookstores which is incidental to the schools primary
purpose is included in the exemption. But such school canteens and bookstores must be owned by the
school and located in the school campus.
ABAKADA Guro Party List v. Ermita, G.R. No. 168056, Sept. 1, 2005
Is there undue delegation of legislative power since the law gives the President stand-by authority
to raise the VAT rate to 12%? The authority does not refer to the power of the President to fix tariff
rates. Neither is it a delegation of legislative power. It is simply a delegation of ascertainment of facts
upon which enforcement and administration of the increase rate under the law is contingent. The
legislature has made the operation of the 12% rate effective Jan. 1, 2006, contingent upon a specified
fact or condition. It leaves the entire operation or non-operation of the 12% rate upon factual matters
outside the control of the executive. It is the ministerial duty of the President to immediately impose
the 12% rate upon the existence of any of the conditions specified by Congress.
Is there violation of due process clause as it imposes an unfair and additional tax burden on the
people?Petitioners argue that the law imposes an unfair and additional tax burden on the people as
the law does not provide for the rate to revert to the original 10% in case the conditions set forth are
no longer satisfied and as such, people wont know how much is the rate from year to year. SC said
that the law is clear and unambiguous. The fears of petitioner is merely speculative as the law itself
does not provide that the rate would go back to 10%.
Does it violate the rule that ART bills should exclusively originate from the House of
Representatives? No violation. According to petitioners, the amendments introduced to the NIRC did
not come from the House, but from the Senate. SC said that to begin with, it is not the law but the
revenue bill which is required by the Constitution to originate exclusively in the House of
Representatives. A bill originating from the House may undergo such extensive changes in the Senate
that the result may be a rewriting of the whole. At this point, what is important to note is that, as a
result of the Senate action, a distinct bill may be produced. To a insist that a revenue statute and
not only the bill which initiated the legislative process culminating in the enactment of the law must
substantially be the same as the House bill would be to deny the Senates power not only to concur
with amendments but also to propose amendments. It would violate the coequality of legislative
power of the two houses of Congress and in fact make the House superior to the Senate. What the
Constitution means is that the initiative for filing revenue, tariff or tax bills, bills authorizing an
increase of public debt, private bills and bills of local application must come from the House of
Representatives on the theory that, elected as they are from the districts, the members of the House
can be expected to be more sensitive to the local needs and problems. On the other hand, the
senators, who are elected at large, are expected to approach the same problems from the national
perspective. Both views are thereby made to bear on the enactment of such laws.
Does the imposition of limitations on the amount of input tax that may be claimed constitute a
deprivation of property without due process of law? There is no deprivation of property because the
input tax in excess of the output tax is carried over to succeeding quarter or quarters. In addition, a
tax credit certificate may be applied for any unused input taxes, to the extent that such input taxes
have not been applied against the input taxes. Such unused input tax may be used in payment of his
other internal revenue taxes. Moreover, input tax is not property under the purview of the
Constitution. It is merely a statutory privilege.
Does it violate the equal protection clause as the limitation on the creditable input tax is not based
on real and substantial differences to meet a valid classification? The equal protection clause does
not require the universal application of the laws on all persons or things without distinction. This
might in fact sometimes result in unequal protection. What the clause requires is equality among
equals as determined according to a valid classification. By classification is meant the grouping of
persons or things similar to each other in certain particulars and different from all others in these
same particulars.
Does violate the progressivity of tax laws? By its very nature, the VAT is regressive. Nevertheless, the
Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it simply
provides is that Congress shall evolve a progressive system of taxation. The constitutional provision
has been interpreted to mean simply that direct taxes are to be preferred and as much as possible,
indirect taxes should be minimized.
Does it violate the principle that tax collection and revenue should be solely allocated for public
purposes and expenditures since VAT-registered establishments are allowed to retain a portion of
the taxes they collect? No violation. The input tax is the tax paid by a person, passed on to him by the
seller, when he buys goods. Output tax meanwhile is the tax due to the person when he sells the
goods. In computing the variables, there are three possible scenarios: (1) if the input and output taxes
charged are equal, then there is no payment required; (2) when output taxes exceed the input taxes,
the person shall be liable for the excess; and (3) if the input taxes exceed the output taxes, the excess
shall be carried over to the succeeding quarter or quarters. The 70% limitation on input taxes does
not mean that the establishments retain the input tax in excess of 70%. It only means that they can
only credit their input tax up to the extent of 70% of their output tax.
Does it violate uniformity and equitable taxation? Uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be taxed at the same rate. Different articles may
be taxed different amounts provided that the rate is uniform on the same class everywhere with all
people at all times. The law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all
goods and services. The law is also equitable as it is equipped with a threshold margin. Thus the VAT
rate of 0% or 10% (or 12%) does not apply to sales of goods or services with gross annual sales or
receipts not exceeding P1,500,000.00.
C. Tax
c.1. Tax Defined, Characteristics
Tax enforced proportional contributions, generally payable in money, from persons, property,
rights and privileges levied by the legislative body of the State by virtue of its sovereignty for the
support of government and for public needs.
c.2. Kinds of Taxes
As to subject or object
personal>
propertyAs to who bears the burden
o direct
o indirect
CIR v. PLDT, G.R. No. 140230, Dec. 15, 2005
DIRECT v. INDIRECT TAX: based on the possibility of shifting the incidence of taxation. Direct taxes are
those that are exacted from the very person who, it is intended or desired, should pay them;
impositions for which a taxpayer is directly liable on the transaction or business he is engaged in.
Indirect taxes are those that are demanded, in the first instance, from, or are paid by, one person in
the expectation and intention that he can shift the burden to someone else; liability for the payment
falls on one person but the burden can be shifted or passed on to another person, such as when the
tax is imposed ex. VAT, advance sales tax, compensating tax upon goods before reaching the
consumer who ultimately pays for it. When the seller passes on the tax to his buyer, he, in effect,
shifts the tax burden, not the liability to pay it, to the purchaser as part of the price of goods sold or 1. As to nature - Tax is a demand of sovereignty for the purpose of raising public revenue; Toll is a
services rendered. demand of ownership to defray the cost and maintenance of the property.

By tacking the VAT due to the selling price, the seller remains the person primarily and legally liable
for the payment of the tax. What is shifted only to the intermediate buyer and ultimately to the final v. PENALTY
purchaser is the burden of the tax. Stated differently, a seller who is directly and legally liable for
payment of an indirect tax, such as VAT on goods and services, is not necessarily the person who
ultimately bears the burden of the same tax. It is the final purchaser or end-user of such goods or 1. As to kind of liability Tax is a civil liability; Penalty is a punishment for the commission of a crime.
services who, although not directly and legally liable for the payment thereof, ultimately bears the
burden of the tax. v. DEBT

As to determination of amount 1. As to source Tax is imposed by law; Debt is imposed by obligation created by contract.
2. As to penalty for non-payment Non-payment of tax may cause a person to be criminally
specific prosecuted; Non-payment of debt does not generally give rise to criminal action or cause a person to
ad valorem be imprisoned.
As to purpose 3. In Tax there is generally no compensation because the government and the taxpayer are not
creditors and debtors as to each other. BUT if both the tax and the tax refund due to the taxpayer
general are due and demandable, compensation may be proper. In Debt, compensation may be proper.
special
As to rate
DOCTRINE OF EQUITABLE RECOUPMENT
progressive
regressive c.4. Sources of Tax Laws, Nature of Tax Laws
proportional
As to imposing authority
1. NIRC
national 2. Constitution
local 3. Tariff and Tax Code
4. Local Government Code
c.3. Tax distinguished from other impositions
NOTA BENE: Tax laws are civil in nature, therefore, the rule on ex post facto law prohibition does not
v. SPECIAL ASSESSMENT apply. Tax laws may not be given retroactive effect, even if they are favorable to the taxpayers. Tax
laws are likewise not political, therefore, they still apply even if there is a change in government to a
As to subject matter Tax is imposed on persons, property and excises; Special Assessment is levied belligerent.
only on land
As to liability imposed upon taxpayer Tax can be a personal liability or liability on property of the c.5. Interpretation of Tax Laws
taxpayer; Special Assessment cannot be made a personal liability of the person assessed
As to purpose Tax is to generate revenue; Special Assessment is based wholly on benefit. Strictissimi juris strictly interpreted against the government and liberally in favor of the taxpayer
As to application Tax is of general and uniform application; Special Assessment is exceptional both because it involves the imposition of a tax burden
as to time and locality.
- EXCEPTION: Tax exemptions are strictly interpreted against the taxpayer and liberally in favor of the
v. LICENSE government because of the life-blood theory and the equal protection clause (exemptions are
privileges, therefore, encourages inequality among taxpayers)
As to power Tax is levied in the exercise of taxation power; License Fee emanates from police
power. Sea Land Service v. CA, G.R. No. 122605, April 30, 2001
As to purpose Tax is to generate revenue; License Fee is regulatory.>
As to amount to be charged Tax is unlimited; License Fee must be of an amount sufficient to cover STRICTISSIMI JURIS in TAX EXEMPTION: Laws granting exemption from tax are construed strictissimi
the expenses of: a) issuing the license; and b) cost of necessary inspection or police surveillance 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 in favor on tax exemptions and that he who would
v. TOLL seek to be thus privileged must justify it by words too plain to be mistaken and to categorical to be
misinterpreted.
PURPOSE OF TAX EXEMPTION: Some public benefit or interest, which the lawmaking body considers
sufficient to affect the monetary loss entailed in the grant of the exemption.
CIR v. CA, G.R. No. 107135, Feb. 23, 1999
RULE ON EXCEPTIONS: Exceptions, as a general rule, should be strictly but reasonably construed. They
extend only so far as their language fairly warrants, and all doubts should be resolved in favor of the
general provisions rather than the exception. Where the general rule is established by statute with
exceptions, the court will not curtail the former nor add to the latter by implication.
STRICTISSIMI JURIS in TAX LAWS: Tax burdens are not to be imposed, nor presumed to be imposed
beyond what the statute expressly and clearly imports, tax statutes being construed strictissimi juris
against the government.
Maceda v. Macaraig, 197 SCRA 771
(Exception to the Exception) STRICTISSIMI JURIS in GOVERNMENT: It is recognized principle that the
rule on strict interpretation does not apply in the case of exemptions in favor of government political
subdivisions or instrumentalities. In the case of property owned by the state or city or other public
corporation, the express exception should not be construed with the same degree of strictness that
applies to exemptions contrary to the policy of the state, since as to such property exception is the
rule and taxation the exception.
c.6. Tax Exemptions
KINDS
(1) express; (2) implied; (3) total; (4) partial; (5) constitutional; (6) statutory
Art. VI, Sec. 28 (3): Charitable institutions, churches and personages 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.
Art. XIV, Sec. 4(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.
Proprietary educational institutions, including those cooperatively owned, may likewise be entitled
to such exemptions, subject to the limitations provided by law, including restrictions on dividends
and provisions for reinvestment.
NOTA BENE: School canteens and bookstores are considered as incidental income and are therefore
included in the exemption.
Question:
(1) Is a vacant lot adjacent to a school building owned by the non-profit, non-stock educational
institution subject to real property taxation, considering that it is not used actually, directly and
exclusively for educational purposes?
(2) Is the exemption under Art. VI, Sec. 28(3) regardless of ownership, so that if the land used by the
religious or charitable institution is owned by a private person, it is still exempted from real property
tax?
Art. XIV, Sec. 4 (4): Subject to conditions prescribed by law, all grants, endowments, donations, or
contributions used actually, directly, and exclusively for educational purposes shall be exempt from
tax.
CONSTITUTIONAL RESTRICTIONS
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.
NOTA BENE: Therefore, the President cannot grant tax exemptions through executive agreement. Tax
treaties are entered into with concurrence of the Senate.
EXCEPTIONS
Art. VI, Sec. 28(2): 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.
Art. X, Section 5. 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.
REVOCATION, RESTRICTION
NOTA BENE:
o Tax pyramiding (tax on tax) is prohibited.
o Tax exemptions are mere privileges so they can be revoked at any time, EXCEPT if there was a
contract granting such tax exemption and such contract was entered into for a valid consideration.
Coconut Oil Refiners v. Torres, G.R. No. 132527, July 29, 2005
WHO HAS AUTHORITY: It is the legislature, unless limited by a provision of a state constitution, that
has full power to exempt any person or corporation or class of property from taxation, its power to
exempt being as broad as its power to tax. Other than Congress, the Constitution may itself provide
for specific tax exemptions, or local governments may pass ordinance on exemption only from local
taxes.
v. TAX AMNESTY
1. Tax exemption is prospective. Tax amnesty is retrospective.
2. Tax exemption is civil. Tax amnesty is civil and criminal.
3. Tax exemptions cannot be granted without the concurrence of majority of Congress. Tax amnesty is
the intentional overlooking by the government of tax unpaid and is generally considered an
executive act.
CIR v. Marubeni Corp., G.R. No. 137377, Dec. 18, 2001
TAX AMNESTY general pardon or intentional overlooking by the State of its authority to impose
penalties on persons otherwise guilty of evasion or violation of a revenue or tax law; partakes of an
absolute forgiveness or waiver by the government of its right to collect what is due it and to give tax
evaders a chance to start with a clean slate; never favored nor presumed in law; construed strictly
against the taxpayer and liberally in favor of government.

NOTA BENE: In both tax exemptions and tax amnesties, the rule on strictissimi juris is the same.

c.7. Tax Avoidance vs. Tax Evasion

Tax avoidance is the minimization of tax liabilities through legal means.

Tax evasion is the minimization of tax liabilities through illegal means with intent in bad faith or the
attendance of fraud.

Tax Credit vs. Tax Exemption

Tax credit contemplates two or more taxing authorities. Tax exemption contemplates only one taxing
authority.<
Tax credit is based on the principle of reciprocity. Tax exemption is an inherent power of the
sovereign state.

c.8. Concept of Double Taxation; Kinds; Modes of Eliminating Double Taxation

Double Taxation (Duplicate Taxation) taxing the same property twice when it should be taxed
only once.

KINDS:

Direct double taxation same subject, same purpose, same taxing authority, same taxing period,
same character of tax (elements of double taxation)
Indirect double taxation one or more of the elements of double taxation are absent

NOTA BENE: Double taxation may be avoided through various credit schemes specified under the
NIRC and exemptions under tax treaties entered into with foreign governments.