Contitutional Law II – Taxation ( 01-13-17)
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TAXATION
We refer this power of taxation as referring to the
power of the state to demand from us, members of the
society, our contribution or respective contributions for
the operation and maintenance of the government.
It’s a process of raising income, taxation is referred to as
the means by which the sovereign, through its law
making body, our congress, raises income to defray the
necessary expenses of the government and for the
supreme court of all public needs.
The power of taxation has the following attributes:
1. Inherent in the state - Inherent in the sense that even
without any provision in the constitution or any law for
that matter, the state no doubt can exercise this power,
just like the power of imminent domain and police
power of the state. This goes with the very existence of
the state, that’s why it is called inherent.
2. Legislative in character - Primarily lodged in the
congress, just like power of imminent domain and
police power.
3. This power is pervasive, but is subject to some
limitations - There are limitations thereon which are
characterized as inherent and there are also limitations
which are characterized as constitutional restrictions or
limitations.
When we speak of taxation as referring to the power of
the state to levy taxes then when we speak of taxes,
that refers therefore to the income or the revenue
raised by the state. Taxes or the tax is the defined as an
enforced proportional contribution from persons or
things as levied by the law making body of the state
having jurisdiction over the same or over the persons or
things subject of such imposition, to defray the
expenses of the government. Taxation refers to the
process of raising revenue and the tax is the product or
the fruit of such process or the exercise of power of
taxation.
Essential Characteristics:
1. Enforced contribution- Enforced in the sense that the
imposition thereof is not dependent on our will, rather
this is dependent on congress.
2. This is proportionate in character - As much as
possible the payment of the tax should be based on
one’s capacity to pay or the proportionate value of
property subject thereof.
3. Normally payable in money - Primary purpose of
such is to raise revenue to the cost of the government,
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but when the taxpayer is unable to pay or is in default,
there’s a good chance that his property may be levied
by the state to be sold at public auction. Tax should be
paid or should be made payable in money.
4. Imposed not just on natural persons, but also
juridical persons - like corporations, partnership, among
others.
5. Imposed by the state having jurisdiction over the
same - Our taxing laws could not enforce as against real
properties owned by Filipinos in the U.S.
6. Normally levied by the law making body of the state
having jurisdiction over such persons or properties- In
our jurisdiction, it is the congress.
7. Tax should be spent for a public purpose or public
purposes.
Tax is the lifeblood of the government.
Tax also is pervasive, in the sense that even income
derived by Filipino citizens who are residents of the PH,
those income that are derived elsewhere or even
abroad is subject to our taxing power.
A risk coercive and pervasive that in one case decided
by the U.S Supreme Court in the case of McCulloh VS
MARYLAND - U.S Supreme Court justice Marshall
decreed that the power to tax is so pervasive that it
includes the power to destroy.
PAN OIL COMPANY VS STATE OF MISISSIPI- The U.S
Supreme Court through Justice Holmes decreed also
that the power to tax does not include the power to
destroy.
Which of the two propositions is correct?
- It depends, in the sense that:
 if the power to tax is utilized as a tool or an
implement of the police power, then in that
context, the power to tax may include the
power to destroy. That explains why a higher
tax rate is imposed on the sale and
distribution of cigarettes among others,
because it was meant to discourage the sale
and consumption of cigarettes which could
cause cancer.
 But where the power to tax is merely utilized
to raise revenue then it does not include the
power to destroy. Both propositions are
correct from different advantage points.
Primary purpose of power to tax - to raise revenue.
*Taxation has also non-revenue purposes, one such

non-revenue purpose is regulation, to regulate.
How do we distinguish if the collection of sum of
money is exercised or done pursuant to the power of
taxation per se or the same is imposed pursuant to the
exercise of police power (because sometimes the
exercise of police power may also include collection of
money?)
- recall the case of GEROCHI VS DEPT OF ENERGY, our
Supreme Court ruled that you look at the primary
purpose, such that if the primary purpose is regulation,
raising of revenue is merely incidental thereto or
secondary then no doubt such collection is pursuant to
the exercise of police power. That’s how SC
characterized the imposition of Universal Charge as
provided for under as what’s ruled in the case of
Gerochi.
Conversely, where the primary purpose is to raise
revenue and incidental thereto is regulation then such
collection of sum of money is done pursuant to the
power of taxation. In this light, we can differentiate a tax
from a license fee, because a license fee is imposed
pursuant to the police power whereas a tax is imposed
pursuant to the power of taxation because the cost of a
license fee is that amount which is sufficient to cover
the cost of the permit as whereas the cost of regulation
but the amount to be imposed as a tax is unlimited
provided that it would not amount to being
confiscatory. A license fee is the payment for the
exercise or for doing an act, but a tax is imposed to raise
revenue.
License fee- regulation, pursuant to police power.
Non-revenue purposes:
1. Regulation
2. Reduce social inequality.
3. Spur economic growth or progress - Where the state
would grant tax holidays or incentives.
4. Afford protection- Tax rate is impose on imported
cigarettes compared to locally manufactured cigarettes.
To protect our local producers or manufacturers.
5. Promotion of general welfare.
Limitations imposed on the taxing power of the state:
(Inherent Limitations)
1. Public Purpose - PLANTERS PRODUCT VS FERTIPHIL,
SC declared as invalid the tax imposition amounting to
10% for every sale and disposition of a sack of fertilizer.
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It was considered as invalid because it was not for a
public purpose. On the contrary, it was for the benefit
of Planters product which was a private corporation,
according to the SC, such imposition therefore was
invalid because it was not for a public purpose.
The case of PLANTERS PRODUCT should be
differentiated from the case of LUTZ VS ARANETA,
wherein there was a tax imposition for the sale of a
sugar, the purpose of which is for the rehabilitation of
the then ailing sugar industry, our SC declared such
imposition as valid because such imposition was not
solely for the benefit of a particular sugar entity but for
the benefit of all those involved in the sugar industry,
but in the case of Planters, no doubt the tax imposition
by way of capital contribution was solely for the benefit
and advantage of Planters Product to the exclusion of
other entities engaged in the sale and distribution of
fertilizer. Considered as invalid.
COJUANGCO VS SANDIGANBAYAN, wherein our SC also
declared as invalid the imposition of collection of a form
of tax in the form of coconut levy. It was declared as
invalid because there was a contract entered into by
Cojuangco and the Republic of the PH under Marcos
granting the Cojuangco the power to administer the
fund levied as coconut levy fund, as if he owned the
same, in fact in the subsequent case, our SC ruled that
any shareholdings in any company that was acquired by
Cojuangco using the coconut levy fund would have to
be reverted for the benefit or advantage of the coconut
planters because the imposition of the coconut levy
fund was declared invalid because it was not for a public
purpose.
2. Non-delegability of taxing power - The power to tax
is basically legislative in character. This is lodged in
congress. This is therefore covered by the rule that what
the people has delegated unto congress as rule should
not be further delegated. As a rule, congress therefore
cannot delegate the power of taxation because this
power is primarily lodged in congress. This rule is not
absolute, this admits exceptions:
 Provided for under Section 28 par. 2
art. 6 of the 1987 Constitution- which
allows congress to delegate tariff rates
among others unto in favor of the
President. Provides that congress may
by law authorize the President to fix
within specified limits and subject to
such restrictions or limitations it may
impose tariff rates and other duties
within the framework of the national
development program of the
government.
 Delegation of taxing power in favor of

administrative bodies like the BIR, but
what is delegated to the BIR, is not the
power to promulgate tax laws, but only
the power to administer and/or enforce
tax laws or regulations.
Taxing power of the LGU’s is not
delegated by congress because this
power is directly conferred upon the
LGU’s by no less that Section 5 Art. 10 of
the 1987 Constitution, provides in
essence that each local government
unit shall have the power to levy taxes,
fees and charges, within or subject to
such guidelines prescribe by congress
consistent with the basic policy on local
autonomy and that clearly shows that
the taxing power as thus exercised by
LGU’s is directly conferred upon them
by the constitution itself. Otherwise
stated, taxing power on the part of
LGU’s is not a delegated authority from
congress.
3. The properties of the national government and Local
governing bodies or local political subdivisions are
exempt from taxation- MCIAA VS MARCOS, our SC said
that real properties owned by MCIAA are not exempt
from the power or taxing power of the LGU’s, because
in that case our SC was of the view, that MCIAA is but a
government owned/controlled corporation, it is not a
government or instrumentality of the national
government, and more than that our SC also
ratiocinated in that case that the exception or the tax
exception granted under sec. 2, 3, 4 par. 8 of the LGC
would only apply to the republic of the Philippines or
properties owned by the republic and owned by its
political subdivision.
In the case of MCIAA, our SC also said that the term
republic of the PH is not synonymous with the term
national government. That’s how the SC justified the
ruling in the case of MCIAA VS MARCOS, in holding that
real properties owned by MCIAA are subject to the real
property taxing power of the local government units
concerned.
In the case of MIAA VS CA or CITY OF PARANAQUE, our
SC had a 360 degrees turn around, this time around our
SC said that MIAA or the properties owned by MIAA
could not be taxed by the City government of
Paranaque, for the simple reason that among others,
MIAA is not a government owned corporation but an
instrumentality of the national government, it was not
considered as a GOCC because according to the SC it has
no stocks or capital stocks that were divided into shares
and that it could not also be considered as non-stock
corporation because it had no members and that more
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than that part of its income was distributed to the
national government, our SC cited art. 420 of the civil
code ordained that the real properties owned by MIAA
actually belonging to or owned by the republic of the
Philippines, such that pursuant to 234 par. 8 of LGC, said
properties therefore are beyond the ambient of the
taxing power of the LGU’s because the only instance
where the properties of the national government
political subdivisions of the tax is when as provided for
under sec. 234 par. 8 of LGC, the beneficial use thereof
is transferred to a taxable person, and MIAA among
others is not a taxable person.
The nagging question now is, which of the two cases is
controlling? MIAA, decided by the SC En banc, and to
settle the issue, the case of City Lapu-Lapu vs MCIAA
was already decided by our SC sometime in 2015 G.R.
181756, SC ruled that what should be controlling and
what should be considered as the governing doctrine is
that stated in the case of MIAA vs. CITY OF PARANAQUE.
The rule as it now stands, real properties owned by
airport corporations like MIAA, MCIAA among others
are beyond the scope of the taxing power of the LGU’s.
3. Subject to the rule on international committee- such
that real properties owned by the foreign governments
inside the philippines, embassy’s could not be imposed
with real property taxes after all we have a principle
international law, holding that there is equality among
equals.
5. As a rule, the taxing laws of the state can only be
enforced inside its territorial jurisdiction subject
however to some exceptions.
Constitutional Limitations (expressly provided for by no
less than our constitution):
1. Due Process (Sec. 1 Art. 3) - provides that no persons
shall be deprived of life, liberty and property without
due process of law, nor shall any person be denied the
equal protections of the law. Such that if congress
would enact a law fixing tax rate on the net taxable
income at the rate of 80% than any such tax imposition
or any such law could be assailed of as invalid for being
unjust or oppressive and confiscatory and that is
violative of the due process clause described in the
1987 Constitution.
2. Sec. 5 of art. 3 - No law shall be made respecting the
establishment of religion or prohibiting the free exercise
thereof.
It went on to provide that the free exercise of religious
profession and worship without discrimination of
preference shall forever be allowed.
AMERICAN BIBLE SOCIETY VS CITY OF MANILA, this is

basically the provision of law that was relied upon by
the SC in ruling that the City government of manila
could not impose the fee or a license tax on sale and
distribution of religious materials, it would run afoul
with sec. 5 art. 3 of the 1987 constitution among others.
3. Sec.10 of art. 3- Provides in essence that no law shall
be passed impairing the obligations of contracts.
CASANOVA VS HORD, where the SC said, tax privileges
could not be withdrawn by the state because doing such
would run afoul with the proscription against
enactment of laws that would impair the obligations
and contracts.
What the SC told us in the case of Casanova, is that
where the tax privilege is granted with a reciprocal
concession or that it was not given for free, then the
same cannot be withdrawn by the same, less that it
would violate the rule on proscription or enactment of
laws that would impair obligations and contracts.
Conversely, if the tax privilege or tax exemption is given
by the state for free, then in such situation any such tax
privilege having been given for free may be withdrawn
by the state even without a cost. After all, it was merely
given for free.
That was the ruling of PAGCOR VS BIR, under its charter,
pagcor was given a tax exemption but subsequently this
was withdrawn by the Congress, Pagcor objected, SC
said that PAGCOR could not oppose such withdrawal of
tax exemption, after all it was granted by the state for
free, there was no reciprocal concession to be
performed by PAGCOR for in exchange for having been
granted a tax privilege, and more than that our SC also
said that under sec. 11 of art. 12 1987 Constitution, it is
provided therein that a franchise granted by the state is
subject to revocation, alteration, modification. Pagcor
could not revoke the withdrawal of the tax exemption
that was previously granted to it because it was among
others granted for free.
Take note of the rule that when it comes to a law giving
tax exemption, the general rule is that any such law
granting tax exemption should be strictly construed
against the tax payer, exception: when the grantee or
the one given a tax privilege is an instrumentality or
agency of the national government.
2. Sec. 20 of art. 3- it provides in essence that no person
shall be imprisoned for debt or for non-payment of poll
tax, if you are a taxable person, but you do not pay your
income tax, then you may be liable for tax evasion. Be
that as it may, if you are not paying your pol tax, you
cannot be imprisoned. What is a poll tax? Refers to your
cedula.
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3. Sec. 28 par. 1 or art. 6- provides that the rule of
taxation shall be uniform and equitable, it further
provides that congress shall evolve a progressive system
of taxation.
Taxation is uniform if same persons belonging to same
class shall be subject to the same tax rate, such that
where there is a tax imposed on lawyers, tax rate should
be uniformed.
Uniformity of taxation would admit to some exceptions.
Equal protection clause admits of classification, that is
when the classification is based on substantial
differences or where such classification is germane to
the purpose of the law then such clarification is not
limited to the present condition, and all persons or
things belonging to the same class shall be treated alike,
both as to the rights conferred and the responsibilities
imposed. Example of an exception: the state would pass
a law classifying or making a classification between
locally manufacturers of cigarettes, thereby imposing a
higher tax rate on imported cigarettes.
4. Sec. 28 par. 3 of art. 6- Provides in essence that
charitable institutions, churches and personages or
convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, improvements
actually directly and exclusively used for religious,
charitable and educational purposes shall be exempt
from taxation.
This is the provision of law, that was vocal in the
resolution in the case of LUNG CENTER VS QUEZON
CITY, whether or not the City government of quezon
city was correct in imposing a real property tax on the
entire property of Lung Center for the reason that a
portion of land which were not exclusively utilized for
charitable purposes.
*Illustration*
The problem in the case of Lung Center was that
portions of their property, however, were not
exclusively utilized for charitable purposes because the
certain portion was utilized for commercial purposes,
the same was least out to commercial entities and even
to medical practitioners, recall that in the case of Lung
Center, the Local Government Concern wanted to
impose a tax not just on the portion used for
commercial purposes but also in the entire property,
contending that after all, the property was not
exclusively used for charitable purposes.
The ruling of the high court, the SC said that only the
portion utilized for commercial purposes should be
assessed with a real property tax, the remaining portion
remains to be tax exempt or exempt from the payment

of real property tax.
That is also the ruling in the case of ABRA VALLEY
COLLEGE VS AQUINO, that only in the portion that is
not actually, directly and exclusively used for education
purposes among others should be imposed with a real
property tax.
Income derived by the church among others and
donations in favor of the church are taxable when as
was ruled in the case of LADOC VS COMMISSIONER OF
INTERNAL REVENUE, our Supreme Court ordained that
the tax exemption granted under now, sec. 28 par. 3 of
art 6 is only exemption from the payment of the real
property tax, the tax exemption granted therein is tax
exemption when it comes to the imposition of a real
property tax, a tax on the property itself.
In the case of Ladoc, SC said that donation in favor of
the church is not tax exempt.
In the case of Lung Cancer, if the portion of the
property is utilized for commercial purpose and that the
same is least to a commercial institution then no doubt
this is subject to real property tax.
How about if the income derived for leasing a portion
of the property, the rentals are utilized for charitable
purposes, for the repairs and maintenance of the Lung
Center or for the salaries of the employees thereof,
will it matter? Is this portion exempt from the payment
of RPT? If the income/rentals thereof are utilized for
charitable purposes?
- The answer is NO, because the tax exemption granted
to buildings, improvements, actually, directly used for
charitable purposes, is premised on the use and
utilization of the real property itself.
Tax exemption is premised not on the use and utilization
of the income but the use of property itself. Even if the
income derived for leasing this portion to private
corporation is utilized for charitable purposes or for the
maintenance and support of the employees of the Lung
Center, then the portion remains to be taxable.
Remember that the tax exemption granted under sec.
28 par. 3 art. 6 of the 1987 constitution, in respect to
lands, buildings, improvements used for charitable,
religious and educational institutions again is premised
on the use and not on the ownership of those
properties.
The tax exemption provided for under sec. 28 par. 3 art.
6 1987 constitution only involves exemption from the
payment of Real Property Tax, it does not grant
exemption from the payment of income tax in like
manner that it does not include or it does not grant
exemption from the payment of donor’s tax. As a rule,
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income derived by the church, charitable institutions,
remains to be tax exempt (Sec. 30 of the national
revenue code). Income derive from leasing a portion of
the property to a commercial entity is not exempt from
income tax regardless the use of the income. Donations
in favor of the church is not taxable by virtue of sec. 101
of the national internal revenue code, provided that not
more than 30% of such donation is utilized for
administration purposes, as a rule, donation in favor of
the church is therefore tax exempt by virtue of the
national internal revenue code.
5. Sec. 28 par. 4 of art. 6- Provides that no law granting
tax exemption shall be passed without the concurrence
of the majority of the members of congress.
6. Sec. 29 par. 2 art. 6- Provides that no public money or
property shall be appropriated, applied, paid,
employed, directly or indirectly, for the use, support,
benefit of any sect, church, denomination, sectarian
institution, or system of religion, or of any priest,
preacher, minister, or 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.
As a rule, no public funds, especially derived of the
taxing power of the state should be utilized for sectarian
purposes. The state cannot donate in favor of the
Roman Catholic Church.
A priest elected as a mayor, is he entitled to be paid his
salary?
- Yes, the payment unto him is not prohibited under sec.
29 par. 2 art. 6, what is prohibited is the payment of
public funds by reason of hi being a priest but in that
situation, the payment unto him of a public money is by
reason of his being a public official.
7. Sec. 29 par. 3 art. 6- Providing that all money
collected on any taax 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.
8. Sec. 4 par. 3 art. 14- Provided in essence that 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.
9. Sec. 4 par. 4 art. 14- Providing that subject to
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conditions prescribed by law, all grants, endowments,

donations, or contributions used actually, directly, and
exclusively for educational purposes shall be exempt
from tax.

10. Sec. 27 par. 2 art. 6- Providing that 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.

As a rule, appropriation, revenue, tariff bill, must

emanate by the house of representatives, the president
may exercise partial veto when as a rule, the president
either approves or disapproves the bill in its entirety.