Callanta Tax Notes

8/8/2019 Callanta Tax Notes

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DEFINITION OF TAXATIONTaxation is the inherent power of the sovereign, exercised through thelegislature, to impose burdens upon the subjects and objects within itsjurisdiction, for the purpose of raising revenues to carry out thelegitimate objects of the government.

TAXESEnforced proportional contributions from properties and persons leviedby the State by virtue its sovereignty for the support of thegovernment and for public needs.

BASIS OF TAXATION> GOVERNMENTAL NECESSITY* The existence of the government depends upon its capacity toperform its two (2) basic functions:A.. to serve the people

B.. to protect the people

THEORY OF TAXATION>RECIPROCAL DUTIES OF SUPPORT AND PROTECTION1) Support on the part of the taxpayers2) Protection and benefits on the part of the government

BENEFITS RECEIVED PRINCIPLE(CIR vs. ALGUE) Despite the natural reluctance to surrender part of ones hard earnedincome to the taxing authority, every person who is able to must

contribute his share in the running of the government. The government is expected to respond in the form of tangible orintangible benefits intended to improve the lives of the people andenhanced their material and moral values. In return for his contribution, the taxpayer receives the generaladvantages and protection which the government affords the taxpayerand his property. One is compensation or consideration for the other.Protection for support and support for protection.However, it does not mean that only those who are able topay taxes can enjoy the privileges and protectiongiven to a citizen by the government.

LORENZO vs. POSADAS > The only benefit to which the taxpayer is entitled is that derivedform the enjoyment of the privileges of living in an organized societyestablished and safeguarded by the devotion of taxes to publicpurpose. The government promises nothing to the person taxedbeyond what maybe anticipated from an administration of the laws forthe general good.


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> Taxes are essential to the existence of the government. Theobligation to pay taxes rests not upon the privileges enjoyed by or theprotection afforded to the citizen by the government, but upon thenecessity of money for the support of the State. For this reason, no oneis allowed to object to or resist payment of taxes solely because no

personal benefit to him can be pointed out as arising from the tax.ESSENTIAL ELEMENTS OF A TAX1) It is an enforced contribution2) It is generally payable in money3) It is proportionate in character4) It is levied on persons, property, or the exercise of a right orprivilege5) It is levied by the State which has jurisdiction over the subject orobject of taxation6) It is levied by the law-making body of the State

7) It is levied for publics purpose or purposes

REQUISITES of a VALID TAX code: [P, U, J, A, N]1) It should be for a public purpose2) The rule of taxation should be uniform3) That either the person or property taxed be within the jurisdiction ofthe taxing authority4) That the assessment and collection be in consonance with the dueprocess clause5) The tax must not infringe on the inherent and constitutionallimitations of the power of taxation

*> Taxes are the lifeblood of the government and should be collectedwithout unnecessary hindrance. But their collection should not betainted with arbitrariness

NATURE OF TAXATION1) Inherent in sovereignty2) Legislative in character

SCOPE OF TAXATION1) Comprehensive

2) Unlimited3) Plenary4) Supreme

TOLENTINO vs. SEC. Of FINANCE > In the selection of the object or subject of taxation the courts haveno power to inquire into the wisdom, objectivity, motive, expediency ornecessity of such tax law. (WOMEN)


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PURPOSES OF TAXATION

PRIMARY- To raise revenue in order to support the government

SECONDARY1) Used to reduce social inequality2) Utilized to implement the police power of the State3) Used to protect our local industries against unfair competition4) Utilized by the government to encourage the growth of localindustries

PAL vs. EDU > It is possible for an exaction to be both a tax and a regulation.

License fees and charges, looked to as a source of revenue as well as ameans regulation. The fees may properly regarded as taxes eventhough they also serve as an instrument of regulation. If the purpose isprimarily revenue, or if revenue is at least one of the real andsubstantial purposes, then the exaction is properly called a tax.

CALTEX vs.. CIR > Taxation is no longer a measure merely to raise revenue to supportthe existence of the government. Taxes may be levied with aregulatory purpose to provide means for rehabilitation and stabilizationof a threatened industry which is affected with public interest as to be

within the police power of the State.

LIFEBLOOD DOCTRINE > Taxes are the lifeblood of the nation

> Without revenue raised from taxation, the government will notsurvive, resulting in detriment to society. Without taxes, thegovernment would be paralyzed for lack of motive power to activateand operate it. (CIR vs. ALGUE)

> Taxes are the lifeblood of the government and there prompt andcertain availability is an imperious need.

> Taxes are the lifeblood of the nation through which the agencies ofthe government continue to operate and with which the state effectsits functions for the benefit of its constituents

ILLUSTRATIONS OF THE LIFEBLOOD THEORY


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1) Collection of the taxes may not be enjoined by injunction2) Taxes could not be the subject of compensation or set off3) A valid tax may result in destruction of the taxpayers property4) Taxation is an unlimited and plenary power

POWER TO TAX AND POWER TO DESTROY

* > The power to tax includes the power to destroy if it is used as animplement of the police power (regulatory) of the State. However, itdoes not include the power to destroy if it is used solely for thepurpose of raising revenue. (ROXAS vs. CTA)

NOTES: > If the purpose of taxation is regulatory in character, taxation isused to implement the police power of the state

> If the power of taxation is used to destroy things, businesses, orenterprises and the purpose is to raise revenue, the court will come inbecause there will be violation of the inherent and constitutionallimitations and it will be declared invalid.

NATURE OF THE TAXING POWER1) Attribute of sovereignty and emanates from necessity,relinquishment of which is never presumed2) Legislative in character, and

3) Subject to inherent and constitutional limitations

NECESSITY THEORY > Existence of a government is a necessity and cannot continuewithout any means to pay for expenses

BENEFITS PROTECTION THEORY > Reciprocal duties of protection and support between State andinhabitants. Inhabitants pay taxes and in return receive benefits and

protection from the State

SCOPE OF LEGISLATIVE TAXING POWER1) The persons, property and excises to be taxed, provided it is withinits jurisdiction2) Amount or rate of tax3) Purposes for its levy, provided it be for a public purpose4) Kind of tax to be collected


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5) Apportionment of the tax6) Situs of taxation7) Method of collection

ASPECTS OF TAXATION

1) LEVY or IMPOSITION enactment of tax laws legislative in character2) ASSESSMENT collection administrative in character

NOTES: > It is inherent in the power to tax that the State is free to select theobject of taxation

> The power of the legislature to impose tax includes the power1) what to tax2) whom to tax3) how much to tax

BAGATSING vs. RAMIREZ > What cannot be delegated is the legislative enactment of a taxmeasure but as regards to the administrative implementation of a taxlaw that can be delegated.

> The collection may be entrusted to a private corporation.

> The rule that the power of taxation cannot be delegated does notapply to the administrative implementation of a tax law

> There is no violation because what is delegated or entrusted is thecollection and not the enactment of such laws

> The issuance of regulations or circulars by the BIR or the Secretaryof Finance should not go beyond the scope of the tax measure

BASIC PRINCIPLES OF A SOUND TAX SYSTEM

1) THEORETICAL JUSTICE2) FISCAL ADEQUACY3) ADMINISTRATIVE FEASIBILITY

NOTES:FISCAL ADEQUACY- VIOLATION VALID > Sources of revenue should be sufficient to meet the demands of


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public expenditure

> Revenues should be elastic or capable of expanding or contractingannually in response to variations in public expenditure

>Elasticity may be obtained without creating annually any new taxesor any new tax machinery but merely by changes in the ratesapplicable to existing taxes

> Even if a tax law violates the principle of Fiscal Adequacy , in otherwords, the proceeds may not be sufficient to satisfy the needs of thegovernment, still the tax law is valid

ADMINISTRATIVE FEASIBILITY- VIOLATION VALID > The tax law must be capable of effective or efficient enforcement

> Tax laws should be capable of convenient, just and effectiveadministration

> Tax laws should close-up the loopholes for tax evasion and deterunscrupulous officials from committing fraud > There is no law that requires compliance with this principle, so evenif the tax law violates this principle; such tax law is valid.

THEORETICAL JUSTICE- VIOLATION INVALID > This principle mandates that taxes must be just, reasonable and

fair Taxation shall be uniform and equitable

> Equitable taxation has been mandated by our constitution, as iftaxes are unjust and unreasonable then they are not equitable, thusinvalid.

> The tax burden should be in proportion to the taxpayers ability topay (ABILITY TO PAY PRINCIPLE)

DISTINCTIONS:

TAXATION vs. POLICE POWER vs. EMINENT DOMAIN1) As to purpose:Taxation for the support of the governmentEminent Domain_- for public usePolice Power to promote general welfare, public health, public morals,


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and public safety.

2) As to compensation:Taxation Protection and benefits received from the government.Eminent Domain just compensation, not to exceed the market value

declared by the owner or administrator or anyone having legal interestin the property, or as determined by the assessor, whichever is lower.Police Power The maintenance of a healthy economic standard ofsociety.

3) As to persons affected:Taxation and Police Power operate upon a community or a class ofindividualsEminent Domain operates on the individual property owner.

4) As to authority which exercises the power:

Taxation and Police Power Exercised only by the government or itspolitical subdivisions.Eminent Domain may be exercised by public services corporation orpublic utilities if granted by law.

5) As to amount of imposition:Taxation Generally no limit to the amount of tax that may beimposed.Police Power Limited to the cost of regulationEminent Domain There is no imposition; rather, it is the owner of theproperty taken who is just paid compensation.

6) As to the relationship to the Constitution:Taxation and Eminent Domain Subject to certain constitutionallimitations, including the prohibition against impairment of theobligation of contracts.Police Power Relatively free from constitutional limitations andsuperior to the non-impairment provisions thereof.

TAX DISTINGUISHED FROM LICENSE FEE:a) PURPOSE: Tax imposed for revenue WHILE license fee for regulation.Tax for general purposes WHILE license fee for regulatory purposes

only.

b) BASIS: Tax imposed under power of taxation WHILE license feeunder police power.

c) AMOUNT: In taxation, no limit as to amount WHILE license feelimited to cost of the license and expenses of police surveillance andregulation.


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d) TIME OF PAYMENT: Taxes normally paid after commencement ofbusiness WHILE license fee before.

e) EFFECT OF PAYMENT: Failure to pay a tax does not make the

business illegal WHILE failure to pay license fee makes business illegal.f) SURRENDER: Taxes, being lifeblood of the state, cannot besurrendered except for lawful consideration WHILE a license fee maybe surrendered with or without consideration.

IMPORTANCE OF DISTINCTION BETWEEN TAXES AND LICENSE FEES.It is necessary to determine whether a particular imposition is a tax ora license fee, because some limitations apply only to one and not tothe other.Furthermore, exemption from taxes does not include exemption fromlicense fees

TAXES DISTINGUISHED FROM OTHER IMPOSITIONS:1) toll amount charged for the cost and maintenance of propertyused;

2) compromise penalty amount collected in lieu of criminalprosecution in cases of tax violations;

3) special assessment levied only on land based wholly on the benefitaccruing thereon as a result of improvements of public works

undertaken by government within the vicinity.

4) license fee regulatory imposition in the exercise of the policepower of the State;

5) margin fee exaction designed to stabilize the currency

6) custom duties and fees duties charged upon commodities on theirbeing imported into or exported from a country;

7) debt a tax is not a debt but is an obligation imposed by law.

Special assessment v. tax

1. A special assessment tax is an enforced proportional contributionfrom owners of lands especially benefited by public improvements2. A special assessment is levied only on land.3. A special assessment is not a personal liability of the person


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assessed; it is limited to the land.4. A special assessment is based wholly on benefits, not necessity.5. A special assessment is exceptional both as to time and place; a taxhas general application.

Republic v. Bacolod, 17 SCRA 632

A special assessment is a levy on property which derives somespecial benefit from the improvement. Its purpose is to finance suchimprovement. It is not a tax measure intended to raise revenues forthe government. The proceeds thereof may be devoted to the specificpurpose for which the assessment was authorized, thus accruing onlyto the owners thereof who, after all, pay the assessment.

Some Rules:

An exemption from taxation does not include exemption from aspecial treatment.

The power to tax carries with it a power to levy a special assessment.

Toll v. tax

1. Toll is a sum of money for the use of something. It is theconsideration which is paid for the use of a road, bridge, or the like, ofa public nature. Taxes, on the other hand, are enforced proportional

contributions from persons and property levied by the State by virtueof its sovereignty for the support of the government and all publicneeds.

2. Toll is a demand of proprietorship; tax is a demand of sovereignty.

3. Toll is paid for the used of anothers property; tax is paid for thesupport of government.

4. The amount paid as toll depends upon the cost of construction ormaintenance of the public improvements used; while there is no limit

on the amount collected as tax as long as it is not excessive,unreasonable, or confiscatory.

5. Toll may be imposed by the government or by private individuals orentities; tax may be imposed only by the government.

Tax v. penalty


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1. Penalty is any sanction imposed as a punishment for violation of lawor for acts deemed injurious; taxes are enforced proportionalcontributions from persons and property levied by the State by virtueof its sovereignty for the support of the government and all publicneeds.

2. Penalty is designed to regulate conduct; taxes are generallyintended to generate revenue.

3. Penalty may be imposed by the government or by privateindividuals or entities; taxes only by the government.

Obligation to pay debt v. obligation to pay tax

1. A debt is generally based on contract, express or implied, while atax is based on laws.

2. A debt is assignable, while a tax cannot generally be assigned.

3. A debt may be paid in kind, while a tax is generally paid in money.

4. A debt may be the subject of set off or compensation, a tax cannot.

5. A person cannot be imprisoned for non-payment of tax, except polltax.

6. A debt is governed by the ordinary periods of prescription, while a

tax is governed by the special prescriptive periods provided for in theNIRC.

7. A debt draws interest when it is so stipulated or where there isdefault, while a tax does not draw interest except only whendelinquent.

Requisites of compensation

1. That each one of the obligor be bound principally, and that he be at

the same time a principal creditor of the other.

2. That both debts consist in a sum of money, or if the things due areconsumable, they be of the same kind and also of the same quality ifthe latter has been stated.

3. That the two (2) debts be due.


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4. That they be liquidated and demandable.

5. That over neither of them there be any retention or controversy,commenced by third persons and communicated in due time to thedebtors.

Rules re: set off or compensation of debts

General rule: A tax delinquency cannot be extinguished by legalcompensation. This is so because the government and the taxdelinquent are not mutually creditors and debtors. Neither is a taxobligation an ordinary act. Moreover, the collection of a tax cannotawait the results of a lawsuit against the government. Finally, taxesare not in the nature of contracts but grow out of the duty to, and arethe positive acts of the government to the making and enforcing of

which the personal consent of the taxpayer is not required. (Francia v.IAC, 162 SCRA 754 and Republic v. Mambulao Lumber, 4 SCRA 622)

Exception: SC allowed set off in the case of Domingo v. Garlitos [8SCRA 443] re: claim for payment of unpaid services of a governmentemployee vis--vis the estate taxes due from his estate. The fact thatthe court having jurisdiction of the estate had found that the claim ofthe estate against the government has been appropriated for thepurpose by a corresponding law shows that both the claim of thegovernment for inheritance taxes and the claim of the intestate forservices rendered have already become overdue and demandable as

well as fully liquidated. Compensation therefore takes place byoperation of law.Philex Mining Corporation v. Commissioner, 294 SCRA 687 (1998)Philex Mining Corporation was to set off its claims for VAT inputcredit/refund for the excise taxes due from it. The Supreme Courtdisallowed such set off or compensation.Survey of Philippine TaxesA. Internal Revenue taxes imposed under the NIRC.1. Income tax2. Transfer taxesa) Estate tax

b) Donors tax3. Percentage taxesa) Value Added Taxb) Other Percentage Taxes4. Excise taxes5. Documentary stamp taxB. Local/ Municipal TaxesC. Tariff and Customs Duties


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D. Taxes / Tax Incentives under special lawsCLASSIFICATION OF TAXESAS TO SUBJECT MATTER OR OBJECT1. Personal, poll or capitation taxTax of a fixed amount imposed on persons residing within a specified

territory, whether citizens or not, without regard to their property orthe occupation or business in which they may be engaged, i.e.community tax.2. Property taxTax imposed on property, real or personal, in proportion to its value orin accordance with some other reasonable method of apportionment.3. Excise taxA charge impose upon the performance of an act, the enjoyment ofprivilege, or the engaging in an occupation.AS TO PURPOSEGeneral/fiscal revenue tax is that imposed for the purpose of raising

public funds for the service of the government.A special or regulatory tax is imposed primarily for the regulation ofuseful or non-useful occupation or enterprises and secondarily only forthe purpose of raising public funds.AS TO WHO BEARS THE BURDEN1. Direct taxA direct tax is demanded from the person who also shoul,ders theburden of the tax. It is a tax which the taxpayer is directly or primarilyliable and which he or she cannot shift to another.2. Indirect taxAn indirect tax is demanded from a person in the expectation and

intention that he or she shall indemnify himself or herself at theexpense of another, falling finally upon the ultimate purchaser orconsumer. A tax which the taxpayer can shift to another.AS TO THE SCOPE OF THE TAX1. National taxA national tax is imposed by the national government.2. Local taxA local tax is imposed by the municipal corporations or localgovernment units (LGUs).AS TO THE DETERMINATION OF AMOUNT1. Specific tax

A specific tax is a tax of a fixed amount imposed by the head ornumber or by some other standard of weight or measurement. Itrequires no assessment other than the listing or classification of theobjects to be taxed.2. Ad valorem taxAn ad valorem tax is a fixed proportion of the value of the propertywith respect to which the tax is assessed. It requires the interventionof assessors or appraisers to estimate the value of such property


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before due from each taxpayer can be determined.AS TO GRADUATION OR RATE1. Proportional taxTax based on a fixed percentage of the amount of the propertyreceipts or other basis to be taxed. Example: real estate tax.

2. Progressive or graduated taxTax the rate of which increases as the tax base or bracket increases.Digressive tax rate: progressive rate stops at a certain point.Progression halts at a particular stage.3. Regressive taxTax the rate of which decreases as the tax base or bracket increases.There is no such tax in the Philippines.

TAX SYSTEMSConstitutional mandate

The rule of taxation shall be uniform and equitable. The Congressshall evolve a progressive system of taxation. [Section 28 (1), ArticleVI, Constitution] Regressivity is not a negative standard for courts to enforce. WhatCongress is required by the Constitution to do is to evolve aprogressive system of taxation. This is a directive to Congress, justlike the directive to it to give priority of the enactment of law for theenhancement of human dignity. The provisions are put in theConstitution as moral incentives to legislation, not as judiciallyenforceable rights. (Tolentino v. Secretary of Finance.)Progressive system of taxation v. regressive system of taxation

A progressive system of taxation means that tax laws shall placeemphasis on direct taxes rather than on indirect taxes, with ability topay as the principal criterion. A regressive system of taxation exists when there are more indirecttaxes imposed than direct taxes. No regressive taxes in the Philippine jurisdictionCLASSIFICATION OF TAXES:1. personal tax also known as capitalization or poll tax;2. property tax assessed on property of a certain class;3. direct tax incidence and impact of taxation falls on one person andcannot be shifted to another;

4. indirect tax incidence and liability for the tax falls on one personbut the burden thereof can be passed on to another;5. excise tax imposed on the exercise of a privilege;6. general taxes taxes levied for ordinary or general purpose of thegovernment;7. special tax levied for a special purpose;8. specific taxes imposed on a specific sum by the head or number orby some standards of weight or measurement;


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9. ad valorem tax tax imposed upon the value of the article;10. local taxes taxes levied by local government units pursuant tovalidly delegated power to tax;11. progressive taxes rate increases as the tax base increases; and12. regressive taxes rate increases as tax base decreases.

GENERAL RULE:- Taxes are personal to the taxpayer. Corporations tax delinquencycannot be enforced on the stockholder or transfer taxes on the estatebe assessed on the heirs.EXCEPTIONS1. stockholders may be held liable for unpaid taxes of a dissolvedcorporation if the corporate assets have passed into their hands; and2. heirs may be held liable for the transfer taxes on the estate, if priorto the payment of the same, the properties of the decedent have beendistributed to the heirs.

LIMITATIONS ON THE POWER OF TAXATIONInherent Limitations1. It must be imposed for a public purpose.2. If delegated either to the President or to a L.G.U., it should be validlydelegated.3. It is limited to the territorial jurisdiction of the taxing authority.4. Government entities are exempted.5. International comity is recognized i.e. property of foreign sovereignsare not subject to tax.Constitutional limitations Indirect

a) Due process clauseb) Equal protection clausec) Freedom of the pressd) Religious freedome) Non-impairment clausef) Law-making process 1. One-subject One-title Rule2. 3 readings on 3 separate days Rule except when there is aCertificate of Emergency3. Distribution of copies 3 days before the 3rd reading.g) Presidential power to grant reprieves, commutations and pardons,

and remit fines and forfeitures after conviction by final judgment.Direct a) Revenue bill must originate exclusively in H.R. but the Senate maypropose with amendments.b) Non-imprisonment for non-payment of poll tax.c) Taxation shall be uniform and equitable.d) Congress shall evolve a progressive system of taxation.e) Tax exemption of charitable institutions, churches and personages


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or convents appurtenant thereto, mosques, non-profit cemeteries, andall lands, buildings and improvements ADE (actually, directly ,exclusively) used for charitable, religious, and educational purposes.f) Tax exemption of all revenues and assets used ADE for educationalpurposes of

1. Non-profit non-stock educational institutions.2. Proprietary or cooperative educational institutions subject tolimitations provided by law including a) restriction on dividendsb) provisions for re-investments.g) Tax exemption of grants, endowments, donations or contributionsADE for educational purposes, subject to conditions prescribed by law.h) No tax exemption without the concurrence of a majority of allmembers of Congress.i) SC power to review judgments or orders of lower courts in all casesinvolving Legality of any tax. Impost or toll, Legality of any penalty

imposed in relation thereto.INHERENT LIMITATIONSNOTES: PUBLIC PURPOSE GOVERNMENTAL PURPOSERULE: The Legislature is without the power to appropriate revenues foranything but for public purposes.RULE: Public money can only be spent for a public purpose.PUBLIC PURPOSE A purpose affecting the inhabitants of the State ortaxing district as a community and not merely as individuals

> Public purpose includes not only direct benefits or advantage, it alsoincludes indirect benefits or advantageTIO vs. VIDEOGRAM > It is not the immediate result but the ultimate result thatdetermines, whether the purpose is public or not > It is not the number of persons benefited but it is the character ofthe purpose that determines the public character of such tax law > What is not allowed is that if it has no link to public welfare > Public purpose is determined by the use to which the tax money isdevoted> If it benefits the community in general then it is for a public purpose

no matter who collects itTEST1. If the public advantage or benefit is merely incidental in thepromotion of a particular enterprise, that will render the law INVALID2. If what is incidental is the promotion of a private enterprise, the taxlaw is still for a public purpose(VALID) > A tax levied for a private, not public purpose constitutes taking ofproperty without due process of law as it is beyond the powers of the


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government to impose it. > Although private individuals are directly benefited, the tax wouldstill be valid, provided such benefit is only incidental > If what is incidental is the promotion of a private enterprise, as longas there is a link to the public welfare, the purpose is still public

> The test is not as to who receives the money, but the character ofthe purpose for which it is expended> Not the immediate result of the expenditure, but rather the ultimate > The test that must be applied in determining whether the purposeis public or private1) The character of the direct object2) The ultimate result not the immediate result3) The general welfare for public goodTEST OF RIGHTFUL TAXATION- Proceeds of a tax must be used1) for the support of the government

2) for any of the recognized objects of the government3) to promote the welfare of the communityLEGISLATIVE PREROGATIVERULE: It is Congress which has the power to determine whether thepurpose is public or private > You can always question the validity of such tax measure on theground that it is not for a public purpose before the courts. But once itis settled that it is for a public purpose, you can no longer inquire onsuch tax measureTAXPAYERS SUIT- a case where the act complained of directly involves the illegal

disbursement of public funds derived from taxation> courts discretion to allow > Taxpayers have sufficient interest of preventing the illegalexpenditures of money raised by taxation (NOT DONATIONS ANDCONTRIBUTIONS) > A taxpayer is not relieved from the obligation of paying a taxbecause of his belief that it is being misappropriated by certain officials > A taxpayer has no legal standing to question executive acts that donot involve the use of public funds. (GONZALES vs. MARCOS)LOZADA vs. COMELEC > It is only when an act complained of which may include a legislative

enactment of a statute, involves the illegal expenditure of publicmoney that the so-called taxpayers suit may be allowed.

CALTEX vs. COA > Taxpayers may be levied with a regulatory purpose to providemeans for the rehabilitation and stabilization of a threatened industrywhich is affected with the public interest as to be within the policepower of the State.


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> A law imposing burdens may be both a tax measure and anexercise of the police power in which case the license fee may exceedthe necessary expenses of police surveillance and regulation.REQUISITES FOR A TAXPAYERS PETITION1) That money is being extracted and spent in violation of specific

constitutional protections against abuses of legislative power2) That public money is being deflected to any improper purpose3) That the petitioner seeks to restrain respondents from wastingpublic funds through the enforcement of an invalid or unconstitutionallaw.KILOS BAYAN vs. GUINGONA > The Supreme Court has discretion whether or not to entertaintaxpayers suit and could brush aside lack of locus standiCONCEPTS RELATIVE TO PUBLIC PURPOSE1) Inequalities resulting from the singling out of one particular class fortaxation or exemption infringe no constitutional limitation

It is inherent in the power to tax that the legislature is free to selectthe subject of taxation2) An individual taxpayer need not derive direct benefits from the tax The paramount consideration is the welfare of the greater portion ofthe population3) Public purpose is continually expanding. Areas formerly left toprivate initiative now loose their boundaries and may be undertaken bythe government, if it is to meet the increasing social challenges of thetimes4) Public purpose is determined at the time of enactment of the taxlaw and not at the time of implementation

NOTES: INTERNATIONAL COMITY- Based on tradition, practice or customDOCTRINE OF INCORPORATION > The Philippines adopts the generally accepted principles ofinternational law as part of the law of the land > If a tax law violates certain principles of international law, then it isnot only invalid but also unconstitutionalGROUNDS FOR TAX EXEMPTION OF FOREIGN GOVERNMENT PROPERTY1) Sovereign equality of States2) Usage among States

3) Immunity from suit of a State

NOTES: NON-DELEGATION OF THE POWER TO TAXGENERAL RULE:- The power of taxation is peculiarly and exclusively legislative,therefore, it may not be delegatedEXCEPTIONS:1) Delegation to the President


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2) Delegation to local government units3) Delegation to administrative units

POWERS WHICH CANNOT BE DELEGATED1) Determination of the subjects to be taxed

2) Purpose of the tax3) Amount or rate of the tax4) Manner, means and agencies of collection5) Prescription of the necessary rules with respect thereto

DELEGATION TO THE PRESIDENT > Congress may authorize, by law, the President to fix, withinspecified limits and subject to such limitations and restrictions as itmay impose1) Tariff rates2) Import and export quotas

3) Tonnage and wharfage dues4) Other duties and import within the national development program ofthe government > There must be a law authorizing the President to fix tariff rates > The delegation of power must impose limitations and restrictionsand specify the minimum as well as the maximum tariff rates.

FLEXIBLE TARIFF CLAUSE (SEC. 401 TCC)- In the interest of national economy, general welfare and/or nationalsecurity, the President upon the recommendation of the National

Economic and Development Authority is empowered:1) To increase, reduce or remove existing protective rates of importduty, provided that the increase should not be higher than 100% advalorem2) To establish import quota or to ban imports of any commodity3) To impose additional duty on all imports not exceeding 10% advalorem

DELEGATION TO LOCAL GOVERNMENT UNITS > Each local government unit has the power to create its ownrevenue and to levy taxes, fees and charges subject to such guidelines

and limitations as the Congress may provide (ART X Sec 5) > Local government units have no power to further delegate saidconstitutional grant to raise revenue, because what is delegated is notthe enactment or the imposition of a tax, it is the administrativeimplementationBASCO vs. PAGCOR > The power of local government units to impose taxes and fees isalways subject to the limitations which Congress may provide, the


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former having no inherent power to tax. > Municipal corporations are mere creatures of Congress which hasthe power to create and abolish municipal corporations. Congresstherefore has the power to control over local government units. IfCongress can grant to a municipal corporation the power to tax certain

matters, it can also provide for exemptions or even take back thepower

DELEGATION TO ADMINISTRATIVE AGENCIES > For the delegation to be constitutionally valid, the law must becomplete in itself and must set forth sufficient standards > Certain aspects of the taxing process that are not really legislativein nature are vested in administrative agencies. In these cases, therereally is no delegation, to wit:A) power to value propertyB) power to assess and collect taxes

C) power to perform details of computation, appraisement oradjustments.

NOTES: EXEMPTION OF GOVERNMENT AGENCIES1) Agencies performing governmental functions> TAX EXEMPT2) Agencies performing proprietary functions> SUBJECT TO TAX* > The exemption applies only to governmental entities throughwhich the government immediately and directly exercises its sovereignpowers.

NDC vs. CEBU CITY > Tax exemption of property owned by the Republic of the Philippinesrefers to the property owned by the government and its agencieswhich do not have separate and distinct personality.> Those with ORIGINAL CHARTERS (incorporated agencies) > Those created by SPECIAL CHARTER (incorporated agencies) arenot covered by the exemptionGOVERNMENT ENTITIES EXEMPT FROM INCOMING TAX1) GSIS2) SSS3) PHIC

4) PCSO5) PAGCORREASON FOR EXEMPTIONS1) Government will be taxing itself to raise money for itself.2) Immunity is necessary in order that governmental functions will notbe impeded.NOTES: TERRITORIAL JURISDICTIONRULES:


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> Tax laws cannot operate beyond a States territorial limits > The government cannot tax a particular object of taxation which isnot within its territorial jurisdiction. > Property outside ones jurisdiction does not receive any protectionof the State

> If a law is passed by Congress, Congress must always see to it thatthe object or subject of taxation is within the territorial jurisdiction ofthe taxing authoritySITUS OF TAXATION Place of taxationRULE:- The State where the subject to be taxed has a situs may rightfullylevy and collect the tax > In determining the situs of taxation, you have to consider thenature of the taxesExample:

1) POLL TAX, CAPITATION TAX, COMMUNITY TAX> Residence of the taxpayer

2) REAL PROPERTY TAX OR PROPERTY TAX> Location of the property > We can only impose property tax on the properties of a personwhose residence is in the Philippines.

EXCEPTIONS TO THE TERRITORIALITY RULEA) Where the tax laws operate outside territorial jurisdiction1) TAXATION of resident citizens on their incomes derived from abroad

B) Where tax laws do not operate within the territorial jurisdiction ofthe State1) When exempted by treaty obligations2) When exempted by international comitySITUS OF TAX ON REAL PROPERTY- LEX REI SITUS or where the property is locatedREASON: The place where the real property is located gives protection to thereal property, hence the property or its owner should support thegovernment of that placeSITUS OF PROPERTY TAX ON PERSONAL PROPERTY

- MOBILIA SEQUNTUR PERSONAM= movables follow the owner= movables follow the domicile of the ownerRULES:1) TANGIBLE PERSONAL PROPERTY- Where located, usually the owners domicile2) INTANGIBLLE PERSONAL PROPERTYG. R. Domicile of the owner


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EXCEPTION: The situs location not domicile> Where the intangible personal property has acquired a business situsin another jurisdiction* > The principle of Mobilia Sequntur Personam is only for purposesof convenience. It must yield to the actual situs of such property.

* > Personal intangible properties which acquires business situs here inthe Philippines1) Franchise which is exercised within the Philippines2) Shares, obligations, bonds issued by a domestic corporation3) Shares, obligations, bonds issued by a foreign corporation, 85% ofits business is conducted in the Philippines4) Shares, obligations, bonds issued by a foreign corporation whichshares of stock or bonds acquire situs here5) Rights, interest in a partnership, business or industry established inthe Philippines> These intangible properties acquire business situs here in the

Philippines, you cannot apply the principle of Mobilia SequnturPersonam because the properties have acquired situs here.SITUS OF INCOME TAXA) DOMICILLARY THEORY- The location where the income earner resides in the situs of taxationB) NATIONALITY THEORY- The country where the income earner is a citizen is the situs oftaxationC) SOURCE RULE- The country which is the source of the income or where the activitythat produced the income took place is the situs of taxation.

SITUS OF SALE OF PERSONAL PROPERTY > The place where the sale is consummated and perfectedSITUS OF TAX ON INTEREST INCOME > The residence of the borrower who pays the interest irrespective ofthe place where the obligation was contractedCIR vs. BOAC > Revenue derived by an of-line international carrier without anyflight from the Philippines, from ticket sales through its local agent aresubject to tax on gross Philippine billings

SITUS OF EXCISE TAX

> Where the transaction performedHOPEWELL vs. COM. OF CUSTOMS > The power to levy an excise upon the performance of an act or theengaging in an occupation does not depend upon the domicile of theperson subject to the exercise, nor upon the physical location of theproperty or in connection with the act or occupation taxed, butdepends upon the place on which the act is performed or occupationengaged in.


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Thus, the gauge of taxability does not depend on the location of theoffice, but attaches upon the place where the respective transaction isperfected and consummatedCONSTITUTIONAL LIMITATIONSI. DUE PROCESS

> Due process mandates that no person shall be deprived of life,liberty, or property without due process of law.PEPSI COLA vs. MUN. OF TANAUAN- REQUIREMENTS OF DUE PROCESS IN TAXATION1) Tax must be for a Public purpose2) Imposed within the Territorial jurisdiction3) No arbitrariness or oppression inA) assessment, andB) collection

DUE PROCESS IN TAXATION DOES NOT REQUIRE

1) Determination through judicial inquiry ofA) property subject to taxB) amount of tax to be imposed2) Notice of hearing as to:A) amount of the taxB) manner of apportionment

REQUISITES OF DUE PROCESS OF LAW1) There must be a valid law2) Tax measure should not be unconscionable and unjust as to amountto confiscation of property

3) Tax statute must not be arbitrary as to find no support in theconstitution

> When is deprivation of life, liberty or property done in accordancewith due process of law?1) If done under authority of a law that is valid or of the constitutionitself2) After compliance with fair and reasonable methods of procedureprescribed by law. > If properties are taxed on the basis of an invalid law, suchdeprivation is a violation of due process

REMEDY ask for refund > To justify the nullification of a tax law, there must be a clear andunequivocal breach of the constitution> There must be proof of arbitrarinessINSTANCES WHEN THE TAX LAW MAYBE DECLARED ASUNCONSTITUTIONAL [C, O, N, U]1) If it amounts to confiscation of property without due process2) If the subject of taxation is outside of the jurisdiction of the taxing


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state3) The law maybe declared as unconstitutional if it is imposed not for apublic purpose4) If a tax law which is applied retroactively, imposes unjust andoppressive taxes.

> A tax law which denies a taxpayer a fair opportunity to assert hissubstantial rights before a competent tribunal is invalid > A taxpayer must not be deprived of his property for non-payment oftaxes without1) notice of liability2) sale of property at public auction > The validity of statute maybe contested only by one who willsustain a direct injury in consequence of its enforcement > A violation of the inherent limitations on taxation would contravenethe constitutional injunctions against deprivation of property withoutdue process of law

> There must be proof of arbitrariness, otherwise apply thepresumption of constitutionality > Due process requires hearing before adoption of legislative rules byadministrative bodies of interpretative rulings. (Misamis vs. DFA) > Compliance with strict procedural requirements must be followedeffectively to avoid a collision course between the states power to taxand the individual recognized rights (CIR vs. Algue) > The due process clause may correctly be invoked only when thereis a clear contravention of inherent or constitutional limitations in theexercise of tax power. (Tan vs. del Rosario) > SUBSTATNTIVE DUE PROCESS requires that a tax statute must be

within the constitutional authority of Congress to pass and that it bereasonable, fair and just > PROCEDURAL DUE PROCESS requires notice and hearing or at leastan opportunity to be heard

II. EQUAL PROTECTION CLAUSE> All persons, all properties, all businesses should be taxed at thesame rate> prohibits class legislation> prohibits undue discriminationEQUALITY IN TAXATION (UNIFORMITY)

> Equality in taxation requires that all subjects or objects of taxationsimilarly situated should be treated alike or put on equal footing bothon the privilege conferred and liabilities imposed> All taxable articles of the same class shall be taxed at the same rate > The Doctrine does not require that persons or properties differentin fact be treated in law as though there were the same. What itprohibits is class legislation which discriminates against some andfavors others


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> As long as there are rational or reasonable grounds for doing so,Congress may group persons or properties to be taxed and it issufficient if all members of the same class are subject to the same rateand the tax is administered impartially upon them.

REQUISITES OF A VALID CLASSIFICATION (S A G E )1) It must be based on substantial distinction2) It must apply not only to the present condition, but also to futureconditions3) It must be germane to the purpose of the law4) It must apply equally to all members of the same class

SUBSTANTIAL DISTINCTION> It must be real, material and not superficial distinction > What is not allowed is inequality resulting from singling out of aparticular class which violates the requisites of a valid classification

> There maybe inequality but as long as it does not violate therequisites of a valid classification that such mere inequality is notenough to justify the nullification of a tax law or tax ordinance > Taxation is equitable when its burden falls on those better able topay >Although the equal protection clause does not forbid classification, itis imperative that the substantial differences having a reasonablerelation to the subject of the particular legislation > Taxes are uniform and equal when imposed upon all property of thesame class or character within the taxing authority > Tax exemptions are not violative of the equal protection clause, as

long as there is valid classification.TIU vs. CAThe Constitutional right to equal protection of the law is not violated byan executive order, issued pursuant to law, granting tax and dutyincentives only to business within the secured area of the SubicSpecial Economic Zone and denying them to those who live within thezone but outside such fenced in territory. The Constitution does notrequire the absolute equality among residents. It is enough that allpersons under like circumstances or conditions are given the sameprivileges and required to follow the same obligations. In short, aclassification based on valid and reasonable standards does not violate

the equal protection clause.We find real and substantial distinctions between the circumstancesobtaining inside and those outside the Subic Naval Base, therebyjustifying a valid and reasonable classification.TWO WAYS EQUAL PROTECTION CLAUSE CAN BE VIOLATED1) When classification is made where there should be noneex. When the classification does not rest upon substantial distinctionsthat make for real difference


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2) When no classification is made where a classification is called forex. When substantial distinctions exist but no correspondingclassification is made on the basis thereof

ORMOC SUGAR CENTRAL vs. CIR

> If the ordinance is intended to supply to a specific taxpayer and tono one else regardless of whether or not other entities belonging to thesame class are established in the future, it is a violation of the equalprotection clause, but if it is intended to apply also to similarestablishments which maybe established in the future, then the taxordinance is valid even if in the meantime, it applies to only one entityor taxpayer for the simple reason that there is so far only one memberof the class subject of the tax measure

UNIFORMITY IN TAXATION > The concept of uniformity in taxation implies that all taxable

articles or properties of the same class shall be taxed at the same rate.It requires the uniform application and operation, withoutdiscrimination, of the tax in every place where the subject of the tax isfound. It does not, however, require absolute identity or equality underall circumstances, but subject to reasonable classification.EQUITY IN TAXATION > The concept of equity in taxation requires that the apportionmentof the tax burden be more or less, just in the light of the taxpayersability to shoulder to tax burden and if warranted, on the basis of thebenefits received from the government. Its cornerstone is thetaxpayers ability to pay.

CRITERIA OF EQUAL PROTECTION1) When the laws operate uniformlyA) on all personsB) under similar circumstances2) All persons are treated in the same mannerA) The conditions not being differentB) Both in privileges conferred and liabilities imposedC) Favoritism and preference not allowedREYES vs. ALMAZOR

> Taxation is equitable when its burden falls on those better able topayKAPATIRAN vs. TAN > It is inherent in the power to tax that the state be free to select thesubjects of taxation and it has been repeatedly held that inequalitieswhich result from a singling out of one particular class of taxation orexemption infringe no constitutional limitationIII. FREEDOM OF THE PRESS


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> The press is not exempt from taxation > The sale of magazines or newspapers, maybe the subject oftaxation > What is not allowed is to impose tax on the exercise of an activitywhich has a connection with freedom of the press (license fee)

> If we impose tax on persons before they can deliver or broadcast aparticular news or information, that is the one which cannot be taxed.TOLENTINO vs. SEC. OF FINANCE > What is prohibited by the constitutional guarantee of free press arelaws which single out the press or target a group belonging to thepress for special treatment or which in any way discriminates againstthe press on the basis of the content of the publication.

IV. FREEDOM OF RELIGION > It is the activity which cannot be taxed > activities which have connection with the exercise of religion

AMERICAN BIBLE SOCIETY vs. MANILA > The payment of license fees for the distribution and sale of biblessuppresses the constitutional right of free exercise of religion.

JIMMY SWAGGART vs. BOARD OF EQUALIZATION > The Free Exercise of Religion Clause does not prohibit imposing agenerally applicable sales and use tax on the sale of religious materialsby a religious organization. > The Sale of religious articles can be the subject of the VAT > What cannot be taxed is the exercise of religious worship or activity

> The income of the priest derived from the exercise of religiousactivity can be taxed.V. NON-IMPAIRMENT CLAUSE > The parties to the contract cannot exercise the power of taxation. > They cannot agree or stipulate that this particular transaction maybe exempt from tax- not allowed (except if government)OPOSA vs. FACTORAN > Police power prevails over the non-impairment clauseLA INSULAR vs. MANCHUCA > A lawful tax on a new subject or an increased tax on an old one,does not interfere with a contract or impairs its obligation.

> The constitutional guarantee of the non-impairment clause can onlyinvoked in the grant of tax exemption.RULES:1) If the exemption was granted for valuable consideration and it isgranted on the basis of a contract.> cannot be revoked2) If the exemption is granted by virtue of a contract, wherein thegovernment enters into a contract with a private corporation


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> cannot be revoked unilaterally by the government3) If the basis of the tax exemption is a franchise granted by Congressand under the franchise or the tax exemption is given to a particularholder or person> can be unilaterally revoked by the government (Congress)

> The non-impairment clause applies only to contracts and not to afranchise. > The non-impairment clause applies to taxation but not to policepower and eminent domain. Furthermore, it applies only where oneparty is the government and the other, a private individual. > As a rule, the obligation to pay tax is based on law. But when, forinstance, a taxpayer enters into a compromise with the BIR, theobligation of the taxpayer becomes one based on contract

PROVINCE OF MISAMIS vs. CAGAYAN ELECTRIC

> Franchises with magic words, shall be in lieu of all taxesdescriptive of the payment of a franchise tax on their gross earningsare exempt from:1) all taxes2) the franchise tax under the NIRC3) the franchise tax under the local tax code

JUAREZ vs. CA > As long as the contract affects the public welfare one way oranother so as to require the interference of the state, then must the

police power be asserted and prevail over the impairment clauseRULES ON TAX AMNESTY > Tax amnesty, like tax exemption, is never favored nor presumed inlaw and if granted by statute must be construed strictly against thetaxpayer, who must show compliance with the law. >The government is not estopped from questioning the tax liabilityeven if amnesty tax payments were already receivedREASON: Erroneous application and enforcement of the law by publicofficers do not block subsequent correct application of the statute. Thegovernment is never estopped by mistakes or errors by its agents.PP vs. CASTAEDA

> Defense of tax amnesty, like amnesty, is a personal defenseREASON: It relates to the circumstances of a particular accused andnot the character of the acts charged in the informationREPUBLIC vs. IAC >In case of doubt, tax amnesty is to be strictly construed against thegovernmentREASON: Taxes are not construed, for taxes being burdens are not tobe presumed beyond what the tax amnesty expressly and clearly


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declaresVI. LAW MAKING PROCESSA) ONE SUBJECT ONE TITLE RULE> Every bill passed by the Congress shall embrace only one subjectwhich shall be expressed in the title thereof (Sec. 26 (1) ART II)

B) THREE READING RULE> No bill passed by either House shall become a law unless it haspassed three readings on separate days and printed copies thereof inits final form have been distributed to its members three days beforeits passage, EXCEPT when the President certifies to the necessity of itsimmediate enactment to meet a public calamity or emergency. (Sec.26 (2) ART II)

PHIL. JUDGES ASSOC. vs. PRADO > A presidential certification dispenses with the requirement not onlyof printing but also that of reading the bill on separate days.

>It is within the power of a Bicameral Conference Committee toinclude in its report an entirely new provision that is not found either inthe House Bill or Senate Bill, so long as such amendment is germane tothe subject of the bills before the committee. After all its report wasnot final but needed the approval of both houses of Congress tobecome valid as an act of the legislative department.C) ENROLLED BILL DOCTRINEG.R. An enrolled copy of a bill is conclusive not only of its provisionsbut also of its due enactmentEXCEPTION: In ASTORGA vs. VILLEGAS, the Supreme Court wentbehind the enrolled bill and consulted the journal to determine

whether certain provisions of a state had been approved by the SenatePresidents admission of a mistake and withdrawal of his signature.VII. PARDONING POWER OF THE PRESIDENT> The President has the power to grant reprieves, commutations andpardons and remit fines and forfeitures after conviction by finaljudgment. (Sec. 19, ART VII)NATURE OF TAX AMNESTY A general pardon or intentional overlooking by the state of itsauthority to impose penalties on persons otherwise guilty of evasion orviolation of a revenue or tax law- absolute forgiveness or waiver to collect

VIII. NO IMPRISONMENT FOR NON-PAYMENT OF POLL TAX- No person shall be imprisoned for debt or non-payment of poll tax(Sec. 20 ART III) > The non-imprisonment rule applies to non-payment of poll taxwhich is punishable only by a surcharge, but not to other violations likefalsification of community tax certificate or non-payment of other taxesPOLL TAX tax of fixed amount imposed upon residents within aspecific territory regardless of citizenship, business or profession


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Ex. Community taxIX. TAXATION SHALL BE UNIFORM AND EQUITABLE- The rule of taxation shall be uniform and equitable. The Congressshall evolve a progressive system of taxation. (Sec. 28 (1) ART VI)UNIFORMITY

- means that all taxable articles kinds of property of the same classshall be taxed at the same rate > A tax is uniform when it operates with the same force and effect inevery place where the subject of it is foundEQUITABILITY > Taxation is said to be equitable when its burden falls on thosebetter able to pay

X. CONGRESS SHALL EVOLVE A PROGRESSIVE SYSTEM OF TAXATIONPROGRESSIVITY > Taxation is progressive when its rate goes up depending on the

sources of the person affectedSYTEMS OF TAXATION1) PROPORTIONAL TAXATION- where the tax increases or decreases in relation to the tax bracket2) PROGRESSIVE or GRADUATED SYSTEM- where the tax increases as the income of the taxpayer goes higher3) REGRESSIVE SYSTEM- where the tax decreases as the income of the taxpayer increases

PROGRESSIVITY IS NOT REPUGNANT TO UNIFORMITY and EQUALITYA) Uniformity does not require the things which are not different be

treated in the same mannerB) Differentiation, which is not arbitrary and conforms to the dictates ofjustice and equity is allowed. Progressivity is one way of classification.C) The State has the inherent right to select subjects of taxationTOLENTINO vs. SEC. OF FINANCE > RA 7716 (EVAT), does not violate the constitutional mandate thatCongress shall evolve a progressive system of taxation> The Constitution does not really prohibit the imposition of indirecttaxes, which like the VAT, are regressive. The constitutional provisionmeans simply that indirect taxes shall be minimized. > The mandate to Congress is not to prescribe, but to evolve, a

progressive system of taxation > Resort to indirect taxes should be minimized but not to be avoidedentirely because it is difficult, if not impossible to avoid them byimposing such taxes according to the taxpayers ability to pay.

XI. ORIGIN OF REVENUE, TARIFF or TAX BILLSAll appropriation, revenue or tariff bills, bills authorizing increase of thepublic debt, bills of local application, and private bills shall originate


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exclusively in the House of Representatives, but the Senate maypropose or concur with amendments. (Section 24, Article VI)RULE:- It is not the revenue statute but the revenue bill which is required bythe constitution to originate exclusively in the House of

RepresentativesREASON:- To insist that a revenue statute and not only the bill which initiatedthe legislative process culminating in the enactment of the law mustsubstantially be the same as the House bill would be to deny theSenates power not only to concur with amendments but also topropose amendments. It would be to violate the co-equality oflegislative power of the two houses of Congress and in fact make theHouse superior to the Senate. (Tolentino vs. Sec. of Finance) > The Constitution simply requires that there must be that initiativecoming from the House of Representatives relative to appropriation,

revenue and tariff bills. >The Constitution does not also prohibit the filing in the Senate of asubstitute bill in anticipation of its receipt of the bill from the House, aslong as action by the Senate is withheld until receipt of said bill(Tolentino vs. Sec. of Finance)XII. PRESIDENTIAL VETO > The President shall have the power to veto any particular item oritems in an appropriation, revenue or tariff bill, but the veto shall notaffect the item or items to which he does not object (Sec. 27 (2), ARTVI)XIII. TARIFF POWER OF THE PRESIDENT

The Congress may, by law, authorizing the President to fix withinspecific limits, and subject to such limitations and restrictions as it mayimpose, tariff rates, import and export quotas, tonnage and wharfagedues, the other duties or imports within the framework of the nationaldevelopment program of the Government (Sec. 28 (2), ART VI)REQUISITES:1) There must be a law passed by Congress authorizing the Presidentto impose tariff rates and other fees.2) Under the law, there must be limitations and restrictions on theexercise of such power3) The taxes that may be imposed by the President are limited to:

A) Tariff ratesB) Import and export quotasC) Tonnage and wharfage duesD) Other duties (customs duties)4) The imposition of these tariff and duties must be within theframework of the National Development program of the government > Congress may not pass a law authorizing the President to imposeincome tax, donors tax, and other taxes which are not in the nature of


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customs duties.> The Constitution allows only the imposition by the President of thesecustom duties

XIV. TAX EXEMPTION OF REAL PROPERTY

Charitable institutions, churches and personages or conventsappurtenant thereto, morgues, non-profit cemeteries and all lands,buildings and improvements, actually directly and exclusively used forreligious, charitable, or educational purposes shall be exempt fromtaxation. (Sec. 28 (3) ART VI)APPLICATION:> The exemption only covers property taxes and not other taxesTEST OF EXEMPTION:> It is the USE of the property and not ownership of the propertyABRA VALLEY COLLEGE vs. AQUINO (162 SCRA 106) > The exemption does not only extend to indispensable facilities but

also covers incidental facilities which are reasonably necessary to theaccomplishment of said purpose > A property leased by the owner to another who uses it exclusivelyfor religious purposes is exempt from property tax, but the owner issubject to income tax or rents received. > Real property purchased by any religious sect to be usedexclusively for religious purposes are subject to the tax on the transferof ownership or of title to real property (also if donated- donors tax) > Property held for future use is not tax exemptXV. LAW GRANTING TAX EXEMPTIONS No law granting any tax exemptions shall be passed without the

concurrence of a majority of all members of the Congress (Sec. 28 (4)ART VI)RULES ON VOTE REQUIREMENT1) Law granting any tax exemption> absolute majority2) Law withdrawing any tax exemption> Relative majority > Tax exemption, amnesties, refunds are considered in the nature oftax exemptions> A law granting such needs approval of the absolute majority of theCongress

XVI. NO USE OF PUBLIC MONEY OR PROPERTY FOR PUBLIC PURPOSES > No public money or property shall be appropriated, applied, paid,or employed, directly or indirectly, for the use, benefit, or support ofany sect, church, denomination, sectarian, institution or system ofreligion, or of any priest, preacher, minister or other religious teacheror dignitary as such, EXCEPT when such priest, preacher, minister ordignitary is assigned to the armed forces, or to any penal institution, orgovernment orphanage or leprosarium as such (Sec. 29 (2) ART VI)


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> Public property may be leased to a religious group provided thatthe lease will be totally under the same conditions as that to privatepersons (amount of rent) > Congress is without power to appropriate funds for a privatepurpose.

XVII. TAX LEVIED FOR SPECIAL PURPOSES All money collected or any tax levied for a special purpose shall betreated as a special fund and paid out for such purpose only. If thepurpose for which a special fund was created has been fulfilled orabandoned, the balance, if any, shall be transferred to the generalfunds of the Government. (Sec. 29 (3) ART VI) > If a President of the Philippines spent a special fund for a generalpurpose, he can be charged with culpable violation of the Constitution.XVIII. SUPREME COURTS POWER OF REVIEWThe Supreme Court shall have the power to review, revise, reverse,modify or affirm on appeal or certiorari, all cases involving the legality

of any tax imposed, assessment, or toll, or any penalty imposed inrelation thereto. (Sec. 5 (2B) ART VIII) > Congress cannot take away from the Supreme Court the powergiven to it by the Constitution as the final arbiter of the tax cases.XIX. DELEGATED AUTHORITY TO LOCAL GOVERNMENT UNITS Each local government unit shall have the power to create its ownsources of revenues and to levy taxes, fees, and charges subject tosuch guidelines and limitations as the Congress may provide,consistent with the basic policy of local autonomy. Such taxes, fees,charges shall have exclusivity to the local government. (Sec. 5, ARTX)

LIMITATIONS ON POWER TO TAX (L.G.U.)1) It is subject to such guidelines and limitations provided by Congress.2) It must be consistent with the basic policy of local autonomy.3) Such taxes, fees, and charges shall accrue exclusively to the localgovernment.RULES: NATIONAL GOVT vs. LGU IMPOSITION OF TAXES1) The National Government may impose local taxes on articles orsubjects which are within the territorial jurisdiction of the localgovernment unit.2) The Local Government unit cannot impose tax on the national

government.> You can only tax those articles, which are within your jurisdictionSEC. 6, ART X local government units shall have a just share, as determined by law,in the national taxes which shall be automatically released to them.XX. TAX EXEMPTIONS OF EDUCATIONAL INSTITUTIONS All revenues and assets of non-stock, non-profit educationalinstitutions used actually, directly, and exclusively for educational


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purposes shall be exempt from taxes and duties. (Sec. 4 (3) ART XIV)REQUISITES FOR EXEMPTION:1) It must be a private educational institution2) It must be non-stock and non-profit3) Its assets (property) and revenues (income) must be used actually,

directly and exclusively for educational purposesRULES:1) If the first requisite is absent (meaning, its a governmenteducational institution), it is nonetheless exempt from income tax2) If the second requirement is absent (meaning, it is stock and profit)as long as the third requirement is present, it is nonetheless exemptfrom real estate tax3) If the third requirement is absent, as long as it is non-stock and non-profit, it is nonetheless exempt from income tax4) If the third requirement is absent, but it is private and non-profit, it

is subject to income tax, but at the preferential rate of ten percent(10%) > Under the present tax code, for a private educational institution tobe exempt from the payment of income tax, all it has to be is non-stock and non-profit. However, a governmental educational institutionis exempt from income tax without any condition

EXEMPTION DOES NOT EXTEND TO:1) Income derived by these educational institutions from theirproperty, real or personal, and2) From activities conducted by them for profit regardless of the

disposition made on such incomeMANILA POLO CLUB vs. CTA > Proceeds of the sale of real property by the Roman Catholic churchis exempt from income tax because the transaction was an isolatedoneST. PAUL HOSPITAL of ILOILO vs. CIR > Income derived from the hospital pharmacy, dormitory and canteenwas exempt from income tax because the operation of those entitieswas merely incidental to the primary purpose of the exemptcorporation

> Where the educational institution is private and non-profit (but astock corporation) it is subject to income tax but at the preferentialrate of ten percent (10%)

REQUISITES for APPLICATION of 10% PREFERENTIAL RATE1) It is private;2) It has permit to operate from the DECS, or CHED or TESDA;3) It is non-profit;


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4) Its gross income from unrelated trade or business must not exceedfifty percent (50%) of its total gross income from all sources.10% PREFERENTIAL TAX RATE DOES NOT APPLY TO THE FOLLOWING:1) Passive incomes derived by the educational institution (subject tofinal income tax) and

2) Where the educational institution is engaged in unrelated trade,business or other activity, and the gross income from such unrelatedtrade, business or other activities exceeds fifty percent (50%) of thetotal gross income derived by the school from all sources > Where a donation is made in favor of an educational institutionpursuant to sports competition and tournaments, the donor is exemptfrom the payment of donors taxCIR vs. CA (298 SCRA 83) > Income derived by YMCA from leasing out a portion of its premisesto small shop owners, like restaurant and canteen operators, and fromparking fees collected from non-members are taxable income

YMCA is not an educational institutionXXI. TAX EXEMPTION OF DONATIONS for EDUCATIONAL PURPOSES > Subject to conditions prescribed by law, all grants endowments,donations, or contributions used actually, directly and exclusively foreducational purposes shall be exempt from tax. (Sec. 4 (4) ART XIV)XXII. NO EXPOST FACTO LAW PROHIBITION IN TAXATIONFERNANDEZ vs. FERNANDEZ > The prohibition against ex post facto laws applies only to criminallaws and not to those that concern civil matters Our tax laws are civil in nature > The collection of interest on taxes is not penal in nature and the ex

post facto law prohibition does not apply to it.

DOUBLE TAXATION > Taxing same property twice when it should be taxed but once.Taxing the same person twice by the same jurisdiction over the samething. Also known as duplicate taxationPEPSI COLA vs. CITY OF BUTUAN > There is no constitutional prohibition against double taxation in thePhilippines. It is something not favored but is permissible, providedthat the other constitutional requirements is not thereby violated

KINDS OF DOUBLE TAXATION1) DIRECT DOUBLE TAXATION- Double taxation in the objectionable or prohibited sense- Same property is taxed twiceREQUISITES:A) The same property is taxed twice when it should only be taxedonce;B) Both taxes are imposed on the same property or subject matter for


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the same purpose;C) Imposed by the same taxing authority;D) Within the same jurisdiction;E) During the same period; andF) Covering the same kind or character of tax

2) INDIRECT DOUBLE TAXATION- Not legally objectionable- If taxes are not of the same kind, or the imposition are imposed fordifferent taxing authority and this may involve the same subjectmatterEXAMPLES:A) The taxpayers warehousing business although carried on in relationto the operation of its sugar central is a distinct and separate taxablebusinessB) A license tax may be levied upon a business or occupation although

the land or property used in connection therewith is subject to propertytaxC) Both a license fee and a tax may be imposed on the same businessor occupation for selling the same article and this is not in violation ofthe rules against double taxationD) When every bottle or container of intoxicating beverages is subjectto local tax and at the same time the business of selling such productis also subject to liquors licenseE) A tax imposed on both on the occupation of fishing and of thefishpond itselfF) A local ordinance imposes a tax on the storage of copra where it

appears that the finished products manufactured out of the copra aresubject to VATMEANS EMPLOYED TO AVOID DOUBLE TAXATION1) Tax deductions2) Tax credits3) Provide for exemption4) Enter into treatise with other states5) Allowance on the principle of reciprocityTAX CREDIT- An amount allowed as a deduction of the Philippine Income tax onaccount of income taxes paid or incurred to foreign countries. It is

given to a taxpayer in order to provide a relief from too onerous aburden of taxation in case where the same income is subject to aforeign income tax and the Philippine Income tax.WHO CAN CLAIM TAX CREDIT1) Citizens of the Philippines2) Domestic corporationsCITY OF BAGUIO vs. DE LEON > The argument against double taxation may not be invoked where


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one tax is imposed by the state and the other imposed by the city, itbeing widely recognized that there is nothing inherently obnoxious inthe requirement that license fees or taxes be exacted with respect tothe same occupation, calling or activity by both the state and apolitical subdivision thereof. And where the statute or ordinance in

question applies equally to all persons, firms and corporations placedin a similar situation, there is no infringement of the rule on equality.VILLANUEVA vs. CITY OF ILOILO > An ordinance imposing a municipal tax on tenement houses waschallenged because the owners already pay real estate taxes and alsoincome taxes under the NIRC. The Supreme Court held that there wasno double taxation. The same tax may be imposed by the NationalGovernment as well as the local government. There is nothinginherently obnoxious in the exaction of license fees or taxes withrespect to the same occupation, calling or activity by both the stateand a political subdivision thereof. Further, a license tax may be levied

upon a business or occupation although the land used in connectiontherewith is subject to property tax.DOCTRINES ON DOUBLE TAXATION1) Direct Double Taxation (DDT) is not allowed because it amounts toconfiscation of property without due process of law2) You can question the validity of double taxation if there is a violationof the Equal protection clause or Equality or Uniformity of Taxation3) All doubts as to whether double taxation has been imposed shouldbe resolved in favor of the taxpayerESCAPE FROM TAXATIONBASIC FORMS OF ESCAPE FROM TAXATION

1) SHIFTING2) CAPITALIZATION3) TRANSFORMATION4) AVOIDANCE5) EXEMPTION6) EVASION

I. SHIFTING- Shifting is the transfer of the burden of a tax by the original payer orthe one on whom the tax was assessed or imposed to someone else- Process by which such tax burden is transferred from statutory

taxpayer to another without violating the law > It should be borne in mind that what is transferred is not thepayment of the tax, but the burden of the tax > Only indirect taxes may be shifted; direct taxes cannot be shiftedWAYS OF SHIFTING THE TAX BURDEN1) FORWARD SHIFTING- When the burden of the tax is transferred from a factor of productionthrough the factors of distribution until it finally settles on the ultimate


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purchaser or consumer.Example:- Manufacturer or producer may shift tax assessed to wholesaler, whoin turn shifts it to the retailer, who also shifts it to the final purchaseror consumer

2) BACKWARD SHIFTING- When the burden of the tax is transferred from the consumer orpurchaser through the factors of distribution to the factors ofproductionExample:- Consumer or purchaser may shift tax imposed on him to retailer bypurchasing only after the price is reduced, and from the latter to thewholesaler, or finally to the manufacturer or producer3) ONWARD SHIFTING- When the tax is shifted two or more times either forward or backwardExample:

- Thus, a transfer from the seller to the purchaser involves one shift;from the producer to the wholesaler, then to retailer, we have twoshifts; and if the tax is transferred again to the purchaser by theretailer, we have three shifts in all.Impact and Incidence of Taxation Impact of taxation is the point on which a tax is originally imposed. Inso far as the law is concerned, the taxpayer is the person who mustpay the tax to the government. He is also termed as the statutorytaxpayer-the one on whom the tax is formally assessed. He is thesubject of the tax Incidence of taxation is that point on which the tax burden finally

rests or settle down. It takes place when shifting has been effectedfrom the statutory taxpayer to another.Statutory Taxpayer The Statutory taxpayer is the person required by law to pay the tax orthe one on whom the tax is formally assessed. In short, he or she is thesubject of the tax. In direct taxes, the statutory taxpayer is the one who shoulders theburden of the tax while in indirect taxes, the statutory taxpayer is theone who pay the tax to the government but the burden can be passedto another person or entity.Relationship between impact, shifting, and incidence of a tax

The impact is the initial phenomenon, the shifting is the intermediateprocess, and the incidence is the result. Thus, the impact in a sales tax(i.e. VAT) is on the seller (manufacturer) who shifts the burden to thecustomer who finally bears the incidence of the tax. Impact is the imposition of the tax; shifting is the transfer of the tax;while incidence is the setting or coming to rest of the tax.II. CAPITALIZATION- Reduction is the price of the taxed object equal to the capitalized


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value of future taxes on the property sold > This is a special form of backward shifting, where the burden offuture taxes which the buyer may have to pay is shifted back to theseller in the form of reduction in the selling priceIII. TRANSFORMATION

- The manufacturer in an effort to avoid losing his customers,maintains the same selling price and margin of profit, not by shiftingthe tax burden to his customers, but by improving his method ofproduction and cutting down or other production cost, therebytransforming the tax into or earn through the medium of production.IV. TAX AVOIDANCE- Also known as tax minimization- not punished by law- Tax avoidance is the exploitation of the taxpayer of legallypermissible alternative tax rates or methods of assessing taxableproperty or income in order to avoid or reduce tax liability

DELPHERS TRADERS CORP vs. IAC (157 SCRA 349) > The Supreme Court upheld the estate planning scheme resorted toby the Pacheco family in converting their property to shares of stock ina corporation which they themselves owned and controlled. By virtueof the deed of exchange, the Pacheco co-owners saved on inheritancetaxes. The Supreme Court said the records do not point anythingwrong and objectionable about this estate planning scheme resortedto. The legal right of the taxpayer to decrease the amount of whatotherwise could be his taxes or altogether avoid them by means whichthe law permits cannot be doubted.Example:

Following the holding period rule in capital gains transaction, bypostponing the sale of the capital asset until after twelve months fromdate of acquisition you can reduce the tax on the capital gains by 50%V. TAX EXEMPTIONTax Exemption It is the grant of immunity to particular persons or corporations or topersons or corporations of a particular class from a tax which personsand corporations generally within the same state or taxing district areobliged to pay. It is an immunity or privilege; it is freedom from afinancial charge or burden to which others are subjected. Exemption is allowed only if there is a clear provision there for.

It is not necessarily discriminatory as long as there is a reasonablefoundation or rational basis. Exemptions are not presumed, but when public property is involved,exemption is the rule and taxation is the exemption.Rationale for granting tax exemptions Its avowed purpose is some public benefit or interests which thelawmaking body considers sufficient to offset the monetary lossentailed in the grant of the exemption.


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The theory behind the grant of tax exemptions is that such act willbenefit the body of the people. It is not based on the idea of lesseningthe burden of the individual owners of property.Grounds for granting tax exemptions

1) May be based on contract. In such a case, the public, which isrepresented by the government is supposed to receive a full equivalenttherefor, i.e. charter of a corporation.

2) May be based on some ground of public policy, i.e., to encouragenew industries or to foster charitable institutions. Here, thegovernment need not receive any consideration in return for the taxexemption.

3) May be based on grounds of reciprocity or to lessen the rigors ofinternational double or multiple taxation

Note: Equity is not a ground for tax exemption. Exemption is allowedonly if there is a clear provision therefor.

Nature of tax exemption1) It is a mere personal privilege of the grantee.2) It is generally revocable by the government unless the exemption isfounded on a contract which is contract which is protected fromimpairment.3) It implies a waiver on the part of the government of its right tocollect what otherwise would be due to it, and so is prejudicial thereto.

4) It is not necessarily discriminatory so long as the exemption has areasonable foundation or rational basis.5) It is not transferable except if the law expressly provides so.Kinds of tax exemption according to manner of creation

1) Express or affirmative exemptionWhen certain persons, property or transactions are, by expressprovision, exempted from all certain taxes, either entirely or in part.

2) Implied exemption or exemption by omissionWhen a tax is levied on certain classes of persons, properties, or

transactions without mentioning the other classes.

Every tax statute makes exemptions because of omissions. No tax exemption by implication It must be expressed in clear and unmistakable languageCALTEX vs. COA > In claiming tax exemption, the burden of proof lies upon theclaimant


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It cannot be created by mere implication It cannot be presumed that you are entitled to tax exemption You must prove itRULE:- Taxation is the rule and exemption is the exception

PROPERTY TAX GOVERNMENT PROPERTY > Properties owned by the government whether in their proprietaryor governmental capacity are exempt from real estate taxTEST:- OWNERSHIP > Once established that it belongs to the government, the nature ofthe use of the property whether proprietary or sovereign becomesimmaterial. > Exemption of public property from taxation does not extend toimprovements therein made by occupants or claimants at their ownexpense.

KINDS OF TAX EXEMPTIONS ACCORDING TO SCOPE OR EXTENT1) TOTAL- When certain persons, property or transactions are exempted,expressly or impliedly from all taxes2) PARTIAL- When certain persons, property or transactions are exempted,expressly or impliedly from certain taxes, either entirely or in part.3) There can be no simultaneous exemptions under two laws, whenone grants partial exemption while other grants total exemption.

Does provision in a statute granting exemption from all taxes include

indirect taxes? NO. As a general rule, indirect taxes are not included in the grant ofsuch exemption unless it is expressly stated.

Nature of power to grant tax exemption

1) National government

The power to grant tax exemptions is an attribute of sovereignty forthe power to prescribe who or what persons or property shall not betaxed.

It is inherent in the exercise of the power to tax that the sovereignstate be free to select the subjects of taxation and to grant exemptionstherefrom.Unless restricted by the Constitution, the legislative power to exemptis as broad as its power to tax.

2) Local governments


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Municipal corporations are clothed with no inherent power to tax orgrant tax exemptions. But the moment the power to impose aparticular tax is granted, they also have the power to grant exemptiontherefrom unless forbidden by some provision of the Constitution orthe law

The legislature may delegate its power to grant tax exemptions to thesame extent that it may exercise the power to exempt.

Basco vs. PAGCOR (196 SCRA 52): The power to tax municipalcorporations must always yield to a legislative act which is superior,having been passed by the State itself. Municipal corporations aremere creatures of Congress which has the power to create and abolishmunicipal corporations due to its general legislative powers. IfCongress can grant the power to tax, it can also provide forexemptions or even take back the power.

Chavez v. PCGG, G.R. No. 130716, 09 December 1998 In a compromise agreement between the Philippine Government,represented by the PCGG, and the Marcos heirs, the PCGG granted taxexemptions to the assets which will be apportioned to the Marcosheirs. The Supreme Court ruled that the PCGG has absolutely no powerto grant tax exemptions, even under the cover of its authority tocompromise ill gotten wealth cases. The grant of tax exemptions is theexclusive prerogative of the Congress. In fact, the Supreme Court even stated that Congress itself cannotgrant tax exemptions in the case at bar because it will violate theequal protection clause of the Constitution.

Interpretation of the laws granting tax exemptions General ruleIn the construction of tax statutes, exemptions are not favored and areconstrued strictissimi juris against the taxpayer. The fundamentaltheory is that all taxable property should bear its share in the cost andexpense of the government.Taxation is the rule and exemption is the exemption.He who claims exemption must be able to justify his claim or rightthereto by a grant express in terms too plain to be mistaken and toocategorical to be misinterpreted. If not expressly mentioned in the

law, it must be at least within its purview by clear legislative intent.

Exceptions1) When the law itself expressly provides for a liberal constructionthereof.2) In cases of exemptions granted to religious, charitable andeducational institutions or to the government or its agencies or topublic property because the general rule is that they are exempt from


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tax.

Strict interpretation does not apply to the government and its agencies Petitioner cannot invoke the rule on stritissimi juris with respect tothe interpretation of statutes granting tax exemptions to the NPC. The

rule on strict interpretation does not apply in the case of exemptions infavor of a political subdivision or instrumentality of the government.[Maceda v. Macaraig]

Davao Gulf v. Commissioner, 293 SCRA 76 (1998) A tax cannot be imposed unless it is supported by the clear andexpress language of a statute; on the other hand, once the tax isunquestionably imposed, a claim of exemption from tax payers mustbe clearly shown and based on language in the law too plain to bemistaken. Since the partial refund authorized under Section 5, RA1435, is in the nature of a tax exemption, it must be construed

strictissimi juris against the grantee. Hence, petitioners claim ofrefund on the basis of the specific taxes it actually paid must expresslybe granted in a statute stated in a language too clear to be mistaken. > Exemption of the buyer does not extend to the seller Exemption of the principal does not extend to the accessory

SURIGAO vs. COLLECTOR of CUSTOMS > Tax refunds, condonations and amnesties, they being in the natureof tax exemptions must be strictly construed against the taxpayer andliberally in favor of the government.

Tax remission or tax condonation The word remit means to desist or refrain from exacting, inflictingor enforcing something as well as to restore what has already beentaken. The remission of taxes due and payable to the exclusion oftaxes already collected does not constitute unfair discrimination. Sucha set of taxes is a class by itself and the law would be open to attackas class legislation only if all taxpayers belonging to one class were nottreated alike. [Juan Luna Subd. V. Sarmiento, 91 Phil 370] The condition of a tax liability is equivalent to and is in the nature of atax exemption. Thus, it should be sustained only when expresslyprovided in the law. [Surigao Consolidated Mining v. Commissioner of

Internal Revenue, 9 SCRA 728]Tax amnesty Tax amnesty, being a general pardon or intentional overlooking bythe State of its authority to impose penalties on persons otherwiseguilty of evasion or violation of a revenue to collect what otherwisewould be due it and, in this sense, prejudicial thereto. It is grantedparticularly to tax evaders who wish to relent and are willing to reform,thus giving them a chance to do so and thereby become a part of the


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new society with a clean slate. [Republic v. Intermediate AppellateCourt, 196 SCRA 335] Like tax exemption, tax amnesty is never favored n

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