General Principles of Taxation

A. Taxation in General
a.1. Taxation concept inherent power of the State, through the legislative body, to
raise revenues for the purpose of defraying the expenses of government
Q: Does the Constitution contain a provision granting taxation power to the State?
A: There is no provision in the Constitution granting such power. The power to tax is
inherent in the State and therefore requires no constitutional grant in order to
exercise the same. What the Constitution contains are provisions limiting such
power of taxation.
Q: What is meant by the power to tax is the power to destroy and is it applicable
in the Philippine jurisdiction?
A: The power to tax is the power to destroy is in reference to the fact that taxation
is plenary and therefore generally unlimited, so that it applies to anything that can
be subjected to tax, even income arising from an illegal enterprise and even to the
extent that it becomes confiscatory. However, while the power to tax is the power to
destroy, this is not so while the Supreme Court sits, because such power is still
subject to judicial review. So that, in sum, the principle that the power to tax is the
power to destroy refers to the vigor with which the power may be exercised and
not to its purpose. Moreover, this theory only applies in Philippine jurisdiction on the
presumption that such power is validly exercised. Such power is validly exercised if
it does not contravene the limitations imposed by the Constitution and by law.
a.2. Nature and Scope of the Power of Taxation
Art. V, Section 28(20): Legislative Powers (Plenary)
Art. X, Section 5: Taxation Power of LGU
NATURE:
an attribute of sovereignty
inherent
legislative in character
SCOPE:
Legislative taxing power extends to the following:
subject of taxation (person, property or occupation, excises and privileges)
rates or amount
kinds
purpose (must be for a public purpose)
situs (jurisdiction)

method of collection

Churchill and Tait v. Concepcion, G.R. No. 11572, Sept. 22, 1916
The power to impose taxes is one so unlimited in force and so searching in
extent, that the courts scarcely venture to declare that it is subject to any
restrictions whatever, except such as rest in the discretion of the authority which
exercises it. It reaches to every trade or occupation; to every object of industry, use,
or enjoyment; to every species of possession; and it imposes a burden which, in
case of failure to discharge it, may be followed by seizure and sale or confiscation of
property. No attribute of sovereignty is more pervading, and at no point does the
power of the government affect more constantly and intimately all the relations of
life than through the exactions made under it." (Cooley's Constitutional Limitations,
6th Edition, p. 587.)

a.3. Theory of Taxation, Basis or Rationale of Taxation

THEORY:
Necessity Theory the government is necessary since the exercise of governmental
functions redounds to the benefit of society; this can only be achieved by raising
revenues
Symbiotic Theory (Benefits-Protection) government needs revenues to defray
expenses; the public benefit from government
BASIS: Life-blood Theory (taxes are necessary)
RATIONALE:
Symbiotic relationship between State and tax-paying public
State has jurisdiction over the taxpayer

NPC v. City of Cabanatuan, G.R. No. 149110, April 9, 2003

Taxes are the lifeblood of the government, for without taxes, the government can
neither exist nor endure. A principal attribute of sovereignty, the exercise of taxing
power derives its source from the very existence of the state whose social contract
with its citizens obliges it to promote public interest and common good. The theory
behind the exercise of the power to tax emanates from necessity; without taxes,
government cannot fulfill its mandate of promoting the general welfare and wellbeing of the people.
CIR v. Algue, G.R. No. L-28896, Feb. 17, 1988

It is said that taxes are what we pay for civilized society. Without taxes, the
government would be paralyzed for lack of the motive power to activate and
operate it. Hence, despite the natural reluctance to surrender part of one's hardearned income to the taxing authorities, every person who is able to must
contribute his share in the running of the government. The government for its part,
is expected to respond in the form of tangible and intangible benefits intended to
improve the lives of the people and enhance their moral and material values. This
symbiotic relationship is the rationale of taxation and should dispel the erroneous
notion that it is an arbitrary method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a
requirement in all democratic regimes that it be exercised reasonably and in
accordance with the prescribed procedure. If it is not, then the taxpayer has a right
to complain and the courts will then come to his succor. For all the awesome power
of the tax collector, he may still be stopped in his tracks if the taxpayer can
demonstrate, as it has here, that the law has not been observed.
Phil. Bank of Communications v. CIR, G.R. No. 112024, Jan. 28, 1999
Basic is the principle that "taxes are the lifeblood of the nation." The primary
purpose is to generate funds for the State to finance the needs of the citizenry and
to advance the common weal. [Napocor vs. Province of Albay, 186 SCRA 198 (1990),
at p. 207.] Due process of law under the Constitution does not require judicial
proceedings in tax cases. This must necessarily be so because it is upon taxation
that the government chiefly relies to obtain the means to carry on its operations
and it is of utmost importance that the modes adopted to enforce the collection of
taxes levied should be summary and interfered with as little as possible. [Teodoro
and de Leon, Law on Income Taxation, 1993 ed., at 485.]
fundamental is the rule that the State cannot be put in estoppel by the mistakes
or errors of its officials or agents.

a.4. Extent of the Taxing Power

Tio v. Videogram Regulatory Board, G.R. No. L-75697, June 18, 1987
a tax does not cease to be valid merely because it regulates, discourages, or even
definitely deters the activities taxed. The power to impose taxes is one so unlimited
in force and so searching in extent, that the courts scarcely venture to declare that
it is subject to any restrictions whatever, except such as rest in the discretion of the
authority which exercises it. In imposing a tax, the legislature acts upon its
constituents. This is, in general, a sufficient security against erroneous and
oppressive taxation.
It is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that inequities which result from a singling
out of one particular class for taxation or exemption infringe no constitutional
limitation. Taxation has been made the implement of the states police power.

a.5. Purpose and Objectives of Taxation

raise revenue
regulate
promote general welfare
reduce social inequality
encourage economic growth compensatory because the power to tax necessarily
includes the power to grant tax exemption, providing tax incentives for investors
implement of eminent domain
Sumptuary Purpose of Taxation non-revenue raising purpose of taxation; refers to
regulatory purpose
Caltex Philippines, Inc. v. COA, G.R. No. 92585, May 8, 1992
POLICE POWER: Taxation is no longer envisioned as a measure merely to raise
revenue to support the existence of the government; taxes may be levied with a
regulatory purpose to provide means for the rehabilitation and stabilization of a
threatened industry which is affected with public interest as to be within the police
power of the state.
NO OFFSET: It is settled that a taxpayer may not offset taxes due from the claims
that he may have against he government. Taxes cannot be the subject of
compensation because the government and taxpayer are not mutually creditors and
debtors of each other and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.
Batangas Power Corp. v. Batangas City, G.R. No. 152675, April 28, 2004
SOCIAL JUSTICE AND EQUITABLE DISTRIBUTION OF WEALTH: In recent years, the
increasing social challenges of the times expanded the scope of state activity, and
taxation has become a tool to realize social justice and the equitable distribution of
wealth, economic progress and the protection of local industries as well as public
welfare and similar objectives. Taxation assumes even greater significance with the
ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer
vested exclusively on Congress; local legislative bodies are now given direct
authority to levy taxes, fees and other charges pursuant to Article X, section 5 of
the 1987 Constitution.
Southern Cross Cement Corp. v. Cement Manufacturers Association of the Phils.,
G.R. No. 158540, Aug. 3, 2005

(HOLY CRAP, CHECK OUT THE INTRO!!!! ^.^)

Cement is hardly an exciting subject for litigation. Still, the parties in this case have
done their best to put up a spirited advocacy of their respective positions, throwing
in everything including the proverbial kitchen sink. At present, the burden of
passion, if not proof, has shifted to public respondents Department of Trade and
Industry (DTI) and private respondent Philippine Cement Manufacturers Corporation
(Philcemcor),[1] who now seek reconsideration of our Decision dated 8 July 2004
(Decision), which granted the petition of petitioner Southern Cross Cement
Corporation (Southern Cross).
This case, of course, is ultimately not just about cement. For respondents, it is about
love of country and the future of the domestic industry in the face of foreign
competition. For this Court, it is about elementary statutory construction,
constitutional limitations on the executive power to impose tariffs and similar
measures, and obedience to the law. Just as much was asserted in the Decision, and
the same holds true with this present Resolution.
POWER OF PRESIDENT TO IMPOSE TARIFF RATES: Without Section 28(2), Article VI,
the executive branch has no authority to impose tariffs and other similar tax levies
involving the importation of foreign goods. Assuming that Section 28(2) Article VI
did not exist, the enactment of the SMA by Congress would be voided on the ground
that it would constitute an undue delegation of the legislative power to tax. The
constitutional provision shields such delegation from constitutional infirmity, and
should be recognized as an exceptional grant of legislative power to the President,
rather than the affirmation of an inherent executive power.
QUALIFIERS: This being the case, the qualifiers mandated by the Constitution on this
presidential authority attain primordial consideration: (1) there must be a law; (2)
there must be specified limits; and (3) Congress may impose limitations and
restrictions on this presidential authority.
POWER EXERCISED BY ALTER EGOS OF PRES: The Court recognizes that the
authority delegated to the President under Section 28(2), Article VI may be
exercised, in accordance with legislative sanction, by the alter egos of the President,
such as department secretaries. Indeed, for purposes of the Presidents exercise of
power to impose tariffs under Article VI, Section 28(2), it is generally the Secretary
of Finance who acts as alter ego of the President. The SMA provides an exceptional
instance wherein it is the DTI or Agriculture Secretary who is tasked by Congress, in
their capacities as alter egos of the President, to impose such measures. Certainly,
the DTI Secretary has no inherent power, even as alter ego of the President, to levy
tariffs and imports.
TARIFF COMMISSION AND DTI SEC ARE AGENTS: Concurrently, the tasking of the
Tariff Commission under the SMA should be likewise construed within the same
context as part and parcel of the legislative delegation of its inherent power to
impose tariffs and imposts to the executive branch, subject to limitations and
restrictions. In that regard, both the Tariff Commission and the DTI Secretary may be
regarded as agents of Congress within their limited respective spheres, as ordained
in the SMA, in the implementation of the said law which significantly draws its
strength from the plenary legislative power of taxation. Indeed, even the President
may be considered as an agent of Congress for the purpose of imposing safeguard
measures. It is Congress, not the President, which possesses inherent powers to

impose tariffs and imposts. Without legislative authorization through statute, the
President has no power, authority or right to impose such safeguard measures
because taxation is inherently legislative, not executive.
When Congress tasks the President or his/her alter egos to impose safeguard
measures under the delineated conditions, the President or the alter egos may be
properly deemed as agents of Congress to perform an act that inherently belongs as
a matter of right to the legislature. It is basic agency law that the agent may not act
beyond the specifically delegated powers or disregard the restrictions imposed by
the principal. In short, Congress may establish the procedural framework under
which such safeguard measures may be imposed, and assign the various offices in
the government bureaucracy respective tasks pursuant to the imposition of such
measures, the task assignment including the factual determination of whether the
necessary conditions exists to warrant such impositions. Under the SMA, Congress
assigned the DTI Secretary and the Tariff Commission their respective functions in
the legislatures scheme of things.
There is only one viable ground for challenging the legality of the limitations and
restrictions imposed by Congress under Section 28(2) Article VI, and that is such
limitations and restrictions are themselves violative of the Constitution. Thus, no
matter how distasteful or noxious these limitations and restrictions may seem, the
Court has no choice but to uphold their validity unless their constitutional infirmity
can be demonstrated.
What are these limitations and restrictions that are material to the present case?
The entire SMA provides for a limited framework under which the President, through
the DTI and Agriculture Secretaries, may impose safeguard measures in the form of
tariffs and similar imposts.
POWER BELONGS TO CONGRESS: the cited passage from Fr. Bernas actually
states, Since the Constitution has given the President the power of control, with all
its awesome implications, it is the Constitution alone which can curtail such power.
Does the President have such tariff powers under the Constitution in the first place
which may be curtailed by the executive power of control? At the risk of
redundancy, we quote Section 28(2), Article VI: The Congress may, by law,
authorize the President to fix within specified limits, and subject to such limitations
and restrictions as it may impose, tariff rates, import and export quotas, tonnage
and wharfage dues, and other duties or imposts within the framework of the
national development program of the Government. Clearly the power to impose
tariffs belongs to Congress and not to the President.
CIR v. Central Luzon Drug Corp., G.R. No. 159647, April 15, 2005
EMINENT DOMAIN: The concept of public use is no longer confined to the traditional
notion of use by the public, but held synonymous with public interest, public benefit,
public welfare, and public convenience. The discount privilege to which our senior
citizens are entitled is actually a benefit enjoyed by the general public to which
these citizens belong. The discounts given would have entered the coffers and
formed part of the gross sales of the private establishments concerned, were it not
for RA 7432. The permanent reduction in their total revenues is a forced subsidy
corresponding to the taking of private property for public use or benefit.
As a result of the 20 percent discount imposed by RA 7432, respondent becomes

entitled to a just compensation. This term refers not only to the issuance of a tax
credit certificate indicating the correct amount of the discounts given, but also to
the promptness in its release. Equivalent to the payment of property taken by the
State, such issuance -- when not done within a reasonable time from the grant of
the discounts -- cannot be considered as just compensation.
Besides, the taxation power can also be used as an implement for the exercise of
the power of eminent domain. Tax measures are but enforced contributions
exacted on pain of penal sanctions and clearly imposed for a public purpose. In
recent years, the power to tax has indeed become a most effective tool to realize
social justice, public welfare, and the equitable distribution of wealth.

a.6. Characteristics of a Sound Tax System

Fiscal Adequacy meet requirements of government

Theoretical Justice progressivity; based on taxpayers ability to pay
Administrative Feasibility enforcement should be effective and simple
a.7. Aspects of Taxation

Levy determine persons, property or excises to be taxed, their amount and due
date, time and manner (taxation proper)
Collection manner of enforcement; includes assessment and administration by BIR
(subordinate legislation) (tax administration)
a.8. Taxation distinguished
v. POLICE POWER (code: PABAT)
As to purpose Taxation is to raise revenue; Police Power is to promote public
welfare.
As to amount Taxation has no limit; Police Power is limited to the cost of
regulation, issuance of license or surveillance
As to benefits Taxation offers no special or direct benefit other than benefit to the
general public; Police Power is to promote a healthy economic standard.
As to applicability of non-impairment of contracts clause It applies in taxation; It
does not apply in police power, EXCEPT if the grant of franchise was for a valuable
consideration.

As to transfer of property rights Taxation involves transfer of public funds or

money; Police Power does not contemplate a transfer but merely restraint on
property taken or destroyed.
v. POWER OF EMINENT DOMAIN (code: NCAPA)
As to nature Taxation is the power to raise revenue; Eminent Domain is the taking
of property for public use.
As to compensation Compensation for taxation takes the form of a general benefit
to the public; in eminent domain, there must be just compensation.
As to applicability of non-impairment of contracts clause It applies in taxation; it
does not apply in eminent domain.
As to persons affected Taxation affects all subject to the States jurisdiction;
eminent domain affects only the particular property.
As to authority Taxation is exercised by the government; Eminent Domain may be
exercised by private entities exercising public functions.
B. Limitations of the Taxing Power
b.1. Inherent Limitations
(1) Public Purpose this is presumed
Gomez v. Palomar, G.R. No. L-23645, Oct. 29, 1968
The eradication of a dreaded disease is a public purpose, but if by public purpose
the petitioner means benefit to a taxpayer as a return for what he pays, then it is
sufficient answer to say that the only benefit which the taxpayer is constitutionally
entitled is that derived from his enjoyment of the privileges of living in an organized
society, established and safeguarded by the devotion of taxes to public purposes
Pascual v. Secretary of Public Works, G.R. No. L-10405, Dec. 29, 1960
In accordance with the rule that the taxing power must be exercised for public
purposes only, money raised by taxation can be expanded only for public purposes
and not for the advantage of private individuals.
Public funds may be used for a public purpose. The right of the legislature to
appropriate funds is correlative with its right to tax, under constitutional provisions
against taxation except for public purposes and prohibiting the collection of a tax
for one purpose and the devotion thereof to another purpose, no appropriation of
state funds can be made for other than a public purpose.

(2) Observe International Comity there must be reciprocity

Art. II, Section 2. The Philippines renounces war as an instrument of national policy,
adopts the generally accepted principles of international law as part of the law of
the land and adheres to the policy of peace, equality, justice, freedom, cooperation,
and amity with all nations.
Sec. 32(B)(7)(a), NIRC: Income Derived by Foreign Government. - Income derived
from investments in the Philippines in loans, stocks, bonds or other domestic
securities, or from interest on deposits in banks in the Philippines by (i) foreign
governments, (ii) financing institutions owned, controlled, or enjoying refinancing
from foreign governments, and (iii) international or regional financial institutions
established by foreign governments.
(3) No Improper Delegation, exceptions
- under Flexible Tariff Clause, President may fix:
tariff rates
import-export quotas
tonnage and wharfage duties
other duties and imposts within the framework of the national government program
- LGU (General Welfare Clause)
- administrative agencies:
fix the value of property
assess and collect taxes
perform details of computation
appraisement and adjustment
(4) Limited to the Territorial Jurisdiction
SITUS (Sec. 23, NIRC)
Citizens
Resident Citizens taxed on all sources of income inside or outside the Philippines
(based on nationality principle)
Non-resident Citizens taxed on all sources within the Philippines
Aliens
Resident Aliens taxed on all sources within the Philippines

Non-resident Aliens (whether engaged in business or not) taxed on all sources

within the Philippines
NOTA BENE: Only resident citizens are taxed on all sources of income within or
without the Philippines.
FACTORS AFFECTING SITUS OF TAXATION:
kind or classification of tax
situs of the thing or property taxed
domicile or residence of the person taxed
citizenship or nationality of the person taxed
source of the income taxed
situs of the excise, privilege, business or occupation being taxed
NOTA BENE: Situs of taxation for personal property follows the principle of mobilia
sequuntur personam (personal property follows the person), EXCEPT shares of stock
the situs of which is based on where the corporation has its principal place of
business. Situs of taxation for real property is lex rei sitae (where the property is
located).
CIR v. Japan Airlines, Inc., G.R. No. 60714, Oct. 4, 1991
The source of income is the property, activity or service that produced the income.
For the source of income to be considered as coming from the Philippines, it is
sufficient that the income is derived from activity within the Philippines. In BOACs
case, the sale of tickets in the Philippines is the activity that produces the income.
The tickets exchanged hands here and payments for fares were also made here in
the Philippine currency. The situs of the source of payments is the Philippines. The
flow of wealth proceeded from, and occurred within, Philippine territory, enjoying
the protection accorded by the Philippine government. In consideration of such
protection, the flow of wealth should share the burden of supporting the
government.
The absence of flight operations to and from the Philippines is not determinative of
the source of income or the situs of income taxation. The test of taxability is the
source; and the source of an income is that activity which produced the income.
South African Airways v. CIR, CTA 6760, June 9, 2005
It has been consistently ruled that the source of income is the property, activity or
service that produced the income and, in order that the source of income to be
considered as coming from the Philippines, it is enough that the income is derived
from activity within the Philippines.

The absence of flight operations to and from the Philippines is not determinative of
the source of income or the situs of income taxation. Petitioner admitted that it sells
passage documents in the Philippines through its sales agent. Petitioner, thus, is
deriving revenues from the conduct of its business activity regularly pursued within
the Philippines. Petitioner is therefore a resident foreign corporation engaged in
trade or business in the country within the purview of our tax law and is therefore
subject to tax. As held in Commissioner of Internal Revenue vs. American Airlines,
Inc.:
xxx foreign airline companies which sold tickets in the Philippines through their
local agents, whether called liaison offices, agencies or branches, were considered
resident foreign corporations engaged in trade or business in the country. Such
activities show continuity of commercial dealings or arrangements and performance
of acts or works or the exercise of some functions normally incident to and in
progressive prosecution of commercial gain or for the purpose and object of the
business organization.
National Development Co. v. CIR, G.R. No. L-53961, June 30, 1987
The Japanese shipbuilders were liable to tax on the interest remitted to them. The
petitioner argues that the Japanese shipbuilders were not subject to tax under the
above provision because all the related activities the signing of the contract, the
construction of the vessels, the payment of the stipulated price, and their delivery
to the NDC were done in Tokyo. The law, however, does not speak of activity but of
source, which in this case is the NDC. This is a domestic and resident corporation
with principal offices in Manila.
The Governments right to levy and collect income tax on interest received by
foreign corporations not engaged in trade or business within the Philippine sis not
planted upon the condition that the activity or labor and the sale form which the
(interest) income flowed had its situs in the Philippines. The law specifies: interest
derived from sources within the Philippines. Nothing there speaks of the act or
activity of non-resident corporations in the Philippines, or place where the contract
is signed. The residence of the obligor who pays the interest rather than the
physical location of the securities, bonds, or notes or the place of payment, is the
determining factor of the source of interest income.

(5) Exemption of Government Entities inherent exemption, but Government may

tax itself
Sec. 27(C), NIRC: Government-owned or Controlled-Corporations, Agencies or
Instrumentalities. - The provisions of existing special or general laws to the contrary
notwithstanding, all corporations, agencies, or instrumentalities owned or controlled
by the Government, except the Government Service Insurance System (GSIS), the
Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC),
the Philippine Charity Sweepstakes Office (PCSO) and the Philippine Amusement
and Gaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable
income as are imposed by this Section upon corporations or associations engaged in
s similar business, industry, or activity.
Sec. 32(B)(7)(b), NIRC: Income Derived by the Government or its Political

Subdivisions. - Income derived from any public utility or from the exercise of any
essential governmental function accruing to the Government of the Philippines or to
any political subdivision thereof.
Sec. 30(1), NIRC
b.2. Constitutional Limitations
(1) Indirect
a) Due Process and Equal Protection Clause
Art. III, Section 1. No person shall be deprived of life, liberty, or property without due
process of law, nor shall any person be denied the equal protection of the laws.
b) Freedom of the Press
Art. III, Section 4. No law shall be passed abridging the freedom of speech, of
expression, or of the press, or the right of the people peaceably to assemble and
petition the government for redress of grievances.
c) Religious Freedom
Art. III, Section 5. No law shall be made respecting an establishment of religion, or
prohibiting the free exercise thereof. The free exercise and enjoyment of religious
profession and worship, without discrimination or preference, shall forever be
allowed. No religious test shall be required for the exercise of civil or political rights.
d) Non-impairment Clause
Art. III, Section 10. No law impairing the obligation of contracts shall be passed.
Art. XII, Section 11. No franchise, certificate, or any other form of authorization for
the operation of a public utility shall be granted except to citizens of the Philippines
or to corporations or associations organized under the laws of the Philippines, at
least sixty per centum of whose capital is owned by such citizens; nor shall such
franchise, certificate, or authorization be exclusive in character or for a longer
period than fifty years. Neither shall any such franchise or right be granted except
under the condition that it shall be subject to amendment, alteration, or repeal by
the Congress when the common good so requires. The State shall encourage equity
participation in public utilities by the general public. The participation of foreign
investors in the governing body of any public utility enterprise shall be limited to
their proportionate share in its capital, and all the executive and managing officers
of such corporation or association must be citizens of the Philippines.
e) Law-Making Process
Art. VI, Section 26. (1) Every bill passed by the Congress shall embrace only one
subject which shall be expressed in the title thereof.
(2) No bill passed by either House shall be come a law unless it has passed three
readings on separate days, and printed copies thereof in its final form have been
distributed to its Members three days before its passage, except when the President
certifies to the necessity of its immediate enactment to meet a public calamity or

emergency. Upon the last reading of a bill, no amendment thereto shall be allowed,
and the vote thereon shall be taken immediately thereafter, and the yeas and nays
entered in the Journal.
(2) Direct
a) Non-Imprisonment
Art. III, Section 20. No person shall be imprisoned for debt or non-payment of a poll
tax.
b) Uniform & Equitable
Art. VI, Section 28. (1) The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.
(2) The Congress may, by law, authorize the President to fix within specified limits,
and subject to such limitations and restrictions as it may impose, tariff rates, import
and export quotas, tonnage and wharfage dues, and other duties or imposts within
the framework of the national development program of the Government.
(3) Charitable institutions, churches and personages or convents appurtenant
thereto, mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly, and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation.
(4) No law granting any tax exemption shall be passed without the concurrence of a
majority of all the Members of the Congress.
c) Progressive System (Sec. 28 (1), Art. VI)
d) ART Bill
Art. VI, Section 24. All appropriation, revenue or tariff bills, bills authorizing increase
of the public debt, bills of local application, and private bills, shall originate
exclusively in the House of Representatives, but the Senate may propose or concur
with amendments.
e) Presidents Power to Veto
Art. VI, Section 27 (2) The President shall have the power to veto any particular item
or items in an appropriation, revenue, or tariff bill, but the veto shall not affect the
item or items to which he does not object.
f) Delegated Authority of the President (Sec. 28 (2), Art. VI)
g) Exemption from Tax (Sec. 28 (3), Art. VI)
h) Congress concurrence (Sec. 28 (4), Art. VI)
i) No religious purpose
Art. VI, Sec. 29 (2): No public money or property shall be appropriated, applied,
paid, or employed, directly or indirectly, for the use, benefit, or support of any sect,

church, denomination, sectarian institution, or system of religion, or of any priest,

preacher, minister, other religious teacher, or dignitary as such, except when such
priest, preacher, minister, or dignitary is assigned to the armed forces, or to any
penal institution, or government orphanage or leprosarium.
j) Special purpose
Art. VI, Sec. 29 (3): All money collected on any tax levied for a special purpose shall
be treated as a special fund and paid out for such purpose only. If the purpose for
which a special fund was created has been fulfilled or abandoned, the balance, if
any, shall be transferred to the general funds of the Government.
k) Judicial Review
Art. VIII, Section 5. The Supreme Court shall have the following powers:
1) Exercise original jurisdiction over cases affecting ambassadors, other public
ministers and consuls, and over petitions for certiorari, prohibition, mandamus, quo
warranto, and habeas corpus.
(2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or
the Rules of Court may provide, final judgments and orders of lower courts in:
(a) All cases in which the constitutionality or validity of any treaty, international or
executive agreement, law, presidential decree, proclamation, order, instruction,
ordinance, or regulation is in question.
(b) All cases involving the legality of any tax, impost, assessment, or toll, or any
penalty imposed in relation thereto.
(c) All cases in which the jurisdiction of any lower court is in issue.
(d) All criminal cases in which the penalty imposed is reclusion perpetua or higher.
(e) All cases in which only an error or question of law is involved.
(3) Assign temporarily judges of lower courts to other stations as public interest
may require. Such temporary assignment shall not exceed six months without the
consent of the judge concerned.
(4) Order a change of venue or place of trial to avoid a miscarriage of justice.
(5) Promulgate rules concerning the protection and enforcement of constitutional
rights, pleading, practice, and procedure in all courts, the admission to the practice
of law, the integrated bar, and legal assistance to the under-privileged. Such rules
shall provide a simplified and inexpensive procedure for the speedy disposition of
cases, shall be uniform for all courts of the same grade, and shall not diminish,
increase, or modify substantive rights. Rules of procedure of special courts and
quasi-judicial bodies shall remain effective unless disapproved by the Supreme
Court.
(6) Appoint all officials and employees of the Judiciary in accordance with the Civil
Service Law.

TAX PAYERS SUIT proper when there is illegal disbursement of public funds
derived from taxation. But note that even if the taxpayer questions the
constitutionality of the law, he is not excused from paying his taxes because of the
life-blood theory.
l) Delegated authority to LGU
Art. X, Section 5. Each local government unit shall have the power to create its own
sources of revenues and to levy taxes, fees and charges subject to such guidelines
and limitations as the Congress may provide, consistent with the basic policy of
local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local
governments.
Art. X, Section 6. Local government units shall have a just share, as determined by
law, in the national taxes which shall be automatically released to them.
m) Tax exemptions
Art. XIV, Sec. 4 (3): All revenues and assets of non-stock, non-profit educational
institutions used actually, directly, and exclusively for educational purposes shall be
exempt from taxes and duties. Upon the dissolution or cessation of the corporate
existence of such institutions, their assets shall be disposed of in the manner
provided by law.
Sec. 30(H), NIRC: Exemptions from Tax on Corporations -- A nonstock and nonprofit
educational institution.
NOTA BENE: Income from school canteens and bookstores which is incidental to the
schools primary purpose is included in the exemption. But such school canteens
and bookstores must be owned by the school and located in the school campus.
ABAKADA Guro Party List v. Ermita, G.R. No. 168056, Sept. 1, 2005
Is there undue delegation of legislative power since the law gives the President
stand-by authority to raise the VAT rate to 12%? The authority does not refer to the
power of the President to fix tariff rates. Neither is it a delegation of legislative
power. It is simply a delegation of ascertainment of facts upon which enforcement
and administration of the increase rate under the law is contingent. The legislature
has made the operation of the 12% rate effective Jan. 1, 2006, contingent upon a
specified fact or condition. It leaves the entire operation or non-operation of the
12% rate upon factual matters outside the control of the executive. It is the
ministerial duty of the President to immediately impose the 12% rate upon the
existence of any of the conditions specified by Congress.
Is there violation of due process clause as it imposes an unfair and additional tax
burden on the people? Petitioners argue that the law imposes an unfair and
additional tax burden on the people as the law does not provide for the rate to
revert to the original 10% in case the conditions set forth are no longer satisfied and
as such, people wont know how much is the rate from year to year. SC said that the
law is clear and unambiguous. The fears of petitioner is merely speculative as the
law itself does not provide that the rate would go back to 10%.

Does it violate the rule that ART bills should exclusively originate from the House of
Representatives? No violation. According to petitioners, the amendments introduced
to the NIRC did not come from the House, but from the Senate. SC said that to begin
with, it is not the law but the revenue bill which is required by the Constitution to
originate exclusively in the House of Representatives. A bill originating from the
House may undergo such extensive changes in the Senate that the result may be a
rewriting of the whole. At this point, what is important to note is that, as a result
of the Senate action, a distinct bill may be produced. To a insist that a revenue
statute and not only the bill which initiated the legislative process culminating in
the enactment of the law must substantially be the same as the House bill would
be to deny the Senates power not only to concur with amendments but also to
propose amendments. It would violate the coequality of legislative power of the
two houses of Congress and in fact make the House superior to the Senate. What
the Constitution means is that the initiative for filing revenue, tariff or tax bills, bills
authorizing an increase of public debt, private bills and bills of local application
must come from the House of Representatives on the theory that, elected as they
are from the districts, the members of the House can be expected to be more
sensitive to the local needs and problems. On the other hand, the senators, who are
elected at large, are expected to approach the same problems from the national
perspective. Both views are thereby made to bear on the enactment of such laws.
Does the imposition of limitations on the amount of input tax that may be claimed
constitute a deprivation of property without due process of law? There is no
deprivation of property because the input tax in excess of the output tax is carried
over to succeeding quarter or quarters. In addition, a tax credit certificate may be
applied for any unused input taxes, to the extent that such input taxes have not
been applied against the input taxes. Such unused input tax may be used in
payment of his other internal revenue taxes. Moreover, input tax is not property
under the purview of the Constitution. It is merely a statutory privilege.
Does it violate the equal protection clause as the limitation on the creditable input
tax is not based on real and substantial differences to meet a valid
classification? The equal protection clause does not require the universal application
of the laws on all persons or things without distinction. This might in fact sometimes
result in unequal protection. What the clause requires is equality among equals as
determined according to a valid classification. By classification is meant the
grouping of persons or things similar to each other in certain particulars and
different from all others in these same particulars.
Does violate the progressivity of tax laws? By its very nature, the VAT is regressive.
Nevertheless, the Constitution does not really prohibit the imposition of indirect
taxes, like the VAT. What it simply provides is that Congress shall evolve a
progressive system of taxation. The constitutional provision has been interpreted
to mean simply that direct taxes are to be preferred and as much as possible,
indirect taxes should be minimized.
Does it violate the principle that tax collection and revenue should be solely
allocated for public purposes and expenditures since VAT-registered establishments
are allowed to retain a portion of the taxes they collect? No violation. The input tax
is the tax paid by a person, passed on to him by the seller, when he buys goods.
Output tax meanwhile is the tax due to the person when he sells the goods. In
computing the variables, there are three possible scenarios: (1) if the input and
output taxes charged are equal, then there is no payment required; (2) when output

taxes exceed the input taxes, the person shall be liable for the excess; and (3) if the
input taxes exceed the output taxes, the excess shall be carried over to the
succeeding quarter or quarters. The 70% limitation on input taxes does not mean
that the establishments retain the input tax in excess of 70%. It only means that
they can only credit their input tax up to the extent of 70% of their output tax.
Does it violate uniformity and equitable taxation? Uniformity in taxation means that
all taxable articles or kinds of property of the same class shall be taxed at the same
rate. Different articles may be taxed different amounts provided that the rate is
uniform on the same class everywhere with all people at all times. The law is
uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and
services. The law is also equitable as it is equipped with a threshold margin. Thus
the VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or services
with gross annual sales or receipts not exceeding P1,500,000.00.

C. Tax
c.1. Tax Defined, Characteristics
Tax enforced proportional contributions, generally payable in money, from
persons, property, rights and privileges levied by the legislative body of the State
by virtue of its sovereignty for the support of government and for public needs.
c.2. Kinds of Taxes
As to subject or object
personal>
propertyAs to who bears the burden
direct
indirect
CIR v. PLDT, G.R. No. 140230, Dec. 15, 2005
DIRECT v. INDIRECT TAX: based on the possibility of shifting the incidence of
taxation. Direct taxes are those that are exacted from the very person who, it is
intended or desired, should pay them; impositions for which a taxpayer is directly
liable on the transaction or business he is engaged in. Indirect taxes are those that
are demanded, in the first instance, from, or are paid by, one person in the
expectation and intention that he can shift the burden to someone else; liability for
the payment falls on one person but the burden can be shifted or passed on to
another person, such as when the tax is imposed ex. VAT, advance sales tax,
compensating tax upon goods before reaching the consumer who ultimately pays
for it. When the seller passes on the tax to his buyer, he, in effect, shifts the tax
burden, not the liability to pay it, to the purchaser as part of the price of goods sold
or services rendered.
By tacking the VAT due to the selling price, the seller remains the person primarily

and legally liable for the payment of the tax. What is shifted only to the
intermediate buyer and ultimately to the final purchaser is the burden of the tax.
Stated differently, a seller who is directly and legally liable for payment of an
indirect tax, such as VAT on goods and services, is not necessarily the person who
ultimately bears the burden of the same tax. It is the final purchaser or end-user of
such goods or services who, although not directly and legally liable for the payment
thereof, ultimately bears the burden of the tax.

As to determination of amount
specific
ad valorem
As to purpose
general
special
As to rate
progressive
regressive
proportional
As to imposing authority
national
local
c.3. Tax distinguished from other impositions
v. SPECIAL ASSESSMENT
As to subject matter Tax is imposed on persons, property and excises; Special
Assessment is levied only on land
As to liability imposed upon taxpayer Tax can be a personal liability or liability on
property of the taxpayer; Special Assessment cannot be made a personal liability of
the person assessed
As to purpose Tax is to generate revenue; Special Assessment is based wholly on
benefit.

As to application Tax is of general and uniform application; Special Assessment is

exceptional both as to time and locality.
v. LICENSE
As to power Tax is levied in the exercise of taxation power; License Fee emanates
from police power.
As to purpose Tax is to generate revenue; License Fee is regulatory.>
As to amount to be charged Tax is unlimited; License Fee must be of an amount
sufficient to cover the expenses of: a) issuing the license; and b) cost of necessary
inspection or police surveillance
v. TOLL

As to nature - Tax is a demand of sovereignty for the purpose of raising public

revenue; Toll is a demand of ownership to defray the cost and maintenance of the
property.

v. PENALTY

As to kind of liability Tax is a civil liability; Penalty is a punishment for the

commission of a crime.
v. DEBT

As to source Tax is imposed by law; Debt is imposed by obligation created by

contract.
As to penalty for non-payment Non-payment of tax may cause a person to be
criminally prosecuted; Non-payment of debt does not generally give rise to criminal
action or cause a person to be imprisoned.
In Tax there is generally no compensation because the government and the
taxpayer are not creditors and debtors as to each other. BUT if both the tax and the
tax refund due to the taxpayer are due and demandable, compensation may be
proper. In Debt, compensation may be proper.

DOCTRINE OF EQUITABLE RECOUPMENT

c.4. Sources of Tax Laws, Nature of Tax Laws

NIRC
Constitution
Tariff and Tax Code
Local Government Code
NOTA BENE: Tax laws are civil in nature, therefore, the rule on ex post facto law
prohibition does not apply. Tax laws may not be given retroactive effect, even if they
are favorable to the taxpayers. Tax laws are likewise not political, therefore, they
still apply even if there is a change in government to a belligerent.
c.5. Interpretation of Tax Laws
Strictissimi juris strictly interpreted against the government and liberally in favor
of the taxpayer because it involves the imposition of a tax burden
- EXCEPTION: Tax exemptions are strictly interpreted against the taxpayer and
liberally in favor of the government because of the life-blood theory and the equal
protection clause (exemptions are privileges, therefore, encourages inequality
among taxpayers)
Sea Land Service v. CA, G.R. No. 122605, April 30, 2001
STRICTISSIMI JURIS in TAX EXEMPTION: Laws granting exemption from tax are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing
power. Taxation is the rule and exemption is the exception. The law does not look in
favor on tax exemptions and that he who would seek to be thus privileged must
justify it by words too plain to be mistaken and to categorical to be misinterpreted.
PURPOSE OF TAX EXEMPTION: Some public benefit or interest, which the lawmaking
body considers sufficient to affect the monetary loss entailed in the grant of the
exemption.
CIR v. CA, G.R. No. 107135, Feb. 23, 1999
RULE ON EXCEPTIONS: Exceptions, as a general rule, should be strictly but
reasonably construed. They extend only so far as their language fairly warrants, and
all doubts should be resolved in favor of the general provisions rather than the
exception. Where the general rule is established by statute with exceptions, the
court will not curtail the former nor add to the latter by implication.
STRICTISSIMI JURIS in TAX LAWS: Tax burdens are not to be imposed, nor presumed
to be imposed beyond what the statute expressly and clearly imports, tax statutes
being construed strictissimi juris against the government.
Maceda v. Macaraig, 197 SCRA 771

(Exception to the Exception) STRICTISSIMI JURIS in GOVERNMENT: It is recognized

principle that the rule on strict interpretation does not apply in the case of
exemptions in favor of government political subdivisions or instrumentalities. In the
case of property owned by the state or city or other public corporation, the express
exception should not be construed with the same degree of strictness that applies
to exemptions contrary to the policy of the state, since as to such property
exception is the rule and taxation the exception.
c.6. Tax Exemptions
KINDS
(1) express; (2) implied; (3) total; (4) partial; (5) constitutional; (6) statutory
Art. VI, Sec. 28 (3): Charitable institutions, churches and personages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly, and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation.
Art. XIV, Sec. 4(3): All revenues and assets of non-stock, non-profit educational
institutions used actually, directly, and exclusively for educational purposes shall be
exempt from taxes and duties. Upon the dissolution or cessation of the corporate
existence of such institutions, their assets shall be disposed of in the manner
provided by law.
Proprietary educational institutions, including those cooperatively owned, may
likewise be entitled to such exemptions, subject to the limitations provided by law,
including restrictions on dividends and provisions for reinvestment.
NOTA BENE: School canteens and bookstores are considered as incidental income
and are therefore included in the exemption.
Question:
(1) Is a vacant lot adjacent to a school building owned by the non-profit, non-stock
educational institution subject to real property taxation, considering that it is not
used actually, directly and exclusively for educational purposes?
(2) Is the exemption under Art. VI, Sec. 28(3) regardless of ownership, so that if the
land used by the religious or charitable institution is owned by a private person, it is
still exempted from real property tax?
Art. XIV, Sec. 4 (4): Subject to conditions prescribed by law, all grants, endowments,
donations, or contributions used actually, directly, and exclusively for educational
purposes shall be exempt from tax.
CONSTITUTIONAL RESTRICTIONS
Art. VI, Sec. 28(4): No law granting any tax exemption shall be passed without the
concurrence of a majority of all the Members of the Congress.
NOTA BENE: Therefore, the President cannot grant tax exemptions through
executive agreement. Tax treaties are entered into with concurrence of the Senate.

EXCEPTIONS
Art. VI, Sec. 28(2): The Congress may, by law, authorize the President to fix within
specified limits, and subject to such limitations and restrictions as it may impose,
tariff rates, import and export quotas, tonnage and wharfage dues, and other duties
or imposts within the framework of the national development program of the
Government.
Art. X, Section 5. Each local government unit shall have the power to create its own
sources of revenues and to levy taxes, fees and charges subject to such guidelines
and limitations as the Congress may provide, consistent with the basic policy of
local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local
governments.
REVOCATION, RESTRICTION
NOTA BENE:
Tax pyramiding (tax on tax) is prohibited.
Tax exemptions are mere privileges so they can be revoked at any time, EXCEPT if
there was a contract granting such tax exemption and such contract was entered
into for a valid consideration.

Coconut Oil Refiners v. Torres, G.R. No. 132527, July 29, 2005
WHO HAS AUTHORITY: It is the legislature, unless limited by a provision of a state
constitution, that has full power to exempt any person or corporation or class of
property from taxation, its power to exempt being as broad as its power to tax.
Other than Congress, the Constitution may itself provide for specific tax exemptions,
or local governments may pass ordinance on exemption only from local taxes.
v. TAX AMNESTY
Tax exemption is prospective. Tax amnesty is retrospective.
Tax exemption is civil. Tax amnesty is civil and criminal.
Tax exemptions cannot be granted without the concurrence of majority of Congress.
Tax amnesty is the intentional overlooking by the government of tax unpaid and is
generally considered an executive act.

CIR v. Marubeni Corp., G.R. No. 137377, Dec. 18, 2001

TAX AMNESTY general pardon or intentional overlooking by the State of its
authority to impose penalties on persons otherwise guilty of evasion or violation of a

revenue or tax law; partakes of an absolute forgiveness or waiver by the

government of its right to collect what is due it and to give tax evaders a chance to
start with a clean slate; never favored nor presumed in law; construed strictly
against the taxpayer and liberally in favor of government.

NOTA BENE: In both tax exemptions and tax amnesties, the rule on strictissimi juris
is the same.
c.7. Tax Avoidance vs. Tax Evasion
Tax avoidance is the minimization of tax liabilities through legal means.
Tax evasion is the minimization of tax liabilities through illegal means with intent in
bad faith or the attendance of fraud.

Tax Credit vs. Tax Exemption

Tax credit contemplates two or more taxing authorities. Tax exemption
contemplates only one taxing authority.<
Tax credit is based on the principle of reciprocity. Tax exemption is an inherent
power of the sovereign state.
c.8. Concept of Double Taxation; Kinds; Modes of Eliminating Double Taxation
Double Taxation (Duplicate Taxation) taxing the same property twice when it
should be taxed only once.
KINDS:
Direct double taxation same subject, same purpose, same taxing authority, same
taxing period, same character of tax (elements of double taxation)
Indirect double taxation one or more of the elements of double taxation are absent
NOTA BENE: Double taxation may be avoided through various credit schemes
specified under the NIRC and exemptions under tax treaties entered into with
foreign governments.