Handout For General Principles of Taxation

HANDOUT 1\ GENERAL PRINCIPLES AND
CONCEPTS OF TAXATION
I. TAXATION
INHERENT POWERS OF THE ESTATE
The Sovereign State is born and will continue to exist with its essential
powers necessary for its survival. These powers are called inherent power
because they exist as a central force in order that the government can command,
maintain peace and orders, survive irrespective of any constitutional provisions.
Police Power
Police power refers to the inherent power of the sovereign to legislate for
the protection of health, welfare and morals of the community. It is exercised
usually to guard against excesses or abuses of individual liberty. It is the power to
protect citizens and provide for safety and welfare of the society. This power is
restricted by the “due process clause” of the Constitution which provides that no
person shall be deprived of life, property and liberty without due process of the law.
This power may be exercised through taxation because taxes may be levied
for the enforcement of the public welfare.
Eminent Domain Power
Eminent domain is a power of the estate to take private property for the
public purposes. It is founded upon the idea that the common necessities and
interest of the community transcend individual rights in property as for the purpose
of the general welfare. Since it is inherent in sovereignty pertinent provisions in the
Constitution are not grants for the power, but upon limitation of the exercise,
provided that the property may not be taken without just compensation (full
monetary equivalent to the property taken for public purposes).
Taxation Power
The power to enforce contributions to support the government, and other

inherent power of the State is the Power of Taxation.
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DISTINCTIONS OF THE POWERS OF THE STATE
Taxation Police Power Eminent Domain

As to concept Power to enforce Power to make Power to take
contributions to and implement private property
raise government laws for the for public use with
funds general welfare just compensation
As to scope Plenary, Broader in Merely to take
comprehensive application- private property
and supreme general power to for public use
make and
implement laws
As to authority Exercised only by Exercised only by Maybe granted to
the government or the government or public service or
its political its political public utility
subdivisions subdivisions companies
As to purpose Money is taken to Property is taken Private property is
support the or destroyed to taken for public
government promote general use
welfare
As to benefits Continuous Healthy economic Market value of
protection and standard of the the property
organized society society expropriated
THE STRONGEST POWER OF THE STATE
The strongest power of the state is taxation because without money, the
government can neither survive nor dispense any of its other powers and functions
effectively (Sison vs. Ancheta, G.R. No. 594131, 25 July 1984, 130 SCRA 199), it has the power to
build and power to destroy.
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Power to Destroy
Taxation is sometimes viewed as power to destroy in such a way that lawful

tax cannot be defeated just because its exercise would be destructive or bring the
taxpayer into his insolvency.
The principle applies that an imposition of lawful regulatory taxes would be

destructive to the taxpayers and business establishments because the
government can compel payment of t of taxes and forfeiture of property through
the exercise of police power.
Power to Build
Tax is also a primary tool to creates, builds and sustain the upliftment of the
general welfare as part of the continuous support to the other inherent power of
the state that objectively promote the rights of every citizens.
DEFINITION OF TAXATION
A power by which an Independent State, through its law-making body,

raises and accumulate income from its inhabitants to defray the necessary
expenditures of the government.
The taxation is a term from which the taxing authority, usually a government,
levies imposes a tax. The term taxation applies to all types of involuntary levies,
from income to capital gains to estate taxes. (Investopedia)
NATURE OF TAXATION
The nature of taxation refers to its basic concepts or characters. It is the

power of the state through the country’s legislative body, in the Philippines tax laws
are passed both in the House of Representatives and the Senate. As part of the
principle of taxation states that taxes are collected to support the government
expenditures and support services for public welfare.
This is known as the reciprocal duties of protection and support between

the state and its citizens. In a small sense, the constitute obliges every individual
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to pay taxes as a platform to support the government, in turn, the government will
used these funds to protect and serve its people. The government must make use
of taxes wisely, rightfully and effectively.
PURPOSE OF TAXATION
The purpose of taxation may be classified as to:
Primary Purpose
The primary purpose of taxation is to raise revenues from all possible

sources to support the government expenditures and services and to promote the
general well- being and protection of its citizens.
Secondary Purposes
a) To strengthen anemic enterprises by giving tax exemptions;

b) To protect local industries against foreign competition through
imposition of high custom duties on imported goods;
c) To reduce inequalities on wealth and income by imposing
progressively higher tax rates; and
d) To prevent inflation by increasing taxes or ward off depression by
decreasing them.
SCOPE OF TAXATION
In the absence of restriction provided by the Constitutions, the power of

taxation is unlimited, plenary (complete), comprehensive (wide extent of
application), and supreme (highest degree). If there is limitation at all, it is the
sense of responsibility by the members of the legislatives to the people that
restricts its exercise. Taxation reaches every subjects and objects to be taxed, it
may be trade or occupation, persons whether natural or juridical, property whether
real and personal, tangible or intangible, and the like.
It is of course to be admitted for all its plenitude, the power to tax is not
without restrictions (Comm. vs. Algue, G.R. No. L-28896, 17 Feb. 1988). Despite all its tenacity,
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taxation is nonetheless subject to established limitations, such as those inherent

in the power itself or mandated by the constitutional precepts (Vitug, Tax Law and
Jurisprudence, 3 Ed., p.4).
CANON OF TAXATION
The canon of taxation refer to the basic principles of a sound tax system. It
includes the following;
a) Fiscal Adequacy- means that the taxes collected by the BIR must be
capable of adjusting to the variability of public expenditures.
b) Theoretical Justice- refer to as “ability-to-pay” principle, this means that
the tax burden must be proportionate to the taxpayer’s income. Thus, the
person who earns PHP 25,000 per month should not pay the same amount
of tax as a person earning PHP 60,000 monthly.
c) Administrative Feasibility- means that the payment of the taxes must be
taxpayer’s friendly, i.e. tax laws must be capable of simple, just and effective
administration. Moreover, payment of taxes must also be accessible and
convenient.
THEORIES AND BASES OF TAXATION
Theory - the power of taxation come along the theory that the existence of the
government is a necessity; that it cannot continue without means to pay its
expenditures; and that it has a right to compel all its inhabitants and property within
its limit to contribute. Without taxes, the government would be incapable in
performing its main functions.
Basis - The basis of taxation is founded on the reciprocal duties of protection

and support between the State and its citizens. The State receives taxes that will
enable them to carry out its mandates into effect on the other hand the inhabitants
will pay taxes portioned by his means.
A. Lifeblood Theory (Importance of Taxation)
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It is said that taxes are what we pay for civilized society. Without taxes, the
government would be paralyzed for lack of the motive power to activate and
operate it. Hence, despite the natural reluctance to surrender part of one’s hard-
earned income to the taxing authorities, every person who is able to must
contribute his share in running of the government.
B. Necessity Theory (Theory of Taxation)
The power to tax is an attribute of sovereignty emanating from necessity.
It is a necessary burden to preserve the State’s sovereignty and a means

to give the citizenry an army to resist an aggression, a navy to defend its shores
from invasion, a corps of civil servants to serve, public improvements designed for
enjoyment of the citizenry and those which come within the State’s territory, and
facilities and protection which a government is supposed to provide
C. Benefit-Received Principle (Basis of Taxation)
Taxation is described as a symbiotic relationship whereby in exchange of

the benefits and protection that the citizens get from the government, taxes are
paid.
INHERENT VS. CONSTITUTIONAL LIMITATIONS
Although taxation is a supreme therefore its exercise is not absolute making

it also limited to certain provisions. There are two types of limitations- the inherent
and constitutional limitations.
INHERENT LIMITATIONS
Those which restricts the power although they are not embodied in the
constitutions. This are natural restrictions to safeguard and ensure that the power
of taxation shall be exercised by the government only for the betterment of the
people whose interest should be reserved, enhanced and protected. (69 SCRA 460).
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A. Taxes may be levied only for Public Purposes. This means that the
revenues collected from the people must be returned to them in the form of
security, peace and order maintenance, social and economic welfare. Such
as the construction of government hospitals, learning institutions, public
roads and bridges, etc.
B. Non- delegation of the Legislative power to tax. What has been

delegated cannot be delegated. The people created a legislative
department for the exercise of legislative power. Since peculiarly and
exclusively legislative in nature, the power to tax laws cannot be exercised
by the executive or judicial branches of the government. Thus, his power
should not be delegated to any other person nor body. However, the 1987
Constitution delegates to local government units (LGU’s) the power to tax
subject to such limitations as may be provided by Congress (Art. X, Sec. 5).
Likewise, the Congress cannot delegated the power to tax, except to

authorize the president, subject to limitations and restrictions, to improve
tariff rates, import and export quotas, and other duties, etc. (Art. VI, Sec. 28, No.
2).
C. The government entities are exempted from taxation. The government

obtains its revenues from taxing the people. Taxing the government itself
will not generate income, making it exempted from taxation. However, the
government agencies performing proprietary functions, like Land Bank of
the Philippines (LBP) or Philippine National Railways (PNR), are generally
subject to tax, except when exempted by their charter or the law creating
them. Likewise, all tax exemptions enjoyed by government-owned or -
controlled operations (GOCC’s) have been abolished. As a rule, Agencies
performing governmental functions are exempt from tax unless expressly
taxed, while those performing proprietary functions are subject to tax unless
expressly exempted (De Leon, Comprehensive Review of Taxation [988], p. 28).
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D. Territorial Jurisdictions. Only those persons, properties, and transactions

situated within the territorial limits of the state are taxable. But all Filipino
citizens who work abroad are still subject to taxation as long as they remain
Filipino citizens.
E. International Comity. Is the righteous recognition, friendly agreement,

interactions and respect accorded by one nation to the laws and institutions
of another. Foreign ambassadors and their properties enjoy reciprocal tax
exemptions. As a matter of international courtesy, property of one state may
not be taxed by another because of the principle of sovereign equality
among states under international law (Art. II, Sec. 2, Philippine Constitution). Since
one State cannot exercise its sovereign dominion over another, a nation
cannot impose taxes to the properties of other nations.
CONSTITUTIONAL LIMITATIONS
Those limitations provided in the Constitutions. These limitations are more

prone to change when a new Constitutions are introduced in the country.
Constitutional limitations restrict the supreme, plenary, unlimited and
comprehensive exercise by the State of its inherent power to tax. Here are the
Constitutional limitations of taxations;
A. Observance of Due Process. No person shall be deprived of life, liberty,

or property without due process of the law, nor shall any person be denied
the equal protections of the laws (Art. III, Sec. 1). This may be applied to a
taxpayer accused by tax evasion. Before the person is penalized for the act,
he must first be accorded his right to due process of law. Likewise, a
taxpayer may not be deprived of his property because of non- payment of
taxes without giving a notice to him as required by law by his tax liability.
The purpose of due process is to secure the individual from the abusive
exercise of the taxing power of the government.
B. Equal Protection of the Law. This means that all persons must be treated
alike under similar circumstances and conditions, both in the privileges
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enjoyed and liabilities imposed. The purpose of this Constitutional mandate

is to protect persons belonging to the same class against intentional and
arbitrary discriminations. There is denial of equal discrimination in the
implementation of tax laws. For instance, a tax ordinance applicable to
similar persons, firms or corporations in the same class which are subject
to the same tax rates are tax impartially imposing the ordinance to some
and favoring the others.
C. Rule of Uniformity and Equity in Taxation. The rule of taxation must be

uniform, equitable, and progressive (Article VI, Section 28.1). The reason for this
is that all persons, properties, or transactions are identical or similarly
situated. This means that all taxable articles or properties at the same class
shall be taxed at the same rate. The classifications of subject of taxation
must be based on reasonable and substantial grounds. Moreover, the tax
laws and implementations must be fair, just, reasonable and proportionate
to one’s ability to pay.
D. Non- Imprisonment of Non- Payment of Poll Tax. No person shall be

imprisoned for debt or non- payment of poll tax (Art. III, Sec. 20). A poll tax
(personal or capitation tax) is a fixed amount imposed on individuals
residing within specified territory. Individuals are not required to pay
community tax unless needed for job applications or other purposes.
E. Non- Impairment of the Obligations of Contract. No law impairing the

obligation of contracts shall be passed (Art. III. Sec. 10). There is impairment if
the law substantially invalidates, releases, or extinguishes the obligations
of a contract, or that derogates substantial contractual rights.
F. No Appropriation for Religious Purposes. Article VI, Section 29 of the

Constitution provides that no public money or property shall be
appropriated, paid or employed for the use, benefit or support of any sect,
church, denomination, sectarian institution, or system of religion, or of any
priest, preacher, minister, or other religious teacher, except when such
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priest, preacher minister is assigned to the armed forces, or to any penal

institution, or government orphanage or leprosarium. This limitation is
fundamentally supported by the principle that taxes can only be levied for
public purposes.
G. Exemption of Religious, Charitable or educational Entities, Non- Profit

Cemeteries and Churches from Taxation. These institutions are
exempted from real property tax.
H. Exemption of Revenues and Asset of Non- Stock, Non- Profit

Educational and Donations for Educational Purposes from Taxation.
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.
I. Non- Infringement of Religious Freedom. No law shall be made

respecting the establishment of religion, or prohibiting the free exercise
thereof. The free exercise 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.
J. Congress Granting the Tax Exemption. Art. VI, Sec. 28, paragraph 4 of
the Constitution provides that “no law granting any tax exemption shall be
passed without the concurrence of a majority of all the members of the
congress.” It shall be observed that the above constitutional provisions
requires the concurrence of a majority of all the members of the Congress.
K. President’s Veto Power. Art. VI, Sec. 27 (2) of the Constitution provides
that “every bill passed by the Congress shall, before it becomes a law be
presented to the President. If he approves the same, he shall sign it;
otherwise, he shall veto it and return the same with his objections at large
in its journal and proceed to reconsider it…”. The president shall
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communicate his veto of any bill to the House where it originated within thirty
days after the date of the receipt thereof; otherwise, it shall become a law
as if he had signed it.
L. Supreme Court’s Final Judgement in All Tax Cases. “The Supreme

Court shall have the power to review, revise, reverse, modify or affirm on
appeal or certiorari, as the laws or the Rules of Court may provide, final
judgements and orders of lower courts in all cases involving the legality of
any tax, impost, assessments, or toll or any penalty imposed in relation
thereto.” (Art. VIII, Sec. 5, par. 2[b].)
II. TAXES
Taxes are enforced proportional contribution from the persons and property
levied by the law-making body of the State by virtue of its sovereignty in support
of government and all public needs.
NATURE OF TAXES
1. Taxes are obligations created by law. Taxes arise from law and could only
be imposed by the government and must be imposed even without previous
agreement between the government and the tax payers. Hence, this creates
the following:
• Civil Liability. All taxpayers are civilly liable to pay taxes because it is
regarded as a forced charge assessed in accordance with some legislative
rule of apportionment.
• Criminal Liability. Failure or refusal to pay give rise to a criminal liability
that could be the subject of criminal prosecution under existing laws.
In taxation, it is one’s civil liability to pay taxes that give rise to criminal
liability, unlike criminal cases where criminal liability give rise to civil liability.
(Republic vs. Patanao, July 12, 1967).
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Note: Failure to pay tax does not render the business or occupation illegal. Moreover, tax liability
may also be retroactive in application through Tax Amnesty which will later be discussed on this
book.
2. Taxes are generally personal to the taxpayer. Their payment should be

borne specifically by the person with tax liability.
Note: Taxes may also be transferable on which will be paid by a person other than the one on
whom they legally imposed (e.g. VAT, Custom duties, Amusement tax, Excise tax on specific
goods, Withholding tax and Percentage Tax). This will be discussed on the later chapters.
CHARACTERISTICS OF TAXES
a. Enforced Contribution. The imposition shall not be dependent upon the

will of the taxpayer.
b. Generally payable in money. Money is the preferred payment of taxes. If
property is taken to satisfy tax liability, the property is sold through public
auction to satisfy the tax obligation.
c. Exclusively levied by the legislature. All tax laws shall originate in the
congress.
d. Enforced on persons, properties or rights. Objects of taxation are either
tangible or intangible properties, including business transactions.
e. Proportionate in character. The “ability to pay principle” is the basic rule
in collecting taxes. Those who earn more, contributes more than those who
earn lesser.
f. Imposed for the purpose of raising revenue. Taxes are the primary
source of government funds to finance its expenditures and all public needs.
g. Generally prospective in application. The dates for paying taxes are fixed
by the law to comply with the principle of administrative feasibility.
CLASSIFICATION OF TAXES
Taxes may be classified as follows
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✓ As to subject matter or object:

a. Personal, capitation or poll – imposed on persons residing within a
specified territory without regard to their property or occupation.
Ex: Community Tax
b. Property – imposed in property whether real or personal.
Ex: Real Property Tax
c. Excise or Privilege – imposed upon the performance of an act,
enjoyment of privilege, or engaging in an occupation.
Ex: Income Tax, Donor’s Tax, Estate Tax
✓ As to burden:
a. Direct – both the incidence of or liability for the payment of or liability
for the payment of tax as well as the impact or burden of the tax falls on the
same person.
Ex: Income Tax, Estate Tax, Donor’s Tax
b. Indirect – the incidence of or liability for the payment if tax falls on
one person but the burden thereof can be shifted or passed on to another
(statutory taxpayer)
Ex: VAT, other percentage taxes
✓ As to determination of amount:
a. Specific – fixed amount by the head, number or some standard of
weight or measurement.
Ex: Excise Tax on distilled spirits, wines, liquors
b. Ad Valorem – fixed proportion of the value of property with respect to

which tax is assessed
Ex: Real Estate Tax
✓ As to purpose:
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a. General Tax – levied for the general or ordinary purposes of the

government
Ex: Corporate Income Tax
b. Special Tax – levied for special purposes

Ex: Sweetened Beverage Tax
✓ As to imposing authority:
a. National – imposed by national government
Ex: Internal Revenue Taxes, Custom Duties
b. Municipal or Local – imposed by local government units

Ex: Sand and Gravel Tax, Occupation Tax
✓ As to graduation or rate:
a. Proportional or Flat Rate – based on fixed percentage of property,
receipts or other basis to be taxed.
Ex: Value-added Tax
b. Progressive or Graduated Rate– rate increases as the tax base
increases.
Ex: Income Tax, Estate Tax, Donor’s Tax
c. Regressive – rate decreases as the tax base increases.
Note: Tax imposition must be progressive to observe equality or theoretical justice.
IMPOSITIONS OTHER THAN TAXES
1. Toll – amount charged for the cost and maintenance of the property used.
2. Penalty – punishment for the commission of a crime.
3. Compromise Penalty – amount collected in lieu of criminal prosecution in
cases of tax violations.
4. Special Assessment – levied only on land based wholly on benefit accruing
thereon as a result of improvements or public works undertaken by
government within the vicinity.
5. License or Fee – regulatory imposition in the exercise of the police power.
6. Margin Fee – exaction designed to stabilize the currency.
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7. Debt – a sum of money due upon contract or one which is evidenced by

judgement.
8. Subsidy – a legislative grant of money in aid of a private enterprise deemed
to promote the public welfare.
9. Custom Duties and Fees – duties charged upon commodities on their
being transported into or exported from the country.
10. Impost – in its general sense, it signifies any tax, tribute or duty. In its
limited sense, it means a duty on imported goods and merchandise.
11. TITHE – imposes by a church or sect
12. TRIBUTE – imposes by a monarch
REVENUE
Revenue refers to all funds or income derived by the government whether

from tax or any other source. It may derived from the following source:
1. Grants received from another government.

2. Donations from non-governmental sources
3. Loans from private entities or another government entity;
4. Commercial revenues such as those received by government-owned or
controlled enterprises;
5. Administrative revenues such as fines, penalties and forfeitures; and
6. Taxes such as internal revenues and custom duties.
TAX AS DISTINGUISHED FROM LICENSE FEE, SPECIAL

ASSESSMENT,TOLL AND DEBT
TAX AS DISTINGUISHED FROM LICENSE FEE
TAX LICENSE FEE

Based on the power of taxation Emanates from police power
To generate revenue Regulatory
Amount is unlimited Amount is limited to the cost of
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(1) Issuing the license fee

(2) Inspection and surveillance
Non-payment does not make the Non-payment makes the business
business or occupation illegal but illegal
maybe a ground for criminal
prosecution
TAX AS DISTINGUISHED FROM SPECIAL ASSESSMENT
TAX SPECIAL ASSESSMENT
Imposed on persons, property, rights Levied only on land

and privileges
Personal liability attaches on the Cannot be made a personal liability

person assessed in the case of of the person assessed
non-payment
Not based on any special or direct Based wholly on benefit

benefit
Levied and paid annually Exceptional both as to time and

locality
Exemption granted is applicable Exemption does not apply if property

is exempt from Real Property Tax, it
is also exempt from Special
assessment
TAX AS DISTINGUISHED FROM TOLL
TAX TOLL
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Demand of sovereignty Demand of proprietorship
Paid for the support of government Paid for the use of one’s property.
Based on necessities of the state Based on the cost of construction or

maintenance of public improvement.
Imposed only by the government Imposed by government, private

individuals or entities.
TAX AS DISTINGUISHED FROM DEBT
TAX DEBT
Imposed by law Created by contract
Does not draw interest except in Draws interest if stipulated or

case of delinquency delayed
Cannot be assigned Assignable
Imposed only by public authority Can be imposed by private individual
Imprisonment may be a sanction, Imprisonment is not a sanction for

except poll tax non-payment
Generally payable in money Maybe paid in kind
CERTAIN DOCTRINES IN TAXATION
In the exercise of taxation power, some underlying doctrines for its implementation
are as follows:
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✓ EQUITABLE RECOUPMENT
The doctrine which states that a tax claim for refund, which is prevented by
prescription, may be allowed to be used as a payment for unsettled tax
liabilities if both taxes arise from the same transaction in which overpayment
is made and underpayment is due. This doctrine is not applicable to cases
where the taxes involved are totally unrelated
✓ SET-OFF TAXES
This doctrine states that taxes are not subject to set-off or legal
compensation because the government and the taxpayer are not mutual
creditor and debtor of each other.
Exception to this rule are the following

1. Where both the claims of the government and the taxpayer against each
other have already become due, demandable, and fully liquidated.
2. When there is an actual compromise between the taxpayer and the tax
officer.
NOTE: No set-off or compensation is admissible against demands for taxes levied for general or
local purposes.
✓ TAXPAYER SUIT
A “taxpayer suit” effected through court proceedings and could only be allowed
if the act involves a direct and illegal disbursement of public funds derived from
taxation.
Therefore, the following legal questions would be improper to be classified as

taxpayer suit:
1. Where the disbursement does not involve funds raised by taxation.

2. To stop the Commission on Election from holding an exercise of suffrage or
question its inaction to call a special election.
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✓ COMPROMISES
This doctrine states that compromises are generally allowed and enforceable
when the subject matter thereof is not prohibited from being compromised and the
person entering such compromised is duly authorized to do so.
The law allows the following persons to do compromise in behalf of the

government:
1. Only the BIR Commissioner is expressly authorized by the Tax Code to enter
into compromise for both civil and criminal liabilities subject to certain
conditions.
2. The Collector of Customs is given the power to compromise with respect to
custom duties limited to cases where legitimate authority is specifically granted,
such as in the remission of duties.
3. The Customs Commissioner, subject to approval by the Secretary of Finance,
has the power to compromise cases involving the imposition of fines,
surcharges and forfeitures; and
4. The Local Government Code has no provision regarding compromise;
however, tax liability (not criminal liability) is not prohibited from being
compromised. Even so, there is no specific authority given to any public official
to execute the compromise so as to render it effective.
✓ POWER TO DESTROY
The power of taxation is sometimes viewed as the power to destroy in the
sense that a lawful tax cannot be defeated just because its exercise would be
destructive or would bring about insolvency to a taxpayer.
The principle implies that an imposition of lawful regulatory taxes would be
destructive to the taxpayers and business establishments because the
government can compel payment of tax and forfeiture of property through the
exercise of police power
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✓ POWER TO BUILD
While tax power is so extensive that it seems it can destroy, it is primarily a
tool that creates, builds and sustains the upliftment of social condition of the
people in general as it continuously supports the other inherent powers of the
State that preserve the fundamental rights of the people.
Therefore, so as long as the tax is exercised with caution to minimize injury
to the proprietary rights of a taxpayer and does not violate any constitutional and
inherent limitations, it is valid and cannot be judicially restrained merely because
of its prejudicial effects to a particular taxpayer.
✓ PROSPECTIVITY OF TAX LAWS
This principle states that a tax bill must only be applicable and operative after
becoming a law. Thus, the effectivity of the tax law commences upon its approval
and its scope would only cover the present and future transactions.
The retroactive application of tax laws shall only be applied unless there is a
clear intent of the legislature that such law shall also be imposed on past
transactions.
Consequently, the rule of “ex post facto” is not applicable for tax purposes.
However, when it comes to civil penalties like fines and forfeiture (excluding
interest), tax laws may be applied retroactively unless they produce harsh and
oppressive consequences that violate the taxpayer’s constitutional rights regarding
equity and due process.
NOTE: A law is said to be ex post facto if it provides for the infliction of punishment upon a person
for an act done which, when such act was committed, is not subject to any punishment.
✓ IMPRESCRIPTIBILITY OF TAXES
This rule states that unless otherwise provided by the tax law itself, taxes in
general are not cancelable.
Although the tax code provides for the limitation in the assessment and
collection of taxes imposed such prescriptive period will only be applicable to those
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taxes that were returnable. The prescriptive period shall start from the time the
taxpayer files the tax return and declares his tax liability.
The court held that there is no time limit on the right of the BIR Commissioner
to assess taxes on unreasonable accumulated earnings of the corporation.
NOTE: The law on prescription being a remedial measure should be interpreted liberally in order
to protect the taxpayer.
DOUBLE TAXATION
Double taxation means an act of the sovereignty by taxing twice for the same
purpose in the same year upon the same property or activity of the same person,
when it should be taxed once, for the same purpose and with the same kind of
character of tax.
The Supreme Court held that there is no constitutional
KINDS OF DOUBLE TAXATION
A. Direct Duplicate Taxation/Obnoxious – double taxation in the

objectionable or prohibited sense/
- This constitutes a violation of substantive due process.
Elements:
2. The same property or subject matter is taxed twice when it should be

taxed only once.
3. Both taxes are levied for the same purpose
4. Imposed by the same taxing authority
5. Within the same jurisdiction
6. During the same taxing period
7. Covering the same kind or character of tax
B. Indirect Duplicate Taxation/ Legal or permissible – The absence of one

or more of the above mentioned elements makes the double taxation
indirect.
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REMEDIES AGAINST DOUBLE TAXATION
a. Tax sparing rule e. Treaties with other states

b. Tax deductions f. Principle of reciprocity
c. Tax credits
d. Exemptions
NOTE: Double Taxation is not prohibited in the Philippines, it is only being discouraged.
FORMS OF ESCAPING
A. SHIFTING – the process by which the tax burden is transferred from the
statutory taxpayer (impact of taxation) to another (incident of taxation)
without violating the law.
IMPACT OF TAXATION – point on which tax is originally imposed.
INCIDENT OF TAXATION- point on which the tax burden finally rests or settles
down.
B. CAPITALIZATION – a mere increase in the value of the property is not

income but merely an unrealized increase in capital. No income until after
the actual sale or other disposition of the property in excess of its original
cost.
C. TAX AVOIDANCE – the exploitation by the taxpayer of legally permissible
alternative tax rates or methods of assessing taxable property or income, in
order to avoid or reduce tax liability.
D. TRANSFORMATION – the manufacturer or producer upon whom the tax
has been imposed, fearing the loss of his market if he should add the tax to
the price, pays the tax and endeavors to recoup himself by improving his
process of production, thereby turning out his units at a lower cost.
E. TAX EVASION – the use by the taxpayer of illegal or fraudulent means to
defeat or lessen the payment of the tax.
Page 22 of 44
F. TAX EXEMPTION – a grant of immunity to particular persons or

corporations from the obligation to pay taxes.
KINDS OF TAX EXEMPTION
A. As to basis
• Constitutional – immunities from the taxation which originate from
the constitution.
• Statutory – those which emanate from legislation.
B. As to form
• Express – expressly granted by organic or statute law
• Implied - when particular persons, property or excises are deemed
exempt as the fall outside the scope of the taxing provision itself.
C. As to extent
• Total – absolute immunity
• Partial – one where a collection of a part of the tax is dispensed with
D. As to object
• Personal – granted directly in favor of certain purposes
• Impersonal – granted directly in favor of a certain class of property.
TAX LAWS
Tax Law is that body of laws which codifies all national tax laws including
income, estate, gift, excise, stamp and other taxes. Such law compromises of the
Republic Act 10963 otherwise known as the “Tax Reform for Acceleration and
Inclusion (TRAIN) Law” which amended the old Republic Act 8424 or the “National
Internal Revenue Code of 1997” on January 1, 2018 under the presidency of
Rodrigo Duterte.
INTERNAL REVENUE LAW
It includes all laws legislated pertaining to the national government taxes, which
is embodied in the TRAIN Law. Such legislation is commonly referred to under the
general term “revenue measures”.
Page 23 of 44
The main purpose of promulgating internal revenue laws is to raise money to meet
the pecuniary needs by the government. Generally, it is imposed by the State over
its subjects without giving any direct and immediate equivalent in return for the
payment.
INTERNAL REVENUE TAXES
Taxes imposed by the legislative body other than custom duties on imports.
The following national taxes are classified as Internal Revenue Taxes under the
administration of BIR:
1. Income Tax
2. Transfer Taxes (Estate and Donor’s Tax)
3. Business Tax (VAT, Percentage Tax, and Excise Tax)
4. Documentary Stamps Tax (DST); and
5. Such other taxes as may be imposed and collected by the BIR.
NATURE OF TAX LAWS
The Philippine Internal Revenue laws are generally civil in nature;
Basically, tax laws are not political in nature. They remain effective even if
foreign invaders occupy our country.
Although there are some penalties imposed for violations of tax laws, they are
not penal in nature. This imposition is done only to effect timely payments of taxes
or punishes tax evasion for neglect of duty by those subjects of taxation.
INTERPRETATION AND APPLICATION OF TAX LAWS
The supreme court has the exclusive power of constructing and interpreting tax
laws. As a rule, tax laws must be construed with view to carrying out their purpose
and intent.
The well-settled doctrine of “strict interpretation in the imposition of taxes and

other burdens”
Page 24 of 44
General rule: In case of doubt as to whether a taxpayer is covered or not,

the doubt shall be resolved in favor of the taxpayer and strictly against the
government.
However, doubts as to validity of tax exemptions, are resolved liberally in

favor of the government and strictly against the taxpayer
Exceptions:
1. When the statute granting exemption provides for liberal constructions thereof;
2. Exemptions in favor of the government, political subdivisions or instrumentalities.
3. Exemptions in favor of exemptees traditionally exempt such as churches and
educational institutions; and
4. Special circumstances to special classes of persons such as the granting of
exemptions to victims of eruption of Mount Pinatubo.
SITUS OF TAXATION
Situs is a Latin term for “place” or “location”. It refers to the place where taxes are
to be paid. As a general rule, the taxing power cannot go beyond the territorial limits
of the taxing authority. Taxes are paid where taxable entity can be found.
TAXES SITUS
Business, Occupation or Transaction Place of business
Real and tangible personal property Location of Property
Intangible personal property Domicile of Owner
Income Place where the same is earned
Gratuitous transfer of property Residence of Taxpayer
SOURCES OF TAX LAWS
A. The Constitution
The provisions of the Constitution regulates the exercise of power of taxation.
B. Statutory Requirements
This refers to the tax laws passed by the Congress.
Page 25 of 44
C. Administrative Rulings
Administrative Rulings are the less general interpretation of tax laws which are
issued from time to tome by the Commissioner on Internal Revenue.
Regulations are intended to clarify or explain the law and carry into effect its
general provisions by providing the details of administration and procedure.
D. Judicial Decisions
This refers to decisions of Court of Tax Appeals and the Supreme Court applying
or interpreting tax laws.
They constitute major part of the jurisprudence on taxation.
LEGISLATIVE PROCESS
Generally, all revenue bills (proposal) must originate from the House of
Representatives. After passing 3 readings by a majority vote in technical committee,
deliberation, and journals of congress. It shall be elevated to Senate, which needs to
pass the same 3 readings. Normally, the president signs a bill to law for its
implementation.
1. A tax bill is introduced in the House of Representatives and is referred to the

House Committee on Ways and Means (First Reading).
2. The proposal is considered by the Committee on Ways and Means.
Committee hearing and Public Hearings are held.
3. Tax bill is voted by the committee and is reported out to the House of
Representatives for a vote.
Deliberations by the members of the house are held (Second Reading)
4. If passed, the bill is transmitted to the Senate for consideration and public
hearings are also made.
5. Upon approval by the Senate, both Senate and House versions are sent to
Bicameral Conference Committee.
6. Two versions are generally dissimilar. Thus, conflict is reconciled in the Bicameral
Conference Committee.
Page 26 of 44
7. A final bill, as approved by the Bicameral, is then transmitted to the House and
Senate for approval (Third Reading).
8. If approved by the house and senate, it is sent to the president for approval or
veto (Enrolled Bill)
9. If the President approves the bill, he shall sign it and the bill becomes a law. When
vetoed, both houses may override the veto by 2/3 votes of all members.
The bill may become a law when President does not act upon the measure within
30 days after it shall have been presented to him.
A revenue bill is one that levies taxes and raises funds for the government, while
a tariff bill specifies the rates or duties to be imposed on imported articles (Cruz,
Philippines Political Law).
NOTES
A. Taxation
Taxation is the process or means by which the sovereign, through its lawmaking
body, raises income to defray the necessary expenses of the government.
Taxation is the inherent power of the sovereign, exercised through the legislature,
to impose taxes upon subjects and objects within its jurisdiction to raise revenues
for carrying out the legitimate objects of government.
Taxation is the action, process, or system of taxing people or things.
Taxation is a means of government to increase revenue by collection of a share

of individual and organizational income under the authority of the law, purposely
used to promote welfare and protection of its citizens.
PRIMARY AND SECONDARY PURPOSES OF TAXATION
1. Revenue or Fiscal Objective: Primary purpose of taxation is to provide funds

or properties to be able promote the general welfare and protection of its citizens
and to finance its multifarious activities.
Page 27 of 44
2. Non-revenue or Regulatory Objective: Taxation is also employed as a device

for regulation
and control.
Purposes Means
a. Strengthen anemic enterprises Tax exemptions
b. Protect local industries against Imposition of high customs duties on

foreign competition imported goods
c. Reduce inequalities in wealth and Imposing progressively higher tax rates

income
d. Prevent inflation Increasing taxes
e. Ward off depression Decreasing taxes
SCOPE OF TAXATION
Power of taxation is unlimited, comprehensive, plenary and supreme.
THEORY AND BASIS OF TAXATION
THEORY
LIFEBLOOD THEORY- “If there is no taxation, there’s no government at all”
Human organs need blood to perform its duties and so does government needs
tax to perform its duties and responsibilities.
BASIS
BENEFIT-RECEIVED PRINCIPLE- It is found on the reciprocal duties of protection

and support between state and its inhabitants or having “symbiotic relation” of
taxpayer and the state. It is like protection for support and support for protection.
BASIC PRINCIPLE OF A SOUND TAX SYSTEM
1. FISCAL ADEQUACY
Page 28 of 44
The sources of revenue should be sufficient to meet the expanding

demands of public expenditures
2. EQUALITY / THEORITICAL JUSTICE
The tax burden should be in proportion to the taxpayers’ ability to pay

(Ability-To-Pay Principle)
3. ADMINISTRATIVE FEASIBILITY
The tax laws should be capable of convenient as to time and manner, just
(clear and plain to taxpayers) and effective administration (capable of
enforcement by an adequate and well-trained staff of public office)
NATURE OF THE POWER OF TAXATION
1. INHERENT IN SOVEREIGNTY- Maybe exercised although it is not expressly

granted by the constitution.
2. LEGISLATIVE IN CHARACTER- Only the legislature can impose taxes
3. SUBJECT TO CONSTITUTIONAL AND INHERENT LIMITATIONS- It is not an

absolute power that can be exercised by legislature in any way it pleases.
LIMITATIONS ON THE POWER OF TAXATION
A. CONSTITUTIONAL LIMITATIONS
Restrictions on the exercise of the power of taxation found in the constitution

or implied from its provisions.
1. Due Process- 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
law (Sec. I, Art. III, NC)
2. Equal Protection of the Laws (same provision as in No. 1)
3. Rule of Uniformity and Equity in Taxation- All taxable persons or property
of the same class shall be taxed at the same rate.
Page 29 of 44
4. Non-imprisonment for non-payment of poll tax- No person shall be

imprisoned for non-payment of poll tax.
5. Non-impairment of the Obligations of Contracts- Impairment occurs when
a law substantially invalidates, releases or extinguishes the obligations of a
contract without the consent of the other.
6. Non-infringement of Religious Freedom- No law shall be made respecting
the establishment of religion, or prohibiting the free exercise thereof.
7. No appropriation for Religious Purposes- No public money or property shall
be appropriated for religious purposes except when a priest, preacher,
minister, or dignitary is assigned to the armed forces, or to any penal institution,
or government orphanage or leprosarium.
8. Exemption of Religious, Charitable, or Educational entities, Non-profit
cemeteries, and Churches from Taxation
9. Exemption of Revenues and Assets of Non-stock, Non-profit educational
institutions and donations for educational purposes from
Taxation
Limitation 8 Limitation 9
Who are exempt? Charitable, educational Non-stock, Non-profit

and religious institutions educational institutions
What tax are exempt? Property Tax Income tax, property tax,
customs duties
10. Concurrence by a majority of all the members of the Congress for the
passage of a law granting any tax exemption- No law granting any tax
exemption shall be passed without the concurrence of a majority of all the
members of the Congress.
11. Power of the President to veto any particular item or items in a revenue
or tariff bill
Page 30 of 44
Veto- rejects or disapproves
Veto shall not affect the item or items to which he does not object.
12. Non-impairment of the jurisdiction of the Supreme Court in tax cases-

Supreme Court shall have the power to review, revise, reverse, modify or affirm
an appeal or certiorari
B. INHERENT LIMITATIONS
Restrictions on the power although not embodied in the constitution
1. Requirement that levy must be for a public purpose

• Public purpose or Governmental purpose
• The work shall be essentially public and fro the general good of all
inhabitants of the taxing body.
• If not for public purpose the tax is invalid.
2. Non-delegation of the legislative power to tax- “What has been
delegated cannot be delegated” (potestas delegate non delegare potest)
Except:
• Delegation to the President- “itmay impose tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties of imposts within the
framework of the national development program of the government.”
• Delegation to Local Governments- each local government unit shall have
the power to create its own sources of revenues and levy taxes, fees and
charges
• Delegation to Administrative bodies- “power of subordinate legislation”
To be valid, the delegation must be complete in itself and the law

must fix a standard
3. Exemption from taxation of government entities
General Rule: Government is not liable for taxes
Exception:
Page 31 of 44
• Agencies performing governmental functions: exempt from tax

unless expressly taxed
• Agencies performing proprietary functions: subject to tax unless
expressly exempted
4. International Comity- No state can claim jurisdiction over another
Comity- recognition or respect accorded by one jurisdiction within its
territory over the law of another because they are sovereign equals.
5. Territorial Jurisdiction- As state may not tax property lying outside its
borders
ASPECTS OF TAXATION
A. LEVY or imposition of tax (legislative function)

• Person or property to be taxed
• Sum/s to be raised
• Rate of tax
• Time and manner of levying, receiving, and collection of tax
B. COLLECTION or assessment of tax (executive function)
SOURCES OF TAX LAW
1. CONSTITUTION
• Power of taxation is merely regulated by Constitution
• Taxation can be exercised even without Constitution
• Power of taxation is not a mere constitutional grant
2. STATUTORY ENACTMENTS- Tax laws passed by the Congress
3. ADMINISTRATIVE RULINGS
• Less general interpretation of tax laws issued on a timely basis by
the Commissioner of Internal Revenue
• Request of taxpayer to clarify certain provisions of a tax law
• BIR Rulings
4. ADMINISTRATIVE REGULATONS
Page 32 of 44
• Intended to clarify or explain the law and carry into effect its general
provisions by providing details of administration and procedure
• Issued by Secretary of Finance upon recommendation of the
Commissioner of Internal Revenue
• Revenue Regulations
5. JUDICIAL DECISIONS
• Decisions of the Court of Tax Appeals and the Supreme Court
applying or interpreting tax laws
• Part of the jurisprudence on taxation and the legal system of the
Philippines
• Appealable to the Supreme Court
B. TAXES
TAXES- enforced proportional contribution from persons and property levied by

the lawmaking body of the State by virtue of its sovereignty for the support of the
government and all public needs.
ESSENTIAL ELEMENTS OF TAX
1. Enforced contribution
2. Generally payable in money
3. Proportionate in character
4. Levied on persons, property, or the exercise of a right or privilege
5. Levied by the State which has jurisdiction over the subject or object of
taxation
6. Levied by the lawmaking body
7. Levied for public purpose or purposes
Construction of road and bridges
Pensions to retired government employees and their widows and
children
Assistance to victims of calamities
Page 33 of 44
Social welfare and health care projects
CLASSIFICATION OF TAXES
1. As to subject matter or object

a. Personal, poll or capitation- Tax of a fixed amount imposed on
individuals within the jurisdiction without regard to their property or
occupation.
Example: Community Tax
b. Property- Tax imposed on property (real/personal) in proportion either
to its value or some other reasonable method of apportionment.
Example: Real Property Tax
c. Excise Tax - Tax imposed upon the enjoyment of privilege.
Example: Income Tax, Donor’s Tax and Estate Tax
2. As to who bears the burden

a. Direct- Tax demanded from the person who also shoulders the burden
of tax.
Example: Income Tax, Donor’s Tax and Estate Tax
b. Indirect- Tax demanded from one person in the expectation and
intention that he shall indemnify himself at the expense of another.
Example: VAT and Percentage Taxes
3. As to determination of amount
a. Specific- Tax of fixed amount imposed by the head or number or by
some standard of weight or measurement.
Example: Excise Tax on cigarettes
b. Ad Valorem- Tax of a fixed proportion of the value of the property.
Example: Real Property Tax
4. As to purpose
Page 34 of 44
a. General, Fiscal or Revenue-Imposed solely to raise revenue from

government expenditures.
Example: Income Tax, VAT
b. Special or Regulatory- Imposed for a special purpose.
Example: Sugar adjustment taxes, Oil Price Stabilization Fund
5. As to Taxing Authority
a. National- Imposed by national government.
Example: Internal Revenue Taxes, Custom Duties
b. Municipal/ Local- Imposed by municipal Corporations
Example: Sand and Gravel Tax, Occupation Tax
6. As to graduation or rate
a. Proportional- Tax based on a fixed percentage of the property, receipts
or other basis to be taxed.
Example: Value added Tax
b. Progressive- Tax rate of which increases as the tax base or bracket
increases.
Example: Income Tax. Estate Tax, Donor’s Tax
c. Regressive- Tax rate of which decreases as the tax base increases.
THREE INHERENT POWERS OF THE GOVERNMENT
Power to enact such laws in relation to persons and property as

POLICE POWER may promote public health, public morals, public safety and the
general welfare of the people.
EMINENT Power to take private property for public use upon paying the
DOMAIN owner a just compensation.
Power by which the sovereign, thru its legislature, raises
TAXATION revenue to support the necessary expenditures of the
government.
Page 35 of 44
DISTINCTIONS AMONG THE THREE INHERENT POWERS OF THE

GOVERNMENT
EMINENT
DISTINCTION POLICE POWER TAXATION
DOMAIN
SCOPE Liberty and Property Only Property Rights

Exercised by some
public utilities or Exercised
Exercised only by
AUTHORITY public service only by the
the government
companies government
PROPERTY Destroyed because it

For public use or purpose
TAKEN is noxious
Intangible altruistic
Full and fair equivalent of the
feeling that he has
property expropriated or
COMPENSATION contributed to the
protection and public
general welfare
improvements for the taxes paid
There is no
imposition,
Limited to cover the
rather than
cost of the license
the owner
and the necessary
of property
AMOUNT OF expenses of police
No limit taken is
EXACTION surveillance and
paid its
regulation
market
value.
• TAX DISTINGUISHED FROM LICENSE FEES
Page 36 of 44
TAX LICENSE FEES

Levied by virtue of the taxing power Imposed by virtue of the police power
Levied for revenue Imposed for regulation
No limit on the amount of tax that may May not exceed the amount necessary
be imposed to defray the cost of regulation
Imposed on persons, property, Imposed on legitimate businesses and
business, occupation or the exercise occupation
of any privilege whether legal/ illegal
Failure to pay does not render the Nonpayment renders the business or
business or occupation illegal occupation illegal
• TAX DISTINGUISHED FROM TOLL
Toll- sum of money paid for the use of something (road, bridge)
TAX TOLL
Demand of sovereignty Demand of proprietorship
Compensation for the use of another’s Levied for the support of government
property
Imposed by government or private Imposed only by the State
individuals/entities
• TAX DISTINGUISHED FROM SPECIAL ASSESMENT
Special Assessment- enforced proportional contribution from owners of lands for

special benefits resulting from public improvements
TAX SPECIAL ASSESMENT

General application Special Application only as to particular
time and place
Levied on land, persons, property, etc Levied only on land
Page 37 of 44
Based on necessity and partially on Based wholly on benefits

benefits
• TAX DISTINGUISHED FROM DEBT
TAX DEBT
Created by Law Arises from contract, express/implied
Cannot generally be assigned Assignable
Generally payable in money May be paid in kind
Imprisonment for non-payment of tax Cannot be imprisoned for non-payment
(except poll tax) of debt
• TAX DISTINGUISHED FROM CUSTOM DUTIES
TAX CUSTOM DUTIES

Includes various kind of imposition on Taxes levied upon commodities
persons or property. It includes imported into or exported across
custom duties. national boundaries
• DOUBLE TAXATION
Direct Duplicate or Direct Double Taxation (obnoxious)- It means taxing

twice for the same purpose, by the same taxing authority, in the same
jurisdiction, in the same period, some property in the territory.
Indirect Duplicate or Indirect Double Taxation (legal or permissible)- It is

taxation other than direct duplicate, it extends to all cases in which there is a
burden of two or more pecuniary impositions.
Page 38 of 44
The Supreme Court considered double taxation as not unconstitutional although

obnoxious. It is not forbidden but something not favored that is why it should be
avoided.
Illustration:
Will the imposition of a business tax by the City government against an entity
already paying a franchise tax result to double taxation considering that both taxes
are based on the gross receipts and sales of taxpayer’s business?
Answer:
A franchise tax is a tax on the privilege of transacting business in the state and
exercising corporate franchises granted by the state, and is imposed only on
franchise holders. On the other hand, a “city or business tax” is a percentage tax
based on a given ratio between the gross sales or receipts and the burden imposed
upon the taxpayer. It is imposed on any person engaged in the sale of goods or
services. They are not of the same kind or character. Hence, no double taxation.
(Sky Cable Corp. vs. City Treasurer of Quezon City, CTA case No. 102, February
10, 2014)
REVENUE- It refers to all funds or income derived by the government whether

from tax or any other source.
• Grants received from another government

• Donation from non- governmental sources
• Loans from private entities or another government entity
• Commercial revenues
• Administrative Expenses such as fines, penalties
• Taxes
SITUS OF TAXATION- It means the place of taxation.
Business, Occupation or Where the business is located

Transaction Where the occupation is practiced
Page 39 of 44
Where the transaction took place

Real and Tangible Property Location of Property
Intangible Personal Property Domicile of the owner unless the
property has acquired a business
situs
Income Place where the same is earned
Citizenship or domicile of the owner
Gratuitous Transfer of Residence or citizenship of the
Property taxpayer
Location of the Property
INTERPRETATION OF TAX LAWS
• In case of doubt as to whether a taxpayer is covered by the tax or not the

doubt shall be resolved in favor of the taxpayer and strictly against the
government.
• Doubts as to the validity of tax exemptions are resolved liberally in favor
of the government and strictly against the taxpayer.
FORMS OF ESCAPE FROM TAXATION
These are the means or methods by which the taxpayer saves the tax or escapes
the burden of tax payment.
THE BASIC FORM OF ESCAPE FROM TAXATION
A. Those that do not reduce the revenue collection of the government

1. Shifting- transfer of the tax burden by one on whom the tax is assesed to
another.
2. Capitalization- reduction in the selling price of income- producing property
by an amount equal to the capitalized value of future taxes that may be
paid by purchaser.
Page 40 of 44
3. Transformation- the manufacturer or producer strives to recover the tax

that has been paid through lower production cost without sacrificing the
quality of the product
Shifting and Capitalization- escape through process of exchange
Transformation- through process of production
B. Those that result in loss of revenue to the government

1. Tax Evasion (tax dodging) - fraudulent or forbidden schemes or devices
designed to lessen taxes.
2. Tax Avoidance (tax minimization) - exploitation by the taxpayer of legally
permissible tax rates or methods of assessing taxable property or income
in order to reduce tax liability.
3. Exemption from taxation- grant of immunity to particular persons or
corporations from the obligation to pay taxes.
Illustration: B who wishes to avoid the payment of taxes assessable on the

transaction was adviced by his tax consultant to make it appear on the deed of
sale that the selling price was only P 200,000 although it was actually P300,000.
Is ths tax evasion or tax avoidance?
Answer: This is tax evasion. Intentionally decreasing the income without basis is
illegal because it will result to a clear reduction in the tax liability of the taxpayer.
TAX AMNESTY- This is immunity from all criminal and civil obligations arising from
nonpayment of taxes. It is general pardon given to all taxpayers; it applies only to
past periods, hence of retroactive application.
DOCTRINE OF EQUITABLE RECOUPMENT- It states where the refund of a tax

illegally or erroneously collected or overpaid by the taxpayer is barred by
prescription, a tax being assessed against a taxpayer may be recouped or set- off
against the tax whose refund is now barred by prescription.
Page 41 of 44
RULE ON SET OFF OR COMPENSATION- A claim for taxes is not such debt,
demand, contract or judgement as is allowed to be set-off, neither are they a proper
subject of recoupment since they do not arise out of the contract or transaction.
TAXPAYER’S SUIT- A taxpayer has sufficient personality and interest to seek

judicial assistance with a view of restraining what he believes to be an attempt to
unlawfully disburse public funds.
Illustration: X filed a taxpayer’s suit before the RTC questioning a loan contract
entered into by the government because the interest expense therein is deemed
to be higher than the lowest bid. The court dismissed the case for reason that X
has no personality to question the contract as he was not a party to the contract.
In addition X failed to prove that he is directly injured by the contract. Is the
dismissal valid? (Mamba vs., Lara, 608 SCRA 149)
Answer: Under a taxpayer’s suit, the taxpayer need not be a party to the contract
to challenge its validity. As long as taxes are involved, people have a right to
question contracts entered into by the government. The "old direct injury test” in
taxpayer’s suit has been relaxed as it involved procedural technicality. It now uses
“transcendental importance”, “paramount public interest” or “far reaching
implication” where ordinary citizens and taxpayers were allowed to sue even if they
failed to show direct injury to them as long as there is misappropriation of public
funds, the class action of taxpayers’ suit may be availed of to question illegal
disbursement. Hence, the dismissal is not correct.
STEPS IN LEGISLATIVE PROCESS
Under 1987 Constitution, all 1revenue and 2tariff bills shall originate from the
House of Representatives
1Levies taxes and raises funds for the government
2 Specifies the rates or duties to be imposed on imported articles
Page 42 of 44
FIRST READING
Committee Hearings, Public
Hearings
SECOND READING in the

HOUSE
SECOND READING in the

SENATE
Upon Approval by the Senate, Senate and House
versions are sent to the Bicameral Conference
Committee
RECONCILIATION
THIRD READING (Reading of Title)
If Bicameral Conference Committee bill is approved by House

and Senate it is sent to the President for approval or veto
(Enrolled bill)
TAX LAW
The bill may become law if the President does
not act upon the measure within thirty (30) days after it
shall have been presented to him.
Page 43 of 44
HANDOUT 1\ GENERAL PRINCIPLES AND CONCEPTS OF
TAXATION
References:
Ampongan, CPA, Omar Erasmo G. (2020), Income Taxation

Banggawan, CPA, MBA, Rex B. (2019) Income Taxation, Laws, Principles and
Applications
Tabag, Enrico D. & Garcia Earl Jimson R. (2020), Income taxation
Valencia, E. & Roxas, G. (2007). Income Taxation. Baguio City: Valencia Educational
Supply.
Page 44 of 44

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HANDOUT 1\ GENERAL PRINCIPLES AND

INHERENT POWERS OF THE ESTATE

Eminent Domain Power

The power to enforce contributions to support the government, and other

DISTINCTIONS OF THE POWERS OF THE STATE

Taxation Police Power Eminent Domain

THE STRONGEST POWER OF THE STATE

Taxation is sometimes viewed as power to destroy in such a way that lawful

The principle applies that an imposition of lawful regulatory taxes would be

A power by which an Independent State, through its law-making body,

The nature of taxation refers to its basic concepts or characters. It is the

This is known as the reciprocal duties of protection and support between

The purpose of taxation may be classified as to:

The primary purpose of taxation is to raise revenues from all possible

a) To strengthen anemic enterprises by giving tax exemptions;

In the absence of restriction provided by the Constitutions, the power of

taxation is nonetheless subject to established limitations, such as those inherent

Jurisprudence, 3 Ed., p.4).

THEORIES AND BASES OF TAXATION

Basis - The basis of taxation is founded on the reciprocal duties of protection

A. Lifeblood Theory (Importance of Taxation)

B. Necessity Theory (Theory of Taxation)

The power to tax is an attribute of sovereignty emanating from necessity.

It is a necessary burden to preserve the State’s sovereignty and a means

C. Benefit-Received Principle (Basis of Taxation)

Taxation is described as a symbiotic relationship whereby in exchange of

INHERENT VS. CONSTITUTIONAL LIMITATIONS

Although taxation is a supreme therefore its exercise is not absolute making

B. Non- delegation of the Legislative power to tax. What has been

Likewise, the Congress cannot delegated the power to tax, except to

C. The government entities are exempted from taxation. The government

D. Territorial Jurisdictions. Only those persons, properties, and transactions

E. International Comity. Is the righteous recognition, friendly agreement,

Those limitations provided in the Constitutions. These limitations are more

A. Observance of Due Process. No person shall be deprived of life, liberty,

enjoyed and liabilities imposed. The purpose of this Constitutional mandate

C. Rule of Uniformity and Equity in Taxation. The rule of taxation must be

D. Non- Imprisonment of Non- Payment of Poll Tax. No person shall be

E. Non- Impairment of the Obligations of Contract. No law impairing the

F. No Appropriation for Religious Purposes. Article VI, Section 29 of the

priest, preacher minister is assigned to the armed forces, or to any penal

G. Exemption of Religious, Charitable or educational Entities, Non- Profit

H. Exemption of Revenues and Asset of Non- Stock, Non- Profit

I. Non- Infringement of Religious Freedom. No law shall be made

L. Supreme Court’s Final Judgement in All Tax Cases. “The Supreme

2. Taxes are generally personal to the taxpayer. Their payment should be

a. Enforced Contribution. The imposition shall not be dependent upon the

Taxes may be classified as follows

✓ As to subject matter or object:

Ex: Income Tax, Donor’s Tax, Estate Tax

b. Ad Valorem – fixed proportion of the value of property with respect to

a. General Tax – levied for the general or ordinary purposes of the

b. Special Tax – levied for special purposes

b. Municipal or Local – imposed by local government units

Note: Tax imposition must be progressive to observe equality or theoretical justice.

IMPOSITIONS OTHER THAN TAXES

7. Debt – a sum of money due upon contract or one which is evidenced by

Revenue refers to all funds or income derived by the government whether

1. Grants received from another government.