Taxation - Rene Callanta

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DEFINITION OF TAXATION

Taxation is the inherent power of the sovereign,

exercised through the legislature, to impose burdens upon

the subjects and objects within its jurisdiction, for thepurpose of raising revenues to carry out the legitimate

objects of the government.

TAXES

Enforced proportional contributions from properties

and persons levied by the State by virtue its sovereignty forthe support of the government and for public needs.

BASIS OF TAXATION

> GOVERNMENTAL NECESSITY

* The existence of the government depends upon it s

capacity to perform its two (2) basic functions:

A.. to serve the people

B.. to protect the people

THEORY OF TAXATION

>RECIPROCAL DUTIESOF SUPPORT AND

PROTECTION

1) Support on the part of the taxpayers

2) Protection and benefits on the part of the

government

BENEFITSRECEIVED PRINCIPLE

(CIR vs. ALGUE ) Despite the natural reluctance to surrender part of

ones hard earned income to the taxing authority,

every person who is able to must contribute his

share in the running of the government.

The government is expected to respond in the formof tangible or intangible benefits intended to

improve the lives of the people and enhanced theirmaterial and moral values.

In return for his contribution, the taxpayer receives

the general advantages and protection which thegovernment affords the taxpayer and his property.

One is compensation or consideration for the other.

Protection for support and support for protection.

However, it does not mean that only those who

are able to

pay taxes can enjoy the privileges and protection

given to a citizen by the government.

LORENZO vs. POSADAS > The only benefit to which the taxpayer is entit led is

that derived form the enjoyment of the privileges of

living in an organized society established and

safeguarded by the devotion of taxes to public

purpose. The government promises nothing to the

person taxed beyond what maybe anticipated from

an administration of the laws for the general good.

> Taxes are essential to the existence of the

government. Theobligation to pay taxes rests not upon the privileges

enjoyed by or the protection afforded to the citizen

by the government, but upon the necessity of money

for the support of the State. For this reason, no oneis allowed to object to or resist payment of taxes

solely because no personal benefit to him can be

pointed out as arising from the tax.

ESSENTIAL ELEMENTS OF A TAX

1) It is an enforced contribution

2) It is generally payable in money

3) It is proportionate in character

4) It is levied on persons, property, or the exercise of a

right or privilege

5) It is levied by the State which has jurisdiction over

the subject or object of taxation

6) It is levied by the law-making body of the State

7) It is levied for publics purpose or purposes

REQUISITES of a VALID TAX code: [P, U, J, A, N]

1) It should be for a public purpose

2) The rule of taxation should be uniform

3) That either the person or property taxed be within

the jurisdiction of the taxing authority4) That the assessment and collection be in consonance

with the due process clause

5) The tax must not infringe on the inherent and

constitut ional limitations of the power of taxation

*> Taxes are the lifeblood of the government and should

be collected without unnecessary hindrance. But their

collection should not be tainted with arbitrariness

NATURE OF TAXATION

1) Inherent in sovereignty

2) Legislative in character

SCOPE OF TAXATION

1) Comprehensive2) Unlimited

3) Plenary

4) Supreme

TOLENTINO vs. SEC. Of FINANCE > In the selection of the object or subject of taxation

the courts have no power to inquire into the

wisdom, objectivity, motive, expediency or necessity

of such tax law. (WOMEN)

PURPOSES OF TAXATION

PRIMARY

- To raise revenue in order to support the government

SECONDARY1) Used to reduce social inequality

2) Utilized to implement the police power of the State

3) Used to protect our local industries against unfair

competition

4) Utilized by the government to encourage the growth

of local industries

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

regulation. License fees and charges, looked to as a

source of revenue as well as a means regulation. The

fees may properly regarded as taxes even though

they also serve as an instrument of regulation. If the

purpose is primarily revenue, or if revenue is at least

one of the real and substantial purposes, then theexaction is properly called a tax.

CALTEX vs.. CIR > Taxation is no longer 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 rehabilitation and stabilization of

a threatened industry which is affected with public

interest as to be within the police power of theState.



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LIFEBLOOD DOCTRINE

> Taxes are the lifeblood of the nation

> Without revenue raised from taxation, thegovernment will not survive, resulting in detriment

to society. Without taxes, the government would be

paralyzed for lack of motive power to activate and

operate it. (CIR vs. ALGUE )

> Taxes are the lifeblood of the government andthere prompt and certain availability is an imperious

need.

> Taxes are the lifeblood of the nation through whichthe agencies of the government continue to operate

and with which the state effects its functions for the

benefit of its constituents

ILLUSTRATIONSOF THE LIFEBLOOD THEORY 1) Collection of the taxes may not be enjoined by

injunction2) Taxes could not be the subject of compensation or

set off

3) A valid tax may result in destruction of the

taxpayer’s property

4) Taxation is an unlimited and plenary power

POWER TO TAX AND POWER TO DESTROY

* > The power to tax includes the power to destroy if it is

used as an implement of the police power (regulatory) of the

State. However , it does not include the power to destroy if it

is used solely for the purpose of raising revenue. (ROXASvs.CTA)

NOTES:

> If the purpose of taxation is regulatory incharacter, taxation is used to implement the police

power of the state

> If the power of taxation is used to destroy things,businesses, or enterprises and the purpose is to raise

revenue, the court will come in because there will be

violation of the inherent and constitutional

limitations and it will be declared invalid.

NATURE OF THE TAXING POWER

1) Attribute of sovereignty and emanates from

necessity, relinquishment of which is never

presumed

2) Legislative in character, and

3) Subject to inherent and constitutional limitations

NECESSITY THEORY

> Existence of a government is a necessity and

cannot continue without any means to pay forexpenses

BENEFITS– PROTECTION THEORY

> Reciprocal duties of protection and supportbetween State and inhabitants. Inhabitants pay

taxes and in return receive benefits and protection

from the State

SCOPE OF LEGISLATIVE TAXING POWER

1) The persons, property and excises to be taxed,

provided it is within its jurisdiction

2) Amount or rate of tax

3) Purposes for its levy, provided it be for a public

purpose

4) Kind of tax to be collected

5) Apportionment of the tax

6) Situs of taxation

7)

Method of collection

ASPECTS OF TAXATION

1) LEVY or IMPOSITION

enactment of tax laws

legislative in character

2) ASSESSMENT collection

administrative in character

NOTES:

> It is inherent in the power to tax that the State is

free to select the object of taxation

> The power of the legislature to impose tax includes the power

1) what to tax2) whom to tax

3) how much to tax

BAGATSING vs. RAMIREZ > What cannot be delegated is the legislative

enactment of a tax measure but as regards to the

administrative implementation of a tax law that can

be delegated.

> The collection may be entrusted to a private

corporation.

> The rule that the power of taxation cannot bedelegated does not apply to the administrative

implementation of a tax law

> There is no violation because what is delegated or

entrusted is the collection and not the enactment ofsuch laws

> The issuance of regulations or circulars by the BIRor the Secretary of Finance should not go beyond

the scope of the tax measure

BASIC PRINCIPLESOF A SOUND TAX SYSTEM

1) THEORETICAL JUSTICE

2) FISCAL ADEQUACY3) ADMINISTRATIVE FEASIBILITY

NOTES:

FISCAL ADEQUACY

- VIOLATION – VALID

> Sources of revenue should be sufficient to meet

the demands of public expenditure

> Revenues should be elastic or capable ofexpanding or contracting annually in response to

variations in public expenditure

>Elasticity may be obtained without creating

annually any new taxes or any new tax machinery

but merely by changes in the rates applicable to

existing taxes



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> Even if a tax law violates the principle of Fiscal

Adequacy , in other words, the proceeds may not besufficient to satisfy the needs of the government,

still the tax law is valid

ADMINISTRATIVE FEASIBILITY

- VIOLATION – VALID

> The tax law must be capable of effective or

efficient enforcement> Tax laws should be capable of convenient, just and

effective administration

> Tax laws should close-up the loopholes for taxevasion and deter unscrupulous officials from

committing fraud

> There is no law that requires compliance with thisprinciple, so even if the tax law violates this

principle; such tax law is valid.

THEORETICAL JUSTICE

-

VIOLATION – INVALID > This principle mandates that taxes must be just,

reasonable and fair Taxation shall be uniform and equitable

> Equitable taxation has been mandated by ourconstitution, as if taxes are unjust and unreasonable

then they are not equitable, thus invalid.

> The tax burden should be in proportion to thetaxpayers ability to pay (ABILITY TO PAY PRINCIPLE )

DISTINCTIONS:

TAXATION vs. POLICE POWER vs. EMINENT DOMAIN

1) As to purpose :Taxation – for the support of the government

Eminent Domain _- for public use

Police Power – to promote general welfare, publichealth, public morals, and public safety.

2) As to compensation: Taxation – Protection and benefits received from the

government.Eminent Domain – just compensation, not to exceed

the market value declared by the owner oradministrator or anyone having legal interest in the

property, or as determined by the assessor,

whichever is lower.

Police Power – The maintenance of a healthy

economic standard of society.

3) As to persons affected: Taxation and Police Power – operate upon a

community or a class of individuals

Eminent Domain – operates on the individual

property owner.

4) As to authority which exercises the power :Taxation and Police Power – Exercised only by the

government or its political subdivisions.Eminent Domain – may be exercised by public

services corporation or public utilities if granted by

law.

5) As to amount of imposit ion :

Taxation – Generally no limit to the amount of tax

that may be imposed.

Police Power – Limited to the cost of regulation

Eminent Domain – There is no imposition; rather, it

is the owner of the property taken who is just paid

compensation.

6) As to the relationship to the Constitut ion :

Taxation and Eminent Domain – Subject to certainconstitutional limitations, including the prohibition

against impairment of the obligation of contracts.

Police Power – Relatively free from constitutional

limitations and superior to the non-impairment

provisions thereof.

TAX DISTINGUISHED FROM LICENSE FEE:

a) PURPOSE: Tax imposed for revenue WHILE license

fee for regulation. Tax for general purposes WHILE

license fee for regulatory purposes only.

b) BASIS : Tax imposed under power of taxation WHILE

license fee under police power.

c) AMOUNT : In taxation, no limit as to amount WHILE

license fee limited to cost of the license and

expenses of police surveillance and regulation.

d) TIME OF PAYMENT: Taxes normally paid after

commencement of business WHILE license fee

before.

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

make the business illegal WHILE failure to pay

license fee makes business illegal.f) SURRENDER: Taxes, being lifeblood of the state,

cannot be surrendered except for lawful

consideration WHILE a license fee may besurrendered with or without consideration.

IMPORTANCE OF DISTINCTION BETWEEN TAXESAND LICENSE FEES.

It is necessary to determine whether a particular

imposition is a tax or a license fee, because some limitations

apply only to one and not to the other.Furthermore, exemption from taxes does not include

exemption from license fees

TAXES DISTINGUISHED FROM OTHER IMPOSITIONS:

1) toll – amount charged for the cost and maintenanceof property used;

2) compromise penalty – amount collected in lieu of

criminal prosecution in cases of tax violations;

3) special assessment – levied only on land based

wholly on the benefit accruing thereon as a result of

improvements of public works undertaken bygovernment within the vicinity.

4) license fee – regulatory imposition in the exercise of

the police power of the State;

5) margin fee – exaction designed to stabilize the

currency



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6) custom duties and fees – duties charged upon

commodities on their being imported into or

exported from a country;

7) debt – a tax is not a debt but is an obligation

imposed by law.

Special assessment v. tax

1. A special assessment tax is an enforced

proportional contribution from owners of lands

especially benefited by public improvements

2. A special assessment is levied only on land.

3. A special assessment is not a personal liability ofthe person assessed; it is limited to the land.

4. A special assessment is based wholly on

benefits, not necessity.

5. A special assessment is exceptional both as to

time and place; a tax has general application.

Republic v. Bacolod, 17 SCRA 632

A special assessment is a levy on property whichderives some special benefit from the improvement.

Its purpose is to finance such improvement. It is not

a tax measure intended to raise revenues for the

government. The proceeds thereof may be devoted

to the specific purpose for which the assessment

was authorized, thus accruing only to the ownersthereof who, after all, pay the assessment.

Some Rules:

An exemption from taxation does not includeexemption from a special treatment.

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

Toll v. tax

1. Toll is a sum of money for the use of something. It is

the consideration which is paid for the use of a road,

bridge, or the like, of a public nature. Taxes, on theother hand, are enforced proportional contributions

from persons and property levied by the State by

virtue of its sovereignty for the support of thegovernment and all public needs.

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

of sovereignty.

3. Toll is paid for the used of another’s property; tax ispaid for the support of government.

4. The amount paid as toll depends upon the cost of

construction or maintenance of the publicimprovements used; while there is no limit on the

amount collected as tax as long as it is not excessive,

unreasonable, or confiscatory.

5. Toll may be imposed by the government or by

private individuals or entities; tax may be imposed

only by the government.

Tax v. penalty

1. Penalty is any sanction imposed as a

punishment for violation of law or for acts

deemed injurious; taxes are enforced

proportional contributions from persons and

property levied by the State by virtue of its

sovereignty for the support of the government

and all public needs.

2. Penalty is designed to regulate conduct; taxes

are generally intended to generate revenue.

3. Penalty may be imposed by the government

or by private individuals or entit ies; taxes only

by the government.

Obligation to pay debt v. obligation to pay tax

1. A debt is generally based on contract, express or

implied, while a tax is based on laws.

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

assigned.

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

paid in money.

4. A debt may be the subject of set off or

compensation, a tax cannot.

5. A person cannot be imprisoned for non-payment oftax, except poll tax.

6. A debt is governed by the ordinary periods of

prescription, while a tax is governed by the specialprescriptive periods provided for in the NIRC.

7. A debt draws interest when it is so stipulated orwhere there is default, while a tax does not draw

interest except only when delinquent.

Requisites of compensation

1. That each one of the obligor be bound principally,and that he be at the same time a principal creditor

of the other.

2. That both debts consist in a sum of money, or if the

things due are consumable, they be of the same

kind and also of the same quality if the latter has

been stated.

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

4. That they be liquidated and demandable.

5. That over neither of them there be any retention or

controversy, commenced by third persons and

communicated in due time to the debtors.

Rules re: set off or compensation of debts

General rule: A tax delinquency cannot beextinguished by legal compensation. This is so

because the government and the tax delinquent are

not mutually creditors and debtors. Neither is a tax

obligation an ordinary act. Moreover, the collectionof a tax cannot await the results of a lawsuit against



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the government. Finally, taxes are not in the nature

of contracts but grow out of the duty to, and are the

positive acts of the government to the making and

enforcing of which the personal consent of the

taxpayer is not required. (Francia v. IAC, 162 SCRA754 and Republic v. Mambulao Lumber, 4 SCRA 622 )

Exception: SC allowed set off in the case of Domingo

v. Garlitos [8 SCRA 443 ] re: claim for payment ofunpaid services of a government employee vis-à-vis

the estate taxes due from his estate. The fact that

the court having jurisdiction of the estate had found

that the claim of the estate against the government

has been appropriated for the purpose by a

corresponding law shows that both the claim of the

government for inheritance taxes and the claim of

the intestate for services rendered have alreadybecome overdue and demandable as well as fully

liquidated. Compensation therefore takes place by

operation of law.

Philex Mining Corporation v. Commissioner, 294 SCRA 687 (1998)

Philex Mining Corporation was to set off its claims

for VAT input credit/refund for the excise taxes due from it.

The Supreme Court disallowed such set off or compensation.

Survey of Philippine Taxes

A. Internal Revenue taxes imposed under the NIRC.

1. Income tax2. Transfer taxes

a) Estate tax

b) Donor’s tax

3. Percentage taxes

a) Value Added Tax

b) Other Percentage Taxes

4. Excise taxes5. Documentary stamp tax

B. Local/ Municipal Taxes

C. Tariff and Customs Duties

D. Taxes / Tax Incentives under special laws

CLASSIFICATION OF TAXES

ASTO SUBJECT MATTER OR OBJECT

1. Personal, poll or capitation tax

Tax of a fixed amount imposed on persons residingwithin a specified territory, whether citizens or not, without

regard to their property or the occupation or business in

which they may be engaged, i.e. community tax.

2. Property tax

Tax imposed on property, real or personal, in proportion

to its value or in accordance with some other reasonable

method of apportionment.

3. Excise tax

A charge impose upon the performance of an act, the

enjoyment of privilege, or the engaging in an occupation.

ASTO PURPOSE

General/fiscal revenue tax is that imposed for the purpose

of raising public funds for the service of the government.

A special or regulatory tax is imposed primarily for the

regulation of useful or non-useful occupation or enterprisesand secondarily only for the purpose of raising public funds.

ASTO WHO BEARSTHE BURDEN

1. Direct tax

A direct tax is demanded from the person who also

shoul,ders the burden of the tax. It is a tax which the taxpayer

is directly or primarily liable and which he or she cannot shift

to another.

2. Indirect tax

An indirect tax is demanded from a person in the

expectation and intention that he or she shall indemnify

himself or herself at the expense of another, falling

finally upon the ultimate purchaser or consumer. A tax

which the taxpayer can shift to another.

ASTO THE SCOPE OF THE TAX

1.

National tax

A national tax is imposed by the national government.

2. Local tax

A local tax is imposed by the municipal corporations

or local government units (LGUs).

ASTO THE DETERMINATION OF AMOUNT

1. Specific tax

A specific tax is a tax of a fixed amount imposed by thehead or number or by some other standard of weight or

measurement. It requires no assessment other than the

listing or classification of the objects to be taxed.

2. Ad valorem tax

An ad valorem tax is a fixed proportion of the value of

the property with respect to which the tax is assessed. It

requires the intervention of assessors or appraisers toestimate the value of such property before due from each

taxpayer can be determined.

ASTO GRADUATION OR RATE

1. Proportional tax

Tax based on a fixed percentage of the amount of the

property receipts or other basis to be taxed. Example: real

estate tax.

2. Progressive or graduated tax



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Tax the rate of which increases as the tax base or bracket

increases.

Digressive tax rate: progressive rate stops at a certain

point. Progression halts at a particular stage.

3. Regressive tax

Tax the rate of which decreases as the tax base orbracket increases. There is no such tax in the Philippines.

TAX SYSTEMS

Constitutional mandate

The rule of taxation shall be uniform and equitable.The Congress shall evolve a progressive system of

taxation. [Section 28 (1), Art icle VI, Constitution ]

Regressivity is not a negative standard for courts toenforce. What Congress is required by the

Constitut ion to do is to “evolve a progressive system of taxation.” This is a directive to Congress, just likethe directive to it to give priority of the enactment

of law for the enhancement of human dignity. The

provisions are put in the Constitution as moral

incentives to legislation, not as judicially enforceable

rights. (Tolentino v. Secretary of Finance .)

Progressive system of taxation v. regressive system of taxation

Aprogressive system of taxation means that tax laws

shall place emphasis on direct taxes rather than onindirect taxes, with ability to pay as the principal

criterion.

A regressive system of taxation exists when there aremore indirect taxes imposed than direct taxes.

No regressive taxes in the Philippine jurisdiction

CLASSIFICATION OF TAXES:

1. personal tax – also known as capitalization or poll

tax;

2. property tax – assessed on property of a certain

class;

3. direct tax – incidence and impact of taxation fallson one person and cannot be shifted to another;

4. indirect tax – incidence and liability for the tax falls

on one person but the burden thereof can bepassed on to another;

5. excise tax – imposed on the exercise of a privilege;

6. general taxes – taxes levied for ordinary or general

purpose of the government;

7. special tax – levied for a special purpose;

8. specific taxes – imposed on a specific sum by the

head or number or by some standards of weight or

measurement;

9. ad valorem tax – tax imposed upon the value of the

article;

10. local taxes – taxes levied by local government units

pursuant to validly delegated power to tax;

11. progressive taxes – rate increases as the tax baseincreases; and

12. regressive taxes – rate increases as tax base

decreases.

GENERAL RULE:

- Taxes are personal to the taxpayer. Corporation’s tax

delinquency cannot be enforced on the stockholderor transfer taxes on the estate be assessed on the

heirs.

EXCEPTIONS

1. stockholders may be held liable for unpaid taxes

of a dissolved corporation if the corporate

assets have passed into their hands; and

2. heirs may be held liable for the transfer taxes onthe estate, if prior to the payment of the same,

the properties of the decedent have been

distributed to the heirs.

LIMITATIONS ON THE POWER OFTAXATION

Inherent Limitations

1. It must be imposed for a public purpose.

2. If delegated either to the President or to a L.G.U., itshould be validly delegated.

3. It is limited to the territorial jurisdiction of the taxing

authority.

4. Government entities are exempted.

5. International comity is recognized i.e. property of

foreign sovereigns are not subject to tax.

Constitutional limitations–

Indirect –

a) Due process clause

b) Equal protection clause

c) Freedom of the press

d) Religious freedom

e) Non-impairment clause

f) Law-making process –

1. One-subject – One-tit le Rule



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2) for any of the recognized objects of the government

3) to promote the welfare of the community

LEGISLATIVEPREROGATIVE

RULE: It is Congress which has the power to determinewhether the purpose is public or private

> You can always question the validity of such taxmeasure on the ground that it is not for a public

purpose before the courts. But once it is settled thatit is for a public purpose, you can no longer inquire

on such tax measure

TAXPAYERS SUIT

- a case where the act complained of directly involves

the illegal disbursement of public funds derived from

taxation

> courts discretion to allow

> Taxpayers have sufficient interest of preventingthe illegal expenditures of money raised by taxation(NOT DONATIONSAND CONTRIBUTIONS)

> A taxpayer is not relieved from the obligation ofpaying a tax because of his belief that it is being

misappropriated by certain officials

> A taxpayer has no legal standing to questionexecutive acts that do not involve the use of public

funds. (GONZALESvs. MARCOS)

LOZADA vs. COMELEC

> It is only when an act complained of which mayinclude a legislative enactment of a statute, involves

the illegal expenditure of public money that the so-

called taxpayers suit may be allowed.

CALTEX vs. COA

> Taxpayers may be levied with a regulatory purposeto provide means for the rehabilitation and

stabilization of a threatened industry which is

affected with the public interest as to be within the

police power of the State.

> A law imposing burdens may be both a taxmeasure and an exercise of the police power in

which case the license fee may exceed the necessaryexpenses of police surveillance and regulation.

REQUISITES FOR A TAXPAYERSPETITION

1) That money is being extracted and spent in

violation of specific constitutional protections

against abuses of legislative power

2) That public money is being deflected to any

improper purpose

3) That the petitioner seeks to restrain respondents

from wasting public funds through the enforcement

of an invalid or unconstitutional law.

KILOSBAYAN vs. GUINGONA

> The Supreme Court has discretion whether or notto entertain taxpayers suit and could brush aside

lack of locus standi

CONCEPTS RELATIVE TO PUBLIC PURPOSE

1) Inequalities resulting from the singling out of oneparticular class for taxation or exemption infringe no

constitut ional limitation

It is inherent in the power to tax that the

legislature is free to select the subject of

taxation

2) An individual taxpayer need not derive direct

benefits from the tax

The paramount consideration is the welfareof the greater portion of the population

3) Public purpose is continually expanding. Areas

formerly left to private initiative now loose their

boundaries and may be undertaken by the

government, if it is to meet the increasing social

challenges of the times

4) Public purpose is determined at the time of

enactment of the tax law and not at the time ofimplementation

NOTES: INTERNATIONAL COMITY

- Based on tradition, practice or custom

DOCTRINE OF INCORPORATION

> The Philippines adopts the generally accepted principles of international law as part of the law of the land

> If a tax law violates certain principles ofinternational law, then it is not only invalid but also

unconstitutional

GROUNDS FOR TAX EXEMPTION OF FOREIGN

GOVERNMENT PROPERTY

1) Sovereign equality of States

2) Usage among States

3) Immunity from suit of a State

NOTES: NON-DELEGATION OF THE POWER TO TAX



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GENERAL RULE:

- The power of taxation is peculiarly and exclusively

legislative, therefore, it may not be delegated

EXCEPTIONS:

1) Delegation to the President

2) Delegation to local government units

3) Delegation to administrative units

POWERS WHICH CANNOT BEDELEGATED

1) Determination of the subjects to be taxed

2) Purpose of the tax

3)

Amount or rate of the tax

4) Manner, means and agencies of collection

5) Prescription of the necessary rules with respect

thereto

DELEGATION TO THE PRESIDENT

> Congress may authorize, by law, the President to

fix, within specified limits and subject to suchlimitations and restr ictions as it may impose

1) Tariff rates

2) Import and export quotas

3) Tonnage and wharfage dues

4) Other duties and import within the nationaldevelopment program of the government

> There must be a law authorizing the President to

fix tariff rates

> The delegation of power must impose limitationsand restrictions and specify the minimum as well as

the maximum tariff rates.

FLEXIBLE TARIFF CLAUSE(SEC. 401 TCC)

-

In the interest of national economy, general welfareand/or national security, the President upon the

recommendation of the National Economic and

Development Authority is empowered:

1) To increase, reduce or remove existing protective

rates of import duty, provided that the increase

should not be higher than 100% ad valorem

2) To establish import quota or to ban imports of any

commodity

3) To impose additional duty on all imports not

exceeding 10% ad valorem

DELEGATION TO LOCAL GOVERNMENT UNITS

> Each local government unit has the power to

create its own revenue and to levy taxes, fees andcharges subject to such guidelines and limitations as

the Congress may provide (ART X Sec 5 )

> Local government units have no power to furtherdelegate said constitutional grant to raise revenue,

because what is delegated is not the enactment orthe imposition of a tax, it is the administrative

implementation

BASCO vs. PAGCOR

> The power of local government units to imposetaxes and fees is always subject to the limitations

which Congress may provide, the former having no

inherent power to tax.

> Municipal corporations are mere creatures ofCongress which has the power to create and abolish

municipal corporations. Congress therefore has thepower to control over local government units. If

Congress can grant to a municipal corporation the

power to tax certain matters, it can also provide for

exemptions or even take back the power

DELEGATION TO ADMINISTRATIVE AGENCIES

> For the delegation to be constitutionally valid, thelaw must be complete in itself and must set forth

suff icient standards

> Certain aspects of the taxing process that are not

really legislative in nature are vested inadministrative agencies. In these cases, there really

is no delegation, to wit:

A) power to value property

B) power to assess and collect taxes

C) power to perform details of computation,

appraisement or adjustments.

NOTES: EXEMPTION OF GOVERNMENT AGENCIES

1) Agencies performing governmental functions

> TAX EXEMPT

2) Agencies performing proprietary functions

> SUBJECT TO TAX

* > The exemption applies only to governmental

entities through which the government immediately anddirectly exercises its sovereign powers.



11

* > The principle of “Mobilia Sequntur Personam ” is

only for purposes of convenience. It must yield to the actual

situs of such property.

* > Personal intangible properties which acquires business situs here in the Philippines

1) Franchise which is exercised within the Philippines

2) Shares, obligations, bonds issued by a domestic

corporation

3) Shares, obligations, bonds issued by a foreign corporation,

85% of its business is conducted in the Philippines

4) Shares, obligations, bonds issued by a foreign corporation

which shares of stock or bonds acquire situs here

5) Rights, interest in a partnership, business or industry

established in the Philippines

> These intangible properties acquire business situs here inthe Philippines, you cannot apply the principle of “Mobilia Sequntur Personam ” because the propert ies have acquired

situs here.

SITUS OF INCOMETAX

A) DOMICILLARY THEORY

- The location where the income earner resides

in the situs of taxation

B) NATIONALITY THEORY

- The country where the income earner is a

citizen is the situs of taxation

C) SOURCE RULE

- The country which is the source of the income

or where the activity that produced the income

took place is the situs of taxation.

SITUS OF SALE OF PERSONAL PROPERTY

> The place where the sale is consummated andperfected

SITUS OF TAX ON INTEREST INCOME

> The residence of the borrower who pays the

interest irrespective of the place where theobligation was contracted

CIR vs. BOAC

> Revenue derived by an of-line international carrier

without any flight from the Philippines, from ticketsales through its local agent are subject to tax on

gross Philippine billings

SITUS OF EXCISE TAX

> Where the t ransaction performed

HOPEWELL vs. COM. OF CUSTOMS

> The power to levy an excise upon the performanceof an act or the engaging in an occupation does not

depend upon the domicile of the person subject tothe exercise, nor upon the physical location of the

property or in connection with the act or occupation

taxed, but depends upon the place on which the actis performed or occupation engaged in.

Thus, the gauge of taxability does not depend on the

location of the office, but attaches upon the place

where the respective transaction is perfected and

consummated

CONSTITUTIONAL LIMITATIONS

I. DUE PROCESS

> Due process mandates that no person shall be deprived of life, liberty, or property without due process of law .

PEPSI COLA vs. MUN. OF TANAUAN

- REQUIREMENTS OF DUE PROCESSIN TAXATION

1) Tax must be for a Public purpose

2) Imposed within the Territorial jurisdiction

3) No arbitrariness or oppression in

A) assessment, and

B) collection

DUE PROCESS IN TAXATION DOES NOT REQUIRE

1) Determination through judicial inquiry of

A) property subject to tax

B) amount of tax to be imposed

2) Notice of hearing as to:

A)

amount of the tax

B) manner of apportionment

REQUISITES OF DUE PROCESSOF LAW

1) There must be a valid law

2) Tax measure should not be unconscionable and

unjust as to amount to confiscation of property



12

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

support in the constitution

> When is deprivation of life, liberty or property done in accordance with due process of law ?

1)

If done under authority of a law that is valid or ofthe constitut ion itself

2) After compliance with fair and reasonable methods

of procedure prescribed by law.

> If properties are taxed on the basis of an invalid

law, such deprivation is a violation of due process

REMEDY – ask for refund

> To justify the nullification of a tax law, there mustbe a clear and unequivocal breach of the

constitution

> There must be proof of arbit rariness

INSTANCES WHEN THE TAX LAW MAYBE DECLARED AS

UNCONSTITUTIONAL [C, O, N, U]

1) If it amounts to confiscation of property without due process

2) If the subject of taxation is outside of the jurisdiction of the taxing state

3) The law maybe declared as unconstitutional

if it is imposednot for a public purpose

4) If a tax law which is applied retroactively,

imposesunjust and oppressive taxes .

A tax law which denies a taxpayer a fairopportunity to assert his substantial rights before a

competent tribunal is invalid

A taxpayer must not be deprived of his property for non-payment of taxes without

1) notice of liability

2) sale of property at public auction

The validity of statute maybe contested only byone who will sustain a direct injury in consequence

of its enforcement

A violation of the inherent limitations on taxationwould contravene the constitutional injunctions

against deprivation of property without due process

of law

There must be proof of arbitrariness, otherwiseapply the presumption of constitutionality

Due process requires hearing before adoption of

legislative rules by administrative bodies ofinterpretative rulings. (Misamis vs. DFA)

Compliance with strict procedural requirementsmust be followed effectively to avoid a collision

course between the states power to tax and the

individual recognized rights (CIR vs. Algue)

The due process clause may correctly be invokedonly when there is a clear contravention of inherent

or constitutional limitations in the exercise of tax

power. (Tan vs. del Rosario)

SUBSTATNTIVE DUE PROCESS requires that a taxstatute must be within the constitutional authority

of Congress to pass and that it be reasonable, fair

and just

PROCEDURAL DUE PROCESS requires notice andhearing or at least an opportunity to be heard

II. EQUAL PROTECTION CLAUSE

All persons, all properties, all businesses should be taxed at the same rate

prohibits class legislation

prohibits undue discrimination

EQUALITY IN TAXATION (UNIFORMITY)

Equality in taxation requires that all subjects or objects of taxation similarly situated should be treated alike or put on equal footing both on the privilege conferred and liabilities imposed

All taxable articles of the same class shall be taxed atthe same rate

The Doctrine does not require that persons orproperties different in fact be treated in law as

though there were the same. What it prohibits is

class legislation which discriminates against someand favors others

As long as there are rational or reasonable groundsfor doing so, Congress may group persons or

properties to be taxed and it is sufficient if allmembers of the same class are subject to the same

rate and the tax is administered impartially upon

them.

REQUISITES OF A VALID CLASSIFICATION (SA G E)

1) It must be based on substantial distinction

2) It must apply not only to the present condition , but also to

future conditions

3) It must be germane to the purpose of the law

4) It must apply equally to all members of the same class

SUBSTANTIAL DISTINCTION

It must be real, material and not superficial distinction



13

What is not allowed is inequality resulting from

singling out of a particular class which violates therequisites of a valid classification

There maybe inequality but as long as it does notviolate the requisites of a valid classification that

such mere inequality is not enough to justify the

nullification of a tax law or tax ordinance

Taxation is equitable when its burden falls onthose better able to pay

Although the equal protection clause does notforbid classification, it is imperative that the

substantial differences having a reasonable relation

to the subject of the particular legislation

Taxes are uniform and equal when imposed uponall property of the same class or character within the

taxing authority

Tax exemptions are not violative of the equalprotection clause, as long as there is valid

classification.

TIU vs. CA

The Constitutional right to equal protection of the

law is not violated by an executive order, issued pursuant

to law, granting tax and duty incentives only to business

within the “secured area” of the Subic Special Economic

Zone” and denying them to those who live within thezone but outside such “fenced in” territory. The

Constitution does not require the absolute equalityamong residents. It is enough that all persons under like

circumstances or conditions are given the same privileges

and required to follow the same obligations. In short , a

classification based on valid and reasonable standards

does not violate the equal protection clause.

We find real and substantial distinctions between

the circumstances obtaining inside and those outside the

Subic Naval Base, thereby justifying a valid and

reasonable classification.

TWO WAYS EQUAL PROTECTION CLAUSE CAN BEVIOLATED

1 ) When classification is made where there should be none

ex. When the classification does not rest uponsubstantial distinctions that make for real difference

2) When no classification is made where a classification is called for

ex. When substantial distinctions exist but no

corresponding classification is made on the basis thereof

ORMOC SUGAR CENTRAL vs. CIR

If the ordinance is intended to supply to a specific

taxpayer and to no one else regardless of whether ornot other entities belonging to the same class are

established in the future, it is a violation of the equal

protection clause, but if it is intended to apply also

to similar establishments which maybe established

in the future, then the tax ordinance is valid even if

in the meantime, it applies to only one entity or

taxpayer for the simple reason that there is so far

only one member of the class subject of the tax

measure

UNIFORMITY IN TAXATION

The concept of uniformity in taxation implies thatall taxable articles or properties of the same class

shall be taxed at the same rate.

It requires the uniform application and operation,

without discrimination, of the tax in every place

where the subject of the tax is found. It does not,

however, require absolute identity or equality under

all circumstances, but subject to reasonable

classification.

EQUITY IN TAXATION

The concept of equity in taxation requires that theapportionment of the tax burden be more or less,

just in the light of the taxpayer’s ability to shoulder

to tax burden and if warranted, on the basis of the

benefits received from the government. Its

cornerstone is the taxpayers ability to pay.

CRITERIA OF EQUAL PROTECTION

1) When the laws operate uniformly

A) on all persons

B) under similar circumstances

2) All persons are treated in the same manner

A) The conditions not being different

B) Both in privileges conferred and liabilities imposed

C) Favoritism and preference not allowed

REYESvs. ALMAZOR

Taxation is equitable when its burden falls onthose better able to pay

KAPATIRAN vs. TAN

It is inherent in the power to tax that the state befree to select the subjects of taxation and it has been

repeatedly held that inequalities which result from asingling out of one particular class of taxation or

exemption infringe no constitutional limitation

III. FREEDOM OF THE PRESS

The press is not exempt from taxation



14

The sale of magazines or newspapers, maybe the

subject of taxation

What is not allowed is to impose tax on the

exercise of an activity which has a connection withfreedom of the press (license fee)

If we impose tax on persons before they can deliver or

broadcast a particular news or information, that is theone which cannot be taxed.

TOLENTINO vs. SEC. OF FINANCE

What is prohibited by the constitutional guaranteeof free press are laws which single out the press or

target a group belonging to the press for special

treatment or which in any way discriminates against

the press on the basis of the content of thepublication.

IV. FREEDOM OF RELIGION

It is the activity which cannot be taxed

activities which have connection with theexercise of religion

AMERICAN BIBLE SOCIETY vs. MANILA

The payment of license fees for the distributionand sale of bibles suppresses the constitutional right

of free exercise of religion.

JIMMY SWAGGART vs. BOARD OF EQUALIZATION

The Free Exercise of Religion Clause does notprohibit imposing a generally applicable sales and

use tax on the sale of religious materials by a

religious organization.

The Sale of religious articles can be the subject ofthe VAT

What cannot be taxed is the exercise of religious worship or activity

The income of the priest derived from the exerciseof religious activity can be taxed.

V. NON-IMPAIRMENT CLAUSE

The parties to the contract cannot exercise thepower of taxation.

They cannot agree or stipulate that this particular

transaction may be exempt from tax- not allowed(except if government)

OPOSA vs. FACTORAN

Police power prevails over the non-impairment

clause

LA INSULAR vs. MANCHUCA

A lawful tax on a new subject or an increased taxon an old one, does not interfere with a contract or

impairs its obligation.

The constitutional guarantee of the non- impairment clause can only invoked in the grant of

tax exemption.

RULES:

1) If the exemption was granted for valuable consideration

and it is granted on the basis of a contract.

cannot be revoked

2) If the exemption is granted by virtue of a contract, whereinthe government enters into a contract with a private

corporation

cannot be revoked unilaterally by the government

3) If the basis of the tax exemption is a franchise granted by

Congress and under the franchise or the tax exemption is

given to a part icular holder or person

can be unilaterally revoked by the government(Congress)

The non-impairment clause applies only tocontracts and not to a franchise.

The non-impairment clause applies to taxation butnot to police power and eminent domain.

Furthermore, it applies only where one party is the

government and the other, a private individual.

As a rule, the obligation to pay tax is based on law.But when, for instance, a taxpayer enters into a

compromise with the BIR, the obligation of the

taxpayer becomes one based on contract

PROVINCE OF MISAMISvs. CAGAYAN ELECTRIC

Franchises with magic words, “shall be in lieu of all taxes” descriptive of the payment of a franchise taxon their gross earnings are exempt from:

1) all taxes

2) the franchise tax under the NIRC

3) the franchise tax under the local tax code

JUAREZ vs. CA

As long as the contract affects the public welfareone way or another so as to require the interference

of the state, then must the police power be assertedand prevail over the impairment clause



15

RULES ON TAX AMNESTY

Tax amnesty, like tax exemption, is never favorednor presumed in law and if granted by statute must

be construed strictly against the taxpayer, who must

show compliance with the law.

The government is not estopped from questioning

the tax liability even if amnesty tax payments werealready received

REASON: Erroneous application and enforcement of

the law by public officers do not block subsequent

correct application of the statute. The government isnever estopped by mistakes or errors by its agents.

PP vs. CASTAÑEDA

Defense of tax amnesty, like amnesty, is a personaldefense

REASON : It relates to the circumstances of a particular

accused and not the character of the acts charged in the

information

REPUBLICvs. IAC

In case of doubt, tax amnesty is to be strictlyconstrued against the government

REASON : Taxes are not construed, for taxes being

burdens are not to be presumed beyond what the tax

amnesty expressly and clearly declares

VI. LAW MAKING PROCESS

A) ONE SUBJECT – ONE TITLE RULE

Every bill passed by the Congress shall embrace only onesubject which shall be expressed in the title thereof (Sec. 26 (1) ART II )

B) THREE READING RULE

No bill passed by either House shall become a law unless ithas 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. (Sec. 26 (2) ART II )

PHIL. JUDGESASSOC. vs. PRADO

A presidential certification dispenses with therequirement not only of printing but also that of

reading the bill on separate days.

It is within the power of a Bicameral ConferenceCommittee to include in its report an entirely new

provision that is not found either in the House Bill or

Senate Bill, so long as such amendment is germane

to the subject of the bills before the committee.

After all its report was not final but needed the

approval of both houses of Congress to become valid

as an act of the legislative department.

C) ENROLLED BILL DOCTRINE

G.R. – An enrolled copy of a bill is conclusive not only of

its provisions but also of its due enactment

EXCEPTION: In ASTORGA vs. VILLEGAS , the Supreme

Court “went behind” the enrolled bill and consulted the journal to determine whether certain provisions of a

state had been approved by the Senate President’s

admission of a mistake and withdrawal of his signature.

VII. PARDONING POWER OF THE PRESIDENT

The President has the power to grant reprieves,commutations and pardons and remit fines and

forfeitures after conviction by final judgment. (Sec. 19,ART VII )

NATURE OF TAX AMNESTY

– A 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

- absolute forgiveness or waiver to collect

VIII. NO IMPRISONMENT FOR NON-PAYMENT OF POLL TAX

- No person shall be imprisoned for debt or non-

payment of poll tax (Sec. 20 ART III )

The non-imprisonment rule applies to non-payment of poll tax which is punishable only by a

surcharge, but not to other violations like

falsification of community tax certificate or non-

payment of other taxes

POLL TAX – tax of fixed amount imposed upon residentswithin a specific territory regardless of citizenship, business

or profession

Ex. Community tax

IX. TAXATION SHALL BE UNIFORM AND EQUITABLE

- The rule of taxation shall be uniform and equitable.

The Congress shall evolve a progressive system of

taxation. (Sec. 28 (1) ART VI)

UNIFORMITY

- means that all taxable articles kinds of property of

the same class shall be taxed at the same rate

> A tax is uniform when it operates with the sameforce and effect in every place where the subject of

it is found



16

EQUITABILITY

> Taxation is said to be equitable when its burdenfalls on those better able to pay

X. CONGRESS SHALL EVOLVE A PROGRESSIVE SYSTEM OF

TAXATION

PROGRESSIVITY

> Taxation is progressive when its rate goes updepending on the sources of the person affected

SYTEMS OF TAXATION

1 ) PROPORTIONAL TAXATION

- where the tax increases or decreases in relation to

the tax bracket

2) PROGRESSIVE or GRADUATED SYSTEM

- where the tax increases as the income of the

taxpayer goes higher

3 ) REGRESSIVE SYSTEM

- where the tax decreases as the income of thetaxpayer increases

PROGRESSIVITY IS NOT REPUGNANT TO UNIFORMITY and EQUALITY

A) Uniformity does not require the things which are not

different be treated in the same manner

B) Differentiation, which is not arbitrary and conforms to thedictates of justice and equity is allowed. Progressivity is one

way of classification.

C) The State has the inherent right to select subjects of

taxation

TOLENTINO vs. SEC. OF FINANCE

> RA 7716 (EVAT), does not violate the constitutionalmandate that Congress shall “evolve a progressive

system of taxation”

> The Constitution does not really prohibit the imposit ion

of indirect taxes, which like the VAT, are regressive. The

constitutional provision means simply that indirect taxes

shall be minimized.

> The mandate to Congress is not to prescribe, butto evolve, a progressive system of taxation

> Resort to indirect taxes should be minimized butnot to be avoided entirely because it is difficult, if

not impossible to avoid them by imposing such taxes

according to the taxpayers abilit y to pay.

XI. ORIGIN OF REVENUE, TARIFF or TAX BILLS

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. (Section 24, Article VI)

RULE:

- It is not the revenue statute but the revenue billwhich is required by the constitution to originate

exclusively in the House of Representatives

REASON :

- To 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 theSenate’s power not only to “concur with

amendments” but also to “ propose amendments.” It

would be to violate the co-equality of legislative

power of the two houses of Congress and in fact

make the House superior to the Senate. (Tolentino vs. Sec. of Finance)

> The Constitution simply requires that there mustbe that initiative coming from the House of

Representatives relative to appropriation, revenueand tariff bills.

>The Constitution does not also prohibit the filing in

the Senate of a substitute bill in anticipation of itsreceipt of the bill from the House, as long as action

by the Senate is withheld until receipt of said bill

(Tolentino vs. Sec. of Finance )

XII. PRESIDENTIAL VETO

> “The President shall have the power to veto anyparticular item or items in an appropriation, revenueor tariff bill, but the veto shall not affect the item or

items to which he does not object” (Sec. 27 (2), ART VI )

XIII. TARIFF POWER OF THE PRESIDENT

“The Congress may, by law, authorizing thePresident to fix within specific limits, and subject to

such limitations and restrictions as it may impose,

tariff rates, import and export quotas, tonnage andwharfage dues, the other duties or imports within

the framework of the national development

program of the Government” (Sec. 28 (2), ART VI )

REQUISITES:

1) There must be a law passed by Congress authorizing

the President to impose tariff rates and other fees.

2) Under the law, there must be limitations andrestrictions on the exercise of such power



17

3) The taxes that may be imposed by the President are

limited to:

A) Tariff rates

B) Import and export quotas

C) Tonnage and wharfage dues

D) Other duties (customs duties)

4) The imposition of these tariff and duties must be

within the framework of the National Developmentprogram of the government

> Congress “may not pass” a law authorizing thePresident to impose income tax, donors tax, and

other taxes which are not in the nature of customs

duties.

> The Constitution allows only the imposition by the

President of these custom duties

XIV. TAX EXEMPTION OF REAL PROPERTY

“Charitable institutions, churches and personages orconvents appurtenant thereto, morgues, 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.” (Sec. 28 (3) ART VI )

APPLICATION:

> The exemption only covers property taxes and not other

taxes

TEST OF EXEMPTION:

> It is the USE of the property and not ownership of the

property

ABRA VALLEY COLLEGE vs. AQUINO (162 SCRA 106)

> The exemption does not only extend toindispensable facilities but also covers incidental

facilities which are reasonably necessary to theaccomplishment of said purpose

> A property leased by the owner to another whouses it exclusively for religious purposes is exempt

from property tax, but the owner is subject to

income tax or rents received.

> Real property purchased by any religious sect to beused exclusively for religious purposes are subject to

the tax on the transfer of ownership or of title to

real property (also if donated- donor’s tax)

> Property held for future use is not tax exempt

XV. LAW GRANTING TAX EXEMPTIONS

“ No law granting any tax exemptions shall be

passed without the concurrence of a majority of allmembers of the Congress” (Sec. 28 (4) ART VI)

RULES ON VOTE REQUIREMENT

1) Law granting any tax exemption

> absolute majority

2) Law withdrawing any tax exemption

> Relative majorit y

> Tax exemption, amnesties, refunds are consideredin the nature of tax exemptions

> A law granting such needs approval of the absolutemajority of the Congress

XVI. NO USE OF PUBLIC MONEY OR PROPERTY FOR PUBLIC

PURPOSES

> “ No public money or property shall beappropriated, applied, paid, or employed, directly orindirectly, 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 or dignitary as

such, EXCEPT when such priest, preacher, minister or

dignitary is assigned to the armed forces, or to any

penal institution, or government orphanage or

leprosarium as such” (Sec. 29 (2) ART VI)

> Public property may be leased to a religious groupprovided that the lease will be totally under the

same conditions as that to private persons (amount

of rent)

> Congress is without power to appropriate funds fora private purpose.

XVII. TAX LEVIED FOR SPECIAL PURPOSES

“ All money collected or 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 wascreated has been fulfilled or abandoned, the balance, if any,

shall be transferred to the general funds of the Government.”

(Sec. 29 (3) ART VI )

> If a President of the Philippines spent a specialfund for a general purpose, he can be charged with

culpable violation of the Constitution.



18

XVIII. SUPREMECOURT’S POWER OF REVIEW

“The Supreme Court shall have the power to review, revise,

reverse, modify or affirm on appeal or certiorari, all cases

involving the legality of any tax imposed, assessment, or toll,

or any penalty imposed in relation thereto.” (Sec. 5 (2B) ART VIII)

> Congress cannot take away from the SupremeCourt the power given to it by the Constitution as

the final arbiter of the tax cases.

XIX. DELEGATED AUTHORITY TO LOCAL GOVERNMENT

UNITS

“ Each local government unit shall have the power to create

its 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, charges shall haveexclusivity to the local government.” (Sec. 5, ART X)

LIMITATIONS ON POWER TO TAX (L.G.U.)

1) It is subject to such guidelines and limitations provided by

Congress.

2) It must be consistent with the basic policy of local

autonomy.

3) Such taxes, fees, and charges shall accrue exclusively to the

local government.

RULES: NATIONAL GOV’T vs. LGU

IMPOSITION OF TAXES

1) The National Government may impose local taxes on

articles or subjects which are within the territorial jurisdiction

of the local government unit.

2) The Local Government unit cannot impose tax on thenational government.

> You can only tax those articles, which are within your jurisdiction

SEC. 6, ART X

“ local government unit s shall have a just share, as

determined by law, in the national taxes which shall be

automatically released to them.”

XX. TAX EXEMPTIONS OF EDUCATIONAL INSTITUTIONS

“ All revenues and assets of non-stock, non-profit educational

institutions used actually, directly, and exclusively for

educational purposes shall be exempt from taxes and duties.”

(Sec. 4 (3) ART XIV)

REQUISITES FOR EXEMPTION:

1) It must be a private educational institution

2) It must be non-stock and non-profit

3) It’s assets (property) and revenues (income) must be

used actually, directly and exclusively for educational

purposes

RULES:

1) If the first requisite is absent (meaning, it’s a government

educational institution), it is nonetheless exempt from

income tax

2) If the second requirement is absent (meaning, it is stockand profit) as long as the third requirement is present, it is

nonetheless exempt from real estate tax

3) If the third requirement is absent, as long as it is non-stock

and non-profit , it is nonetheless exempt from income tax

4) If the third requirement is absent, but it is private and

non-profit, i t is subject to income tax, but at the preferential

rate of ten percent (10%)

> Under the present tax code, for a private

educational institution to be exempt from thepayment of income tax, all it has to be is non-stock

and non-profit. However, a governmental

educational institution is exempt from income tax

without any condition

EXEMPTION DOES NOT EXTEND TO:

1) Income derived by these educational institutions fromtheir property, real or personal, and

2) From activities conducted by them for profit regardless of

the disposition made on such income

MANILA POLO CLUB vs. CTA

> Proceeds of the sale of real property by the RomanCatholic church is exempt from income tax because

the transaction was an isolated one

ST. PAUL HOSPITAL of ILOILO vs. CIR

> Income derived from the hospital pharmacy,dormitory and canteen was exempt from income taxbecause the operation of those entities was merely

incidental to the primary purpose of the exempt

corporation

> Where the educational institution is private and non-profit (but a stock corporation) it is subject to

income tax but at the preferential rate of ten

percent (10%)

REQUISITES for APPLICATION of 10% PREFERENTIAL RATE

1) It is private;

2) It has permit to operate from the DECS, or CHED or TESDA;

3) It is non-profit ;4) Its gross income from unrelated trade or business must not

exceed fifty percent (50%) of its total gross income from all

sources.

10% PREFERENTIAL TAX RATE DOES NOT APPLY TO THE

FOLLOWING:

1) Passive incomes derived by the educational institution

(subject to final income tax) and



19

2) Where the educational institution is engaged in unrelated

trade, business or other activity, and the gross income from

such unrelated trade, business or other activities exceeds fifty

percent (50%) of the total gross income derived by the school

from all sources

> Where a donation is made in favor of aneducational institution pursuant to sports

competition and tournaments, the donor is exemptfrom the payment of donor’s tax

CIR vs. CA (298 SCRA 83 )

> Income derived by YMCA from leasing out aportion of its premises to small shop owners, like

restaurant and canteen operators, and from parking

fees collected from non-members are taxable

income

YMCA is not an educational institution

XXI. TAX EXEMPTION OF DONATIONS for EDUCATIONALPURPOSES

> “Subject to conditions prescribed by law, all grantsendowments, donations, or contributions used

actually, directly and exclusively for educational

purposes shall be exempt from tax.” (Sec. 4 (4) ART XIV )

XXII. NO EXPOST FACTO LAW PROHIBITION IN TAXATION

FERNANDEZ vs. FERNANDEZ

> The prohibition against “ex post facto laws” applies

only to criminal laws and not to those that concerncivil matters

Our tax laws are civil in nature

> The collection of interest on taxes is not penal innature and the ex post facto law prohibition does

not apply to it.

DOUBLE TAXATION

> Taxing same property twice when it should betaxed but once. Taxing the same person twice by the

same jurisdiction over the same thing.

Also known as duplicate taxation

PEPSI COLA vs. CITY OF BUTUAN

> There is no constitutional prohibition againstdouble taxation in the Philippines. It is something

not favored but is permissible, provided that the

other constitutional requirements is not thereby

violated

KINDS OF DOUBLE TAXATION

1) DIRECT DOUBLE TAXATION

- Double taxation in the objectionable or prohibited

sense

- Same property is taxed twice

REQUISITES:

A) The same property is taxed twice when it should only be

taxed once;

B) Both taxes are imposed on the same property or subject

matter for the same purpose;

C) Imposed by the same taxing authority;

D) Within the same jurisdiction;

E) During the same period; and

F) Covering the same kind or character of tax

2) INDIRECT DOUBLE TAXATION

- Not legally objectionable

- If taxes are not of the same kind, or the imposition

are imposed for different taxing authority and this

may involve the same subject matter

EXAMPLES:

A) The taxpayers warehousing business although carried on inrelation to the operation of its sugar central is a distinct and

separate taxable business

B) A license tax may be levied upon a business or occupation

although the land or property used in connection therewith is

subject to property tax

C) Both a license fee and a tax may be imposed on the same

business or occupation for selling the same article and this isnot in violation of the rules against double taxation

D) When every bottle or container of intoxicating beverages

is subject to local tax and at the same time the business of

selling such product is also subject to liquors license

E) A tax imposed on both on the occupation of fishing and of

the fishpond itself

F) A local ordinance imposes a tax on the storage of copra

where it appears that the finished products manufactured

out of the copra are subject to VAT

MEANS EMPLOYED TO AVOID DOUBLETAXATION

1) Tax deductions

2) Tax credits



20

3) Provide for exemption

4) Enter into treatise with other states

5) Allowance on the principle of reciprocity

TAX CREDIT

- An amount allowed as a deduction of the Philippine

Income tax on account of income taxes paid or

incurred to foreign countries. It is given to a taxpayer

in order to provide a relief from too onerous aburden of taxation in case where the same income is

subject to a foreign income tax and the Philippine

Income tax.

WHO CAN CLAIM TAX CREDIT

1) Citizens of the Philippines

2) Domestic corporations

CITY OF BAGUIO vs. DE LEON

> The argument against double taxation may not be

invoked where one tax is imposed by the state andthe other imposed by the city, it being widely

recognized that there is nothing inherently

obnoxious in the requirement that license fees or

taxes be exacted with respect to the same

occupation, calling or activity by both the state and a

political subdivision thereof. And where the statute

or ordinance in question applies equally to allpersons, firms and corporations placed in a similar

situation, there is no infringement of the rule on

equality.

VILLANUEVA vs. CITY OF ILOILO

> An ordinance imposing a municipal tax ontenement houses was challenged because the

owners already pay real estate taxes and also

income taxes under the NIRC. The Supreme Court

held that there was no double taxation. The sametax may be imposed by the National Government as

well as the local government. There is nothing

inherently obnoxious in the exaction of license fees

or taxes with respect to the same occupation, callingor activity by both the state and a political

subdivision thereof. Further, a license tax may be

levied upon a business or occupation although theland used in connection therewith is subject to

property tax.

DOCTRINES ON DOUBLE TAXATION

1) Direct Double Taxation (DDT) is not allowed because it

amounts to confiscation of property without due process of

law

2) You can question the validity of double taxation if there is aviolation of the Equal protection clause or Equality or

Uniformity of Taxation

3) All doubts as to whether double taxation has been

imposed should be resolved in favor of the taxpayer

ESCAPE FROM TAXATION

BASIC FORMSOF ESCAPE FROM TAXATION

1) SHIFTING

2) CAPITALIZATION

3) TRANSFORMATION

4) AVOIDANCE

5) EXEMPTION6) EVASION

I. SHIFTING

- Shifting is the transfer of the burden of a tax by the

original payer or the one on whom the tax wasassessed or imposed to someone else

- Process by which such tax burden is transferred from

statutory taxpayer to another without violating thelaw

> It should be borne in mind that what is transferredis not the payment of the tax, but the burden of the

tax

> Only indirect taxes may be shifted; direct taxescannot be shifted

WAYS OF SHIFTING THETAX BURDEN

1) FORWARD SHIFTING

- When the burden of the tax is transferred from a

factor of production through the factors ofdistribution until it finally settles on the ultimate

purchaser or consumer.

Example:

-Manufacturer or producer may shift tax assessed towholesaler, who in turn shifts it to the retailer, who

also shifts it to the final purchaser or consumer

2 ) BACKWARD SHIFTING

- When the burden of the tax is transferred from the

consumer or purchaser through the factors of

distr ibution to the factors of production

Example:

- Consumer or purchaser may shift tax imposed on

him to retailer by purchasing only after the price isreduced, and from the latter to the wholesaler, or

finally to the manufacturer or producer

3) ONWARD SHIFTING

- When the tax is shifted two or more times either

forward or backward

Example:



21

- Thus, a transfer from the seller to the purchaser

involves one shift; from the producer to the

wholesaler, then to retailer, we have two shifts; and

if the tax is transferred again to the purchaser by the

retailer, we have three shifts in all.

Impact and Incidence of Taxation

Impact of taxation is the point on which a tax is

originally imposed. In so far as the law is concerned,

the taxpayer is the person who must pay the tax tothe government. He is also termed as the statutory

taxpayer-the one on whom the tax is formally

assessed. He is the subject of the tax

Incidence of taxation is that point on which the taxburden finally rests or settle down. It takes place

when shifting has been effected from the statutory

taxpayer to another.

Statutory Taxpayer

The Statutory taxpayer is the person required by lawto pay the tax or the one on whom the tax is

formally assessed. In short, he or she is the subjectof the tax.

In direct taxes, the statutory taxpayer is the one whoshoulders the burden of the tax while in indirect

taxes, the statutory taxpayer is the one who pay the

tax to the government but the burden can be passed

to another person or entity.

Relationship between impact, shifting, and incidence of atax

The impact is the initial phenomenon, the shifting isthe intermediate process, and the incidence is theresult. Thus, the impact in a sales tax (i.e. VAT) is on

the seller (manufacturer) who shifts the burden to

the customer who finally bears the incidence of the

tax.

Impact is the imposition of the tax; shifting is thetransfer of the tax; while incidence is the setting or

coming to rest of the tax.

II. CAPITALIZATION

- Reduction is the price of the taxed object equal to

the capitalized value of future taxes on the property

sold

> This is a special form of backward shifting, wherethe burden of future taxes which the buyer may

have to pay is shifted back to the seller in the form

of reduction in the selling price

III. TRANSFORMATION

- The manufacturer in an effort to avoid losing his

customers, maintains the same selling price and

margin of profit, not by shift ing the tax burden to his

customers, but by improving his method of

production and cutting down or other production

cost, thereby transforming the tax into or earn

through the medium of production.

IV. TAX AVOIDANCE

- Also known as“ tax minimization”

- not punished by law

- Tax avoidance is the exploitation of the taxpayer of

legally permissible alternative tax rates or methodsof assessing taxable property or income in order to

avoid or reduce tax liability

DELPHERSTRADERSCORP vs. IAC(157 SCRA 349)

> The Supreme Court upheld the estate planningscheme resorted to by the Pacheco family in

converting their property to shares of stock in a

corporation which they themselves owned and

controlled. By virtue of the deed of exchange, the

Pacheco co-owners saved on inheritance taxes. TheSupreme Court said the records do not point

anything wrong and objectionable about this estate

planning scheme resorted to. The legal right of the

taxpayer to decrease the amount of what otherwise

could be his taxes or altogether avoid them by

means which the law permits cannot be doubted.

Example:

Following the “holding period rule ” in capital gainstransaction, by postponing the sale of the capital asset

until after twelve months from date of acquisition you

can reduce the tax on the capital gains by 50%

V. TAX EXEMPTION

Tax Exemption

It is the grant of immunity to particular persons or

corporations or to persons or corporations of aparticular class from a tax which persons and

corporations generally within the same state or

taxing district are obliged to pay. It is an immunity or

privilege; it is freedom from a financial charge or

burden to which others are subjected.

Exemption is allowed only if there is a clear provisionthere for.

It is not necessarily discriminatory as long as there isa reasonable foundation or rational basis.

Exemptions are not presumed, but when publicproperty is involved, exemption is the rule and

taxation is the exemption.

Rationale for granting tax exemptions

Its avowed purpose is some public benefit orinterests which the lawmaking body considers

sufficient to offset the monetary loss entailed in the

grant of the exemption.



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The theory behind the grant of tax exemptions is

that such act will benefit the body of the people. It isnot based on the idea of lessening the burden of the

individual owners of property.

Grounds for granting tax exemptions

1) May be based on contract. In such a case, the public, which

is represented by the government is supposed to receive afull equivalent therefor, i.e. charter of a corporation.

2) May be based on some ground of public policy, i.e., to

encourage new industries or to foster charitable institutions.

Here, the government need not receive any consideration in

return for the tax exemption.

3) May be based on grounds of reciprocity or to lessen the

rigors of international double or multiple taxation

Note:Equity is not a ground for tax exemption. Exemption is

allowed only if there is a clear provision therefor.

Nature of tax exemption

1) It is a mere personal privilege of the grantee.

2) It is generally revocable by the government unless theexemption is founded on a contract which is contract which is

protected from impairment.

3) It implies a waiver on the part of the government of its

right to collect what otherwise would be due to it, and so is

prejudicial thereto.

4) It is not necessarily discriminatory so long as the

exemption has a reasonable foundation or rational basis.

5) It is not transferable except if the law expressly provides

so.

Kinds of tax exemption according to manner of creation

1) Express or affirmative exemption When certain persons, property or transactions are,

by express provision, exempted from all certain taxes, eitherentirely or in part.

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

properties, or transactions without mentioning the other

classes.

Every tax statute makes exemptions because of omissions.

No tax exemption by implication

It must be expressed in clear and

unmistakable language

CALTEX vs. COA

> In claiming tax exemption, the burden of proof liesupon the claimant

It cannot be created by mere implication

It cannot be presumed that you are entitled

to tax exemption

You must prove it

RULE:

- Taxation is the rule and exemption is the exception

PROPERTY TAX – GOVERNMENT PROPERTY

> Properties owned by the government whether intheir proprietary or governmental capacity are

exempt from real estate tax

TEST:

- OWNERSHIP

> Once established that it belongs to the

government, the nature of the use of the propertywhether proprietary or sovereign becomes

immaterial.

> Exemption of public property from taxation doesnot extend to improvements therein made by

occupants or claimants at their own expense.

KINDS OF TAX EXEMPTIONS ACCORDING TO SCOPE OR

EXTENT

1) TOTAL

- When certain persons, property or transactions areexempted, expressly or impliedly from all taxes

2) PARTIAL

- When certain persons, property or transactions are

exempted, expressly or impliedly from certain taxes,

either entirely or in part.

3) There can be no simultaneous exemptions under two laws,

when one grants partial exemption while other grants totalexemption.

Does provision in a statute granting exemption from “all taxes” include indirect taxes?

NO. As a general rule, indirect taxes are not includedin the grant of such exemption unless it is expressly

stated.

Nature of power to grant tax exemption

1 ) National government

The power to grant tax exemptions is an attribute ofsovereignty for the power to prescribe who or what persons

or property shall not be taxed.

It is inherent in the exercise of the power to tax thatthe sovereign state be free to select the subjects of taxation

and to grant exemptions therefrom.

Unless restricted by the Constitution, the legislative

power to exempt is as broad as its power to tax.

2) Local governments



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Municipal corporations are clothed with no inherent power

to tax or grant tax exemptions. But the moment the power to

impose a particular tax is granted, they also have the power

to grant exemption therefrom unless forbidden by some

provision of the Constitution or the law

The legislature may delegate its power to grant tax

exemptions to the same extent that it may exercise the

power to exempt.

Basco vs. PAGCOR (196 SCRA 52): The power to tax

municipal corporations must always yield to a legislative act

which is superior, having been passed by the State itself.

Municipal corporations are mere creatures of Congress which

has the power to create and abolish municipal corporations

due to its general legislative powers. If Congress can grant thepower to tax, it can also provide for exemptions or even take

back the power.

Chavez v. PCGG, G.R. No. 130716, 09 December 1998

In a compromise agreement between the PhilippineGovernment, represented by the PCGG, and the

Marcos heirs, the PCGG granted tax exemptions to

the assets which will be apportioned to the Marcos

heirs. The Supreme Court ruled that the PCGG hasabsolutely no power to grant tax exemptions, even

under the cover of its authority to compromise ill

gotten wealth cases. The grant of tax exemptions is

the exclusive prerogative of the Congress.

In fact, the Supreme Court even stated that Congressitself cannot grant tax exemptions in the case at bar

because it will violate the equal protection clause of

the Constitution.

Interpretation of the laws granting tax exemptions

General rule

In the construction of tax statutes, exemptions are not

favored and are construed strictissimi juris against the

taxpayer. The fundamental theory is that all taxable property

should bear its share in the cost and expense of the

government.

Taxation is the rule and exemption is the exemption.

He who claims exemption must be able to justify hisclaim or right thereto by a grant express in terms“ too plain to be mistaken and too categorical to be misinterpreted.” If not

expressly mentioned in the law, it must be at least within its

purview by clear legislative intent.

Exceptions

1) When the law itself expressly provides for a liberal

construction thereof.

2) In cases of exemptions granted to religious, charitable and

educational institutions or to the government or its agencies

or to public property because the general rule is that they are

exempt from tax.

Strict interpretation does not apply to the government and its agencies

Petitioner cannot invoke the rule on stritissimi juriswith respect to the interpretation of statutes

granting tax exemptions to the NPC. The rule on

strict interpretation does not apply in the case of

exemptions in favor of a political subdivision or

instrumentality of the government. [Maceda v.Macaraig]

Davao Gulf v. Commissioner, 293 SCRA 76 (1998)

A tax cannot be imposed unless it is supported bythe clear and express language of a statute; on the

other hand, once the tax is unquestionably imposed,

“a claim of exemption from tax payers must be

clearly shown and based on language in the law too

plain to be mistaken.” Since the partial refundauthorized under Section 5, RA 1435, is in the natureof a tax exemption, it must be construed strictissimi

juris against the grantee. Hence, petitioner’s claim of

refund on the basis of the specific taxes it actually

paid must expressly be granted in a statute stated in

a language too clear to be mistaken.

> Exemption of the buyer does not extend to the seller

Exemption of the principal does not extend

to the accessory

SURIGAO vs. COLLECTOR of CUSTOMS

> Tax refunds, condonations and amnesties , theybeing in the nature of tax exemptions must be

strictly construed against the taxpayer and liberally

in favor of the government.

Tax remission or tax condonation

The word “remit” means to desist or refrain fromexacting, inflicting or enforcing something as well as

to restore what has already been taken. Theremission of taxes due and payable to the exclusion

of taxes already collected does not constitute unfair

discrimination. Such a set of taxes is a class by itself

and the law would be open to attack as class

legislation only if all taxpayers belonging to one class

were not treated alike. [Juan Luna Subd. V.Sarmiento, 91 Phil 370]

The condition of a tax liability is equivalent to and isin the nature of a tax exemption. Thus, it should be

sustained only when expressly provided in the law.

[Surigao Consolidated Mining v. Commissioner of Internal Revenue, 9 SCRA 728 ]

Tax amnesty

Tax amnesty, being a general pardon or intentionaloverlooking by the State of its authority to impose

penalties on persons otherwise guilty of evasion or



24

violation of a revenue to collect what otherwise

would be due it and, in this sense, prejudicial

thereto. It is granted particularly to tax evaders who

wish to relent and are willing to reform, thus giving

them a chance to do so and thereby become a part

of the new society with a clean slate. [Republic v.Intermediate Appellate Court , 196 SCRA 335]

Like tax exemption, tax amnesty is never favored norpresumed in law. It is granted by statute. The termsof the amnesty must also be construed against the

taxpayer and liberally in favor of the government.

Tax amnesty v. tax condonation v. tax exemption

A tax amnesty, being a general pardon or intentionaloverlooking by the Statute of its authority to impose

penalties on persons otherwise guilty of evasion or

violation of a revenue or tax law, partakes of anabsolute forgiveness or waiver by the Governmentof its right to collect what otherwise would be due it

and, in this sense, prejudicial thereto, particularly to

tax evaders who wish to relent and are willing to

reform are given a chance to do so and therefore

become a part of the society with a clean slate.

Like a tax exemption, a tax amnesty is never favorednor presumed in law, and is granted by statute. The

terms of the amnesty must be strictly construed

against the taxpayer and literally in favor of thegovernment. Unlike a tax exemption, however, a tax

amnesty has limited applicability as to cover aparticular taxing period or t ransaction only.

There is a tax condonation or remission when theState desists or refrains from exacting, inflicting or

enforcing something as well as to reduce what has

already been taken. The condonation of a tax liability

is equivalent to and is in the nature of a tax

exemption. Thus, it should be sustained only whenexpressed in the law.

Tax exemption, on the other hand, is the grant of

immunity to particular persons or corporations of aparticular class from a tax of which persons and

corporations generally within the same state or

taxing district are obliged to pay. Tax exemptions are

not favored and are construed strictissimi juris against the taxpayer.

CIR vs. RIO TUBA

> Law granting partial refund partakes the nature ofa tax exemption and therefore must be strictly

construed against the taxpayer

CIR vs. TOUR SPECIALIST

> Gross receipts subject to tax under the tax code donot include monies or receipts entrusted to the

taxpayer which do not belong to it and does not

redound to the taxpayers benefit, and it is not

necessary that there must be a law or regulationwhich would exempt such monies and receipts

within the meaning of gross receipts.

CONSTITUTIONAL RESTRICTION:

“No law granting any tax exemption shall be passed without

the concurrence of a majority of all members of Congress.”

(Sec. 28 (4) ART VI)

PROV. OF NUEVA ECIJA vs. IMPERIAL MINING

> Basis or test for real property taxation is use andnot ownership. Thus, it does not matter who the

owner of the property is even if it is not tax exempt

entity, as long as it is being used for religious,charitable or educational purposes, then it is tax

exempt.

Conversely, even if the property taxation is owned

by the government if the beneficial use has been

granted, for consideration or otherwise, to a taxable

person, then the property is subject to tax.

VI. TAX EVASION

- It is also known as “ tax dodging ”

- It is punishable by law

- Tax evasion is the use by the taxpayer of illegal or

fraudulent means to defeat or lessen the payment of

tax.

YUTIVO vs. CTA

> Tax evasion is a term that connotes fraud throughthe use of pretenses or forbidden devices to lessen

or defeat taxes

ELEMENTSOF TAX EVASION

- Tax evasion connotes the integration of three (3)

factors:

1) The end to be achieved, i.e. payment of less than that

known by the taxpayer to be legally due, or paying no taxwhen it is shown that tax is due

2) An accompanying state of mind which is described as being

“evil”, “in bad faith”, “willful”, or “deliberate” and not

“accidental”

3) A course of action (or failure of action) which is unlawful

INDICIA of FRAUD IN TAX EVASION

1) Failure to declare for taxation purposes true and actual

income derived from business for two (2) consecutive years;

or

2) Substantial underdeclaration of income tax returns of the

taxpayer for four (4) consecutive years coupled with

unintentional overstatement of deductions



25

EVIDENCE TO PROVETAX EVASION

> Since fraud is a state of mind, it need not beproved by direct evidence but may be proved from

the circumstances of the case.

REPUBLICvs. GONZALES(13 SCRA 638)

> Failure of the taxpayer to declare for taxationpurposes his true and actual income derived from his

business for two (2) consecutive years is an

indication of his fraudulent intent to cheat the

government of its due taxes.

TAX ENFORCEMENT AND

ADMINISTRATION

SOURCES OF TAX LAWS:

1) Statutes

2) Presidential decrees

3) Executive orders4) Constitution

5) Court decisions

6) Tax code

7) Revenue regulations

8) Administrative issuances

9) BIR rulings

10) Local tax ordinances11) Tax treaties and conventions with foreign countries

PROSPECTIVITY OF TAX LAWS(APPLICATION)

GENERAL RULE:

- Tax laws should be applied prospectively

EXCEPTION:

- It may be applied retroactively when the law

expressly provides for such retroactive application

EXCEPTION TO THEEXCEPTION:

-It may not be given retroactive application even ifthe tax law expressly so provides if it imposes unjust

and oppressive taxes.

IMPRESCRIPTIBILITY OF TAXES

GENERAL RULE:

- Taxes are imprescriptible

EXCEPTION:

- They are prescriptible if the tax laws provide for

statute of limitations

PRESCRIPTIVE PERIODS:

1) Prescriptive periods for the assessment and collection of

taxes

10 years if return is tainted with falsity or

fraud

3 years if there is no fraud

2) TARIFF AND CUSTOMSCODE

- After the expiration of 1 year from the payment of final

duties.

> You should impose those custom duties that are supposed

to be imposed on the imported articles within the 1 yearperiod, except if it is in the nature of partial liquidation, if

there is fraud or protest

3) LOCAL GOVERNMENT CODE

- Prescriptive periods for local taxes and real property tax

> 5 years

> 10 years if fraud has been employed

INTERPRETATION AND APPLICATION OF TAX LAWS

Nature of Internal revenue laws

1) Internal revenue laws are not political in nature.

2) Tax laws are civil and not penal in nature.

Not political in nature

Internal revenue laws are not political in nature. They are

deemed to be laws of the occupied territory and not of the

occupying enemy.

Thus, our tax laws continued in force during the Japaneseoccupation. Hilado v. Collector, 100 Phil. 288): It is well known

that our internal revenue laws are not political in nature and,

as such, continued in force during the period of enemy

occupation and in effect were actually enforced by the

occupation government. Income tax returns that were filed

during that period and income tax payments made were

considered valid and legal. Such tax laws are deemed to be

the laws of the occupied territory and not of the occupyingenemy.

Civil not penal in nature

Tax laws are civil and not penal in nature, although there are

penalties provided for their violation.

The purpose of tax laws in imposing penalties for

delinquencies is to compel the timely payment of taxes or to

punish evasion or neglect of duty in respect thereof.

Republic v. Oasan, 99 Phil 934: The war profits tax is not

subject to the prohibition on ex post facto laws as the latter

applies only to criminal or penal matters. Tax laws are civil in

nature.

Construction of tax laws

1 ) Rule when legislative intent is clear

Tax statutes are to receive a reasonable construction

with a view to carrying out their purpose and intent.



26

They should not be construed as to permit the

taxpayer easily to evade the payment of taxes.

2 ) Rule when there is doubt

No person or property is subject to taxation unless

within the terms or plain import of a taxing statute. In every

case of doubt, tax statutes are construed strictly against the

government and liberally in favor of the taxpayer.

Taxes, being burdens, are not to be presumedbeyond what the statute expressly and clearly declares.

3 ) Provisions granting tax exemptions

Such provisions are construed strictly against the

taxpayer claiming tax exemption.

Application of tax laws

General rule: Tax laws are prospective in operationbecause the nature and amount to the tax could not

be foreseen and understood by the taxpayer at thetime the transactions which the law seeks to tax was

completed

Exception: While it is not favored, a statute maynevertheless operate retroactively provided it is

expressly declared or is clearly the legislative intent.

But a tax law should not be given retroactive

application when it would be harsh and oppressive.

Directory and mandatory provisions of tax laws

Directory provisions are those designed merely forthe information or direction of office or to secure

methodical and systematic modes of proceedings.

Mandatory provisions are those intended for thesecurity of the citizens or which are designed to

ensure equality of taxation or certainty as to the

nature and amount of each person’s tax.

The omission to follow mandatory provisionsrenders invalid the act or proceeding to which it

relates while the omission to follow directory

provisions does not involve such consequence.[Roxas v. Rafferty, 37 Phil 958]

REQUISITES OF TAX REGULATIONS

1. reasonable

2. within the authorit y conferred

3. not contrary to law

4. must be published

EXCEPTIONS TO NON-RETROACTIVITY OF RULINGS

Revocation, modification of revenue of any rules and

regulations promulgated by the Sec. of Finance or CIR shall

not have retroactive effect if it will be prejudicial to the

taxpayer, except:

1. where the taxpayer deliberately misstates or omits

material facts from his return or in any document

required of him by the BIR

2. where the facts subsequently gathered by the BIR

are materially different from the facts on which theruling is based

3. where the taxpayer acted in bad faith

AGENCIES INVOLVED IN TAX ADMINISTRATION

1. BIR

2. Bureau of Customs

3. Provincial, city, and municipal assessors and

treasurers

POWERS AND DUTIES OF THEBIR

1. Assessment and collection of all national internal

revenue taxes, fees and charges

2. Give effect to and administer the supervisory and

police power conferred to it by the Tax Code or

other laws

3. Enforcement of all forfeitures, penalties and fines in

connection therewith

4. Execution of judgments in all cases decided in its

favor by the Court of Tax Appeals and the ordinary

courts

CLASSIFFICATION OF ASSESSMENTS

1. Self-assessment – one in which the tax is assessed

by the taxpayer himself.

2. Illegal and Void assessment – one wherein the tax

assessor has no power to act at all.

3. Deficiency assessment – one made by the tax

assessor himself whereby the correct amount of the

tax is determined by the examination or

investigation is conducted. The liability isdetermined and is thereafter assessed for the

following reasons:

a. the amount ascertained exceeds that which

is shown as the tax by the taxpayer in his

return

b. no amount of tax is shown in the return

c. the taxpayer did not file any return at all

4. Erroneous assessment – one wherein the assessor

has the power to assess but errs in the exercise of

the power.



27

PRINCIPLES GOVERNING TAX ASSESSMENTS

1. assessments are prima facie presumed correct and

made in good faith

2. assessment should be based on actual facts

3. assessment is discretionary on the part of the

Commissioner to assess taxes may be delegated

4. assessments must be directed to the right party.

MEANS EMPLOYED IN THEASSESSMENT OF TAXES

1. Examination of tax returns

2. Use of the best evidence obtainable

3. Inventory taking, surveillance and use of

presumptive gross sales and receipts

4.

Termination of taxable period

5. Prescription of real property values

6. Examination of bank deposits to determine thecorrect amount of the gross estate

7. Accreditation and registration of tax agents

8. Prescription of additional procedural or

documentary requirements

GENERAL RULE:

Income tax returns are confidential

EXCEPTIONS:

1. when the inspection of the return is authorized upon

written order of the President of the Philippines

2. when inspection is authorized under Finance

Regulations no. 33 of the Secretary of Finance

3. when the production of the tax return is material

evidence in a criminal case wherein the Government

is interested in the result4. when the production or inspection thereof is

authorized by the taxpayer himself

CASES WHEN COMMISSIONER MAY ASSESS TAXES ON THE

BASIS OF THE BEST EVIDENCE OBTAINABLE:

1. in case a person fails to file a return or other

document at the time prescribed by law

2. he willfully or otherwise files a false or fraudulentreturn or other document

GROUNDSFOR TERMINATION OF TAXABLE PERIOD:

1. the taxpayer is retiring from business subject to tax

2. he intends to leave the Philippines or remove his

property therefrom

3. he hides or conceals his property

4. he performs any act tending to obstruct theproceedings for the collection of the tax for the past

or current quarter or year or renders the same

totally or partly ineffective unless such proceedings

are began immediately.

INSTANCES WHEN THE COMMISSIONER MAY INQUIRE INTO

BANK DEPOSITS:

1. for the purpose of determining the gross estate of a

decedent

2. where a taxpayer offers to compromise his taxliability on the ground of financial inability in which

case he must submit a waiver.

INSPECTION AND EXAMINATION OF BOOKS AND RECORDS

SHALL BE MADE ONCE IN A TAXABLEYEAR,

EXCEPT:

1. in cases of fraud, irregularity, or mistakes

2.

when taxpayer requests a reinvestigation

3. to verify compliance with withholding tax laws and

regulations

4. to verify capital gains tax liabili ties

5. upon order of the Commissioner

25% SURCHARGE ON THE AMOUNT OF THE TAX DUE IS

IMPOSED IN THE FOLLOWING CASES:

1.

failure to file any return required under theprovisions of the Tax Code or regulations on the date

prescribed

2. filing a return with an internal revenue officer other

than those with whom the return is required to be

filed

3. failure to pay the tax within the time prescribed for

its payment

4. failure to pay the full amount of tax shown on anyreturn required to be filed under the provisions of

the Tax Code or regulations or the full amount of taxdue for which no return is required to be filed, on or

before the date prescribed for its payment

REVENUE RULES AND REGULATIONS ANDADMINISTRATIVE RULINGSAND OPINIONS

Authority to promulgate rules and regulations and

rulings and opinions

The Secretary of Finance, upon recommendation ofthe Commissioner of Internal Revenue, shall

promulgate needful rules and regulations for the

effective enforcement of the provisions of the NIRC.



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This is without the prejudice to the power of the

Commissioner of Internal Revenue to make rulingsor opinions in connection with the implementation

of the provisions of internal revenue laws, including

rulings on the classification of articles for sales tax

and similar purposes.

Purpose of rules and regulations

1. To properly enforce and execute the laws

2. To clarify and explain the law

3. To carry into effect the law’s general provisions by

providing details of administration and procedure

Requisites for validity of rules and regulations

1. They must not be contrary to law and the

Constitution.

2. They must be published in the Official Gazette or a

newspaper of general circulation.

Commissioner v. Court of Appeals, 240 SCRA 368

The authority of the Minister of Finance, inconjunction with the Commissioner of Internal

Revenue, to promulgate rules and regulations for the

effective enforcement of internal revenue rules

cannot be converted. Neither can it be disputed that

such rules and regulations, as well as administrative

opinions and rulings, ordinarily should deserve

weight and respect by the courts. Much morefundamental than either of the above, however, is

that all issuances must not override, but must

remain consistent with, the law they seek to apply

and implement. Administrative rules and regulations

are intended to carry out, neither to supplant nor to

modify, the law.

La Suerte v. Court of Tax Appleals, 134 SCRA 29

When an administrative agency renders an opinionby means of a circular or memorandum, it merelyinterprets existing law and no publication is

therefore necessary for its validity. Construction by

an executive branch of the government of a

particular law, although not binding upon courts,

must be given weight as the construction came from

the branch of the government which is called upon

to implement the law.

Effectivity of revenue rules and regulations

Revenue Memorandum Circular 20-86 was issued to

govern the draft ing, issuance and implementation ofrevenue tax issuances including:

1. Revenue Regulat ions;

2. Revenue and Memorandum Orders; and

3. Revenue Memorandum Circulars and Revenue

Memorandum Orders.

Except when the law otherwise expressly

provides, the aforesaid revenue tax issuances shallnot begin to be operative until after due notice

thereof may be fairly assumed.

Due notice of said issuances may be fairly presumedonly after the following procedures have been taken:

1.

Copies of tax issuance have been sent throughregistered mail to the following business and

professional organizations:

a. Philippine Institute of Certified Public

Accountants;;

b. Integrated Bar of the Philippines;

c. Philippine Chamber of Commerce and

Industry;

d. American Chamber of Commerce;

e. Federation of Filipino-Chinese Chamber of

Commerce; and

f. Japanese Chamber of Commerce andIndustry in the Philippines.

2. The Bureau of Internal Revenue shall issue a press

release covering the highlights and features of the

new tax issuance in any newspaper of general

circulation.

3.

Effectivity date for enforcement of the new issuanceshall take place thirty (30) days from the date theissuance has been sent to the above-enumerated

organizations.

BIR rulings

Administrative rulings, known as BIR rulings, are theless general interpretation of tax laws being issued

from time to time by the Commissioner of Internal

Revenue. They are usually rendered on request oftaxpayers to clarify certain provisions of a tax law.

These rulings may be revoked by the Secretary of

Finance if the latter finds them not in accordance

with the law.

The Commissioner may revoke, repeal or abrogatethe acts or previous rulings of his predecessors in

office because the construction of the statute by

those administering it is not binding on their

successors if, thereafter, such successors are

satisfied that a different construction of the lawshould be given.

Rulings in the forms of opinion are also given by theSecretary of Justice who is the chief legal officer of

the Government.

EFFECTIVITY AND VALIDITY OF A TAX ORDINANCE



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Tuazon v. Court of Tax Appleals, 212 SCRA 739

If the resolution is to be considered as a tax ordinance, it

must be shown to have been enacted in accordance with

the requirements of the Local Government Code. These

would include the holding of a public hearing on the

measure and its subsequent approval by the Secretary of

Finance, in addition to the usual requisites for

publication of ordinances in general.

BASIC POWERS OF THE BIR COMMISSIONER

- CODE: [E R A P]

1. Enforcement of forfeitures, fines, and penalt ies imposed in

relation thereto, including the enforcement execution of

judgment rendered by the CTA or SC in favor of the BIR

2. Recommend needful rules and regulations to the Secretary

of Finance for the effective implementation of the provisions

of the NIRC and special laws

3. Assessment and collection of internal revenue taxes, fees

and other taxes.

4. Police power, to administer or to give effect to the police

power conferred upon it by law.

CORROLARY POWERS OF THE BIR COMMISSIONER

CODE: [SI E O T A A T ]

1. Summon persons on certain cases pending investigation

2. Inquire into bank deposits

- Except: Secrecy of bank deposits law

> Only to determine the gross estate of decedent not to

determine the income

3. Examine books of the accounts of the taxpayer and other

documents

4. Obtain information

5. Take testimony of persons

6. Administer oaths

7. Arrest persons who have violated the provisions of the tax

code

Taxation - Rene Callanta

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