TAX1 – Midterm Reviewer - The Philippines adopts the progressive system of

taxation which means that the higher the tax base,

I. General Principles of Taxation the higher the tax one must pay.
a. Definition, Concept, and Purpose of Taxation - This system aims to reduce the social inequity by
preventing the concentration of wealth in the hands
Definition
of few individuals.
- Inherent power of the state or sovereign
- To impose burdens upon persons, property, or
4. Encourage Economic Growth
rights within its jurisdiction
- Tax also covers the grant of tax exemptions and
- For the purpose of raising revenues in order to
reliefs in order to encourage investments here in
defray the legitimate expenditures of the
the Philippines.
government.
- With more investments coming in because of
attractive tax incentive package, jobs are created –
Concept this increases the purchasing power of workers
which promotes the country’s overall economic
-It is purely legislative. growth.
- Foreign corporations coming to the Philippines to
Purpose avail of the said package have the same effect.

- Primary Purpose: Raise revenue to defray

legitimate business expenses of the government to 5. Protectionism
promote the general welfare and to protect its
citizens. - Taxation also serves for the imposition of
emergency measures, including tariffs, to protect
domestic industries and producers from increased
- Secondary Purposes (5) (SG-REP) imports which inflict or could inflict serious injury on
them.
1. Special or Regulatory
- Example: Imposition of anti-dumping duty when
- Taxes may be levied with a regulatory purpose to the price of the imported article is deliberately or
provide means for the rehabilitation and continually fixed at less than the fair market value
stabilization of a threatened industry or cost of production and importation and would
- Provided, the same is affected with public interest cause or likely cause an injury to the concerned
as to be within the police power of the state. industries.

- Example: In Lutz v. Araneta, tax is levied with a

regulatory purpose to provide means for the b. Nature and Characteristics of Taxation
rehabilitation and stabilization of a threatened sugar
industry. Nature- It is an attribute of sovereignty and is
legislative in character.
- Rationale for legislative character: The legislature
2. Promotion of General Welfare primarily lies the discretion to determine the nature
(kind), object (purpose), extent (rate), coverage
(subjects), and situs (place) of taxation.
3. Reduction of Social Inequity
Characteristics
-It is generally plenary and unlimited.
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- It is inherent in the State.
2. Necessity Theory
c. Power of Taxation as distinguished from - It is a necessary burden to preserve the State’s
Police Power and Power of Eminent Domain sovereignty. (The Philippine Guaranty Co., Inc v.
CIR)

Taxation Police Eminent

Power Domain 3. Benefits-Protection Theory (Doctrine of
Purpose Raise revenue Promote Take private
to defray public welfare property for Symbiotic Relationship)
government through public use
expenditures regulations - The government, for its part, is expected to
Scope All persons, All persons, Only the respond in the form of tangible and intangible
property, and property, particular benefits intended to improve the lives of the people
rights privileges, property
and even comprehended and enhance their moral and material values.
rights
Basis Public Public Public -This symbiotic relationship is the rationale of
necessity necessity and necessity, taxation and should dispel the erroneous notion
the right of private that it is an arbitrary method of exaction by those in
the state to property taken
self- for public use the seat of power. (CIR v. Algue)
protection
and self-
preservation
Exaction No limit Limited to No exaction 4. Favorable Business Climate Theory
amount regulations
cost - Domestic corporations owe their corporate
Benefits No special or No direct Direct benefit existence and their privilege to do business to the
derived direct benefits benefits but a via just
government.
received but healthy compensation
the enjoyment economic
of the standard of
- It is therefore fair for the government to require
privileges of society or them to make a reasonable contribution to the
living in an “damnum public expenses. (Chamber of Real Estate v.
organized absque
society injuria” is
Romulo)
attained (i.e.,
loss or
damage
without injury) e. Principles of a Sound Tax System (3) (FAT)
Non- Inferior Superior Superior
impairment 1. Fiscal Adequacy
of contract
Exercising The State and The State The State, its - The taxes collected by the government must be
Authority its political and its political sufficient, adequate or at least approximate to
subdivisions political subdivisions, government expenditures. (Total revenues = total
(LGUs) subdivisions and may be
granted to expenses)
public service
companies or
public utilities
2. Administrative Feasibility

d. Theories and Bases of Taxation (4) (LN-BF) - The tax system should be capable of being
effectively administered and enforced with the least
1. Lifeblood Theory inconvenience to the taxpayer. Mere inconvenience
will not render a tax imposition invalid “except to the
- Without taxes, the government would be
extent that specific constitutional or statutory
paralyzed for lack of motive power to activate and
operate it. (CIR v. Algue)
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limitations are impaired.” (Diaz v. Secretary of i. Inherent Limitations (book)
Finance)
- emanate from the very nature,
- Example: In Diaz, the tollway operations VAT may characteristics, and rationale of taxation.
seem burdensome to implement but it is not
1. Public Purpose
necessarily invalid unless some aspect of it is
shown to violate any law or the Constitution. - They cannot be used purely for private
purposes or for the exclusive benefit of
private persons.
3. Theoretical Justice
- Rationale: The power to tax exists for the
- The tax burden should be proportional to the general welfare. Hence, implicit in its power
taxpayer’s ability to pay. is the limitation that is should be used only
for a public purpose.
- The rule of taxation shall be uniform and
equitable. (Section 28 [1], Article 6, 1987 - The term “public purpose” is not defined. It
Constitution) is an elastic concept that can be hammered
to fit modern standards. Jurisprudence
states that “public purpose” should be given
Note: Only the violation of theoretical justice will a broad interpretation.
render the law invalid for being unconstitutional.
- Heart of tax law.
Fiscal adequacy and administrative feasibility will
not render the law invalid
Tests in Determining Public Purpose in
Taxation (DP) (2)
f. Scope and Limitation of Taxation
a. Duty Test – whether the thing to be
i. Inherent Limitations (lecture)
threatened by the appropriation of public
1. Territoriality or Situs of Taxation revenue is something which is the duty of
the State as a government.
2. International comity
b. Promotion of General Welfare Test –
3. Exemption of government entities whether the law providing the tax directly
from taxes promotes the welfare of the community in
a. Commercial/Proprietary = equal measure.
Taxable
b. Governmental = Exempted 2. Inherently Legislative
i. SSS = Exempted - Taxation is purely legislative, and
ii. GSIS = Exempted Congress cannot delegate the power to
others.
iii. LBP = Taxable
- This arises from the doctrine of separation
iv. Pag-ibig = Exempted of powers among the three (3) branches of
the government.
v. Philhealth = Exempted
- However, delegation is not absolute and is
vi. PNR = Taxable
subject to the following exceptions:
1. BSP

a. Delegation to Local Government Units

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 - This is no longer by virtue of a valid the constituent political units. The organic acts shall likewise
delegation of authority by Congress but provide for special courts with personal, family, and property
law jurisdiction consistent with the provisions of this
pursuant to a direct authority as conferred Constitution and national laws.
by Section 5, Article 10 of the 1987
Constitution: The creation of the autonomous region shall be effective when
approved by majority of the votes cast by the constituent units
in a plebiscite called for the purpose, provided that only
provinces, cities, and geographic areas voting favorably in
ARTICLE X such plebiscite shall be included in the autonomous region.

Local Government xxx xxx xxx

General Provisions SECTION 20. Within its territorial jurisdiction and subject to the
provisions of this Constitution and national laws, the organic
xxx xxx xxx act of autonomous regions shall provide for legislative powers
over:
SECTION 5. Each local government unit shall have the power
to create its own sources of revenues and to levy taxes, fees, (1) Administrative organization;
and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local (2) Creation of sources of revenues;
autonomy. Such taxes, fees, and charges shall accrue
(3) Ancestral domain and natural resources;
exclusively to the local governments.
(4) Personal, family, and property relations;
xxx xxx xxx
(5) Regional urban and rural planning development;

(6) Economic, social, and tourism development;

-However, this power is still subject to guidelines
and limitations which Congress may provide which (7) Educational policies;
must be consistent with the basic policy of local (8) Preservation and development of the cultural heritage; and
autonomy.
(9) Such other matters as may be authorized by law for the
promotion of the general welfare of the people of the region.

xxx xxx xxx

Exception of the Exception
- For LGUs within the autonomous regions, their
power to tax remains to be a valid delegation of b. Delegation to the President
authority of Congress. The Congress needs to
enact an organic act for each autonomous region - Section 28 (2), Article 6 of the 1987 Constitution
which act shall include the power to create its own provides that Congress may, by law, authorize the
sources of revenue. President to fix within specified limits, and subject
to such limitations and restrictions as it may
impose, tariff rates, import and export quotas,
ARTICLE X tonnage and wharfage dues, and other duties or
imposts within the framework of the national
Local Government
development program of the Government.
xxx xxx xxx
- Section 401 of the Tariff and Customs Code
Autonomous Region establishes general standards with the exercise of
xxx xxx xxx the authority delegated by that provision to the
President must be consistent: that authority must
SECTION 18. The Congress shall enact an organic act for
each autonomous region with the assistance and participation
be exercised in “the interest of national economy,
of the regional consultative commission composed of general welfare and/or national security.”
representatives appointed by the President from a list of
nominees from multisectoral bodies. The organic act shall - Requisites (Sec. 401):
define the basic structure of government for the region
consisting of the executive department and legislative 1. Public hearing
assembly, both of which shall be elective and representative of
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2. National Economic and Development Authority
(NEDA) Recommendation
3. Territoriality
- Tax laws cannot operate beyond a State’s
- ABAKADA v. Executive Secretary: The SC territorial limits.
resolved the issue as to whether there is a valid
- However, a person may be taxed, even if he is
delegation of authority to the President in Sections
outside the taxing state, where there is between
4,5, and 6 of RA 9337 states:
him and the taxing state, a privity of relationship
“That the President, upon the recommendation of the Secretary justifying the levy.
of Finance, shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%), after any of the
following conditions has been satisfied:
a. Situs of Taxation
(i) Value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two and - Place or authority of taxation (CIR v. Marubeni)
four-fifth percent (2 4/5%); or

(ii) National government deficit as a percentage of GDP of the

previous year exceeds one and one-half percent (1 ½%).”
b. Situs of Different Taxes (4) (IP-EB)
1. Income Tax
The Supreme Court ruled: - Whether from sources within or without the
xxx xxx xxx Philippines is determined by the nationality,
residence of the taxpayer, and source of income.
Thus, it is the ministerial duty of the President to immediately
impose the 12% rate upon the existence of any of the - For income partly within and partly without the
conditions specified by Congress. This is a duty which cannot
be evaded by the President. Inasmuch as the law specifically Philippines, it is allocated to sources within or
uses the word shall, the exercise of discretion by the President without the Philippines.
does not come into play. It is a clear directive to impose the
12% VAT rate when the specified conditions are present. The
time of taking into effect of the 12% VAT rate is based on the
happening of a certain specified contingency, or upon the 2. Property Taxes (2) (RP)
ascertainment of certain facts or conditions by a person or
body other than the legislature itself. a. Taxes on Real Property

xxx xxx xxx - Lex loci rei sitae or the law of the place where the
property is situated.

c. Delegation of Administrative Agencies

b. Taxes on Personal Property (2) (TI)
- In these cases, there really is no delegation such
as power to value property, power to assess and i. Tangible – physical location of personal
collect taxes, and power to perform details of although the owner resides in another
computation, appraisement, or adjustments. jurisdiction.

- For the delegation to be constitutionally valid, the

law must be complete in itself and must set forth
ii. Intangible – location of owner. This
sufficient standards.
follows mobilia sequuntur personam or
- The BIR is the primary government agency in movables follow the owner’s domicile.
charge in the collection of taxes imposed under the
Tax Code. Tax collection is not legislative in nature
and thus, can be properly delegated to an 3. Estate and Donor’s Tax
administrative agency like the BIR.

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- Determined by the nationality and residence of the and supreme and the State can impose tax on
decedent or donor almost everything within its jurisdiction.
- As well as the place where the property is located - The State can tax itself since there is no
prohibition in the Constitution for such act.
However, Congress chooses not to impose tax on
those performing governmental functions.

4. Business Tax (3) (RPV) Agencies performing Agencies performing

governmental functions proprietary functions
- The place where the act or business is performed General rule: Tax- General rule: Subject
or occupation is engaged in. exempt to tax
a. Real Property Sale – Place or location of real Exception: Expressly Exception: Expressly
property. taxed exempted

b. Personal Property Sale – Place of sale. - GOCCs, agency and instrumentality may be
distinguished as follows:
a. GOCC
c. VAT – Where the goods, property or services are
destined, used, or consumed. - Any agency organized as a stock or non-stock
corporation, vested with functions relating to public
needs whether governmental or proprietary in
nature, and
4. International Comity
- owned by the government directly or through its
- Under this principle, the property or income of a
instrumentalities either wholly or where applicable
state or foreign government may not be taxed by
as in the case of stock corporations
another state where the said income is derived or
sourced or the property is located. - to the extent of at least 51% of its capital stock
(Section 2 [13], 1987 Administrative Code)
- Section 2, Article 2, 1987 Constitution:
ARTICLE II

Declaration of Principles and State Policies b. Agency

Principles - Any of the various units of the government,
including a department, bureau, office,
xxx xxx xxx
instrumentality, or GOCC, or a local government or
SECTION 2. The Philippines renounces war as an instrument a distinct unit therein. (Section 2[4], 1987
of national policy, adopts the generally accepted principles of
Administrative Code)
international law as part of the law of the land and adheres to
the policy of peace, equality, justice, freedom, cooperation, and
amity with all nations.

xxx xxx xxx c. Instrumentality

-Any agency of the National Government, not
integrated within the department framework vested
5. Exemption of Government Entities, Agencies, within special functions or jurisdiction by law,
and Instrumentalities
- endowed with some if not all corporate powers,
a. National Government administering special funds, and enjoying
operational autonomy, usually through a charter.
- The taxing power of the State or the national
government is comprehensive, plenary, unlimited,

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- This includes regulatory agencies, chartered -Taxation is an inherent power of the State that
institutions, and GOCCs. (Section 2[10], 1987 does not need a constitution or a law to be
Administrative Code). exercised.
- Section 27 (C), NIRC - - Constitutional provisions do not give rise to the
power to tax but merely impose limitations on what
- General Rule: All GOCCs, agencies, or
would otherwise be an invincible power. (Churchill
instrumentalities are subject to income tax
v. Concepcion)
- Exception:
i. GSIS
1. Section 1, Article 3
ii. SSS SECTION 1. No person shall be deprived of life, liberty, or
property without due process of law, nor shall any person be
iii. PHIC (Philippine Health Insurance denied the equal protection of the laws.
Corporation)
iv. PCSO*
a. Due Process Clause
v. Local water districts**
Two (2) Aspects of Due Process (2) (SP)
vi. Government educational institution***
i. Substantive due process
*PCSO now subject to income tax as of January 1, 2018 per
RA 10963 or the Tax Reform for Acceleration and Inclusion - Enactment of tax law must be within the powers of
(TRAIN) Law. Congress granted by the Constitution.
**RA 10026 (March 11, 2010) amended Section 27 (C) to add
- The tax law must be valid before any right may
local water districts as one of the exceptions.
arise or liability is imposed.
*** Per Section 30 (I), NIRC. This is also exempted from VAT
(Section 109 [H], NIRC)

ii. Procedural due process

b. Local Government -Right to be informed and heard.

- General Rule: Local government cannot impose - The taxpayer must be duly informed of the nature
tax, fee, or charge to the national government and and basis of the assessment, and must be given an
its properties due to the “supremacy” of the national opportunity to respond or challenge the
government over local government. (Section 133 assessment.
[o]) of RA 7160 or the Local Government Code)
- This rule also applies in local tax, real property
- Exception: LGUs are allowed to fix rates for the tax, and tariff and customs duty assessments.
operation of public utilities owned, operated, and
maintained by the LGUs within their jurisdiction.
b. Equal Protection Clause
- Example of GOCC: Philippine Amusement and
Gaming Corporation (PAGCOR) [Basco v. - Persons similarly situated should be treated alike
PAGCOR] as to rights and obligations.
- MIAA v. CA: Manila International Airport Authority - This clause does not guarantee absolute equality,
is not a GOCC. but only equality among equals.
- Thus, a different treatment is allowed when there
is a substantial distinction among the taxpayers.
ii. Constitutional Limitations
Essential requisites for a valid classification (4)
(SG-NA) [People v. Cayat]
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a. rest on substantial distinctions; franchise may be revoked by Congress because no
franchise or right be granted except under the
b. be germane to the purpose of the law;
condition that it shall be subject to amendment,
c. not limited to existing conditions only; and alteration, or repeal by Congress when the
common good so requires. (Sec. 11, Art. 12, 1987
d. applies equally to all members of the same class. Constitution)

2. Section 5, Article 3 4. Section 20, Article 3

SECTION 5. No law shall be made respecting an No person shall be imprisoned for debt or non-payment of a
establishment of religion, or prohibiting the free exercise poll tax.
thereof. The free exercise and enjoyment of religious
profession and worship, without discrimination or preference,
shall forever be allowed. No religious test shall be required for
the exercise of civil or political rights. - Poll tax is a fixed amount imposed on persons
residing within a specified territory, whether citizens
or not, without regard to their property or the
-This provision contains two (2) clauses: occupation or business in which they may be
engaged. (e.g., community tax or cedula)
(1) the non-establishment clause; and
(2) the free-exercise clause. (This is the basis of tax
exemptions granted to religious institutions) 5. Section 24, Article 6
SECTION 24. All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local application,
Lecture: and private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with
Old case law – Sale at cost sans profit. Mormons amendments.
selling bible for P5.00 each violative of the free-
-Tolentino v. Secretary of Finance (origin of E-VAT
exercise clause.
case)
New case law – P2500 each at a profit. Not “To begin with, it is not the law — but the revenue bill — which
violative. is required by the Constitution to "originate exclusively" in the
House of Representatives. It is important to emphasize this,
because a bill originating in the House may undergo such
extensive changes in the Senate that the result may be a
3. Section 10, Article 3 rewriting of the whole…It would be to violate the coequality of
legislative power of the two houses of Congress and in fact
No law impairing the obligation of contracts shall be passed.
make the House superior to the Senate.

xxx xxx xxx

-The non-impairment clause applies to the power of Indeed, what the Constitution simply means is that the initiative
taxation but not to police power and power of for filing revenue, tariff, or tax bills, bills authorizing an increase
eminent domain. This is what it means by power of of the public debt, private bills and bills of local application
taxation being inferior to the non-impairment must come from the House of Representatives on the theory
that, elected as they are from the districts, the members of the
clause. House can be expected to be more sensitive to the local needs
and problems. On the other hand, the senators, who are
- However, it must be emphasized that the non-
elected at large, are expected to approach the same problems
impairment clause only covers obligations of from the national perspective. Both views are thereby made to
contract. If obligation arises from other sources, like bear on the enactment of such laws.”
law, this limitation does not apply.
- If a tax exemption is contractual, a law revoking
6. Section 28 (1), Article 6
such exemption impaired the obligation of contract.
However, a tax exemption provided under a
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SECTION 28. (1) The rule of taxation shall be uniform and and exclusively used for religious, charitable, or educational
equitable. The Congress shall evolve a progressive system of purposes shall be exempt from taxation.
taxation.
xxx xxx xxx
- Uniformity in taxation means that all taxable
articles or kinds of property of the same classes
shall be taxed at the same rate.
- Equality and uniformity of taxation means that all - Abra Valley College v. Aquino:
taxable articles or kinds of property of the same
- A two-story building owned by an educational
class be taxed at the same rate.
institution became subject of the tax occupied by a
- Lecture: Equitable means the taxpayer’s ability to private corporation for commercial purpose, while
pay. the second floor was occupied by the Director of
Abra Valley College and his family for residential
- With respect to progressive system, a tax is purposes.
progressive when the rate increases as the tax
base increases. This simply means that “direct - Adopting its previous ruling in Jose Herrera, the
taxes are to be preferred and as much as possible, SC held that the second floor is exempt from real
indirect taxes should be minimized.” property tax its use being incidental and reasonably
necessary for the accomplishment of the main
purposes of an educational institution.
7. Section 28 (2), Article 6 - The first floor, however, cannot by any stretch of
SECTION 28. the imagination be considered incidental to the
purpose of education.
xxx xxx xxx

(2) The Congress may, by law, authorize the President to fix - Thus, only the first floor became subject to real
within specified limits, and subject to such limitations and property tax.
restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development
program of the Government. - “Exclusive” is defined as possessed and enjoyed
to the exclusion of others; debarred from
xxx xxx xxx
participation or enjoyment; and
- “Exclusively” is defined, “in a manner to exclude;
-This provision is also known as the Flexible Tariff as enjoying a privilege exclusively.”
Clause under the Tariff and Customs Code. - If real property is used for one or more
- Section 401 of the Tariff and Customs Code commercial purposes, it is not exclusively used for
establishes general standards with which the the exempted purposes but is subject to taxation.
exercise of the authority delegated by that provision
to the President must be consistent: that authority
must be exercised in “the interest of national 9. Section 28 (4), Article 6
economy, general welfare and/or national security”. SECTION 28.

xxx xxx xxx

8. Section 28 (3), Article 6 (4) No law granting any tax exemption shall be passed without
the concurrence of a majority of all the Members of the
SECTION 28. Congress.
xxx xxx xxx

(3) Charitable institutions, churches and parsonages or

convents appurtenant thereto, mosques, non-profit cemeteries,
and all lands, buildings, and improvements, actually, directly,
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-This pertains to the total membership of the a. Levy – determination of the persons, property, or
Congress and not simply the majority of the quorum excises to be taxed, the sum or sums to be raised,
in a given business day. the due date thereof, and the time and manner of
levying and collecting taxes.
- 24 Senators, 304 Representatives

b. Assessment and Collection – The manner and

enforcement of the obligation on the part of those
10. Section 5, Article 10 who are taxed.

SECTION 5. Each local government unit shall have the power c. Payment – the act of compliance by the
to create its own sources of revenues and to levy taxes, fees, taxpayer, including such options, schemes, or
and charges subject to such guidelines and limitations as the remedies as may be legally available.
Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments.
d. Refund – the recovery of any tax alleged to have
been erroneously or illegally assessed or collected,
11. Section 4(3)(4), Article 14. or of any penalty claimed to have been collected
xxx xxx xxx
without authority, or of any sum alleged to have
been excessively, or in any manner wrongfully
SECTION 4. collected.
(3) All revenues and assets of non-stock, non-profit educational
institutions used actually, directly, and exclusively for
educational purposes shall be exempt from taxes* and duties.
h. Definition, Nature and Characteristics of
Upon the dissolution or cessation of the corporate existence of
such institutions, their assets shall be disposed of in the Taxes
manner provided by law.
Definition and Nature
Proprietary educational institutions, including those
cooperatively owned, may likewise be entitled to such - Taxes are enforced proportional contributions
exemptions subject to the limitations provided by law including exacted by the State from persons and properties
restrictions on dividends and provisions for reinvestment. pursuant to its sovereignty
(4) Subject to conditions prescribed by law, all grants,
endowments, donations, or contributions used actually,
- in order to support the Government and
directly, and exclusively for educational purposes shall be
- to defray all the public needs.
exempt from tax.

*Lecture: income tax

Elements (3) (ESS)

- Section 27 (B) of the Tax Code states that a. it is an enhanced proportional contribution from
“proprietary educational institutions which are persons and properties;
nonprofit shall pay a tax of 10% on their taxable
b. it is imposed by the State by virtue of its
income provided, that if the gross income from
sovereignty; and
unrelated trade, business or other activity exceeds
50% of the total gross income derived by such c. it is levied for the support of the Government.
educational institutions [the regular corporate (Mandanas v. Executive Secretary)
income tax of thirty percent] shall be imposed on
the entire taxable income.”
Lecture: Characteristics (5) (EL-PPP)
g. Stages or Aspects of Taxation (4) (LA-PR) 1. Enforced contribution;
2. Legal obligation;
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3. Personal liability; government functions.
- Generally, unlimited as to - Should not unreasonably
4. Payable in money; and amount. exceed the expenses of
issuing the license and of
5. Proportional. supervision.
- Imposed on persons, - Imposed only on the right
property and to exercise a to exercise a privilege.
privilege.
- Failure to pay does not - Failure to pay makes the
necessarily make the act or act or business illegal
business illegal.
- Penalty for nonpayment:
surcharges or imprisonment
i. Requisites of a Valid Tax (5) (PUJ-DI) (except poll tax)
a. It should be for a public purpose;
b. Uniform;
Taxes Special Assessment
c. Either the person or property taxed within the - Levied not only on land - Levied only on land
- Imposed regardless of - Imposed because of an
jurisdiction of the taxing authority; public improvements increase in value of land
benefited by public
d. Assessment and collection be in consonance improvement.
with the due process clause; and - Contribution of a taxpayer - Contribution of a person for
for the support of the the construction of a public
e. The tax must not infringe on the inherent and government. improvement.
constitutional limitations of the power of taxation. - General application both - Exceptional both as to time
as to time and place and locality

Taxes Debt
j. Tax as distinguished form other forms of
- Based on Laws - Generally based on
exaction (from PDF) Contract
- Generally, cannot be - Assignable
Taxes Tariff assigned
-All embracing term to - Kind of tax imposed on -Cannot be a subject of set -May be paid in kind
include various kinds of articles which are traded off or compensation
enforced contributions upon internationally (exported -A person cannot be - Can be a subject of set off
person for the attainment of from or imported to a imprisoned for non-payment or compensation
public purposes. country). Custom duties are of debt (except when from a
actually taxes but the latter crime)
is broader in scope. -Governed by the special -Governed by the ordinary
prescriptive periods periods of prescription
provided for in the NIRC.
Taxes Toll -Does not draw interest -Draws interest when it is so
- Paid for the support of the - Paid for the use of except only when delinquent stipulated or where there is
government. another’s property. default
- Demand of sovereignty - Demand of proprietorship -Imposed only by public - Can be imposed by private
- Generally, no limit on the - Amount paid depends authority individual
amount collected as long as upon the cost of
it is not excessive, construction or maintenance
unreasonable or of the public improvement Taxes Penalty
confiscatory. used. - Violation of tax laws may - Any sanction imposed as a
- Imposed only by the - Imposed by the give rise to imposition of punishment for violation of
government. government or by private penalty law or acts deemed injurious
individuals or entities. - Generally intended to raise - Designed to regulate
revenue conduct
- May be imposed only by - May be imposed by the
Taxes License and Regulatory the government government or private
Fee individuals or entities
- Imposed under the taxing - Levied under the police -Cannot be a subject of set -Can be a subject of set off
power of the state for power of the state. off or compensation or compensation (see Art.
purpose of revenue. 1279, Civil Code)
-Forced contributions for the - Exacted primarily to
purpose of maintaining regulate certain

11
k. Kinds of Taxes c. Mixed – tax rates are partly specific and partly ad
valorem. (law + value)
1. As to object (3) (PPE)
a. Personal, Capitation, or Poll Tax
- Tax of a fixed amount imposed on person residing
within a specified territory, whether citizens or not.
- This is without regard to their property or the
occupation or business in which they may be
4. As to burden or incidence (2) (DI)
engaged.
a. Direct Tax – it is a tax which the taxpayer is
directly or primarily liable and which he or she
b. Property Tax – tax imposed on property, real or cannot shift to another.
personal, in proportion to its value or in accordance
with some other reasonable method of
apportionment. b. Indirect Tax – demanded for a person in the
expectation and intention that he or she shall
indemnify himself or herself at the expense of
c. Excise Tax – a charge imposed upon the another, falling finally upon the ultimate purchaser
performance of an act, the enjoyment of privilege or or consumer. This can be shifted to another.
the engagement in an occupation.

5. As to purpose (2) (GS)

2. As to graduation (3) (PRP)
a. General or fiscal – imposed for the purpose of
a. Progressive – tax rate or tax amount increases raising public funds for the service of the
as the income or earning amount to be taxed government.
increases. (↑rate = ↑income)

b. Special, regulatory or sumptuary – imposed

b. Regressive – tax rate decreases as the amount primarily for the regulation of useful or non-useful
income to be taxed increases. (↓rate = ↑income) occupation or enterprises and secondarily only for
the purpose of raising public funds.

c. Proportionate – tax rate based on a fixed

percentage of the amount of the property receipts 6. As to scope or authority to impose (2) (NL)
or other basis to be taxed. (rate: amount)
a. National tax – imposed by the national
government
3. As to tax rates (3) (SAM)
a. Specific Tax – tax computation or tax rates b. Local tax – imposed by the municipal
already provided by law. corporations or local government units.

b. Ad valorem – tax upon the value of the article or l. Situs of Taxation

thing subject to taxation.
- CIR v. Marubeni: Place of taxation or place or
authority that has the right to impose and collect
taxes.
12
m. Construction and Interpretation of
i. Tax Laws
- Tax laws should be interpreted liberally in favor of
the taxpayer and strictly against the Government,
except in the matter of tax exemptions, in which
case the rule is reversed. (CIR v. Suyoc)

13
- Tax laws are civil and not penal in nature, provisions of the enabling statute if such rule or
although there are penalties provided for their regulation is to be valid. In case of conflict between
violation. a statute and an administrative order, the former
must prevail. To be valid, an administrative rule or
- The purpose of tax laws in imposing penalties for
regulation must conform, not contradict, the
delinquencies is to compel the timely payment of
provisions of the enabling law. An implementing
taxes or to punish evasion or neglect of duty in
rule or regulation cannot modify, expand, or
respect thereof.
subtract from the law it is intended to implement.
Any rule that is not consistent with the statute itself
is null and void (Fort Bonifacio Development
ii. Tax Exemption and Exclusion Corporation v. CIR, G.R. No. 175707, November
- Tax exemptions must be construed strictly against 19, 2014).
the taxpayer and liberally in favor of the taxing Revenue Memorandum Circulars (RMCs) must not
authority; and he who claims an exemption must be override, supplant, or modify the law, but must
able to justify his claim by the clearest grant of remain consistent and in harmony with the law they
organic or statute law. An exemption from the seek to apply and implement (CIR v. SM Prime
common burden cannot be permitted to exist upon Holdings, Inc., 613 SCRA 774, 2010).
vague implications. (CIR v. General Foods)
Admittedly the government is not estopped from
- PLDT v. City of Davao: Exemption is an immunity collecting taxes legally due because of mistakes or
or privilege; it is freedom from a charge or burden errors of its agents. But like other principles of law,
to which others are subjected. this admits of exceptions in the interest of justice
- Lecture: It is not a right. and fair play, as where injustice will result to the
taxpayer (CIR v. CA, G.R. No. 117982, February 6,
- Burden of proof is on party claiming the same. 1997).
- Exception of the Exception: The exemption may
thus be withdrawn at the pleasure of the taxing
authority. iv. Penal provisions of tax laws

- Exception of the Exception of the Exception: The - In criminal cases, statutes of limitations are acts of
exemption was granted to private parties based on grace, a surrendering by the sovereign of its right to
material consideration of a mutual nature, which prosecute. They receive strict construction in favor
then becomes contractual and is thus covered by of the Government and limitations in such cases
the non-impairment clause of the Constitution. will not be presumed in the absence of clear
(Mactan Cebu International Airport Authority v. legislation (Lim v. CA, G.R. No. 48134-37, October
Marcos) 18, 1990).

- Taxation is legislative in nature, it is only

Congress which can grant tax exemption under the v. Nonretroactive application to taxpayers
Constitution.
- Section 246, Tax Code
SEC. 246. Non- Retroactivity of Rulings. - Any revocation,
iii. Tax Rules and Regulations (QUAMTO, 2017) modification or reversal of any of the rules and regulations
promulgated in accordance with the preceding Sections or any
The construction placed by the office charged with of the rulings or circulars promulgated by the Commissioner
implementing and enforcing the provisions of a shall not be given retroactive application if the revocation,
modification or reversal will be prejudicial to the taxpayers,
Code should be given controlling weight unless
except in the following cases:
such interpretation is clearly erroneous.
(a) Where the taxpayer deliberately misstates or omits material
It is of course axiomatic that a rule or regulation facts from his return or any document required of him by the
must bear upon, and be consistent with, the Bureau of Internal Revenue;

14
(b) Where the facts subsequently gathered by the Bureau of iii. Double taxation
Internal Revenue are materially different from the facts on
which the ruling is based; or - CIR v. Bank of Commerce: Double taxation
(c) Where the taxpayer acted in bad faith. means taxing the same property twice when it
should be taxed only once; that is, “taxing the same
person twice by the same jurisdiction for the same
thing.” It is obnoxious when it should be but once.
n. Sources of Tax Laws (from PDF)
Otherwise described as “direct duplicate taxation,”
1. 1987 Constitution
the two taxes must be imposed on the same
2. Laws subject matter, for the same purpose, by the same
taxing authority, within the same jurisdiction, during
3. Treaties the same taxing period and the taxes must be of
4. Administrative Material the same kind or character.

5. Case Law - Villanueva v. City of Iloilo: There is no

constitutional prohibition against double taxation in
6. Treatises the Philippines. It is something not favored, but is
7. Periodicals permissible, provided some other constitutional
requirement is not thereby violated, such as the
8. Local Government Tax Law requirement that taxes must be uniform.

o. Doctrines in Taxation iv. Power to Tax involves Power to Destroy

i. Prospectivity of Tax Laws - Roxas v. CTA: The power of taxation is
sometimes called the power to destroy. Therefore,
- As a rule, laws have no retroactive effect, unless
it should be exercised with caution to minimize
the contrary is provided. (Article 4, New Civil Code)
injury to the proprietary rights of the taxpayer. It
- Lecture: Tax laws are generally prospective must be exercised fairly, equally, and uniformly…
unless the same is favorable to the taxpayer and is
curative/remedial in nature. Otherwise, substantive
due process is violated. (in re Sec. 246 of NIRC) v. Escape from Taxation
1. Shifting of tax burden
ii. Imprescriptibility of Taxes - A direct tax is a tax where the impact and
incidence of taxation fall to one and the same
- Taxes are imprescriptible except when provided
person because the burden of payment cannot be
otherwise by the tax law itself. Different tax laws
shifted to another.
such as the NIRC, the Tariff and Customs Code,
and the Local Government Code provided for the Example: income tax, estate tax, and donor’s tax.
different rules with respect to prescription of
assessment and collection of taxes. - An indirect tax is a tax where impact of taxation is
on one person but the incidence of taxation is on
- The prescriptive period of assessment and another person because the burden to pay the tax
collection of taxes are laid down in Sections 203 is shifted to him.
and 222 of the NIRC.
Example: VAT and excise tax
- Lecture on purpose of prescriptive period:
Expedite collection and speed up process as well
as efficient and effective BIR collection. 2. Tax avoidance

15
- Tax-saving device within the means sanctioned by (1) That each one of the obligors be bound principally, and that
law. 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. Tax evasion
(3) That the two debts be due;
- A scheme outside of those lawful means and
when availed of, it usually subjects the taxpayer to (4) That they be liquidated and demandable;
further or additional civil or criminal liabilities. (5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated
in due time to the debtor. (1196)

Elements (3) (ESU)

a. Ends to be achieved - Philex Mining Corp. v. CIR:
b. State of mind is in bad faith Settled is the rule that taxes cannot be subject to
compensation for the simple reason that the
c. Unlawful cause of action or failure of action
government and the taxpayer are not creditors and
debtors of each other.
- CIR v. CA: There is no tax evasion if there is no There is a material distinction between a tax and a
fraud in filing of the tax return. debt. Debts are due to the Government in its
corporate capacity, while taxes are due to the
Government in its sovereign capacity.
vi. Exemption from Taxation – p.13

ix. Compromise and tax amnesty

vii. Doctrine of Equitable Recoupment
- A compromise is a contract whereby the parties,
- A case where a taxpayer has a claim for refund by making reciprocal concessions, avoid a litigation
but was not able to file a written claim due to the or put an end to one already commenced. (Article
lapse of the prescriptive period within which to 2028, New Civil Code)
make a refund is allowed.
- Compromise of tax cases is allowed considering
- Under this doctrine, the taxpayer is allowed to that it is not one of those prohibited to be
credit such refund to his existing tax liability. compromised under Article 2034 and 2035 of the
Recoupment is only allowed in common law New Civil Code.
countries, not in the Philippines. Article 2034. There may be a compromise upon the civil
liability arising from an offense; but such compromise shall not
extinguish the public action for the imposition of the legal
penalty. (1813)
viii. Compensation and set-off
Article 2035. No compromise upon the following questions
- Compensation is a civil law concept which takes shall be valid:
place when two persons, in their own right, are
(1) The civil status of persons;
creditors and debtors of each other. (Article 1278,
NCC) (2) The validity of a marriage or a legal separation;

(3) Any ground for legal separation;

(4) Future support;

- Compensation is a mode of extinguishing an
obligation. (5) The jurisdiction of courts;

Article 1279. In order that compensation may be proper, it is (6) Future legitime. (1814a)
necessary:
16
 Macapagal-Arroyo, 489 SCRA 160, G.R. No.
171409, May 3, 2006).
Under the Tax Code, the CIR is authorized to enter
into compromise of the civil and criminal aspect of In the case of a taxpayer’s suit, plaintiff is allowed
taxes. With respect to local taxes and real property to sue where there is a claim that public funds are
taxes, there is no specific provision in the Local illegally disbursed, or that public money is being
Government Code regarding compromise of these deflected to any improper purpose, or that there is
taxes. a wastage of public funds through the enforcement
of an invalid or unconstitutional law (Francisco, Jr.
v. Nagmamalasakit na mga Manananggol ng mga
x. Taxpayer’s suit Manggagawang Pilipino, Inc., 415 SCRA 44, G.R.
No. 160262, November 10, 2003).
1. Nature and concept
In a citizen’s suit, the interest of the petitioner
It is a case where the act complained of directly assailing the constitutionality of a statute must be
involves the illegal disbursement of public funds direct and personal. He must be able to show, not
collected through taxation. only that the law or any government act is invalid,
In the case of Abaya v. Ebdane (515 SCRA 720), but also that he sustained or is in imminent danger
the prevailing doctrine in the taxpayer’s suits is: of sustaining some direct injury as a result of its
enforcement, and not merely that he suffers
1. To allow the taxpayers to question contracts thereby in some indefinite way. It must appear that
entered into by the National Government or the person complaining has been or is about to be
government owned and controlled corporations denied some right or privilege to which he is
allegedly in contravention of law; lawfully entitled or that he is about to be subjected
to some burdens or penalties by reason of the
2. To allow the taxpayer to sue when there is a
statute or act complained of (Francisco, Jr. v.
claim that public funds are illegally disbursed or
Nagmamalasakit na mga Manananggol ng mga
public money is being deflected to any improper
Manggagawang Pilipino, Inc., 415 SCRA 44, G.R.
purpose, or that there is a wastage of public funds
No. 160262, November 10, 2003).
through the enforcement of an invalid or
unconstitutional law;
3. Significantly, a taxpayer need not be a party to 3. Requisites of a taxpayer’s suit challenging the
the contract to challenge its validity. constitutionality of tax measure or act of taxing
authority.
A taxpayer is allowed to sue where there is a claim
that public funds are illegally disbursed, or that a. Concept of locus standi
public money is being deflected to any improper
purpose, or that there is wastage of public funds The party suing as a taxpayer must prove that he
through the enforcement of an invalid or has sufficient interest in preventing the illegal
unconstitutional law (Land Bank of the Philippines expenditure of money raised by taxation. Thus,
v. Cacayuran, 696 SCRA 861, G.R. No. 191667, taxpayers have been allowed to sue where there is
April 17, 2013). a claim that public funds are illegally disbursed or
that public money is being deflected to any
improper purpose, or that public funds are wasted
through the enforcement of an invalid or
2. As distinguished from a citizen’s suit
unconstitutional law.
The plaintiff in a taxpayer’s suit is in a different
The taxpayer must establish that:
category from the plaintiff in a citizen’s suit. In the
former, the plaintiff is affected by the expenditure of 1. He has a personal and substantial interest in the
public funds, while in the latter, he is but the mere case; and
instrument of the public concern (David v.

17
2. He has sustained or will sustain direct injury as a NOTE: However, where the public interest requires
result of its enforcement or that he stands to be the resolution of the constitutional issues raised by
benefited or injured by the judgment in the case, or the taxpayer, the doctrine of “ripe for judicial
is entitled to the avails of the suit (Public Interest determination” is within the Court’s discretion to set
Center, Inc. v. Roxas, 513 SCRA 457, G.R. No. aside (ABAKADA Guro Partylist v. Purisima, G.R.
125509, January 31, 2007). No. 166715, August 14, 2008).
NOTE: Being a mere procedural technicality, the This doctrine is similar to that of exhaustion of
requirement of locus standi may be waived by the administrative remedies except that it applies to the
Court in the exercise of its discretion (David v. rule making and to administrative action which is
Macapagal-Arroyo, G.R. No. 171396, May 3, embodied neither in rules and regulations nor in
2006). adjudication or final order.
b. Doctrine of transcendental importance It is applicable when the Interest of the plaintiff is
subjected to or imminently threatened with
The following determines the importance of
substantial injury; if the statute is Self-executing;
transcendental importance:
when a party is immediately confronted with the
1. The character of the funds or other assets problem of complying or violating a statute and
involved in the case; there is a risk of Criminal penalties; or when plaintiff
is harmed by the Vagueness of the statute [VICS].
2. The presence of a clear case of disregard of a
constitutional or statutory prohibition by the public
respondent agency or instrumentality of the
LECTURE NOTES:
government;
3. The lack of any other party with a more direct
and specific interest in raising the questions being
raised (CREBA v. ERC, 624 SCRA 556, G.R. No.
174697, July 8, 2010).

In the exercise of its discretion, the Court may

brush aside these technicalities and take
cognizance of the petition considering the
(transcendental) importance to the public of the
case and in keeping with the duty to determine - TRAIN Law progressive but not VAT and Estate
whether the other branches of the government Tax
have kept themselves within the limits of the
- SIN Tax = Constitutional
Constitution (Coconut Oil Refiners Association, Inc.
v. Torres, 465 SCRA 47, G.R. No. 132527, July 29, - If direct benefit private, unconstitutional.
2005).
- Government entities not exempt from taxes. In
fact, the Government can tax itself.
c. Doctrine of ripeness of judicial determination - Tax oppressiveness is relative per TRAIN Law.
The constitutional question is ripe for adjudication - Situational: Pia Wurtzbach being tax exempt is
when the government’s act being challenged has a unconstitutional since the same is limited to existing
direct adverse effect on the individual challenging it. conditions only (i.e., only to Pia Wurtzbach). It is
Personal injury or benefit must be shown for judicial constitutional if it applies to all Ms. Universe
controversy to be ripe for judicial determination. winners and not just to Pia (i.e., applies equally to
the same class)

18
- A person may be imprisoned for non-payment of than EI
Reven
tax if due to tax evasion but not poll tax. ue =
(Small
Mediu
- Non-payment of tax moral turpitude for non- m
Entities
payment is inherently wrong. = 20
%) or
- Non-filing of tax return is likewise inherently wrong (Large
Entities
for moral turpitude. Rationale: Non-filing most likely = 25%)
no payment.
- Appropriation bill is a law for releasing for public - Retroactive even if oppressive as long as based
funds. on government error. Government never estopped.

- If there is no appropriation, there may be - Budget Preparation (BP) – President

reappropriation. However, this is dangerous to
- Budget Legislation (BL) – Enactment of the
economy. For example, if 2019 funds
General Appropriation Act
reappropriated in 2020, then there will be no
pandemic funds. - Budget Execution (BE) – President will execute
through DBM
- Uniformity/Equity pertains to taxpayer’s ability to
pay. (VAT = Senior’s discount = Age) - Budget Appropriation (BA)
- Taxability of real properties depend on purpose of
the same.
- Section 28 (3), Article 6, 1987 Constitution
Educati Real Income Value Donor’s
onal Property Tax Added Tax
Institutio Tax (Land (Incom Tax (Donation Lecture
ns (EI) Buildings e, (Reven to EI)
Improvem
ent) (Art.
Reven
ues,
ues)
(NIRC)
(NIRC) Situational:
6, Sec. Gains)
28, par. (Art. In the application of compensation of DPWH’s debt
3) 14,
Sec. 4, to BDO, the compensation may not be applied even
par. 3)
(NIRC)
if there is a debtor-creditor relationship between the
Non- Actually, ADE EI Donee – two.
stock directly, for EI = Revenu NSNPEI
Non- and Tax e and not
profit exclusivel Exempt (Tuition more than The rationale here is what if the P10 billion debt is
Educati
onal
y (ADE)
for EI =
Fee) =
Tax
30% for
administr
essential for the Philippines to survive?
Not
Institutio Tax Exempt ative
ADE
n Exempt
for EI =
purposes However, the effect will be the same since the
(NSNP = Tax
EI) Taxabl Other Exempt payment of debt shall undergo several stages (i.e.,
Not ADE e Revenu
(Baste)
for EI = (10%) e = from the BP the same will undergo BL before being
Taxable Taxable Not
NSNPEI transferred for BE until it reaches BA). Only after
and More
than 30%
the said process is complete may payment be
= Taxable made to the BDO
Profitabl ADE for EI EI Taxable
e EI = Tax Reven Revenu
Educati Exempt ue e - The Constitution should have flexibility regarding
onal
Institutio
more
than
(Tuition
Fee) =
this matter.
n (UE) Not ADE other Tax
for EI = revenu Exempt
Taxable e =
Taxabl
e Other
Revenu
(10%)
e =
Taxable
Other
revenu
e is
more

19