TAX LAW AND JURISPRUDENCE  It is inherent in the power to tax that a state be free to

Vitug and Acosta select the subject of taxation, and it has been repeatedly
held that “inequities” which result from a singling out of
PART I – GENERAL PRINCIPLES one particular class for taxation or exemption infringes no
constitutional limitation.
A. Concept, Underlying Basis, and Purpose  Taxation has been made the implement of the state’s
police power.
Taxation - mode by which governments make exactions for
revenue in order to support their existence and carry 2.) Taxation is inherently legislative
out their legitimate objectives.
- may refer to either or both the power to tax or the  It is also legislative in character and a legislative
act or process by which the taxing power is exercised prerogative. (NAPOCOR vs Albay)
 These powers are not inherent in, but merely delegated by
Governmental necessity – theory or underlying basis of taxation constitutional mandate or by law to, local governments.

Commissioner vs. Pineda (21 SCRA 105) Legislative taxing power includes authority:
“Taxes are the lifeblood of the Government and their prompt and  To determine the:
certain availability are an imperious need.”  Nature (kind)
 Object (purpose
Vera vs Fernandez (89 SCRA 199)
 Extent (amount or rate)
“Upon taxation depends the Government’s ability to serve the
 Coverage (subjects and objects)
people whose benefit taxes are collected.”
 Situs (place) of tax imposition
Commissioner vs. Algue, Inc. (158 SCRA 9)  To grant tax exemptions or condonations
“Taxation is the indispensable and inevitable price for civilized  To specify or provide for the administrative, as well as
society; without taxes, the government would be paralyzed.” judicial remedies that either the government or the
taxpayers may avail themselves of in the proper
Mun. of Makati vs CA (190 SCRA 206) implementation of the tax measure.
“Revenues derived from taxes are intended primarily to finance the
government and its activities and are thus exempt from execution.” Exemptions in tax delegation:
 To local governments (to be exercised by the local
B. Principles of a Sound Tax System legislative bodies thereof) or political subdivisions
 When allowed by the Constitution; or
1. Fiscal Adequacy  When the delegation relates merely to administrative
implementation that may call for some degree of
The sources (proceeds) of tax revenue should coincide with discretionary powers under a set of sufficient
and approximate the needs of government expenditures. standards expressed by law

2. Theoretical Justice Taxation may exceptionally be delegated under the following

well-settled limitations:
The tax system should be fair to the average taxpayer and  The delegation shall not contravene any constitutional
based upon his ability to pay. provision or the inherent limitations of taxation;
 The delegation is effected either by the Constitution or
3. Administrative Feasibility by validly enacted legislative measures or statue; and
 The delegated levy power, except when the delegation
The tax system should be capable of being properly and is by an express provision of the Constitution itself,
efficiently administered by the government and enforced with should only be in favor of the local legislative body of
the least inconvenience to the taxpayer. the local or municipal government concerned.

 The non-observance of these canons will not render the The power of taxation may be delegated to local governments
tax impositions by the taxing authority invalid. in respect of matters of local concern.
o XPN: when the specific constitutional limitations
are impaired In delegating authority, the State is not limited to the exact
measure of the power which is exercised by itself. When it is
C. Scope and Limitation of Taxation said that the taxing power may be delegated to municipalities
and the like, it is meant that there may be delegated such
“reaches to every trade or occupation, to every object of industry, measure of power to impose and collect taxes as the
use or enjoyment, to every species of possession; and it imposes a legislature may deem expedient. Thus, municipalities may be
den which, in case of failure to discharge, may be followed seizure permitted to tax subjects, which for reasons of public policy the
or confiscation of property. No attribute of sovereignty is more State has not deemed wise to tax for general proposes (Pepsi
pervading and at no point does the power of the government affect Cola vs. Mun. of Tanauan 69 SCRA 460).
more constantly and intimately all the relations of life than through
the exactions made under it.” The assessment and collection of taxes duly levied are
- As Cooley has described the wide spectrum of the power executive or administrative functions, and these aspects of
to tax taxation are not covered by the non-delegation rule.

SCOPE OF TAXATION 3.) Taxation is territorial.

TAXATION IS:
 Unlimited,  Taxation may be exercised only within the territorial
 Far-reaching, jurisdiction of the taxing authority (determination of “place
 Plenary of taxation” or tax situs).
 Comprehensive
 Supreme  Poll Taxes – residence of the taxpayer
 Property Taxes – where the property is situated
INHERENT LIMITATIONS  Excise Taxes
1.) Taxation must be for a Public purpose o Where the privilege is exercised
 The proceeds of the tax must be used: o Where the taxpayer is a national
o for the support of the State or o Where he has residence
o some recognized objects of government or
directly to promote the welfare of the community. 4.) Taxation is subject to international comity.
 The public purpose of a tax may legally exist even if the
motive which impelled the legislature to impose the tax  The Philippine Constitution, indeed, has expressly
was to favor one industry over another. adopted the generally accepted principles of international
law as part of the law of the land.
  Principle of sovereign equality among states without regard to their property, business or
 Principle of their freedom from suit without their occupation.
consent, that limit the authority of a government  Taxpayer may be imprisoned for non-payment of other
to effectively impose taxes on a sovereign state kinds of taxes where the law so expressly provides.
and its instrumentalities, as well as on its  An imposition of a fine (but no subsidiary imprisonment) or
property held, and activities undertaken, in that even imprisonment for any violation other than non-
capacity. payment would not be unconstitutional.

The constitutional injunction against deprivation of property 6) Congress shall evolve a progressive system of taxation
without due process of law may not be passed over under (Art VI, Sec 28, par 1)
guise of the taxing powers, except when the taking of the  As resources of the taxpayer becomes higher, his tax rate
property is in the lawful exercise of the taxing power, as likewise increases (ex. Income tax)
when:  Constitution does not prohibit regressive taxes; this is a
 The tax is for public purpose directive upon Congress, not a justiciable right.
 The rule on uniformity of taxation is observed
 Either the person or property taxed is within the jurisdiction 7) All appropriation, revenue or tariff bills shall originate exclusively
of the government levying the tax in the House of Representatives, but the Senate may propose or
 In the assessment and collection of certain kinds of taxes, concur with amendments
notice and opportunity for hearing are provided • It is the bill, not the law that must originate from House; bill
Therefore, the due process clause can be said to be the may undergo extensive changes in Senate
constitutional basis for these inherent limitations. • Rationale: members of House are more sensitive to local
needs.

CONSTITUTIONAL LIMITATIONS 8) Charitable institutions, churches, and parsonages or convents

A. Direct appurtenant thereto, mosques and non-profit cemeteries and all
1) Due process lands, buildings and improvements ACTUALLY, DIRECTLY and
• Should not be harsh, oppressive, or confiscatory EXCLUSIVELY USED for charitable, religious and educational
(Substantive) purposes shall be exempt from taxation
• By authority of valid law (Substantive) (Art VI, Sec 28, par 3)
• Must be for a public purpose (Substantive) • Pertains only to real estate tax.
• Imposed within territorial jurisdiction (Substantive) • Test of exemption: actual use of the property, not
• No arbitrariness in assessment and collection (Procedural) ownership
• Right to notice and hearing (Procedural) • Use of word “exclusively” means “primarily” rather than
“solely.”
2) Equal protection • Exemption extends to property incidental to or reasonably
• All persons subject to legislation shall be treated alike, necessary for the accomplishment of the purposes
under like circumstances and conditions both in privileges mentioned.
conferred and liabilities imposed.
• Power to tax includes power to classify provided: 9) Tax exemption of all revenues and assets of
a. Based on substantial distinction a. non-stock, non-profit educational institutions
b. Apply to present and future conditions b. used ACTUALLY, DIRECTLY AND EXCLUSIVELY for
c. Germane to purpose of law educational purposes
d. Apply equally to all members of the same class • Exemption covers income, property, donor’s tax, and
customs duties (distinguish from previous which pertains
3) Non-impairment clause only to property tax)
Rules • Revenue must both be
(a) When government is party to contract granting exemption a) derived from an activity in pursuance of educational
 cannot be withdrawn without violating non-impairment purpose; and
clause b) proceeds must be used for the same purpose (ex. hospital
(b) When exemption generally granted by law adjunct to medical school tax exempt)
 withdrawal does not violate (ex. Interest income not exempt).
(c) When exemption granted under a franchise • Income exempt provided it is used for maintenance or
 may be revoked because the constitution provides that improvement of institution.
franchise is subject to amendment, alteration, or repeal by • Distinguish from tax treatment of
Congress. (a) proprietary educational institutions (Preferential Tax);
and
4) Must be uniform and equitable (b) government educational institutions (exempt, ex. UP)
(Art VI, Sec 28, par 1)
 Uniform - all articles or properties of the same class taxed 10) Delegated authority of President to impose tariff rates, import
at same rate and export quotas, tonnage and wharfage dues
 Tax operates with the same force and effect in • delegated by Congress
every place where the subject may be found • through a law
• subject to Congressional limits and restrictions
Classification is permitted: • within the framework of national development program
1) If the standards used therefor are not arbitrary but
reasonable and substantial 11) Law granting tax exemption (includes amnesties, condonations
2) If the classification is germane to achieve the purpose and refunds) shall be passed with concurrence of Congress -
of the legislation majority of all members voting separately
3) If that classification applies to both present and future  Relative majority (majority of quorum) is sufficient to
conditions, other circumstances being equal withdraw exemption.
4) If the classification applies equally to all those
belonging to the same class 12) No use of public money or property for religious purposes
except if priest is assigned to armed forces, penal institutions,
 Equity - apportionment must be more or less just in the government orphanage or leprosarium
light of taxpayer’s ability to shoulder tax burden
 Means fair, just, reasonable and proportionate to 13) Special purpose - special fund for said purpose, balance goes
one’s ability to pay. to general funds

5) Non-imprisonment for non-payment of poll tax 14) Veto power of the President - revenue/tariff bill
(Art. VI Sec 27, second par)
No person shall be imprisoned for non-payment of a poll tax (Art
II, Sec 20)
15) Power of review, revise, reverse, modify or affirm on appeal or
 Poll Tax/Community Tax – one levied on persons who
certiorari of the SC – Rules of Court
are residents within the territory of the taxing authority
(Art VIII, Sec 5, par 2)
 (a) imposed upon performance of an act, the enjoyment of a
16) Power of Local Government to create their own sources and privilege or the engaging in an occupation, profession or
levy taxes, fees, charges business
(Art X, Sec 6) Ex. Income tax, VAT, estate tax, donor’s tax

17) Just share of local government in national revenue which shall B. As to who bears the burden
be automatically released. 1) Direct – the tax is imposed on the person who also bears the
burden thereof
18) Tax exemption of all revenues and assets of Ex. Income tax, community tax, estate tax, donor’s tax
(a) proprietary or cooperative educational institutions
(b) subject to limitations provided by law 2) Indirect – imposed on the taxpayer who shifts the burden of the
(Art XIV, Sec 4(3)) tax to another
- levied upon transactions or activities before the articles subject
19) Tax exemption of grants, endowments, donations or matter thereof reach the consumers to whom the burden of the tax
contributions USED ACTUALLY, DIRECTLY and EXCLUSIVELY may ultimately be charged or shifted
for educational purposes Ex. VAT, specific tax, percentage tax, customs duties

B. Indirect C. As to determination of amount

1) Specific – tax imposed and based on a physical unit of
Freedom of religion measurement, as by head, number, weight, length or volume
• Activities simply and purely for propagation of faith are Ex. Tax on distilled spirits, fermented liquors, cigars
exempt (e.g. sale of bibles and religious articles by non-
stock, non-profit organization at minimal profit). 2) Ad Valorem - tax of a fixed proportion of the value of property
• Tax is unconstitutional if it operates as a prior restraint on with respect to which the tax is assessed; requires intervention of
exercise of religion assessor.
• Income even of religious organizations from any activity Ex. Real estate tax, excise tax on cars, nonessential
conducted for profit or from any of their property, real or Goods
personal, regardless of disposition of such income, is
taxable D. As to purpose
1) General, fiscal or revenue - imposed for the general purpose of
Freedom of press/expression supporting the government
• Tax that operates as a prior restraint invalid. Ex. Income tax, percentage tax
• If fee is only for purpose of defraying cost of registration
and not for exercise of privilege, no violation. 2) Special or regulatory - imposed for a special purpose, to
Mandatory Character of Constitutional Provision achieve some social or economic objectives
 The established rule is that constitutional provisions are to be Ex. Protective tariffs or customs duties on imported goods intended
considered as mandatory unless by express provision or by to protect local industries
necessary implication.
 A directory provision is generally intended merely for E. As to authority imposing the tax
expediency or convenience such that to have it enforced 1) National - imposed by the national government
strictly may cause more harm than by disregarding it. Ex. National internal revenue taxes, custom duties
 In case of statutory enactments, those dealing on the aspects
of levy and compliance are generally treated as mandatory 2) Municipal or local - imposed by the municipal corporations or
and those that are intended merely for administrative local governments
feasibility as directory. Ex. Real estate tax, occupation tax

Aspects of Taxation F. As to graduation of rate (Three systems of taxation)

(Phases, Processes, Stages/Steps in Taxation)
 Levy – act of imposition by the legislature such as by its 1) Proportional - based on a fixed percentage of the amount of the
enactment of the law. property, income or other basis to be taxed
- include not only the mandate on when and how the Ex. Real estate tax, VAT, percentage tax
tax is imposed but also, whenever it may be
appropriate, the grant of tax exemptions, tax 2) Progressive or graduated - tax rate increases as the tax base
amnesties or tax condonations. or bracket increases
Ex. Income tax, estate tax, donor’s tax
 Assessment and Collection – act of administration and
implementation of the tax law by the executive through its 3) Regressive - tax rate decreases as the tax base increases
administrative agencies.
- means notice and demand for payment of a tax 4) Degressive - increase of rate is not proportionate to the
liability increase of tax base

 Payment – act of compliance by the taxpayer including 5) Mixed - partly progressive and partly regressive
such options, schemes or remedies as may be legally
open or available to him. • SITUS OF TAXATION - the place of taxation, the country that has
the power to levy and collect the tax.
Classification of Taxes
A. As to subject matter of object Distinction from Certain Kinds of Exactions

1) personal, poll, capitation tax TAX DISTINGUISHED FROM POLICE POWER

(a) fixed amount
(b) individuals residing within specified territory TAX POLICE POWER
(c) without regard to their property, occupation or business (in the form of a FEE)
Ex. Community Tax (Cedula) Purpose Raise revenue Exercise to promote public
welfare through regulation
2) property tax Amount of No limit Limited to the cost of
(a) imposed on property, real or personal exaction regulation, issuance of
(b) in proportion to its value or other reasonable method of license, or surveillance
apportionment Superiority Contracts may Contracts may be
Ex. Real estate tax of contracts be impaired unless impaired
(a) government is
3) excise, privilege tax party to contract
granting exemption;
or (b) involves
franchise
Transfer of Taxes paid Allows merely the  there must have already been an act of appropriation by
Property form part of the restraint on the the government (legislative) of funds for payment of the
rights public funds exercise of property debt.
rights
2) Tax overpayment (BIR’s obligation to refund or set-off arises
TAX DISTINGUISHED FROM EMINENT DOMAIN from time tax was paid)

TAX EMINENT DOMAIN 3) If the case involves local government taxes

Purpose Raise revenue The taking of
property for public TAX DISTINGUISHED FROM SPECIAL ASSESSMENT
use
Compensation Payment of taxes Just compensation is given TAX SPECIAL ASSIGNMENT
accrue the owner Imposed on persons, Only on land
to the general of the expropriated properties, etc.
benefit of the property Why regardless of public Public improvement
citizens of the imposed improvement that benefits the land
taxing State Purpose Support of Contribution to cost
Persons Applies to all Only particular government of public
affected persons, property property is improvement
and comprehended When Regular exaction Exceptional as to
excises that imposed time and locality
may be
subject Basis Necessity Benefits obtained
thereto
TAX DISTINGUISHED FROM TOLL

TAX DISTINGUISHED FROM LICENSE FEE TAX TOLL

Kind of Demand of Demand of
TAX LICENSE FEE demand sovereignty ownership
Purpose support of Collection for the
Source Exercise of Emanate from the police
Taxing power power of the State government use of property
Purpose Raise revenue Regulation
Amount no limit – depends Fair return of the
on need of the cost of the property
Object Persons, Right to exercise a
government or improvement
property and privilege
privilege
TAX DISTINGUISHED FROM CUSTOMS DUTY
Amount no limit only necessary to carry out
regulation
TAX CUSTOMS DUTY
Coverage More Kind of tax
• Distinction lies in the primary purpose:
• License fee if primary purpose is to regulate and the excess of comprehensive
the amount collected from the cost to carry out the regulation is than customs duty
minimal and incidental. Object Persons, Goods imported
• Tax if primary purpose, or at least one of the real and substantial property and or exported
purposes is to raise revenue. etc.
• If amount is too high for regulation, it would be a tax; unless
imposed on non-useful occupations or businesses.
• Purpose of distinction: limitations and exemptions apply only to
one and not to the other (ex. Exemption from taxation does not
include exemption from fee)

TAX DISTINGUISHED FROM DEBT INTERPRETATION AND CONSTRUCTION

OF TAX STATUTES
TAX DEBT  Where the doubt exists in determining the legislative intent, the
Source Law; legal Based on contract doubt must be resolved liberally in favor of taxpayers and
obligation strictly against the taxing authority.
Personal Assignable  The government is never estopped from collecting taxes
Generally not May be the subject because of mistakes or errors on the part of its agents.
subject to of compensation/setoff  The tax burdens are not to be imposed nor presumed to be
compensation/setoff imposed beyond what the statute expressly and clearly
Imprisonment is No imprisonment imports, tax statutes being construed strictissimi juris against
sanction for for non-payment the government.
nonpayment  The exemptions (or equivalent provisions such as tax
amnesties and tax condonations) are not presumed and when
GENERAL RULE: Taxes cannot be the subject of compensation granted, are strictly construed against the grantee.
or set-off
Classification of Tax Exemptions
* A person cannot refuse to pay a tax on the ground that the 1. Express
government owes him an amount equal to or greater than the tax - by exemption provisions in the Constitution, statutes,
being collected. The collection of tax cannot await the results of a treaties, franchises or similar legislative acts
lawsuit against the government. Examples of statutory exemptions are:
(a) Sec. 30, National Internal Revenue Code
Reasons: (b) Sec. 105, Tariff and Customs Code
(c) Special laws
 lifeblood theory
 taxes are not contractual obligation (absence of consent of
2. Implied or by Omission
taxpayer)
- There is no tax by silence but, where the law levies a tax,
 taxpayer and government are not mutual debtors and so also must the tax exemption be explicit in the law.
creditors of each other - There is no tax exemption solely on the ground of equity,
but equity can be used as a basis for a statutory
exemption; thus, at times the law authorizes the
condonation of taxes on equitable considerations.
EXCEPTIONS:
3. Contractual
1) Both claims already became overdue and demandable as well
as fully liquidated
 - These are those agreed to by the taxing authority in • taxing same person, property or right twice
contracts lawfully entered into by them under enabling • for the same purpose
laws. • by the same taxing authority
- May not be revoked without impairing the obligations of • within the same jurisdiction or taxing district
contracts • within the same taxable period
• and they must be of the same kind or character of tax
Tax exemptions are construed liberally in favor of the
grantee in the following cases: B. INDIRECT DUPLICATE
 When the law so provides for such liberal construction • Exists if any of the elements for Direct taxation is not present
 Exemptions from certain taxes granted under special • No constitutional prohibition on double taxation. However,
circumstances to special classes of persons where there is direct duplicate taxation then there may be
 Exemptions in favor of the government, its political violation of the constitutional precepts of equal protection
subdivisions or instrumentalities and uniformity in taxation.
 Exemptions to traditional exemptees, such as those in
favor of religious and charitable institutions Measures to avoid double taxation:
Tax statutes offering rewards are liberally construed in (a) Treaty provisions against double taxation
favor of awardees. (b) Reciprocity provisions
(c) Tax credit provisions

NATURE OF TAX AMNESTY TAX TREATY AS A MODE OF ELIMINATING DOUBLE

1) general or intentional overlooking by the State of its authority TAXATION:
to impose penalties on persons otherwise guilty of evasion 1) EXEMPTION METHOD – the income or capital which is taxable
or violation of a revenue or tax law in the state of source or situs is exempted in the state of residence,
2) partakes of an absolute forgiveness or waiver of the although in some instances it may taken into account in
Government of its right to collect determining the rate of tax applicable to the tax payer’s remaining
3) to give tax evaders, who wish to relent & are willing to reform income or capital (ex. Tax Sparing Credit scheme)
a chance to do so
2) CREDIT METHOD – the tax paid in the state of source is
RULES ON TAX AMNESTY credited against the tax levied in the state of residence
1) Tax amnesty
(a) like tax exemption, never favored nor presumed POWER TO TAX INVOLVES THE POWER TO DESTROY
(b) construed strictly against the taxpayer (must show  The doctrine seeks to describe the consequential nature of
complete compliance with the law) taxation and its resulting implications to wit:
(a) The power to tax must be exercised with caution to
2) Government not estopped from questioning the tax liability even minimize injury to the proprietary rights of a taxpayer
if amnesty tax payments were already received (b) If the tax is lawful and not violative of any of the inherent
Reason: Erroneous application and enforcement of the law by and constitutional limitations, the fact alone that it may
public officers do not block subsequent correct application of the destroy an activity or object of taxation will not entirely
statute. The government is never estopped by mistakes or errors of permit the courts to afford any relief
its agents. (c) A subject or object that may not be destroyed by the
Basis: Lifeblood Theory taxing authority may not not likewise be taxed
Thus, a tax may not be imposed on the exercise of a fundamental
3) Defense of Tax amnesty, like insanity, is a personal defense. right since to otherwise permit it would amount to destroying that
Reason: Relates to the circumstances of a particular accused and fundamental right.
not the character of the acts charged in the information
ESCAPE FROM TAXATION
Tax Avoidance (Tax Minimization) – tax saving device that is
CERTAIN DOCTRINES IN TAXATION legally permissible

PROSPECTIVITY OF TAX LAWS Tax Evasion (Tax Dodging) – connotes fraud through the use of
 Taxes may be imposed retroactively by law but, unless so pretenses and forbidden devices to lessen or defeat taxes; must be
expressed by such law, these taxes must only be imposed willful and intentional.
prospectively.
 Tax laws are neither political nor penal in nature and they SET-OFF OF TAXES
are deemed laws of the occupied territory rather than of  Taxes are not subject to set-off or legal compensation.
the occupying enemy, hence, the “ex post facto” rule, Reasons:
except for the penalty imposed (not the interest), would be 1) Taxes are of a distinct kind, essence and nature and these
inapplicable. impositions cannot be so classed in merely the same
 A harsh retroactivity of the law, however, may make it category as ordinary obligations
inequitable and violative of the Constitution; similarly, due 2) The applicable laws and principles governing each are
process is violated if the tax is oppressive. peculiar, not necessarily common to each
3) Public policy is better subserved if the integrity and
IMPRESCRIPTIBILITY OF TAXES independence of taxes be maintained
 For the purpose of safeguarding taxpayers from any
unreasonable examination, investigation or assessment, TAXPAYER SUIT
our tax law provides a statute of limitations in the  It is only when an act complained of, which may include a
collection of taxes. legislative enactment, directly involves the illegal
 The law on prescription; being a remedial measure, should disbursement of public funds derived from taxation that the
be liberally construed in order to afford such protection. ‘taxpayer’s suit” may be allowed.
 As a corollary, the exception to the law on prescription
should perforce be strictly construed. COMPROMISES
 These are allowed and enforceable when the subject
DOCTRINE OF EQUITABLE RECOUPMENT matter thereof is not prohibited from being compromised
1) refund of a tax illegally or erroneously collected or overpaid and the person entering into it is duly authorized to do so.
by a taxpayer  No provisions exist under the Local Government Code,
2) such tax refund is barred by prescription while the tax (not criminal) liability is not prohibited from
3) tax presently being assessed against a taxpayer being compromised; there is no specific authority,
4) may be recouped or set-off against the tax barred by however, given to any public official to execute the
prescription not allowed in Philippines, reason - LIFE compromise so as to render it effective.
BLOOD

CONCEPT OF DOUBLE TAXATION

Kinds of Double Taxation
A. DIRECT DUPLICATE