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GENERAL PRINCIPLES

Definition means that it conforms with the

constitutional mandate for Congress to
Taxation is a mode of raising revenue for evolve a progressive tax system, taxes
public purposes. must be based on taxpayer's ability to
pay (Sec. 28 [1], Art. VI, 1987
Taxes, on the other hand, are enforced Constitution).
proportional contributions from persons
and property, levied by the state by virtue 3. It is a pecuniary burden payable in
of its sovereignty for the support of the money, but back pay certificates may be
government and for all its public needs used in payment of tax (Borja vs. Gella, 8
("Cooley's definition, " 1 Cooley 62). SCRA 602). The taxpayer is not allowed
to settle his tax liability by conveying his
Concepts of taxation property (real or personal) in view of
the problem of assigning value to such
1 Power to tax property (Ibid. p.8).

2. The act or process by which the taxing 4. It is imposed by the State on persons,
power is exercised (Vitug and Acosta, Tax property, or excises within its
Lazo and jurisprudence, 2006 ed., p.l). jurisdiction, in accordance with the
principle of territoriality (Ibid. p.8).
Nature of taxation
5. It is levied by the legislative body of the
Taxation is both an inherent power and a State. Taxes are obligation created by
legislative power. The power of taxation is law (Vera vs. Fernandez, 89 SCRA 199). It
an essential and inherent attribute of creates a civil liability on the part of the
sovereignty, belonging as a matter of right delinquent taxpayer, although the non
to every independent government without payment thereof creates a criminal
being expressly granted by the people (Pepsi liability which could be the subject of
- Cola Bottling Co. o f the Philippines, Inc. vs. criminal prosecution under existing
Municipality o f Tanauan, Leyte, G.R. No. L- laws. It is one's civil liability to pay
31156, 27 Feb. 1976). The power of taxation national internal revenue taxes that
is generally vested with the legislature gives rise to criminal liability, not the
(Secretary of Finance vs. Ilarde, 458 SCRA other way around. Criminal cases
218). cannot operate to discharge defendant-
appellee from the duty of paying the
Characteristics of taxation taxes which the law requires to be paid,
since that duty is imposed by the statute
1. It is a forced charge, imposition or prior to and independently of any
contribution. As such, it operates ad attempts by the taxpayer to evade
invitum; i.e., it is in no way dependent payment (Republic vs. Patanao, 20 SCRA
upon the will or contractual assent, 712).
express or implied, of the person taxed.
It is not contractual, either express or 6. It is levied for a public purpose (Ibid.
implied, but positive acts of government p.8).
(Reviewer on Taxation, Mamalateo, 2nd
Ed., 2008, pp. 7-8). 7. It is personal to the taxpayer. A
corporation's tax delinquency cannot be
2. It is assessed in accordance with some enforced against its stockholders. A
reasonable rule of apportionment which corporation is vested by law with a

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personality that is separate and distinct d. As to SUPERIORITY OF

from those of the persons composing it CONTRACTS
as well as that of any other legal entity
to which it may be related (Sunio vs. Taxation recognizes the obligations
National Labor Relations Commission, 127 imposed by contracts (Art. Ill, Sec.
SCRA 390). 10, Constitution). This limitation does
not apply to Police power (Ibid. p.
Power of taxation compared with other 29).
powers
e. As to TRANSFER OF PROPERTY
1. Taxation distinguished from Police RIGHTS
Power
In Taxation, the taxes paid form part
a. As to PURPOSE of the public funds, whereas police
power allows merely the restraint on
Taxation is levied for the purpose of the exercised of property rights (ibid,
raising revenues; Police power is p. 29).
exercised to promote public welfare
through regulation (Tax Principles 2. Taxation and the Power of Eminent
and Remedies, Dimaampao, 4lh ed., Domain
2011, p. 28).
a. As to PURPOSE
b. As to AMOUNT OF EXACTION
Taxation is exercised in order to
The amount gathered in the exercise raise public revenue; Eminent
of Taxation contemplates of no domain or expropriation is the
limits; in Police power, the exaction taking of property for public use
is limited to the cost of regulation, (Ibid. p. 29).
issuance of the license, or
surveillance (Ibid. p. 28). b. As to COMPENSATION

c. A s to the BENEFITS RECEIVED BY Payment of taxes accrues to the

THE TAXPAYER general benefit of the citizens of the
taxing state; in Eminent domain, just
In Taxation, no special or direct compensation is given the owner of
benefits is received by the taxpayer the expropriated property (Ibid. p.
other than the fact that the 29).
government secures to the citizen
that general benefit resulting from c. As to PERSONS AFFECTED
the protection of his person and
property and the welfare of all (51 Taxation applies to all persons,
am. Jur. 42-43). property and excises that may be
subject thereto; in Eminent domain,
Similarly, no direct benefits are only particular property is
received through the exercise of comprehended (Ibid. p. 29).
police power, yet a healthy
economic standard of society is
maintained (Ibid, p.28-29).

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Purpose of taxation of the State through the imposition
of taxes with the end in view of
1. Revenue-raising regulating a particular activity (Ibid,
p. 23).
The primary purpose of taxation is to
raise funds or property to enable the In the case of Lutz vs. Araneta (G.R.
state to promote the general welfare and No. L-7859, December 22, 1955), the
protection of its citizens (51 Am. Jur. 34). Supreme Court upheld the validity
of the Sugar Adjustment Act, which
2. Secondary or non-revenue purposes imposed a tax on milled sugar since
the purpose of the law was to
a. Reduction of Social Inequality strengthen an industry that is so
undeniably vital to the economic
Our present tax system has adopted sugar industry.
the progressive system of taxation,
i.e., the tax rate increases as the tax Principles of a sound tax system
base increases. This system aims at
reducing the inequality in the 1. Principle o f fisca l adequacy simply
distribution of wealth by preventing means that sources of revenues must be
its undue concentration in the hands adequate to meet government
of a few individuals (Tax Principles expenditures and their variations
and Remedies, Dimaampao, 4th ed. 2011, (Abakada Guro Party List vs. Ermita, 469
p. 22-23). SCRA 1).

b. Encourage the Growth of Local 2. Principle o f equality or theoretical

Industries justice means that the tax imposed must
be proportionate to taxpayer's ability to
It is a settled rule that the power to pay. This suggests that taxation must be
tax carries with it the power to grant progressive conformably with the
tax exemptions. Tax exemptions and constitutional mandate that Congress
tax reliefs serve as incentives to shall evolve a progressive system of
encourage investment in our local taxation [Sec. 28 (1), Art. VI, 1987
industry and thereby promote Constitution].
economic growth (Ibid. p. 23).
3. Principle o f administrative feasibility
c. Protect our Local Industry Against requires that the tax law must be
Unfair Competition capable of convenient, just and effective
administration. Taxes should be capable
The Tariff and Customs Code allows of being effectively enforced. Hence, it
the imposition of certain taxes must not lay down obstacles to business
(countervailing and dumping growth and economic development
duties) upon imported goods or (Aban, Law of Basic Taxation In The
articles to further protect our local Philippines, p. 13).
industry. R.A. 8752 (Anti-Dumping
Act) imposes stricter conditions Theory and basis of taxation
(Ibid. p. 23).
1. The power to tax is an attribute of
d. As an Implement of Police Power of sovereignty emanating from necessity. It
the State (Regulatory Measure) is a necessary burden to preserve the
State's sovereignty and a means to give
The power of taxation may be used the citizenry an army to resist an
as an implement of the police power aggression, a navy to defend its shores

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from invasion, a corps of civil servants notion that it is an arbitrary method of

to serve, public improvements designed exaction by those in the seat of power
for the enjoyment of the citizenry and (Commissioner vs. Algue, 158 SCRA 9).
those which come within the State's
territory, and facilities and protection Doctrines in taxation
which a government is supposed to
provide (Phil. Guaranty Co. Inc. vs. Prospectivity of tax laws
Commissioner o f Internal Revenue, G.R.
No. L-22074, 30 April 1965). The general rule under the Civil Code that
laws shall have prospective application
2. Taxation is described as a symbiotic applies to tax laws. Retroactive application
relationship whereby in exchange of the of revenue laws may be allowed if it will
benefits and protection that the citizens not amount to denial of due process. There
get from the government, taxes are paid is violation of due process when the tax law
(see CIR vs. Algue, Inc., G.R. No. L-28896, imposes harsh and oppressive tax (Tax
17 Feb 1988). Principles and Remedies, Dimaampao, 4th Ed.,
2011, p. 146).
Lifeblood theory
Imprescriptibility
Taxes are the nation's lifeblood through
which government agencies continue to 1. As a rule, taxes are imprescriptible as
operate and with which the State discharges they are the lifeblood of the
its functions for the welfare of its government. However, tax statutes may
constituents (Visayas Geothermal Company v. provide for statute of limitations (Tax
CIR, G.R. No. 197525, June 4, 2014). Principles and Remedies, Dimaampao, 4th
Ed., 2011, p. 145). The rules that have
Necessity theory been adopted are as follows:

The existence of the government is a a. National Internal Revenue Code.

necessity. It has the right to compel ail The statute of limitations for
citizens and property within its limits to assessment of tax if a return is filed
pay taxes (51 Am. Jur., Taxation, Sec. 9 is within three (3) years from the
[1944J). last day prescribed by law for the
filing of the return or if filed after
Benefits-protection theory (symbiotic the last, within three years from date
relationship) of actual filing. If no return is filed
or the return filed is false or
Taxes are what we pay for a civilized fraudulent, the period to assess is
society. Without taxes, the government w ithin ten years from discovery of
would be paralyzed for lack of the motive the omission, fraud or falsity (Ibid.).
power to activate and operate it. Hence
despite the natural reluctance to surrender Any internal revenue tax which has
part of their hard-earned income to the been assessed within the period of
government, every person who is able to limitation as prescribed in
must contribute his share in the running of paragraph (a) of Sec. 222 may be
the government. The government, for its collected by distraint or levy or by a
part, is expected to respond in the form of proceeding in court within five (5)
tangible and intangible benefits intended to years following the assessment of
improve the lives of the people, and the tax (Ibid.).
enhance their moral and material values.
This symbiotic relationship is the rationale
of taxation and should dispel the erroneous

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b. Tariff and Customs Code. It does not
express any general statute of
2. Double taxation is not expressly
forbidden in our Constitution, but the
limitation; it provides, however, that Court has recognized it as obnoxious
"when articles have been entered "where the taxpayer is taxed twice for
and passed free of duty of final the benefit of the same governmental
adjustments of duties made, with entity or by the same jurisdiction for the
subsequent delivery, such entry and same purpose" (Abakada Guro Party List
passage free of duty or settlements vs. Ermita, G.R. No. 168056, September 1,
of duties will, after the expiration of 2005).
three (3) years from the date of the
final payment of duties, in the Kinds of double taxation
absence of fraud or protest or
compliance audit pursuant to the 1. DIRECT (Strict sense) constitutes
provisions of this Code, be final and double taxation in the objectionable or
conclusive upon all parties, unless prohibited sense. This occurs when the
the liquidation of the import entry same property is taxed twice when it
was merely tentative" (Sec. 4, R.A. should be taxed but once; both taxes
9135). must be imposed on the same property
or subject matter, for the same purpose,
c. Local Government Code. Local by the same State, Government, or
taxes, fees, or charges shall be taxing authority/ within the same
assessed within five (5) years from jurisdiction or taxing district, during the
the date they became due. In case of same taxing period, and they must be of
fraud or intent to evade the payment the same kind or character of tax. (84
of taxes, fees or charges the same C.J.S. 131-132)
may be assessed within ten (10)
years from discovery of the fraud or 2. INDIRECT (Broad sense) is
intent to avoid payment. They shall permissible double taxation. This is
also be collected either by allowed if the taxes are of different
administrative or judicial action nature or character, imposed by
within five (5) years from date of different taxing authorities. It has been
assessment (sec. 194, LGC) held that a real estate tax and the
tenement tax imposed by local
Double taxation ordinance although imposed by the
same taxing authority are not of the
1. Double taxation means taxing the same same kind or character. (Villanueva vs.
property twice when it should be taxed Iloilo city, 26 SCRA 578)
only once, that is, taxing the same
person twice by the same jurisdiction for 3. DOMESTIC this arises when the
the same thing. Otherwise described as taxes are imposed by the local or
"direct duplicate taxation," the two taxes national government (within the same
must be imposed on the same subject state). (Tax Principles and Remedies,
matter, for the same purpose, by the Dimaampao, 4th ed., 2011, p. 138).
same taxing authority, within the same
jurisdiction, during the same taxing 4. INTERNATIONAL - refers to the
period, and they must be of the same imposition of comparable taxes in two
kind or character. (The City o f Manila vs. or more states on the same taxpayer in
Coca cola Bottlers Philippines, Inc., G.R. respect of the same subject matter and
No. 181845, August 4, 2009) for identical periods (CIR v. S.C. Johnson
and Sons, Inc., 309 SCRA 102).

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Modes of eliminating double taxation liabilities (Ibid.). Tax evasion occurs

when the taxpayer resorts to unlawful
1. EXEMPTION METHOD - the income means to lessen or to get away with his
or capital which is taxable in the state of tax liability. This is also known as tax
source or situs is exempted in the state dodging.
of residence, although in some instances
it may be taken into account in 4. Elements of tax evasion: a) the end to be
determining the rate of tax applicable to achieved, i.e., the payment of less than
the taxpayer's remaining income or that known by the taxpayer to be legally
capital (Tax Principles and Remedies, due, or the non-payment of tax when it
Dimaampao, 4th ed. 2011, p. 139). is shown that a tax is due; b) an
accompanying state of mind which is
2. CREDIT METHOD the tax paid in described as being evil", in bad faith",
the state of source is credited against the "willful", or "deliberate and not
tax levied in the state of residence. accidental"; and c) a course of action
which is unlawful (Ibid.).
The basic difference between the two
methods is that in the exemption 5. Tax evasion connotes fraud through the
method, the focus is on the income or use of pretenses and forbidden devices
capital itself, whereas the credit method to lessen or defeat taxes. On the other
focuses upon the tax (Baker, Double hand, tax avoidance is a legal means
Taxation Conventions and international used by the taxpayer to reduce taxes
Tax Law, 1994, pp. 70-72). (Benny vs. Commissioner, 25 T. Cl. 78).

Escape from taxation Exemption from taxation

Tax evasion vs. tax avoidance 1. An "exemption from taxation" is a grant

of immunity, express or implied, to
1. Tax avoidance and tax evasion are the particular persons or corporations or to
two most common ways used by persons or corporations of a particular
taxpayers in escaping taxation (CIR vs. class, from a tax upon property or an
The Estate o f Benigno. P. Toda, G.R. No. excise which persons and corporations
147188, September 14, 2004). Tax generally within the same taxing district
avoidance is legal and not subject to are obliged to pay. It is freedom from a
criminal penalty WHILE tax evasion is charge or burden to which others are
illegal and subject to criminal penalty. subject (Greenfield vs. Meer, 77 Phil. 394).

2. Tax avoidance is the lessening of tax 2. In countless times the Supreme Court
liabilities through maximization of has ruled that exemption must be clear
deductions, exclusions, and exemptions in the language of the law granting such
and minimization of income by legal for it is strictly construed and favoured
means. Tax avoidance is tire tax saving against the person invoking it (Manila
device within the means sanctioned by Electric Company v. The City Assessor,
the law. This method should be used by G.R. No. 166102, August 5, 2015) and
the taxpayer in good faith and at arm's liberally in favor of the taxing
length (Ibid.). This is also known as tax authorityit is the taxpayer's duty to
minimization. justify the exemption by words too plain
to be mistaken and too categorical to be
3. Tax evasion is a scheme used outside of misinterpreted (Radio Communications o f
those lawful means and when availed the Philippines, Inc. (RCPI), vs. Provincial
of, it usually subjects the taxpayer to Assessor o f South Cotabato, 456 SCRA 1).
further or additional civil or criminal

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3. The basis for the rule on strict Airport Authority vs. Marcos, G.R. No.
construction to statutory provisions 120082, September 11, 1996).
granting tax exemptions or deductions
is to minimize differential treatment and The Congress, however, could impair a
foster impartiality, fairness and equality taxpayer's legislative franchise by
of treatment among taxpayers (Quezon making it liable for income tax from
City vs. ABS-CBN Broadcasting which heretofore it was exempted by
Corporation, 567 SCRA 496). virtue of the exemption provided in its
franchise (Cagayan Electric Power and
4. The rule that tax exemptions should be Light Co. Inc. v. CIR, G.R. No. 60126,
construed strictly against the taxpayer September 25,1985).
presupposes that the taxpayer is clearly
subject to the tax being levied against Rationale/grounds for exemption
him unless a statute imposes a tax
clearly, expressly and unambiguously, 1. The inherent power of the state to
what applies is the equally well-settled impose taxes naturally carries with it the
rule that the imposition of a tax cannot power to grant tax exemptions. The
be presumed (Commissioner of Internal power to exempt from taxation, as well
Revenue vs. Philippine American Accident as the power to tax, is an essential
Insurance Company, Inc., 453 SCRA 668). attribute of sovereignty, and may be
exercised in the Constitution, or in a
5. Flowing from the basic precept of statute, unless the Constitution
constitutional law that no law is expressly or by implication prohibits
irrepealable, Congress, in the legitimate action by the legislature on the subject
exercise of its lawmaking powers, can (Tax Principles and Remedies, Dimaampao,
enact a law withdrawing a tax 2nd Ed., 2011, p. 107).
exemption just as efficaciously as it may
grant the same (Republic vs. Caguioa, 536 2. Cemeteries are exempt from the
SCRA 193). payment of taxes because of the
difficulty of collecting taxes thereon and
Kinds of tax exemptions obvious impropriety of selling the
graves of the dead to defray the
1. Express. Exemptions which are expressly expenses of carrying on the government
granted by organic or statute law. of the living (Tax Principles and Remedies,
Dimaampao, 4th Ed., 2Oil, p. 105).
2. Implied. Exemptions which. exist
whenever particular persons, properties 3. Churches and parsonages or covenants
or excises are deemed exempt as they appurtenant thereto, etc., are exempt
fall outside the scope of the taxing from taxation because such institutions
provision itself. perform work which would otherwise
have to be carried on by the public at
3. Contractual. Since taxation is the rule the expense of the taxpayers and that
and exemption therefrom the exception, the expenses of such institutions from
the exception may thus be withdrawn at taxation lessens rather than increases
the pleasure of the taxing authority. The the burden upon other taxpayers (26
only exception to this rule is where the R.C.L. 316).
exemption was granted to private
parties based on material consideration 4. It would seem, however, that to be
of a mutual nature, which then becomes entitled to the exemption, lands,
contractual and is thus covered by the buildings and improvements of
non-impairment clause of the religious and charitable institutions
Constitution (Mactan Cebu International should be "actually, directly and

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exclusively used" for religious and the governmental body which is not
charitable purposes (Tax Principles and included in the tax levy, it is plain that
Remedies, Dimaampao, 4th Ed., 2011, p. some legitimate and necessary
105). expenditure must be curtailed. If the
taxpayer's claim is disputed, the
5. The test of exemption from taxation of collection of the tax must await and
real property is tire use of the same for abide the result of a lawsuit, and
the purposes mentioned in the meanwhile the financial affairs of the
Constitution (Abra Valley College vs. Hon. government will be thrown into great
Juan Aquino, L-39086, June 15, 1988, 162 confusion (47 Am. Jur. 766-767.)."
SCRA 106),
3. In Domingo vs. Garlitos (G.R. No. L-18994,
6. Properties of the national government as June 29, 1963), the High Court reversed
well as those of the local government itself in holding that where the taxes
units are not subject to tax, otherwise it and the taxpayer's claim are fully
will result in the absurd situation of the liquidated, due and demandable, legal
government "taking money from one compensation under Art. 1279 of the
pocket and putting it in another" (Cooley Civil Code can take place by operation
on Taxation, Sec. 621, 4th Ed., as cited in of law, and both debts are extinguished
Board o f Assessment Appeals o f Laguna vs. to the concurrent amount.
Court o f Tax Appeals, 8 Phil. 227).
(NOTE: In Domingo, the Supreme Court
Doctrine of set-off took cognizance of the "fact that the court
having jurisdiction o f the estate had found
1. The doctrine presupposes mutual that the claim o f the estate against the
obligation between the parties. In Government has been recognized and an
taxation, the concept of set-off arises amount o f P262,200 has already been
where a taxpayer is liable to pay tax but appropriated fo r the purpose by a
the government for one reason or corresponding law (Rep. Act No. 2700).";
another, is indebted to the said such fact did not exist in Mambulao).
taxpayer.
4. In Francia vs, IAC (G.R. No. 76749, June
2. In Republic vs. Mambulao (G.R. No. L- 28, 1988), the Supreme Court denied the
17725, February 28, 1962), the Supreme claim of a taxpayer for set-off or legal
Court ruled that taxes are not subject to compensation between his tax liability
set-off or legal compensation. The to the Government and the amount that
Supreme Court further explained that the Government owed him by reason of
[t]he general rule, based on grounds of the confiscation of his property by way
public policy is well-settled that no set of eminent domain. The Supreme Court
off is admissible against demands for reiterated what it had said in Mambulao,
taxes levied for general or local that the circumstances of this case do
governmental purposes. The reason on not satisfy the requirements of legal
which the general rule is based, is that compensation set forth under Art. 1279,
taxes are not in the nature of contracts to wit: "(1) that each one of the obligors
between the parties but grow out of a bound principally and he be at the same
duty to, and are the positive acts of the time a principal creditor of the other;
government, to the making and xxx (3) that the two debts be due. xxx."
enforcing of which, the personal consent
of individual taxpayers is not required, 5. The recent cases of United Airlines, Inc.
x x x If the taxpayer can properly refuse vs. Commissioner o f Internal Revenue, 631
to pay his tax when called upon by the SCRA 567, 29 September 2010) and South
Collector, because he has a claim against African Airways vs. Commissioner of

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Internal Revenue (612 SCRA 665, 17 Feb
2010), reiterating the ruling in Philex
N.V. v. CIR, G.R. No. 167679, July 22,
2015) It applies only to past tax periods,
Mining Corporation vs. Commissioner of hence of retroactive application (People
Internal Revenue (294 SCRA 687, 28 Aug vs. Castaneda, G.R. No. L-46881,1988).
1998), settles the controversy as to
whether taxes are subject to set-off or 2. On the other hand, tax exemption is
legal compensation, to wit: immunity from the civil liability only. It
is an immunity or privilege, a freedom
"In several instances prior to the instant from a charge or burden of which others
case, we have already made the are subjected (Florer vs. Sheridon, 137 Ind.
pronouncement that taxes CANNOT be 28, 38 NE 365). It is generally
subject to compensation for the simple prospective in application (Tax Principles
reason that the government and the and Remedies, Dimaampao, 4th Ed., 2011,
taxpayer are not creditors and debtors p. 122).
of each other. [NOTE: In these cases, the
Supreme Court upheld the ruling in Construction and interpretation of:
Francia and Mambulao.]
1. Tax laws. Statutes levying taxes or duties
Compromise are to be construed strongly against the
Government and in favor of the subject
1. A compromise is an agreement between or citizens, because burdens are not to
two or more persons who, to avoid be imposed or presumed to be imposed
lawsuit, amicably settle their differences beyond what statutes expressly and
on such terms as they can agree on. A clearly declare. No person or property is
compromise by its very nature implies subject to taxation unless they fall
mutual agreement by the parties in within the terms or plain import of a
regard to the thing or subject matter taxing statute (Commissioner or Internal
which is to be compromised (Ben Chuy, Revenue vs. Court o f Appeals, 204 SCRA
et al. vs. Collector o f Internal Revenue, 182,189 [1991]).
C.T.A. Case, July 16,1958).
2. Tax exemption and exclusion. The intent to
2. The Commissioner may compromise the grant tax exemption must be clear,
payment of any internal revenue tax otherwise the rule of construction
under two instances: a) when a applies that exemption from taxation are
reasonable doubt as to the validity of to be strictly construed against
the claim against the taxpayer exists; or exemption and in favor of the right to
b) when the financial position of the tax (Tax Principles and Remedies,
taxpayer demonstrates a clear inability Dimaampao, 4th Ed., 2011, p. 119).
to pay the assessed tax (Taxation Law
Review, Sababan, 2008, p. 192). The intention of the legislature to grant
tax exemptions must be expressed in
Tax amnesty vs. tax exemption clear and unmistakable terms; it can
never be implied from language that
1. Tax amnesty "partakes of an absolute... will admit of any other reasonable
waiver by the Government of its right to construction. Exemptions are never
collect what otherwise would be due it." presumed, the burden is upon the
The effect x x x was immunity from claimant to establish his right to
payment of all national internal revenue exemption beyond reasonable doubt
taxes as well as all administrative, civil (Ibid.).
and criminal liabilities founded upon or
arising from non-payment of national Under the 1997 Tax Code, the term
internal revenue taxes x x x. (ING Bank "exclusions" refers to items that are not

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included in the determination of gross traditionally viewed as essentially
income either because: a) they represent government functions, such as buildings
return of capital or are not income, gain roads and delivery of basic services, but
or profit; or b) they are subject to also include those purposes designed to
another kind of internal revenue tax; or promote social justice. Thus, public money
c) they are income, gain, or profit that may now be used for the relocation of
are expressly exempt from income tax illegal settlers, low-cost housing and urban
under tire constitution, tax treaty, Tax * or agrarian reform (Planters Products, Inc., v.
Code, or a general or a special law Fertiphil Corporation, 548 SCRA 485, March
(Reviewer on Taxation, Mamalateo, 2nd 14,2008).
Ed.,2008, p. 159).
This is a legislative prerogative. The power
As a general rule, revenue laws are not to determine whether the purpose of
intended to be liberally construed, and taxation is public or private resides in
exemptions are not given retroactive Congress. The independence of the
application, considering that taxes are Legislature is an axiom in government; to
the lifeblood of the government and in be independent, it must act on its own good
Holmes' memorable metaphor, the price time, on its own judgment, influenced by its
we pay for civilization, tax laws must be own reason, restrained only as the people
faithfully and strictly implemented may have seen fit to restrain the grant of
(Commissioner of Internal Revenue v. legislative power in making it (1 Cooley
Acosta, etc., G. R. No. 154068, August 3, Taxation).
2007). However, statutes may provide
for prescriptive periods for the However, this will not prevent the court
collection of particular kinds of taxes. from questioning the propriety of such a
statute on the ground that the law enacted
3. Penal provisions. Penal provisions of tax is not for a public purpose; but once it is
laws are to be construed liberally. settled that the law is for a public purpose,
the court may no longer inquire into the
4. Non-retroactive application to taxpayers. As wisdom, expediency or necessity of such tax
a rule, taxing statutes must be applied measure (Tax Principles and Remedies,
prospectively, except by express Dimaampao, 4th Ed., 2011, p. 37).
provision of the law. The mere fact that
a law is retroactive does not make it 2. Inherently legislative
invalid or against due process because
retroactivity must be so harsh and a. The power of taxation is a power
oppressive in its application in order to that is purely legislative and which
invalidate the law. the central legislative body cannot
delegate either to the executive or
Scope and limitations of taxation judicial department of government
without infringing upon the theory
Inherent limitations on the power of of separation of powers (Pepsi - Cola
taxation Bottling Co. o f the Philippines, supra).

1. Public purpose However, the Congress may, by law,

authorize the President to fix within
The term "public purpose" is not defined. It specified limits and subject to such
is an elastic concept that can be hammered . limitations and restrictions as it may
to fit modem standards. Jurisprudence impose, tariff rates, import and
states that "public purpose" should be export quotas, tonnage and
given a broad interpretation. It does not wharfage dues and other duties or
only pertain to those purposes which are imposts within the framework of the

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national development program of e. Another exception is in the case of

the Government (Section 28, Article the local taxing power. The
VI, 1987 Constitution). Constitution on this point states:
"Each local government unit shall
b. Wlrile the power to tax cannot be have the power to levy taxes, fees
delegated to executive agencies, and charges subject to such
details as to the enforcement and guidelines and limitations as the
administration of an exercise of such Congress may provide, consistent
power may be left to them, with the basic policy of local
including the power to determine autonomy. Such taxes, fees, and
the existence of facts on which its charges shall accrue exclusively to
operation depends, the rationale the local governments" (Sec. 5, Art.
being that the preliminary X, 1987 Constitution).
ascertainment of facts as basis for
the enactment of legislation is not of 3. Territoriality
itself a legislative function but is
simply ancillary to legislation. The a. Situs of taxation literally means
Constitution as a continuously place of taxation. The general rule is
operative charter of government that the taxing power cannot go
does not require that Congress find beyond the territorial limits of the
for itself every fact upon which it taxing authority. Basically, the state
desires to base legislative action or where the subject to be taxed has a
that it make for itself detailed situs may rightfully levy and collect
determinations which it has the tax; and the situs is necessarily in
declared to be prerequisite to the state which has jurisdiction or
application of legislative policy to which exercises dominion over the
particular facts and circumstances subject in question. The factors that
impossible for Congress itself determine the situs of taxation are: i)
properly to investigate (Abakada Kind or classification of tax being
Guro Party List vs. Ermita, 469 SCRA levied; ii) Situs of the thing or
1 ). property taxed; iii) Citizenship of
the taxpayer; iv) Residence of the
c. The authority delegated to the taxpayer; v) Sources of the income
President under Section 28(2), taxed; vi) Situs of the excise,
Article VI may be exercised, in privilege, business or occupation
accordance with legislative sanction, being taxed.
by the alter egos of the President,
such as department secretariesfor b. Exceptions to the principle of
purposes of the President's exercise territoriality:
of power to impose tariffs under
Article VI, Section 28(2), it is i. Doctrine o f International Comity.
generally the Secretary of Finance According to this principle,
who acts as his alter ego (Southern states are juridically equal, enjoy
Cross Cement Corporation vs. Cement the same rights, and have equal
Manufacturers Association o f the capacity in their exercise. The
Philippines, 465 SCRA 532). rights of each one depend upon
the simple fact of its existence
d. The President or the alter egos may under international law.
be properly deemed as agents of International obligations
Congress to perform an act that concomitant with our acceptance
inherently belongs as a matter of of the principles of international
right to the legislature (Id.). law as part of our law demand

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that certain representatives of
foreign states stationed, and
Principles and Remedies, Dimaampao, 4th
Ed., 2011, p. 46).
property of such foreign states
found, within our territory are Excise tax
exempted from taxation.
Donor's Tax Estate Tax
The basis of this doctrine is (Secs. 98,104, R.A. (Secs. 85,104, R.A.
Article II, Sec. 2 of the 1987 8424) 8424)
Constitution, which provides Place (Non-resident alien)
that "the Philippines renounces Tax based upon Are taxed on
war as an instrument of national properties properties situated
policy, adopts the generally situated within within the
accepted principles of the Philippines. Philippines.
international law as part of the Nationality
law of the land and adheres to (Resident and non-resident citizen)
die policy of peace, equality, Tax based upon Are taxed upon their
justice, freedom, cooperation, properties properties wherever
and amity with all nations. " wherever situated.
situated.
ii. Tax Treaties. Income tax treaties Residence (Resident alien)
reduce the prospect of double Tax based upon Taxes imposed upon
taxation of international flow of properties properties wherever
income. In general, with respect wherever situated (Ibid.)
to any particular item of income, situated.
die country in which die income
arises is required by the treaty 1. Exemptions o f government units must be
under specified circumstances to recognized. Income derived by the
reduce or eliminate its tax in government or its political subdivision
favor of the tax in the country of from any public utility or from the
residence of recipient exercise of any essential government
(Mamalateo, Philippine Tax functions accruing to the government of
Treaties, First Ed., p. 11). the Philippines or to any political
subdivision thereof is exempted from
Income Tax (Sec. 23, R.A. 8424) tax (Sec. 32 [B1 [7J[b], NIRC). Taxes are
financial burdens imposed for the
Place - applied to purpose of raising revenues with which
a. Non-resident alien to defray the cost of the operation of the
b. Non-resident foreign corporations Government, and a tax on property of
c. Non-resident citizen the Government, whether national or
- Taxed upon sources of income derived local, would merely have the effect of
from within the Philippines. taking money from one pocket to put it
Nationality - applied to in another pocket (Cooley on Taxation,
a. Resident citizen Sec. 621, 4th Edition). Hence, it would
b. Domestic corporation not serve, in the final analysis, the main
- Taxed upon sources of income derived purpose of taxation. What is more, it
from within and without the would tend to defeat it, on account of
Philippines. the paper work, time and consequently,
Residence - applied to expenses it would entail (The Law on
a. Resident alien Local Taxation, by Justiniano Y. Castillo, p.
b. Resident foreign corporation 13.)
- Taxed upon income derived from
sources within the Philippines (Tax

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However, all corporations, agencies or the same classification are treated

instrumentalities owned or controlled differently from one another; and when
by the government, except GSIS, SSS, taxpayers belonging to different
PHIC, PCSO and local water districts, classifications are treated alike. If the
shall pay such rate of tax upon their ordinance passed by a city council is
taxable income as are imposed upon intended to apply to a specific taxpayer
corporations or associations engaged in and to no one else regardless of whether
a similar, industry or activity (Sec. 27 or not other entities belonging to same
[D], NIRC). class are established in the future, it is a
violation of the equal protection clause;
Constitutional limitations on the power of but if it is intended to apply also to
taxation similar entities which may be
established in the future, then the tax
1. Due process clause (Art. Ill, Sec. 1, 1987 ordinance is valid even if in the
Constitution). The due process clause of meantime, it applies to only one entity
the Constitution guarantees the or taxpayer for the simple reason that
protection of personal and property there is so far only one member of the
rights. Pursuant thereto, enforced class subject of the tax measure (Ormoc
contribution from the people cannot be Sugar Central vs. CIR, 22 SCRA 603). The
made without a law authorizing the requisites are: a) based upon substantial
same. Hence, the 'due process clause' of distinctions; b) germane to the purposes
the Constitution is violated where a tax of the law; c) it must not be limited to
collection is made not on the basis of a existing conditions only; and d) It must
law enacted by a legitimate government. apply to all members of the class.
Substantive due process requires that a
tax statute must be within the The taxing power has authority to make
constitutional authority of Congress to reasonable classifications for purposes
pass, and that it be reasonable, fair and of taxation. Inequalities resulting from a
just. Whereas, procedural due process singling out of one particular class for
requires notice and hearing or at least taxation or exemption do not infringe
the opportunity to be heard. The any constitutional limitation. The real
requirements of due process apply not estate industry is, by itself, a class and
only to the national legislature but also can be validly treated differently from
to the legislative bodies of local other business enterprises (Chamber o f
government units or the local Real Estate and Builders' Associations, Inc.
Sanggunian. However, while the local vs. The Hon. Executive Secretary Alberto
legislative bodies are required to Romulo, et a l, G.R. No. 160756, March 9,
conduct public hearings prior to the 2010).
enactment of tax ordinances and
revenue measures (Local Government 3. Freedom o f speech and o f the press (Art. Ill,
Code, Sec. 187), the national legislature Sec. 4. 1987 Constitution); Non -
on the other hand has the discretion as infringement o f religious freedom and
to whether or not to conduct public worship (Art. Ill, Sec. 5, 1987
hearings before the enactment of tax Constitution). This provision contains
laws. two clauses: a) the non - establishment
clause; and b) the free exercise clause.
2. Equal protection clause (Art. Ill, Sec. 1,
1987 Constitution). Taxpayers of the 4. Non - impairment o f contracts (Art. Ill,
same footing are treated alike, both as to Sec. 10, 1987 Constitution). The non -
privileges conferred and liabilities impairment clause of the Constitution
imposed. The equal protection clause is upholds the people's right and freedom
violated when taxpayers belonging to to contract, as well as sanctity of

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contracts. (NOTE: Non - impairment persons, property or excises to be taxed,

clause applies only to contracts and not the sum or sums to be raised, the due
to a franchise). date thereof and the time and manner of
levying and collecting taxes.
5. Non - imprisonment for debt or non -
payment of poll tax (Art. Ill, Sec. 20, 1987 2. Assessment. This means to settle,
Constitution). Rule requiring that determine or fix the amount of tax to be
appropriations, revenue and tariff bills paid. (84 C.J.S., pp. 749-750)
shall originate exclusively from the
House of Representatives (Art. IV, Sec. 3. Collection o f the tax levied. This is
24,1987 Constitution). essentially an administrative function. It
consists of the manner of enforcement of
6. Uniformity, equitability and progressivity of the obligation on the part of those who
taxation (Art. IV, Sec. 28 (1), 1987 are taxed (51 Am. Jur. 35).
Constitution), a) Uniformity - all taxable
articles or kinds of property of the same 4. Payment. This is the act of compliance by
class are taxed at the same rate; b) the taxpayer, including such options,
Equitability the burden falls to those schemes or remedies as may be legally
who are more capable to pay; c) available to him.
Progressivity rate increases as the tax
base increases. Definition and nature of taxes

7. Limitations on the Congressional power to 1. "Taxes" are the enforced proportional

delegate to the President the authority to fix contributions from persons and
tariff rates, import and export quotas, etc. property levied by the law-making body
(Art. VI, Sec. 28 (2), 1987 Constitution). of the State by virtue of its sovereignty
for the support of the government and
8. Tax exemption o f properties actually, for public needs (1 Cooley 62-63).
directly and exclusively used for religious,
charitable and educational purposes (Art. 2. Taxes are personal to the taxpayer. A
VI, Sec. 28 (3), 1987 Constitution). corporation's tax delinquency cannot,
for instance, be enforced against its
9. Voting requirement in connection with the stockholders because not only would
legislative grant o f tax exemption (Art. VI, this run counter to the principle that
Sec. 28 (4), 1987 Constitution). taxes are personal, but it would also not
be in accord with the rule that a
10. Non - impairment o f the jurisdiction o f the corporation is vested by law with a
Supreme Court in tax cases (Art. VIII, Sec. personality that is separate and distinct
2 and 5 (2)(b), 1987 Constitution). from those of the persons composing it,
as well as from that of any other legal
11. Exemption from taxes o f the revenues and entity to which it may be related (Sunio,
assets o f educational institutions, including et al. vs. National Labor Relations
grants, endowments, donations and Commission, et al., GR No. 57767, Jan. 31,
contributions (Art. XIV, Sec. 4 (3) and (4), 1984).
1987 Constitution).
Requisites of a valid tax
Stages of taxation
1. That either the person or property taxed
1. Levying of the tax. The imposition of tax must be within the jurisdiction of the
requires legislative intervention. In the taxing authority;
Philippines, it is Congress that levies the
tax. It includes the determination of the

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2. That the assessment and collection of 3. Tax distinguished from Special
certain kinds of taxes guarantee against Assessment.
injustice to individuals, especially by
providing notice and opportunity to be Tax Special assessment
heard; Levied on
persons, property
Levied only on land
3. It should be for a public purpose; or the exercise of
a privilege
4. The rule of taxation shall be uniform; Personal liability Not a personal
arid of the person liability of the person
taxed assessed
5. The tax must not infringe on the Based on the
inherent and Constitutional limitations necessities of the
on the power of taxation. government Based wholly on the
without any special benefits to the
Tax as distinguished from other forms of special benefits property assessed
exactions directly accruing
to the taxpayer
Has general Exceptional both as
1. Tax distinguished from Tariff. application to time and place

Tax Tariff 4. Tax distinguished from License Fee.

Paid on domestic Paid on international
economic activity trade Tax License fee
Form o f public Levied for Imposed for
Form o f public debt
revenues revenue regulations
Charged on income Charged on goods Involves exercise Involves an exercise
and wealth upon importation of taxing power of police power
Amount is usually
Amount is
2. Tax distinguished from Toll. Toll is a limited to the
generally not
sum of money collected for use of necessary expenses
limited
something, generally applied to the of regulation
consideration which is paid for the use Imposed on the
of road, bridge, or the like, of a public right to exercise a Imposed on the right
nature. privilege as well to exercise a
as to persons and privilege
Tax Toll property
Demand of Demand of Enforced
sovereignty proprietorship contribution
Legal compensation
Paid for support of Paid for the use of assessed by
or reward of an
the government another's property sovereign
officer for specific
Amount is based on authority to
services
Amount is based the cost of defray public
on the necessities construction or expenses
of the State maintenance of the Failure to pay
public improvement does not Failure to pay makes
used necessarily makes the act or business
May be imposed by the business illegal
Imposed by the
government or by | illegal
government
private entities

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5. Tax distinguished from Debt. apportionment. Example: real estate

tax.
1 Tax Debt
Based on law Based on contract c. Excise - Tax imposed upon the
performance of an act, the
Generally not
Assignable enjoyment of a privilege or the
assignable
engaging in an occupation.
Generally payable
May be paid in kind Examples: estate tax, donor's tax,
in money
value - added tax.
Generally not May be subject of
subject to set - off set - off or
2. As to burden or incidence
or compensation compensation
Imprisonment is a No imprisonment a. Direct - Tax demanded from persons
sanction for non - for non - payment who are intended or bound by law
payment of tax (except when it to pay the tax. Examples:
(except poll tax) arises from crime) community tax, income tax, estate
Governed by tax, donor's tax.
special Governed by the
prescriptive ordinary period of b. Indirect - Tax whose burden can be
period provided in prescription shifted to another. Examples:
the Tax Code customs duties, value - added tax,
Draws interest some percentage taxes.
Does not draw
when it is so
interest except
stipulated or when 3. As to tax rates
when delinquent
there is default
a. Specific - Tax imposed based on a
6. Tax distinguished from Penalty. physical unit of measurement, as by
head or number, weight, or length
Tax Penalty or volume. Examples: tax on
Primarily aimed at Designed to regulate distilled spirits, fermented liquors,
raising revenue conduct cigars, wines, fireworks, etc.
May be imposed by
Imposed by the government or b. Ad valorem - Tax of a fixed
government only private entities proportion of the value of property;
1 needs an independent appraiser to
determine its value. Examples: Real
Kinds of taxes estate taxes, certain customs duties,
excise taxes on cigarettes, gasoline
1. As to subject matter or object and others. Excise taxes on certain
specific goods imposed under the
a. Personal, poll or capitation - Tax of a National Internal Revenue Code are
fixed amount imposed on either specific or ad valorem taxes.
individuals, whether citizens or not,
residing within a specific territory 4. As to purpose
without regard to their property or
the occupation in which they may be a. General, fiscal, or revenue - Tax with
engaged. Example: community tax. no particular purpose or object for
which the revenue is raised, but is
b. Property - Tax imposed on property, simply raised for whatever need
whether real or personal, in may arise.
proportion either to its value or in
accordance with some other
reasonable method of

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Specific or regulatory - Tax imposed

for a special purpose regardless of
whether revenue is raised or not,
and is intended to achieve some
social or economic end. Example:
protective tariffs or customs duties
on certain imported goods to protect
local industries against foreign
competition.

5. As to authority imposing the tax or

scope

a. National - Tax imposed by the

national government. Examples:
internal revenue taxes, tariff and
customs duties.

b. Municipal or local - Tax imposed by

municipal governments for specific
needs. Examples: real estate taxes,
municipal licenses.

6. As to graduation or rate

a. Proportional - Tax based on a fixed

percentage of the amount of
property income or other basis to be
taxed. Examples: value - added tax,
percentage taxes, real estate tax.

b. Progressive or graduated - Tax rate

increases as the tax base increases.
Examples: income tax, estate tax,
donor's tax.

c. Regressive - Tax rate decreases as the

tax base increases. There is no
regressive tax in the Philippines.

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