GENERAL PRINCIPLES OF TAXATION FUNDAMENTAL PRINCIPLES IN TAXATION Taxation Taxation is the inherent power of the sovereign, exercised through

h the legislature, to impose burdens upon subjects and objects within its jurisdiction for the purpose of raising revenues to carry out the legitimate objects of government. It is also defined as the act of levying a tax, i.e. the process or means by which the sovereign, through its law-making body, raises income to defray the necessary expenses of government. It is a method of apportioning the cost of government among those who, in some measure, are privileged to enjoy its benefits and must therefore bear its burdens.

Taxes

Taxes are the enforced proportional contributions from persons and property levied by the law-making body of the State by virtue of its sovereignty for the support of the government and all public needs.

Essential elements of a tax . It is an enforced contribution. !. It is generally payable in money. ". It is proportionate in character. #. It is levied on persons, property, or the exercise of a right or privilege. $. It is levied by the State which has jurisdiction over the subject or object of taxation. %. It is levied by the law-making body of the State. &. It is levied for public purpose or purposes. Pur oses of taxation . Re!enue or fis"al# The primary purpose of taxation on the part of the government is to provide funds or property with which to promote the general welfare and the protection of its citi'ens and to enable it to finance its multifarious activities. !. Non$re!enue or re%ulator&# Taxation may also be employed for purposes of regulation or control. a( Imposition of tariffs on imported goods to protect local industries. b( The adoption of progressively higher tax rates to reduce ine)ualities in wealth and income. c( The increase or decrease of taxes to prevent inflation or ward off depression.

PAL v. Edu, 164 SCRA 320 The legislative intent and purpose behind the law re)uiring owners of vehicles to pay for their registration is mainly to raise funds for the construction and maintenance of highways and, to a much lesser degree, pay for the operating expenses of the administering agency. It is possible for an exaction to be both a tax and a regulation. *icense fees are charges, looked to as a source of revenue as well as a means of regulation. The fees may properly be regarded as taxes even though they also serve as an instrument of regulation. If the purpose is primarily revenue, or if revenue is at least one of the real and substantial purposes, then the exaction is properly called a tax. Tio v. Videogram, 1 1 SCRA 20! +, -.& which created the /ideogram 0egulatory 1oard also imposed a "23 tax on the gross receipts payable to the local government. S4 upheld the validity of the law ruling that the tax imposed is not only a regulatory, but also a revenue, measure prompted by the reali'ation that earnings of videogram establishments of around +%22 million annually have not been subjected to tax, thereby depriving the government of an additional source of revenue. It is a user tax imposed on retailers for every video they make available for public viewing. The "23 tax also served a regulatory purpose5 to answer the need for regulating the video industry, particularly the rampant film piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic video tapes.

Ca"tex v. Commi##ioner, 20! SCRA $ Taxation is no longer a measure merely to raise revenue to support the existence of government. Taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabili'ation of a threatened industry which is affected with public interest as to be within the police power of the State. The oil industry is greatly imbued with public interest as it vitally affects the general welfare. Sum%tuar& %ur%o#e o' taxation 6ore popularly known as the non-revenue or regulatory purpose of taxation. 7hile the primary purpose of taxation is to raise revenue for the support of the government, taxation is often employed as a devise for regulation by means of which certain effects or conditions envisioned by the government may be achieved. 8or example, government may provide tax incentives to protect and promote new and pioneer industries. The imposition of special duties, like dumping duty, marking duty, retaliatory duty, and countervailing duty, promote the non-revenue or sumptuary purpose of taxation.

T'eor& an( )asis of taxation The power of taxation proceeds upon the theory that the existence of government is a necessity9 that it cannot continue without means to pay its expenses9 and that for these means, it has a right to compel all its citi'ens and property within its limits to contribute. The basis of taxation is found in the reciprocal duties of protection and support between the State and its inhabitants. In return for his contribution, the taxpayer received benefits and protection from the government. This is the so-called benefits received principle.

Li'e ("ood or ne)e##it& t*eor& The life blood theory constitutes the theory of taxation, which provides that the existence of government is a necessity9 that government cannot continue without means to pay its expenses9 and that for these means it has a right to compel its citi'ens and property within its limits to contribute. In Commi##ioner v. A"gue, the Supreme 4ourt said that taxes are the lifeblood of the government and should be collected without unnecessary hindrance. They are what we pay for a civili'ed society. 7ithout taxes, the government would be paraly'ed for lack of motive power to activate and operate it. The government, for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values.

+""u#tration# o' "i'e("ood t*eor& . 4ollection of taxes cannot be enjoined by injunction. !. Taxes could not be the subject of compensation or set off. ". : valid tax may result in destruction of the taxpayer;s property. #. Taxation is an unlimited and plenary power. ,ene'it-re)eived %rin)i%"e This principle serves as the basis of taxation and is founded on the reciprocal duties of protection and support between the State and its inhabitants. :lso called symbiotic relation between the State and its citi'ens. In return for his contribution, the taxpayer receives the general advantages and protection which the government affords the taxpayer and his property. <ne is compensation or consideration for the other9 protection for support and support for protection. =owever, it does not mean that only those who are able to and do pay taxes can enjoy the privileges and protection given to a citi'en by the government.

In fact, from the contribution received, the government renders no special or commensurate benefit to any particular property or person. The only benefit to which the taxpayer is entitled is that derived from the enjoyment of the privileges of living in an organi'ed society established and safeguarded by the devotion of taxes to public purpose. The government promises nothing to the person taxed beyond what may be anticipated from an administration of the laws for the general good. > Loren.o v. Po#ada#? Taxes are essential to the existence of the government. The obligation to pay taxes rests not upon the privileges enjoyed by or the protection afforded to the citi'en by the government, but upon the necessity of money for the support of the State. 8or this reason, no one is allowed to object to or resist payment of taxes solely because no personal benefit to him can be pointed out as arising from the tax. > Loren.o v. Po#ada#?

T:@ ,I88A0ABTI:TA, 80<6 <T=A0 TA06S Tari'' / 0utie# The term tariff and custom duties are used interchangeably in the Tariff and 4ustoms 4ode or +, Bo. #%#. 4ustoms duties, or simply duties, are taxes imposed on goods exported from or imported into a country. 4ustom duties are really taxes but the latter term is broader in scope. <n the other hand, tariff may be used in one of three senses5 . !. ". : book of rates drawn usually in alphabetical order containing the names of several kinds of merchandise with the corresponding duties to be paid for the same9 or The duties payable on goods imported or exported9 or The system or principle of imposing duties on the importation or exportation of goods.

Li)en#e or regu"ator& 'ee v. tax . *icense fee is legal compensation or reward of an officer for specific services while a tax is an enforced contribution from persons or property by the law-making body by virtue of its sovereignty and for the support of the government and all public needs. !. *icense fee is imposed for regulation, while tax is levied for revenue. ". *icense fee involves the exercise of police power, tax of the taxing power. #. :mount of license fee should be limited to the necessary expenses of inspection and regulation, while there is generally no limit on the amount of the tax to be imposed. $. *icense fee is imposed only on the right to exercise a privilege, while tax is imposed also on persons and property. %. 8ailure to pay a license fee makes the act or business illegal, while failure to pay a tax does not necessarily make the act or business illegal. Regu"ator& tax Axamples5 motor vehicle registration fee, sugar levy, coconut levy, regulation of non-useful occupations PAL v. Edu5 This involves the imposition of motor vehicle registration fees which the Supreme 4ourt ruled as taxes. 8ees may be regarded as taxes even though they also serve as instruments of regulation because taxation may be made the implement of the State;s police power. 1ut if the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax.

Criteria 'or determining "i)en#e 'ee# . Imposition must relate to an occupation or activity which involves the health, morals, safety and development of the people and which needs regulation for the protection and promotion of the public interest. !. Imposition must also bear a reasonable relation to the probable expenses of regulation, taking into account the costs of direct regulation as well as the incidental expenses.

+n#tan)e# 1*en "i)en#e 'ee# )ou"d ex)eed )o#t o' regu"ation, )ontro" or admini#tration . 7hen the collection or the license fee is authori'ed under both the power of taxation and police power !. 7hen the license fee is collected to regulate a non-useful occupation S%e)ia" a##e##ment v. tax . : special assessment is an enforced proportional contribution from owners of lands specially or peculiarly benefited by public improvements. !. : special assessment is levied only on land. ". : special assessment is not a personal liability of the person assessed9 it is limited to the land. #. : special assessment is based wholly on benefits, not necessity. $. : special assessment is exceptional both as to time and place9 a tax has general application. Re%u("i) v. ,a)o"od 2ur)ia, 1$ SCRA 632 : special assessment is a levy on property which derives some special benefit from the improvement. Its purpose is to finance such improvement. It is not a tax measure intended to raise revenues for the government. The proceeds thereof may be devoted to the specific purpose for which the assessment was authori'ed, thus accruing only to the owners thereof who, after all, pay the assessment. Some rules5 :n exemption from taxation does not include exemption from a special assessment. The power to tax carries with it the power to levy a special assessment. To"" v. tax . Toll is a sum of money for the use of something. It is the consideration which is paid for the use of a road, bridge, or the like, of a public nature. Taxes, on the other hand, are enforced proportional contributions from persons and property levied by the State by virtue of its sovereignty for the support of the government and all public needs. !. Toll is a demand of proprietorship9 tax is a demand of sovereignty. ". Toll is paid for the use of another;s property9 tax is paid for the support of government. #. The amount paid as toll depends upon the cost of construction or maintenance of the public improvement used9 while there is no limit on the amount collected as tax as long as it is not excessive, unreasonable, or confiscatory. $. Toll may be imposed by the government or by private individuals or entities9 tax may be imposed only by the government. Tax v. %ena"t& . +enalty is any sanction imposed as a punishment for violation of law or for acts deemed injurious9 taxes are enforced proportional contributions from persons and property levied by the State by virtue of its sovereignty for the support of the government and all public needs. !. +enalty is designed to regulate conduct9 taxes are generally intended to generate revenue. ". +enalty may be imposed by the government or by private individuals or entities9 taxes only by the government. 3("igation to %a& de(t v. o("igation to %a& tax . : debt is generally based on contract, express or implied, while a tax is based on laws. !. : debt is assignable, while a tax cannot generally be assigned. ". : debt may be paid in kind, while a tax is generally paid in money. #. : debt may be the subject of set off or compensation, a tax cannot. $. : person cannot be imprisoned for non-payment of tax, except poll tax. %. : debt is governed by the ordinary periods of prescription, while a tax is governed by the special prescriptive periods provided for in the BI04. &. : debt draws interest when it is so stipulated or where there is default, while a tax does not draw interest except only when delin)uent.

Re4ui#ite# o' )om%en#ation . That each one of the obligor be bound principally, and that he be at the same time a principal creditor of the other. !. 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 )uality if the latter has been stated. ". That the two debts be due. #. That they be li)uidated and demandable. $. That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtors. Ru"e# re5 #et o'' or )om%en#ation o' de(t# General rule5 : tax delin)uency cannot be extinguished by legal compensation. This is so because the government and the tax delin)uent are not mutually creditors and debtors. Beither is a tax obligation an ordinary debt. 6oreover, the collection of a tax cannot await the results of a lawsuit against the government. 8inally, taxes are not in the nature of contracts but grow out of a duty to, and are the positive acts of the, government to the making and enforcing of which the personal consent of the taxpayer is not re)uired. >6ran)ia v. +AC, %! S40: &$# and Re%u("i) v. 2am(u"ao Lum(er, # S40: %!!? Ex"e tion5 S4 allowed set off in the case of 0omingo v. 7ar"ito# >. S40: ##"? re. claim for payment of unpaid services of a government employee vis-a-vis the estate taxes due from his estate. The fact that the court having jurisdiction of the estate had found that the claim of the estate against the government has been appropriated for the purpose by a corresponding law shows that both the claim of the government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable as well as fully li)uidated. 4ompensation therefore takes place by operation of law.

P*i"ex 2ining Cor%oration v. Commi##ioner, 284 SCRA 6!$ 9188!: +hilex 6ining 4orporation wants to set off its claims for /:T input creditCrefund for the excise taxes due from it. The Supreme 4ourt disallowed such set off or compensation. Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and a debt. ,ebts are due to the government in its corporate capacity, while taxes are due to the government in its sovereign capacity.

SUR*E+ OF P,ILIPPINE TAXES :. Internal revenue taxes imposed under the BI04 . Income tax !. Transfer taxes a. Astate Tax b. ,onor;s Tax ". +ercentage taxes a. /alue :dded Tax b. <ther +ercentage Taxes #. Axcise taxes $. ,ocumentary stamp tax 1. *ocalC6unicipal Taxes 4. Tariff and 4ustoms ,uties ,. TaxesCTax incentives under special laws CLASSIFICATION OF TAXES AS TO SU-.ECT MATTER OR O-.ECT . +ersonal, poll or capitation tax

Tax of a fixed amount imposed on persons residing within a specified territory, whether citi'ens or not, without regard to their property or the occupation or business in which they may be engaged, i.e. community tax. !. +roperty tax Tax imposed on property, real or personal, in proportion to its value or in accordance with some other reasonable method of apportionment. Axcise tax : charge imposed upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation.

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AS TO PURPOSE . DeneralCfiscalCrevenue tax : generalCfiscalCrevenue tax is that imposed for the purpose of raising public funds for the service of the government. !. SpecialCregulatory tax : special or regulatory tax is imposed primarily for the regulation of useful or non-useful occupation or enterprises and secondarily only for the purpose of raising public funds.

AS T3 ;<3 ,EARS T<E ,=R0E> . ,irect tax : direct tax is demanded from the person who also shoulders the burden of the tax. It is a tax which the taxpayer is directly or primarily liable and which he or she cannot shift to another. !. Indirect tax :n indirect tax is demanded from a person in the expectation and intention that he or she shall indemnify himself or herself at the expense of another, falling finally upon the ultimate purchaser or consumer. : tax which the taxpayer can shift to another.

AS TO SCOPE OF T,E TAX . Bational tax : national tax is imposed by the national government. !. *ocal tax : local tax is imposed by municipal corporations or local government units E*DFs(. AS TO T,E DETERMINATION OF AMOUNT . Specific tax : specific tax is a tax of a fixed amount imposed by the head or number or by some other standard of weight or measurement. It re)uires no assessment other than the listing or classification of the objects to be taxed. !. Ad valorem tax :n ad valorem tax is a tax of a fixed proportion of the value of the property with respect to which the tax is assessed. It re)uires the intervention of assessors or appraisers to estimate the value of such property before the amount due from each taxpayer can be determined.

AS TO GRADATION OR RATE . +roportional tax Tax based on a fixed percentage of the amount of the property receipts or other basis to be taxed. Axample5 real estate tax.

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+rogressive or graduated tax Tax the rate of which increases as the tax base or bracket increases. Axample5 income tax. ,igressive tax rate5 progressive rate stops at a certain point. +rogression halts at a particular stage. 0egressive tax Tax the rate of which decreases as the tax base or bracket increases. There is no such tax in the +hilippines.

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ASPECTS OF TAXATION Pro"esses t'at are in"lu(e( or em)o(ie( in t'e term /taxation0 . *evying or imposition of the tax which is a legislative act. !. 4ollection of the tax levied which is essentially administrative in character. The first is taxation, strictly speaking, while the second may be referred to as tax administration. The two processes together constitute the taxation system. TAX S+STEMS Con#titutiona" mandate The rule of taxation shall be uniform and e)uitable. The 4ongress shall evolve a progressive system of taxation. >Section !.E (, :rticle /I, 4onstitution? To"entino v. Se)retar& o' 6inan)e 5 0egressivity is not a negative standard for courts to enforce. 7hat 4ongress is re)uired by the 4onstitution to do is to evolve a progressive system of taxation. This is a directive to 4ongress, just like the directive to it to give priority to the enactment of laws for the enhancement of human dignity. The provisions are put in the 4onstitution as moral incentives to legislation, not as judicially enforceable rights.

Progre##ive #&#tem o' taxation v. regre##ive #&#tem o' taxation : progressive system of taxation means that tax laws shall place emphasis on direct taxes rather than on indirect taxes, with ability to pay as the principal criterion. : regressive system of taxation exists when there are more indirect taxes imposed than direct taxes.

Regre##ive tax rate# Tax the rate of which decreases as the tax base or bracket increases. There are no regressive taxes in the +hilippine jurisdiction. 0egressive tax rates should be differentiated from a regressive system of taxation which exists when there are more indirect taxes imposed than direct taxes.

T'ree )asi" rin"i les of a soun( tax s&stem . 8iscal ade)uacy It means that the sources of revenue should be sufficient to meet the demands of public expenditures. >C*ave. v. 3ng%in, .% S40: "" ? !. A)uality or theoretical justice It means that the tax burden should be proportionate to the taxpayer;s ability to pay. This is the socalled ability to pay principle. :dministrative feasibility It means that tax laws should be capable of convenient, just and effective administration.

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NATURE AND LIMITATIONS OF T,E PO1ER OF TAXATION NATURE OF T,E PO1ER OF TAXATION Nature or "'ara"teristi"s of t'e State2s o3er to tax . It is inherent in sovereignty9 hence, it may be exercised although it is not expressly granted by the 4onstitution. !. It is legislative in character9 hence, only the legislature can impose taxes Ealthough the power may be delegated(. ". It is subject to 4onstitutional and inherent limitations9 hence, it is not an absolute power that can be exercised by the legislature anyway it pleases. Po1er to tax v. Po"i)e %o1er v. Po1er o' eminent domain +<*I4A +<7A0 A6IBABT ,<6:IB +ower of the State to enact such+ower of the State to take private +ower of the State to demandlaws in relation to persons and property for public use upon ,A8IBITI<B enforced contributions forproperty as may promote public paying to the owner a just public purposes health, safety, morals, and thecompensation to be ascertained general welfare of the public according to law :uthority <nly the government or its<nly the government or its political6ay be granted to public service Axercising political subdivisions subdivisions companies of public utilities the +ower Anforced contribution isFse of property is regulated for the +F0+<SA demanded for the support ofpurpose of promoting the general+roperty is taken for public use the government welfare +ersons <perates upon a community or<perates upon a community or<perates on an individual as the :ffected class of individuals class of individuals Eusually( owner of a particular property 6oney contributed in theBo transfer of title, at most, there is Transfer of the right to property A88A4T concept of taxes becomes partrestraint on injurious use of thewhether it be ownership or a of public funds property lesser right :ssumed that the individual+erson affected receives no direct receives the e)uivalent of the and immediate benefit but only+erson affected receives the 1ABA8ITS tax in the form of protection,such as may arise from themarket value of the property taken 0A4AI/A, and benefits received from themaintenance of a healthy economicfrom him government as such standard of society :6<FBT :mount imposed should not be Denerally no limit on the Bo amount imposed but rather the <8 more than that sufficient to cover amount of tax that may be owner is paid the market value of I6+<SITI< the cost of the license and the imposed the property taken B necessary expenses of regulation 0elationship 0elatively free from 4onstitutionalSubject to certain 4onstitutional Subject to certain 4onstitutional to the limitations and is superior to thelimitations Ee.g. inferior to limitations 4onstitution impairment provisions impairment of contracts clause( Po1er to tax invo"ve# t*e %o1er to de#tro& #o it mu#t (e exer)i#ed 1it* )aution 4hief Gustice 6arshall declared that the power to tax is also called the power to destroy. Therefore, it should be exercised with caution to minimi'e injury to the proprietary rights of the taxpayer. It must be exercised fairly, e)ually and uniformly, less the tax collector kills the hen that lays the golden egg. H :nd in order to maintain the general public;s trust and confidence in the government, this power must be used justly and not treacherously. >4hief Gustice 6arshall in 2)Cu""o)* v. 2ar&"and, reiterated in Roxa# v. CTA, !" S40: !&%? Gustice =olmes seemingly contradicted the 6arshallian view by declaring in Pan*and"e 3i" Com%an& v. 2i##i##i%%i that the power to tax is not the power to destroy while this court sits. T:@:TI<B

0omondon?# re)on)i"iation o' 2ar#*a"" and <o"me# The imposition of a valid tax could not be judicially restrained merely because it would prejudice taxpayer;s property. :n illegal tax could be judicially declared invalid and should not work to prejudice a taxpayer;s property. 6arshall;s view refers to a valid tax while =olmes; view refers to an invalid tax.

Po1er to tax i# ex)"u#ive"& "egi#"ative in nature The power to tax is peculiarly and exclusively legislative and cannot be exercised by the executive or judicial branches of the government. =ence, only 4ongress can impose taxes. Matters 3it'in t'e "om eten"e of t'e le%islature . The subject or object to be taxed. !. The purpose of the tax so long as it is a public purpose. ". The amount or rate of the tax. #. The manner, means, and agencies of collection of the tax. Commi##ioner v. Santo#, 2$$ SCRA 61$ 9188$: The Supreme 4ourt held that it is within the province of the legislature whether to tax jewelry or not. 7ith the legislature primarily lies the discretion to determine the nature Ekind(, object Epurpose(, extent Erate(, coverage Esubjects(, and situs Eplace( of taxation. It is inherent in the power to tax that the State be free to select the subjects of taxation, and it has been repeatedly held that inequalities which result from a singling out of one particular class for taxation, or exemption, infringe no Constitutional limitation.

Po1er to tax )annot (e de"egated The power of taxation, being purely legislative, 4ongress cannot delegate such power. This limitation arises from the doctrine of separation of powers among the three branches of government. Ex)e%tion# to t*e non-de"egation ru"e . ,elegation to the +resident !. ,elegation to local government units ". ,elegation to administrative agencies TAXPA+ER2S SUIT Tax%a&er?# #uit : case where the act complained of directly involves the illegal disbursement of public funds derived from taxation. Taxpayers have locus standi to )uestion the validity of tax measures or illegal expenditures of public money. In such cases, they are parties in interest who will be prejudiced or benefited by the avails of the suit. <n the other hand, public officials have locus standi because it is their duty to protect public interest. The general rule is that not only persons individually affected but also taxpayers have sufficient interest of preventing the illegal expenditures of money raised by taxation. They may, therefore, )uestion in the proper court the constitutionality of statutes re)uiring the expenditure of public funds. 1ut a taxpayer is not relieved from the obligation of paying a tax because of his belief that it is being misappropriated by certain officials, for otherwise, collection of taxes would be hampered and this may result in the paraly'ation of important governmental functions.

Lo.ada v. C32ELEC In this case, the petitioner filed a taxpayer;s suit to compel the 4<6A*A4 to schedule a special election for vacancies in the 1atasang +ambansa. The Supreme 4ourt held that this is not a taxpayer;s suit as nowhere is it alleged that tax is being illegally spent. S4 reiterated that it is only when an act complained of, which may include a legislative enactment of a statute, involves the illegal expenditure of public money that the so-called taxpayer suit may be allowed.

IN,ERENT LIMITATIONS +n*erent "imitation# . !. ". #. $. +urpose must be public in nature +rohibition against delegation of the taxing power Axemption of government entities, agencies and instrumentalities International comity *imitation of territorial jurisdiction

Pu("i) %ur%o#e in taxation This is one of the inherent limitations of the power to tax and is synonymous to governmental purpose. : tax must always be imposed for a public purpose, otherwise, it will be declared as invalid. The term public purpose has no fixed connotation. The essential point is that the purpose of the tax affects the inhabitants as a community and not merely as inhabitants. It has been said that the best test of rightful taxation is that the proceeds of the tax must be used5 for the support of the government9 or some of the recogni'ed objects of government9 or to promote the welfare of the community.

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E''e)t o' in)identa" (ene'it to %rivate intere#t The purposes to be accomplished by taxation need not be exclusively public. :lthough private individuals are directly benefited, the tax would still be valid provided such benefit is only incidental. The test is not as to who receives the money, but the character of the purpose for which it is expended9 not the immediate result of the expenditure, but rather the ultimate results. The appropriation of public money to construct a road on a private land is not a public purpose. >Pa#)ua" v. Se)retar& o' Pu("i) ;or@#, 2 +hil. "" ?

Ex)e%tion# to t*e non-de"egation ru"e . ,elegation to the +resident !. ,elegation to local government units ". ,elegation to administrative agencies 0e"egation to t*e Pre#ident 4ongress may authori'e, by law, the +resident to fix, within specified limits and subject to such limitations and restrictions as it may impose5 . tariff rates9 !. import and export )uotas9 ". tonnage and wharfage dues9 and #. other duties or imposts within the national development program of the government.

This authori'ation is embodied in Section #2 of the Tariff and 4ustoms 4ode which is also called the flexible tariff clause.

6"exi("e tari'' )"au#e In the interest of national economy, general welfare andCor national security, the +resident, upon recommendation of the Bational Aconomic and ,evelopment :uthority, is empowered5 . To increase, reduce, or remove existing protective rates of import duty, provided that the increase should not be higher than 223 ad valorem9 !. To establish import )uota or to ban imports of any commodity9 and ". To impose additional duty on all imports not exceeding 23 ad valorem. 0e"egation to "o)a" government unit# The power of local government units to impose taxes and fees is always subject to the limitations which 4ongress may provide, the former having no inherent power to tax. > ,a#)o v. PA7C3R? 6unicipal corporations are mere creatures of 4ongress which has the power to create and abolish municipal corporations. 4ongress therefore has power of control over local government units. If 4ongress can grant to a municipal corporation the power to tax certain matters, it can also provide for exemptions or even to take back the power.

0e"egation to admini#trative agen)ie# 7ith the growing complexities of modern life and the many technical fields of governmental functions, as in matters pertaining to tax exemptions, delegation of legislative powers has become the rule and nondelegation the exception. The legislature may not have the competence, let alone the interest and the time, to provide direct and efficacious solutions to many problems attendant upon present day undertakings. The legislature could not be expected to state all the detailed situations wherein the tax exemption privilege would be restored. The task may be assigned to an administrative body like the 8iscal Incentives 0eview 1oard E8I01(. >2a)eda v. 2a)araig, -% S40: && ? 8or delegation to be constitutionally valid, the law must be complete in itself and must set forth sufficient standards. 4ertain aspects of the taxing process that are not really legislative in nature are vested in administrative agencies. In these cases, there really is no delegation, to wit5 a( power to value property9 b( power to assess and collect taxes9 c( power to perform details of computation, appraisement or adjustment9 among others.

Rea#on# 'or exem%ting governmenta" entitie# Dovernment will be taxing itself to raise money for itself. Immunity is necessary in order that governmental functions will not be impeded.

;*at government entitie# are exem%t 'rom in)ome taxA . Dovernment Service Insurance System EDSIS( !. Social Security System ESSS( ". +hilippine =ealth Insurance 4orporation E+=I4( #. +hilippine 4harity Sweepstakes <ffice E+4S<( $. +hilippine :musement and Daming 4orporation E+:D4<0( +nternationa" )omit& 4ourteous, friendly agreement and interaction between nations. Fnder international law, property of a foreign State may not be taxed by another State.

Rea#on# 'or ex)e%tion . Sovereign e)uality of States !. 7hen one State enters the territory of another State, there is an implied understanding that the former does not intend to denigrate its dignity by placing itself under the jurisdiction of the other State ". Immunity from suit of a State Limitation o' a territoria" Buri#di)tion Tax laws cannot operate beyond a state;s territorial limits. +roperty outside one;s jurisdiction does not receive any protection from the state.

CONSTITUTIONAL LIMITATIONS Con#titutiona" "imitation# . ,ue process of law !. A)ual protection of laws ". 0ule of uniformity and e)uity in taxation #. +rohibition against imprisonment for non-payment of poll tax $. +rohibition against impairment of obligation of contracts %. +rohibition against infringement of religious freedom &. +rohibition against appropriation of proceeds of taxation for the use, benefit, or support of any church .. +rohibition against taxation of religious, charitable and educational entities -. +rohibition against taxation of non-stock, non-profit educational institutions 2. <thers a. Drant of tax exemption b. /eto of appropriation, revenue, tariff bills by the +resident c. Bon-impairment of the S4 jurisdiction d. 0evenue bills shall originate exclusively from the =ouse of 0epresentatives e. Infringement of press freedom f. Drant of franchise 0ue %ro)e## o' "a1 There must be a valid law. Tax measure should not be unconscionable and unjust as to amount to confiscation of property. Tax statute must not be arbitrary as to find no support in the 4onstitution.

E4ua" %rote)tion o' "a1# :ll persons subject to legislation shall be treated alike under similar circumstances and conditions both in the privileges conferred and liabilities imposed. The doctrine does not re)uire that persons or properties different in fact be treated in law as though they were the same. 7hat it prohibits is class legislation which discriminates against some and favors others. :s long as there are rational or reasonable grounds for so doing, 4ongress may group persons or properties to be taxed and it is sufficient if all members of the same class are subject to the same rate and the tax is administered impartially upon them.

Re4ui#ite# o' a va"id )"a##i'i)ation . It must be based on substantial distinctions which make real differences. !. The classification must be germane to the purpose of the law. ". The classification must not be limited to existing conditions only but must also apply to future conditions substantially identical to those of the present.

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The classification must apply e)ually to all members of the same class. > Tiu v. Court o' A%%ea"#, "2 S40: !&. E ---(?

Tiu v. Court o' A%%ea"#, 301 SCRA 2$! 91888: The 4onstitutional right to e)ual protection of the law is not violated by an executive order, issued pursuant to law, granting tax and duty incentives only to business within the secured area of the Subic Special Aconomic Ione and denying them to those who live within the Ione but outside such fenced in territory. The 4onstitution does not re)uire absolute e)uality among residents. It is enough that all persons under like circumstances or conditions are given the same privileges and re)uired to follow the same obligations. In short, a classification based on valid and reasonable standards does not violate the e)ual protection clause. 7e find real and substantial distinctions between the circumstances obtaining inside and those outside the Subic Baval 1ase, thereby justifying a valid and reasonable classification.

=ni'ormit& v. e4uit& in taxation Section !. Ec(, :rticle /I of the 4onstitution provides that the rule of taxation shall be uniform and equitable. The concept of uniformity in taxation implies that all taxable articles or properties of the same class shall be taxed at the same rate. It re)uires the uniform application and operation, without discrimination, of the tax in every place where the subject of the tax is found. It does not, however, re)uire absolute identity or e)uality under all circumstances, but subject to reasonable classification. The concept of e)uity in taxation re)uires that the apportionment of the tax burden be, more or less, just in the light of the taxpayer;s ability to shoulder the tax burden and, if warranted, on the basis of the benefits received from the government. Its cornerstone is the taxpayer;s ability to pay.

Pro*i(ition again#t im%ri#onment 'or non-%a&ment o' %o"" tax Bo person shall be imprisoned for debt or non-payment of poll tax. >Section !2, :rticle III, 4onstitution? The non-imprisonment rule applies to non-payment of poll tax which is punishable only by a surcharge, but not to other violations like falsification of community tax certificate and non-payment of other taxes.

Po"" tax

+oll tax is a tax of fixed amount imposed on residents within a specific territory regardless of citi'enship, business or profession. Axample is community tax.

Pro*i(ition again#t im%airment o' o("igation o' )ontra)t# Bo law impairing the obligation of contracts shall be passed. >Section 2, :rticle III, 4onstitution? The obligation of a contract is impaired when its terms or conditions are changed by law or by a party without the consent of the other, thereby weakening the position or rights of the latter. :n example of impairment by law is when a later taxing statute revokes a tax exemption based on a contract. 1ut this only applies when the tax exemption has been granted for a valid consideration. : later statute may revoke exemption from taxation provided for in a franchise because the 4onstitution provides that a franchise is subject to amendment, alteration or repeal.

Pro*i(ition again#t in'ringement o' re"igiou# 'reedom Bo law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof.

The free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be allowed. Bo religious test shall be re)uired for the exercise of civil or political rights. >Section $, :rticle III, 4onstitution? The payment of license fees for the distribution and sale of bibles suppresses the constitutional right of free exercise of religion. >Ameri)an ,i("e So)iet& v. 2ani"a, 2 +hil. ".%?

Pro*i(ition again#t a%%ro%riation o' %ro)eed# o' taxation 'or t*e u#e, (ene'it, or #u%%ort o' an& )*ur)* Se)tion 28, Arti)"e V+, Con#titution . Bo money shall be paid out of the Treasury except in pursuance of an appropriation made by law. !. Bo public money or property shall be appropriated, applied, paid, or employed directly or indirectly, for the use, benefit, or support of any church, denomination, sectarian institution or system of religion, or of any priest, preacher, minister or other religious teacher, or dignitary as such except when such priest, preacher, minister or dignitary is assigned to the armed forces, or to any penal institution, or government orphanage or leprosarium. ". :ll money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the government. Pro*i(ition again#t taxation o' rea" %ro%ert& a)tua""&, dire)t"& and ex)"u#ive"& u#ed 'or re"igiou#, )*arita("e and edu)ationa" %ur%o#e# 4haritable institutions, churches and parsonages or convents appurtenant thereto, mos)ues, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation. >Section !. E"( , :rticle /I, 4onstitution? This is an exemption from real property tax only. The exemption in favor of property used exclusively for charitable or educational purposes is not limited to property actually indispensable therefore, but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes. > A(ra Va""e& Co""ege v. A4uino, %! S40: 2%?

Pro*i(ition again#t taxation o' t*e revenue# and a##et# o' non-#to)@, non-%ro'it edu)ationa" in#titution# :ll 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. Fpon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law. >Section #, :rticle @I/, 4onstitution? This exemption from corporate income tax is embodied in Section "2 of the BI04 which includes a nonstock, non-profit educational institution. Bote however the last paragraph of Section "2 which states5 Notwithstanding the provisions in the preceding paragraphs, the income of whatever ind and character of the foregoing organi!ations from any of their property, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, shall be sub"ect to tax imposed under this Code.

De artment of Finan"e Or(er 456$76 Bon-stock, non-profit educational institutions are exempt from taxes on all their revenues and assets used actually, directly and exclusively for educational purposes. =owever, they shall be subject to internal revenue tax on income from trade, business or other activity, the conduct of which is not related to the exercise or performance by such educational institution of its educational purposes or functions.

Interest income shall be exempt only when used directly and exclusively for educational purposes. To substantiate this claim, the institution must submit an annual information return and duly audited financial statement. : certification of actual utili'ation and the 1oard resolution or the proposed project to be funded out of the money deposited in banks shall also be submitted.

De artment of Finan"e Or(er 489$79 :n educational institution means a non-stock, non-profit corporation or association duly registered under +hilippine law, and operated exclusively for educational purposes, maintained and administered by a private individual or group offering formal education, and with an issued permit to operate by the ,A4S. 0evenues derived from and assets used in the operation of cafeteriaCcanteens, dormitories, and bookstores are exempt from taxation provided they are owned and operated by the educational institution as ancillary activities and the same are located within the school premises.

Commi##ioner o' +nterna" Revenue v. Court o' A%%ea"#, et.a"., 28! SCRA !3 9188!: The Joung 6en;s 4hristian :ssociation of the +hilippines, Inc. EJ64:( was established as a welfare, educational and charitable non#profit corporation. It conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives. In this case, the Supreme 4ourt held that the income derived by J64: from leasing out a portion of its premises to small shop owners, like restaurant and canteen operators, and from parking fees collected from nonmembers are taxable income. 8irst, the constitutional tax exemption granted to non-stock, non-profit educational institutions does not find application because J64: is not an educational institution. The term Keducational institutionH or Kinstitution of learningH has ac)uired a well known technical meaning. Fnder the Aducation :ct of -.!, such term refers to schools. The school system is synonymous with formal education, which Krefers to the hierarchically structured and chronologically graded learnings organi'ed and provided by the formal school system and for which certification is re)uired in order for the learner to progress through the grades or move to the higher levels. : perusal of the articles of incorporation of J64: does not show that it established such a system. Second, even if it be exempt under Section "2 of the BI04 as a non-profit, non-stock educational corporation, the income from the rent of its premises and parking fees is not covered by the exemption, according to the last paragraph of the same section. Section "2 provides that income of whatever kind and character from any of its properties, real or personal, or from any of its activities for profit are not exempt from income tax. 8inally, Section !.E"(, :rticle /I of the 4onstitution does not apply as it extends exemption only from real property taxes L not from income taxes. Taxation o' %ro%rietar& edu)ationa" in#titution# +roprietary educational institutions, including those cooperatively owned, may likewise be entitled to such exemptions subject to the limitations provided by law including restrictions on dividends and provisions for investment. >Section # E"(, :rticle @I/, 4onstitution? Fnder Section !&E1( of the BI04, proprietary educational institutions and hospitals which are non-profit shall pay a tax of ten percent E 23( on their taxable income except for passive incomes which are subject to different tax rates.

3t*er )on#titutiona" "imitation# . Drant of tax exemption Bo law granting any tax exemption shall be passed without the concurrence of a majority of all 6embers of 4ongress. >Section !. E#(, :rticle /I, 4onstitution?

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/eto of appropriation, revenue, or tariff bills by the +resident The +resident shall have the power to veto any particular item or items in an appropriation, revenue, or tariff bill, but the veto shall not affect the item or items to which he does not object. >Section !& E!( :rticle /I, 4onstitution? :n item in a bill refers to particulars, details, the distinct and severable parts of a bill. In budgetary legislation, an item is an individual sum of money dedicated to a stated purpose. > 7on.a"e# v. 2a)araig, S40: #$!?

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Bon-impairment of the jurisdiction of the Supreme 4ourt 4ongress cannot take away from the Supreme 4ourt the power given to it by the 4onstitution as the final arbiter of tax cases. The Supreme 4ourt shall have the following powers5 $eview, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the $ules of Court may provide, final "udgments and orders of lower courts in% All cases involving the legality of any tax, impost, assessment, or toll, or any penalty imposed in relation thereto. >Section $ E!( Eb(, :rticle /III, 4onstitution?

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0evenue bills shall originate exclusively from the =ouse of 0epresentatives :ll appropriation, revenue or tariff bills, bills authori'ing an increase of the public debt, bills of local application, and private bills shall originate exclusively in the =ouse of 0epresentatives, but the Senate may propose or concur with amendments. >Section !#, :rticle /I, 4onstitution? The 4onstitution simply means that the initiative for the filing of bills must come from the =ouse of 0epresentatives, on the theory that, elected as they are from the districts, the members of the =ouse can be expected to be more sensitive to the local needs and problems. It is not the law L but the revenue bill L which is re)uired by the 4onstitution to originate exclusively in the =ouse of 0epresentatives, because a bill originating in the =ouse may undergo such extensive changes in the Senate that the result may be a rewriting of the whole, and a distinct bill may be produced. > To"entino v. Se)retar& o' 6inan)e? The 4onstitution does not also prohibit the filing in the Senate of a substitute bill in anticipation of its receipt of the bill from the =ouse, as long as action by the Senate is withheld until receipt of said bill. >To"entino v. Se)retar& o' 6inan)e?

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Infringement of press freedom This limitation does not mean that the press is exempt from taxation. Taxation constitutes an infringement of press freedom when it operates as a prior restraint to the exercise of this constitutional right. 7hen the tax is imposed on the receipts or the income of the press it is a valid exercise of the sovereign prerogative. Drant of franchise Tax exemptions included in the grant of a franchise may be revoked by another law as it is specifically provided in the 4onstitution that the grant of any franchise is always subject to amendment, alteration, or repeal by the 4ongress when the common good so re)uires.

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SITUS IN TAXATION Situ# o' taxation *iterally, situs of taxation means place of taxation. It is the State or political unit which has jurisdiction to impose a particular tax.

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The determination of the situs of taxation depends on various factors including the5 Bature of the tax9 Subject matter thereof Ei.e. person, property, act or activity9 +ossible protection and benefit that may accrue both to the government and the taxpayer9 0esidence or citi'enship of the taxpayer9 and Source of the income.

Situ# o' tax on %er#on# 9%o"" tax: +oll tax may be properly levied upon persons who are inhabitants or residents of the State, whether or not they are citi'ens. Situ# o' tax on rea" %ro%ert& &itus is where the property is located pursuant to the principle of lex rei sitae. This applies whether or not the owner is a resident of the place where the property is located. This is so because the taxing authority has control over the property which is of a fixed and stationary character. The place where the real property is located gives protection to the real property, hence, the owner must support the government of that place.

Lex rei #itae This is a principle followed in fixing the situs of taxation of a property. This means that the property is taxable in the State where it has its actual situs, specifically in the place where it is located, even though the owner resides in another jurisdiction. 7ith respect to property taxes, real property is subject to taxation in the State where it is located and taxable only there. 'ex rei sitae has also been adopted for tangible personal property under :rticle % of the 4ivil 4ode. : different rule applies to intangible personal property, specifically, mobilia sequuntur personam.

Situ# o' tangi("e %er#ona" %ro%ert& It is taxable in the State where it has actual situs although the owner resides in another jurisdiction. :s stated above, lex rei sitae has also been adopted for tangible personal property under :rticle % of the 4ivil 4ode.

Situ# o' taxation o' intangi("e %er#ona" %ro%ert& General rule5 &itus is the domicile of the owner pursuant to the principle of mobilia sequuntur personam. This rule is based on the fact that such property does not admit of any actual location and that such property receives the protection and benefits of the law where they are located. . !. Ex"e tions5 7hen it is inconsistent with the express provisions of the statute 7hen the property has ac)uired a business situs in another jurisdiction

2o(i"ia #e4uuntor %er#onam This *atin maxim literally means that the property follows the person. Thus, the place where the owner is found is the situs of taxation under the rule that movables follow the person. This is generally where the owner resides. In taxation, this principle is applied to intangible personal property the situs of which is fixed by the domicile of the owner. The reason is that this type of property rarely admits of actual location.

=owever, there are two exceptions to the rule. <ne is when it is inconsistent with the express provisions of a statute. Two, when the interests of justice demand that it should not be applied, i.e. where the property has in fact a situs elsewhere.

;e""# 6argo v. Co""e)tor, $0 P*i" 32 This case involves the collection of inheritance taxes on shares of stock issued by the 1enguet 4onsolidated 6ining 4orporation and owned by *illian Aye. Said shares were already subjected to inheritance taxes in 4alifornia and are now being taxed by +hilippine authorities. <riginally, the settled law in the Fnited States is that intangibles have only one situs for the purpose of inheritance tax L the domicile of the decedent at the time of death. 1ut this rule has, of late, been relaxed. The maxim mobilia sequuntur personam, upon which the rules rests, has been decried as a mere fiction of law having its origin in considerations of general convenience and public policy and cannot be applied to limit or control the right of the State to tax property within its jurisdiction. It must yield to established fact of legal ownership, actual presence and control elsewhere, and cannot be applied if to do so would result in inescapable and patent injustice. The relaxation of the original rule rests on either of two fundamental considerations5 . Fpon the recognition of the inherent power of each government to tax persons, properties and rights within its jurisdiction and enjoying the protection of its laws9 or !. Fpon the principle that as to intangibles, a single location in space is hardly possible, considering the multiple, distinct relationships which may be entered into with respect thereto. The actual situs of the shares of stock is in the +hilippines, the corporation being domiciled therein. :nd besides, the certificates of stock have remained in this country up to the time when the deceased died in 4alifornia, and they were in the possession of the secretary of the 1enguet 4orporation. The secretary had the right to vote, collect dividends, among others. 8or all practical purposes, the secretary had legal title to the certificates of stock held in trust for Aye. Aye extended in the +hilippines her activities re5 her intangible personal property so as to avail herself of the protection and benefits of the +hilippine laws. Co""e)tor v. 0e Lara, 102 P*i" !13 The Supreme 4ourt did not subject to estate and inheritance taxes the shares of stock issued by +hilippine corporations which were left by a non-resident alien after his death. 4onsidering that he is a resident of a foreign country, his estate is entitled to exemption from inheritance tax on the intangible personal property found in the +hilippines. This exemption is granted to non-residents to reduce the burden of multiple taxation, which otherwise would subject a decedent;s intangible personal property to the inheritance tax both in his place of residence and domicile and the place where those properties are found. This is, therefore, an exception to the decision of the Supreme 4ourt in ;e""# 6argo v. Co""e)tor. This has since been incorporated in Section 2# of the BI04.

T*eorie# re5 #itu# o' in)ome tax . ,omicilliary theory The location where the income earner resides is the situs of taxation. This is where he is given protection, hence, he must support it. !. Bationality theory The country of citi'enship is the situs of taxation. This is so because a citi'en is given protection by his country no matter where he is found or no matter where he earns his income. ". Source law The country which is the source of the income or where the activity that produced the income is the situs of taxation. Situ# o' in)ome tax in t*e P*i"i%%ine# The situs is where the income is derived.

The source of an income is the property, activity or service that produced the income. 8or the source of income to be considered as coming from the +hilippines, it is sufficient that income is derived from an activity within the +hilippines. In 1<:4;s cases, the sale of tickets in the +hilippines is the activity that produces the income. The tickets exchanged hands here and payments for fares were also made in the +hilippines. The flow of wealth proceeded from and occurred in the +hilippine territory, enjoying the protection accorded by the +hilippine government9 in consideration of such protection, the flow of wealth should share the burden of supporting the government. The absence of flight operations to and from the +hilippines is not determinative of the source of income or the situs of income taxation. The test of taxability is the source of the income and the source is that activity which produced the income. Aven if the tickets sold covered the transport of passengers and cargo to and from foreign cities, it cannot alter the fact that income from the sale of the tickets was derived from the +hilippines. The word source conveys one essential idea, that of origin, and the origin of the income is here in the +hilippines. >Commi##ioner v. ,3AC, #- S40: "-$?

&itus of tax on interest income is the residence of the borrower who pays the interest, irrespective of the place where the obligation was contracted. If the borrower is a resident of the +hilippines, the interest payment paid by him can have no other source than within the +hilippines.

2u"ti%"i)it& o' #itu# 6ultiplicity of situs, or the taxation of the same income or intangible subject in several taxing jurisdictions, arises from various factors5 . The variance in the concept of domicile for tax purposes9 !. 6ultiple distinct relationships that may arise with respect to intangible personal property9 or ". The use to which the property may have been devoted all of which may receive the protection of the laws of jurisdictions other than the domicile of the owner thereto. . !. The remedy to avoid or reduce the conse)uent burden in case of multiplicity of situs is either to5 +rovide exemptions or allowance of deduction or tax credit for foreign taxes9 or Anter into tax treaties with other States.

DOU-LE TAXATION 0ou("e taxation in t*e #tri)t #en#e v. dou("e taxation in t*e (road #en#e In its strict sense, referred to as direct duplicate taxation, double taxation means5 . taxing twice9 !. by the same taxing authority9 ". within the same jurisdiction or taxing district9 #. for the same purpose9 $. in the same year or taxing period9 %. some of the property in the territory. In its broad sense, referred to as indirect double taxation, double taxation is taxation other than direct duplicate taxation. It extends to all cases in which there is a burden of two or more impositions.

Con#titutiona"it& o' dou("e taxation Fnlike the Fnited States 4onstitution, our 4onstitution does not prohibit double taxation. =owever, while it is not forbidden, it is something not favored. Such taxation should, whenever possible, be avoided and prevented. In addition, where there is direct double taxation, there may be a violation of the constitutional precepts of e)ual protection and uniformity in taxation.

The argument against double taxation may not be invoked where one tax is imposed by the State and the other is imposed by the city, it being widely recogni'ed that there is nothing inherently obnoxious in the re)uirement that license fees or taxes be exacted with respect to the same occupation, calling, or activity by both the State and a political subdivision thereof. :nd where the statute or ordinance in )uestions applies e)ually to all persons, firms and corporations placed in a similar situation, there is no infringement of the rule on e)uality. >Cit& o' ,aguio v. 0e Leon, !$ S40: -".?

Vi""anueva v. Cit& o' +"oi"o, 26 SCRA 2! :n ordinance imposing a municipal tax on tenement houses was challenged because the owners already pay real estate taxes and also income taxes under the BI04. The Supreme 4ourt held that there was no double taxation. The same tax may be imposed by the Bational Dovernment as well as the local government. There is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation, calling, or activity by both the State and a political subdivision thereof. 8urther, a license tax may be levied upon a business or occupation although the land used in connection therewith is subject to property tax. . !. ". #. $. %. &. In order to constitute double taxation in the objectionable or prohibited sense5 the same property must be taxed twice when it should be taxed once9 both taxes must be imposed on the same property or subject matter9 for the same purpose9 by the same State, Dovernment, or taxing authority9 within the same jurisdiction or taxing district9 during the same taxing period9 and of the same kind or character of tax.

:t any rate, there is no constitutional prohibition against double taxation in the +hilippines. It is something not favored but is permissible, provided that some other constitutional re)uirement is not thereby violated.

MEANS OF A*OIDING OR MINIMI:ING T,E -URDEN OF TAXATION Six (a#i) 'orm# o' e#)a%e 'rom taxation . Shifting !. 4apitali'ation ". Avasion #. Axemption $. Transformation %. :voidance Note5 7ith the exception of evasion, all are legal means of escape. S,IFTING S*i'ting Shifting is the transfer of the burden of a tax by the original payer or the one on whom the tax was assessed or imposed to someone else. tax. Taxe# t*at )an (e #*i'ted <nly indirect taxes may be shifted9 direct taxes cannot be shifted. It should be borne in mind that what is transferred is not the payment of the tax but the burden of the

;a&# o' #*i'ting t*e tax (urden . 8orward shifting 7hen the burden of the tax is transferred from a factor of production through factors of distribution until it finally settles on the ultimate purchaser or consumer. Exam le5 6anufacturer or producer may shift tax assessed to wholesaler, who in turn shifts it to the retailer, who also shifts it to the final purchaser or consumer. !. 1ackward shifting 7hen the burden of the tax is transferred from the consumer or purchaser through the factors of distribution to the factor of production. Exam le5 4onsumer or purchaser may shift tax imposed on him to retailer by purchasing only after the price is reduced, and from the latter to the wholesaler, and finally to the manufacturer or producer. ". <nward shifting 7hen the tax is shifted two or more times either forward or backward. Thus, a transfer from the seller to the purchaser involves one shift9 from the producer to the wholesaler, then to retailer, we have two shifts9 and if the tax is transferred again to the purchaser by the retailer, we have three shifts in all. +m%a)t and in)iden)e o' taxation Impact of taxation is the point on which a tax is originally imposed. In so far as the law is concerned, the taxpayer is the person who must pay the tax to the government. =e is also termed as the statutory taxpayer L the one on whom the tax is formally assessed. =e is the subject of the tax. Incidence of taxation is that point on which the tax burden finally rests or settle down. It takes place when shifting has been effected from the statutory taxpayer to another.

Statutor& tax%a&er The statutory taxpayer is the person re)uired by law to pay the tax or the one on whom the tax is formally assessed. In short, he or she is the subject of the tax. In direct taxes, the statutory taxpayer is the one who shoulders the burden of the tax while in indirect taxes, the statutory taxpayer is the one who pay the tax to the government but the burden can be passed to another person or entity.

Re"ation#*i% (et1een im%a)t, #*i'ting, and in)iden)e o' a tax The impact is the initial phenomenon, the shifting is the intermediate process, and the incidence is the result. Thus, the impact in a sales tax Ei.e. /:T( is on the seller Emanufacturer( who shifts the burden to the customer who finally bears the incidence of the tax. Impact is the imposition of the tax9 shifting is the transfer of the tax9 while incidence is the setting or coming to rest of the tax.

TAX E*ASION Tax eva#ion Tax evasion is the use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of a tax. It is also known as tax dodging. It is punishable by law. Tax evasion is a term that connotes fraud through the use of pretenses or forbidden devices to lessen or defeat taxes. >Cutivo v. Court o' Tax A%%ea"#, S40: %2?

Exam le5 ,eliberate failure to report a taxable income or property9 deliberate reduction of income that has been received.

E"ement# o' tax eva#ion Tax evasion connotes the integration of three factors5 . The end to be achieved. Axample5 the payment of less than that known by the taxpayer to be legally due, or in paying no tax when such is due. !. :n accompanying state of mind described as being evil, in bad faith, willful or deliberate and not accidental. ". : course of action Eor failure of action( which is unlawful. Eviden)e to %rove eva#ion Since fraud is a state of mind, it need not be proved by direct evidence but may be proved from the circumstances of the case. +n Re%u("i) v. 7on.a"e# > " S40: %""?, the Supreme 4ourt affirmed the assessment of a deficiency tax against Don'ales, a private concessionaire engaged in the manufacturer of furniture inside the 4lark :ir 1ase, for underdeclaration of his income. S4 held that the failure of the taxpayer to declare for taxation purposes his true and actual income derived from his business for two E!( consecutive years is an indication of his fraudulent intent to cheat the government if its due taxes.

TAX A*OIDANCE Tax avoidan)e Tax avoidance is the exploitation by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income in order to avoid or reduce tax liability. It is politely called tax minimi!ation and is not punishable by law. In 0e"%*er# Trader# Cor%. v. +ntermediate A%%e""ate Court > $& S40: "#-?, the Supreme 4ourt upheld the estate planning scheme resorted to by the +acheco family in converting their property to shares of stock in a corporation which they themselves owned and controlled. 1y virtue of the deed of exchange, the +achecho co-owners saved on inheritance taxes. The Supreme 4ourt said the records do not point to anything wrong and objectionable about this estate planning scheme resorted to. The legal right of the taxpayer to decreased the amount of what otherwise could be his taxes or altogether avoid them by means which the law permits cannot be doubted.

TAX EXEMPTION Tax exem%tion It is the grant of immunity to particular persons or corporations or to persons or corporations of a particular class from a tax which persons and corporations generally within the same state or taxing district are obliged to pay. It is an immunity or privilege9 it is freedom from a financial charge or burden to which others are subjected. Axemption is allowed only if there is a clear provision therefor. It is not necessarily discriminatory as long as there is a reasonable foundation or rational basis.

Rationa"e 'or granting tax exem%tion# Its avowed purpose is some public benefit or interest which the lawmaking body considers sufficient to offset the monetary loss entailed in the grant of the exemption. The theory behind the grant of tax exemptions is that such act will benefit the body of the people. It is not based on the idea of lessening the burden of the individual owners of property.

7round# 'or granting tax exem%tion# . 6ay be based on contract. In such a case, the public which is represented by the government is supposed to receive a full e)uivalent therefor, i.e. charter of a corporation. !. 6ay be based on some ground of public policy, i.e., to encourage new industries or to foster charitable institutions. =ere, the government need not receive any consideration in return for the tax exemption. ". 6ay be based on grounds of reciprocity or to lessen the rigors of international double or multiple taxation Note5 A)uity is not a ground for tax exemption. Axemption is allowed only if there is a clear provision therefor. >ature o' tax exem%tion . It is a mere personal privilege of the grantee. !. It is generally revocable by the government unless the exemption is founded on a contract which is protected from impairment. ". It implies a waiver on the part of the government of its right to collect what otherwise would be due to it, and so is prejudicial thereto. #. It is not necessarily discriminatory so long as the exemption has a reasonable foundation or rational basis. Dind# o' tax exem%tion a))ording to manner o' )reation . Axpress or affirmative exemption 7hen certain persons, property or transactions are, by express provision, exempted from all or certain taxes, either entirely or in part. !. Implied exemption or exemption by omission 7hen a tax is levied on certain classes of persons, properties, or transactions without mentioning the other classes. Avery tax statute makes exemptions because of omissions. Dind# o' tax exem%tion# a))ording to #)o%e or extent . Total 7hen certain persons, property or transactions are exempted, expressly or implied, from all taxes. !. +artial 7hen certain persons, property or transactions are exempted, expressly or implied, from certain taxes, either entirely or in part. 0oe# %rovi#ion in a #tatute granting exem%tion 'rom Ea"" taxe#F in)"ude indire)t taxe#A B<. :s a general rule, indirect taxes are not included in the grant of such exemption unless it is expressly stated. >ature o' %o1er to grant tax exem%tion . Bational government The power to grant tax exemptions is an attribute of sovereignty for the power to prescribe who or what persons or property shall be taxed implies the power to prescribe who or what persons or property shall not be taxed. It is inherent in the exercise of the power to tax that the sovereign state be free to select the subjects of taxation and to grant exemptions therefrom. Fnless restricted by the 4onstitution, the legislative power to exempt is as broad as its power to tax. !. *ocal governments 6unicipal corporations are clothed with no inherent power to tax or to grant tax exemptions. 1ut the moment the power to impose a particular tax is granted, they also have the power to grant exemption therefrom unless forbidden by some provision of the 4onstitution or the law.

The legislature may delegate its power to grant tax exemptions to the same extent that it may exercise the power to exempt. ,a#)o v. PA7C3R E -% S40: $!(5 The power to tax municipal corporations must always yield to a legislative act which is superior, having been passed by the State itself. 6unicipal corporations are mere creatures of 4ongress which has the power to create and abolish municipal corporations due to its general legislative powers. If 4ongress can grant the power to tax, it can also provide for exemptions or even take back the power. C'a!e; !< PCGG= G<R< No< 48>94?= >@ De"em)er 4@@7 In a compromise agreement between the +hilippine Dovernment, represented by the +4DD, and the 6arcos heirs, the +4DD granted tax exemptions to the assets which will be apportioned to the 6arcos heirs. The Supreme 4ourt ruled that the +4DD has absolutely no power to grant tax exemptions, even under the cover of its authority to compromise ill gotten wealth cases. The grant of tax exemptions is the exclusive prerogative of 4ongress. In fact, the Supreme 4ourt even stated that 4ongress itself cannot grant tax exemptions in the case at bar because it will violate the e)ual protection clause of the 4onstitution.

+nter%retation o' "a1# granting tax exem%tion# Deneral rule In the construction of tax statutes, exemptions are not favored and are construed strictissimi "uris against the taxpayer. The fundamental theory is that all taxable property should bear its share in the cost and expense of the government. Taxation is the rule and exemption is the exemption. =e who claims exemption must be able to justify his claim or right thereto by a grant express in terms too plain to be mista en and too categorical to be misinterpreted. If not expressly mentioned in the law, it must be at least within its purview by clear legislative intent. . !. Axceptions 7hen the law itself expressly provides for a liberal construction thereof. In cases of exemptions granted to religious, charitable and educational institutions or to the government or its agencies or to public property because the general rule is that they are exempt from tax.

Stri"t inter retation (oes not a l& to t'e %o!ernment an( its a%en"ies +etitioner cannot invoke the rule on stritissimi "uris with respect to the interpretation of statutes granting tax exemptions to the B+4. The rule on strict interpretation does not apply in the case of exemptions in favor of a political subdivision or instrumentality of the government. >2a)eda v. 2a)araig?

0avao 7u"' v. Commi##ioner, 283 SCRA $6 9188!: : tax cannot be imposed unless it is supported by the clear and express language of a statute9 on the other hand, once the tax is un)uestionably imposed, Ka claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken.H Since the partial refund authori'ed under Section $, 0: #"$, is in the nature of a tax exemption, it must be construed strictissimi "uris against the grantee. =ence, petitioner;s claim of refund on the basis of the specific taxes it actually paid must expressly be granted in a statute stated in a language too clear to be mistaken. Tax remi##ion or tax )ondonation The word remit means to desist or refrain from exacting, inflicting or enforcing something as well as to restore what has already been taken. The remission of taxes due and payable to the exclusion of taxes

already collected does not constitute unfair discrimination. Such a set of taxes is a class by itself and the law would be open to attack as class legislation only if all taxpayers belonging to one class were not treated alike. >Guan Luna Su(d. V. Sarmiento, - +hil "&2? The condonation of a tax liability is e)uivalent to and is in the nature of a tax exemption. Thus, it should be sustained only when expressly provided in the law. > Surigao Con#o"idated 2ining v. Commi##ioner o' +nterna" Revenue, - S40: &!.?

Tax amne#t& Tax amnesty, being a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an absolute forgiveness or waiver by the government of its right to collect what otherwise would be due it and, in this sense, prejudicial thereto. It is granted particularly to tax evaders who wish to relent and are willing to reform, thus giving them a chance to do so and thereby become a part of the new society with a clean slate. >Re%u("i) v. +ntermediate A%%e""ate Court, -% S40: ""$? *ike tax exemption, tax amnesty is never favored nor presumed in law. It is granted by statute. The terms of the amnesty must also be construed against the taxpayer and liberally in favor of the government.

Tax amne#t& v. tax )ondonation v. tax exem%tion : tax amnesty, being a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an absolute forgiveness or waiver by the Dovernment of its right to collect what otherwise would be due it and, in this sense, prejudicial thereto, particularly to tax evaders who wish to relent and are willing to reform are given a chance to do so and therefore become a part of the society with a clean slate. *ike a tax exemption, a tax amnesty is never favored nor presumed in law, and is granted by statute. The terms of the amnesty must be strictly construed against the taxpayer and liberally in favor of the government. Fnlike a tax exemption, however, a tax amnesty has limited applicability as to cover a particular taxing period or transaction only. There is tax condonation or remission when the State desists or refrains from exacting, inflicting or enforcing something as well as to restore what has already been taken. The condonation of a tax liability is e)uivalent to and is in the nature of a tax exemption. Thus, it should be sustained only when expressed in the law. Tax exemption, on the other hand, is the grant of immunity to particular persons or corporations or to person or corporations of a particular class from a tax which persons and corporations generally within the same state or taxing district are obliged to pay. Tax exemption are not favored and are construed strictissimi "uris against the taxpayer.

S<F04AS, :++*I4:TI<B, IBTA0+0AT:TI<B :B, :,6IBIST0:TI<B SOURCES OF TAX LA1S Sour)e# o' tax "a1# . 4onstitution !. Bational Internal 0evenue 4ode ". Tariff and 4ustoms 4ode #. *ocal Dovernment 4ode E1ook II( $. *ocal tax ordinancesC 4ity or municipal tax codes %. Tax treaties and international agreements &. Special laws

<8

T:@ *:7S

.. -.

,ecisions of the Supreme 4ourt and the 4ourt of Tax :ppeals 0evenue rules and regulations and administrative rulings and opinions

Tax treat& : tax treaty is one of the sources of our law on taxation. The +hilippine Dovernment usually enters into tax treaties in order to avoid or minimi'e the effects of double taxation. : treaty has the force and effect of law. RE*ENUE RULES AND REGULATIONS AND ADMINISTRATI*E RULINGS AND OPINIONS Aut*orit& to %romu"gate ru"e# and regu"ation# and ru"ing# and o%inion# The Secretary of 8inance, upon recommendation of the 4ommissioner of Internal 0evenue, shall promulgate needful rules and regulations for the effective enforcement of the provisions of the BI04. This is without prejudice to the power of the 4ommissioner of Internal 0evenue to make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including rulings on the classification of articles for sales tax and similar purposes.

Pur%o#e o' ru"e# and regu"ation# . To properly enforce and execute the laws !. To clarify and explain the law ". To carry into effect the law;s general provisions by providing details of administration and procedure Re4ui#ite# 'or va"idit& o' ru"e# and regu"ation# . They must not be contrary to law and the 4onstitution. !. They must be published in the <fficial Da'ette or a newspaper of general circulation. Commi##ioner v. Court o' A%%ea"#, 240 SCRA 36! The authority of the 6inister of 8inance, in conjunction with the 4ommissioner of Internal 0evenue, to promulgate rules and regulations for the effective enforcement of internal revenue rules cannot be controverted. Beither can it be disputed that such rules and regulations, as well as administrative opinions and rulings, ordinarily should deserve weight and respect by the courts. 6uch more fundamental than either of the above, however, is that all such issuances must not override, but must remain consistent with, the law they seek to apply and implement. :dministrative rules and regulations are intended to carry out, neither to supplant nor to modify, the law. La Suerte v. Court o' Tax A%%ea"#, 134 SCRA 28 7hen an administrative agency renders an opinion by means of a circular or memorandum, it merely interprets existing law and no publication is therefore necessary for its validity. 4onstruction by an executive branch of the government of a particular law, although not binding upon courts, must be given weight as the construction came from the branch of the government which is called upon to implement the law. E''e)tivit& o' revenue ru"e# and regu"ation# 0evenue 6emorandum 4ircular !2-.% was issued to govern the drafting, issuance, and implementation of revenue tax issuances, including5 . 0evenue 0egulations9 !. 0evenue :udit 6emorandum <rders9 and ". 0evenue 6emorandum 4irculars and 0evenue 6emorandum <rders. Axcept when the law otherwise expressly provides, the aforesaid revenue tax issuances shall not begin to be operative until after due notice thereof may be fairly assumed. ,ue notice of the said issuances may be fairly presumed only after the following procedures have been taken5

!. ". #.

4opies of the tax issuance have been sent through registered mail to the following business and professional organi'ations5 a. +hilippine Institute of 4ertified +ublic :ccountants9 b. Integrated 1ar of the +hilippines9 c. +hilippine 4hamber of 4ommerce and Industry9 d. :merican 4hamber of 4ommerce9 e. 8ederation of 8ilipino-4hinese 4hamber of 4ommerce9 and f. Gapanese 4hamber of 4ommerce and Industry in the +hilippines. =owever, other persons or entities may re)uest a copy of the said issuances. The 1ureau of Internal 0evenue shall issue a press release covering the highlights and features of the new tax issuance in any newspaper of general circulation. Affectivity date for enforcement of the new issuance shall take place thirty E"2( days from the date the issuance has been sent to the above-enumerated organi'ations.

,+R ru"ing# :dministrative rulings, known as 1I0 rulings, are the less general interpretation of tax laws being issued from time to time by the 4ommissioner of Internal 0evenue. They are usually rendered on re)uest of taxpayers to clarify certain provisions of a tax law. These rulings may be revoked by the Secretary of 8inance if the latter finds them not in accordance with law. The 4ommissioner may revoke, repeal or abrogate the acts or previous rulings of his predecessors in office because the construction of the statute by those administering it is not binding on their successors if, thereafter, such successors are satisfied that a different construction of the law should be given. 0ulings in the form of opinions are also given by the Secretary of Gustice who is the chief legal officer of the Dovernment.
AND

EFFECTI*IT+

*ALIDIT+ OF A TAX ORDINANCE

Tua.on v. Court o' A%%ea"#, 212 SCRA $38 If the resolution is to be considered as a tax ordinance, it must be shown to have been enacted in accordance with the re)uirements of the *ocal Dovernment 4ode. These would include the holding of a public hearing on the measure and its subse)uent approval by the Secretary of 8inance, in addition to the usual re)uisites for publication of ordinances in general. INTERPRETATION
AND

APPLICATION

OF

TAX LA1S

>ature o' interna" revenue "a1# . Internal revenue laws are not political in nature. !. Tax laws are civil and not penal in nature. >ot %o"iti)a" in nature Internal revenue laws are not political in nature. They are deemed to be the laws of the occupied territory and not of the occupying enemy. Thus, our tax laws continued in force during the Gapanese occupation. ,ila(o !< Colle"tor= 4>> P'il A77 5 It is well known that our internal revenue laws are not political in nature and, as such, continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. Income tax returns that were filed during that period and income tax payments made were considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy.

Civi", not %ena", in nature Tax laws are civil and not penal in nature, although there are penalties provided for their violation. The purpose of tax laws in imposing penalties for delin)uencies is to compel the timely payment of taxes or to punish evasion or neglect of duty in respect thereof. Re u)li" !< Oasan= @@ P'il @855 The war profits tax is not subject to the prohibition on ex post facto laws as the latter applies only to criminal or penal matters. Tax laws are civil in nature.

Con#tru)tion o' tax "a1# . 0ule when legislative intent is clear Tax statutes are to receive a reasonable construction with a view to carrying out their purpose and intent. They should not be construed as to permit the taxpayer easily to evade the payment of taxes. !. 0ule when there is doubt Bo person or property is subject to taxation unless within the terms or plain import of a taxing statute. In every case of doubt, tax statutes are construed strictly against the government and liberally in favor of the taxpayer. Taxes, being burdens, are not to be presumed beyond what the statute expressly and clearly declares. ". +rovisions granting tax exemptions Such provisions are construed strictly against the taxpayer claiming tax exemption. A%%"i)ation o' tax "a1# General rule5 Tax laws are prospective in operation because the nature and amount of the tax could not be foreseen and understood by the taxpayer at the time the transactions which the law seeks to tax was completed. Ex"e tion5 7hile it is not favored, a statute may nevertheless operate retroactively provided it is expressly declared or is clearly the legislative intent. 1ut a tax law should not be given retroactive application when it would be harsh and oppressive.

0ire)tor& and mandator& %rovi#ion# o' tax "a1# ,irectory provisions are those designed merely for the information or direction of officers or to secure methodical and systematic modes of proceedings. 6andatory provisions are those intended for the security of the citi'ens or which are designed to ensure e)uality of taxation or certainty as to the nature and amount of each person;s tax. The omission to follow mandatory provisions renders invalid the act or proceeding to which it relates while the omission to follow directory provisions does not involve such conse)uence. > Roxa# v. Ra''ert&, "& +hil -$.?