General Principles - Part I

Wednesday, May 27, 2009

Nature of the power to tax, purpose, and scope
Taxation is the act of levying the tax, i.e., the process or means y which the sovereign, through
its law!ma"ing ody, raises income to defray the necessary expenses of the government. #t is
merely a way of apportioning the cost if the government among those who in some measures are
privileged to en$oy its enefits and, therefore, must ear its urdens. %7& 'm (ur. 2
nd
)*2+ &
,ooley 72!7)-.
Tax is defined as the lifelood of the government. Ma$or revenue of the government is sourced
from taxation so that in the most pressing times of financial and economic crisis, the agency
authori.ed to administer taxes / the 0ureau of #nternal 1evenue %0#1- should always e on the
front line. 's a matter of fact, 0#1 nowadays are ecoming stricter in the implementation of the
tax laws and are see"ing ways to collect much revenue from taxes. 2ately the 0#1 has widened
the coverage of mandatory withholding of virtually all income payments certain taxpayers y the
implementation of the Top Twenty Thousand Corporations (TTC) from the previous Top Ten
Thousand Corporation list. 3nder the program, on top of those income payments su$ected to
expanded withholding tax, these corporations are re4uired to withhold &5 for payments to its
suppliers of goods and 25 for regular suppliers of services. 'dditionally, reportorial
re4uirements are re4uired to e sumitted to 0#1 to monitor and verify compliance through its
computer systems. ,urrently, the 0#1 is coming up with a similar scheme for individual
taxpayers, expectedly, under the same procedures of 66, aove. ' draft regulation is now in
place for comments at the 0#1 wesite.
0y a simple definition, tax may e defined as an enforced proportional contriution levied y the
law ma"ing ody of the state to raise revenue to support the indispensale and all the necessary
expenses of the government.
Enforced as it involves the mandate of the law so that its imposition is mandatory to
those covered y it. 3nreasonale deviation from the mandate is su$ect to penalties
imposale to an organi.ed society which gives due respect to each and every humanly
right. 6his implies that the sanction, nevertheless, undergoes a due process.
Proportional as theoretically, tax is proportioned upon a taxpayer7s aility to pay. 6his
goes to show that the cost of the entire governance in the state is eing apportioned
among the inhaitants through a certain rule of apportionment eing put into play.
Raise revenue goes with the very heart of taxation, to earn income for the government.
8econdary however to this primary purpose, tax is eing seconded to serve some other
concerns for the ma$ority. 9xample is the import duties and taxes of imported articles. 't
some point where 4uality of local and imported article is of no moment, imported ones
prove to e more costly that the local ones ecause of this import duties and taxes eing
imposed as a way of encouraging the pulic to uy locally produced for the comparale
4uality.
Support the expenses of the government is related to pulic purpose of the imposition
of taxation. While the government is empowered to collect from among its inhaitants y
the power of taxation, proceeds are ound to serve the pulic needs and expenditure only.
:or this purpose, a collection of taxes for a sugar industry was held to constitute as a
pulic purpose for the sugar industry represents and directly affects the pulic.
!ature of the power of taxation as an inherent power
;ower to tax, eing inherent in an independent state for its existence and survival y the
furtherance of its multifarious functions, the same does not re4uire delegation from the supreme
law of the land. <owever, exercise of such power upon the inhaitants is su$ect to limitations
imposed y the power, y its very nature, or y the 8upreme law of the land, the ;hilippine
,onstitution. 6o tax a su$ect matter, person, property or excise, there must e a valid law
imposing the same. =alidity of a tax measure presupposes the fact that it has overcome the test
and scrutiny against it. 6ax measures duly passed y the legislative department, the ,ongress or
the local legislative under its delegated power, en$oy the presumption of validity and he who
controverts has the duty of proving that the same is otherwise.
0y nature, power to tax is inherent in a sovereign estate so that the grant of which is not
necessary ut the exercise is provided safeguards and limitations. 6his means that the state needs
not e empowered y its constitution or any mandate for it to e allowed to tax. 8uch power co!
exists with the state and thus, grant is not necessary. What are eing provided y the supreme
law of the land, the ,onstitution, are the guidelines and the limit on the exercise of the power. #t
wishes to curtail the exercise in such a way as not to ause and misuse said power to the
detriment of the ma$ority and to the advantage of the selected few.
3nder our tax system, compliance is initially voluntary on the part of the taxpayers.
Nevertheless, the government through the administrative agency empowered to administer the
tax, the 0#1 , is clothed with such remedies, under proper procedures, to imposed correct amount
of taxes due to the government upon finding that the compliance ased on the declarations in the
return is insufficient. #t can issue deficiency assessment and impose such measures provided
under the law within the prescried period to see to it that taxes are paid and that tax measures
are complied with. 6his does not however follow that a taxpayer eing assessed is doing an
illegal usiness ecause non!payment of the tax does not ma"e the usiness illegal.
Scope of the taxin" power
6o give a more meaningful power, power of taxation is essentially unlimited and plenary. 6his
means that the state can tax on anything, anytime, anywhere, and at any amount. 9xample is the
issue on taxing short messaging (SMS or commonly known as text message through mobile
phones). 6he author in on the humle view that there could e nothing wrong on taxing this item
as it primarily elongs to the state. What "eeps them perhaps in the meantime is the impact to the
poor and underprivileged depending primarily on the medium to communicate their loved ones
from other places. 6his follows however, that the limitations and guidelines for the said purpose
had een properly oserved.
General Principles # Part II
:riday, May 29, 2009
2imitations of taxing power
While the power does not emanate from a grant, as the same is necessarily inherent upon the
existence of the state, exercise of the power is su$ect to those limitations inherent upon it and
those expressly provided for y the ,onstitution as follows>
#nherent limitations. 6hese limitations are those limitations that emanates from the very nature of
the power of taxation. 6hey are very asic and are uilt!in with the power. 8ome may e similar
to the constitutional limitation ut the constitutional limitation seems to e supreme as they are
the most specific, thus, specifically intended to rule the application or exercise of the power of
taxation. <ereunder are the I!$ERE!T %I&IT'TI(!S>
? %evy for pulic purpose. 6o levy a tax means to impose or to charge or to collect a tax from
those to whom it is addressed. 6echnically however, to levy is to pass on laws or ordinances
imposing a tax or duty upon specific group of taxpayers. 3nder this concept, the impelling
reason for the imposition of the tax must e the welfare of the pulic, in general. 6his follows
that the proceeds from such imposition shall inure to the enefit of the pulic.
#n one case, a certain imposition was successfully passed for the purpose of upholding the
welfare of the sugar industry. #t was 4uestioned on the ground that there is no ;302#, purpose
since the sugar industry does not allegedly represent the pulic. 6he issue was resolved in favor
of the validity of the imposition. While sugar industry does not represent the entire pulic as the
proceeds would not add to the general udget of the national government, nevertheless, the
industry itself admits of a pulic nature whose circumstances and effects directly affect the
pulic. 6he re4uirement of direct purpose does not admit of a direct pulic enefit from the
imposition.
? !on-dele"ation of le"islative power to tax. 6o delegate is to pass on or to entrust to another a
certain duty or oligation. ;ower to tax is lodged with the legislative department. 6o my mind,
this is ecause the legislative ranch is theoretically the representative of the people and they are
directly aware and in common contact with the instances and situations of their districts ma"ing
them the ones "nowledgeale of how est their district could e affected y the new taxes
imposed. 2i"ewise, this is premised on the legal maxim @dele"ate potestas) non dele"ari
potestA which means, what has een delegated cannot e re!delegated so as not to hamper the
o$ective of the delegation. <owever, there are at least two %2- instances where delegation is
possile %a- delegation to the ;resident of some tariff powers, and %- 2ocal government unit7s
fiscal autonomy for their self serving needs.
? Exe*ption of "overn*ent entities. Bovernment is the people, y %not 03C- the people, for
%not ;DD1- the people. Bovernment exists for the people and whatever amount it ma"es, came
from the people and such amount it use to finance its various activities to address the general
welfare of its inhaitants. #t is not constituted to engage in any trade or usiness ut to deliver
asic services and serve everyone within. 'nalytically, taxing the government itself will not
generate more revenue. 6he money will only rotate and so no effect, at all, would e made.
8uffice it to say however, there exist no express prohiition
? International co*ity has something to do with the friendly interaction and participation of
different estates. 6his adheres to some amount of sumission and compliance of certain
international rules and covenants for mutual enefits and en$oyment of the states and its
inhaitants. 0ilateral agreements, conventions and international treaties fall under this category.
? Territorial +urisdiction relates to the area of $urisdiction and responsiility of a particular
estate. #ndependent states power of taxation is generally confined only within its $urisdiction to
give due respect and as courtesy to other states. ' state, as a rule, can only impose and
implement tax laws and rules within its $urisdiction in accordance with its wishes. Dutside its
$urisdiction, it is without power to do so. 0ut then, it can tax on citi.ens or entities of other states
doing a trade or usiness or deriving income within the $urisdiction of its state. 8ee the case of
Spratley islands for etter picture. #ssue on who owns spratley had long een outstanding for
each party claims $urisdiction in accordance with its of the parties elief that it rightfully elongs
to it.
General Principles of Taxation


Fundamental Principles in Taxation


Taxation

Taxation is the inherent power of the sovereign, exercised through 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.


Purposes of taxation

1. Revenue or fiscal: 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 citizens and to enable it to finance its multifarious activities.

!. Non-revenue or regulatory: 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, 151 SCRA 208

*+ ,-& which created the .ideogram /egulatory 0oard also imposed a "12 tax on
the gross receipts payable to the local government. S3 upheld the validity of the law
ruling that the tax imposed is not only a regulatory, but also a revenue, measure
prompted by the reali4ation that earnings of videogram establishments of around *%11
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 "12 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.

Cale! v. Commi""io#er, 208 SCRA $55

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 stabili4ation 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.

Sumptuary purpose of 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.

Theory and basis 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 citi4ens 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.

Life blood or necessity theory

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 citi4ens and
property within its limits to contribute.

In Commissioner v. Algue, the Supreme 3ourt said that taxes are the lifeblood of the
government and should be collected without unnecessary hindrance. They are what we
pay for a civili4ed society. 7ithout taxes, the government would be paraly4ed 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.

%llu"raio#" o& li&e'lood (eor)

. 3ollection 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.

Benefit-received principle

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 citi4ens.

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 citi4en 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
organi4ed 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. >Lorenzo v.
Posadas?

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 citi4en 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. >Lorenzo v. Posadas?

Tax differentiated from other terms


Tariff / Duties

The term tariff and custom duties are used interchangeably in the Tariff and 3ustoms
3ode or *+ @o. #%#.

3ustoms duties, or simply duties, are taxes imposed on goods exported from or
imported into a country. 3ustom 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

&. ' oo" of rates drawn usually in alphaetical order containing the names of several
"inds of merchandise with the corresponding duties to e paid for the same+ or

!. The duties payable on goods imported or exported9 or

". The system or principle of imposing duties on the importation or exportation of
goods.

License or regulatory fee v tax

&. 2icense fee is legal compensation or reward of an officer for specific services while a tax
is an enforced contriution from persons or property y the law!ma"ing ody y virtue of
its sovereignty and for the support of the government and all pulic 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.

Regulaor) a!

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 3ourt 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. 0ut 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.

Crieria &or deermi#i#g li*e#"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.

Instances when license fees could exceed cost of regulation, control or administration

. 7hen the collection or the license fee is authori4ed under both the power of taxation and
police power

!. 7hen the license fee is collected to regulate a non-useful occupation

Special assessment 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'li* v. ,a*olod -ur*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 authori4ed, 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.

Toll v. a!

&. 6oll is a sum of money for the use of something. #t is the consideration which is paid for
the use of a road, ridge, or the li"e, of a pulic nature. 6axes, on the other hand, are enforced
proportional contriutions from persons and property levied y the 8tate y virtue of its
sovereignty for the support of the government and all pulic 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.

Ta! v. +e#al)

. *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.

!bligation to pay debt v obligation to pay tax

&. ' det is generally ased on contract, express or implied, while a tax is ased 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 @I/3.

&. : 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.

Re.ui"ie" o& *om+e#"aio#

. 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.

Rule" re/ "e o&& or *om+e#"aio# o& de'"

"eneral 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. @either 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. >Francia v. IAC, %! S3/: &$# and Reu!lic v. "am!ulao Lum!er, #
S3/: %!!?

#xception5 S3 allowed set off in the case of #omingo v. $arlitos >- S3/: ##"? 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. 3ompensation therefore
takes place by operation of law.

Philex "ining Cororation v. Commissioner, %&' (CRA )*+ ,-&&*.

*hilex 6ining 3orporation wants to set off its claims for .:T input creditBrefund for the
excise taxes due from it. The Supreme 3ourt 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.


Survey of Philippine Taxes


:. Internal revenue taxes imposed under the @I/3

. 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

0. )ocalB6unicipal Taxes

3. Tariff and 3ustoms +uties

+. TaxesBTax incentives under special laws


Classification of Taxes


As to subject matter or object

. *ersonal, poll or capitation tax

Tax of a fixed amount imposed on persons residing within a specified territory, whether citizens or not, without regard to
their property or the occupation or business in which they may be engaged, i.e. community tax.

!. *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

A charge imposed upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation.

As to purpose

. CeneralBfiscalBrevenue tax

A general/fiscal/revenue tax is that imposed for the purpose of raising public funds for the
service of the government.

!. SpecialBregulatory tax

A special or regulatory tax is imposed primarily for the regulation of useful or nonuseful
occupation or enterprises and secondarily only for the purpose of raising public funds.

As to who bears the burden

. +irect tax

A direct tax is demanded from the person who also shoulders the burden of the tax. !t is a
tax which the taxpayer is directly or primarily liable and which he or she cannot shift to
another.

!. Indirect tax

An indirect tax is demanded from a person in the expectation and intention that he or she
shall indemnify himself or herself at the expense of another, falling finally upon the ultimate
purchaser or consumer. A tax which the taxpayer can shift to another.

As to scope of the tax

. @ational tax

: national tax is imposed by the national government.

!. )ocal tax

A local tax is imposed by municipal corporations or local government units "#$%s&.

As to the determination of amount

. Specific tax

A specific tax is a tax of a fixed amount imposed by the head or number or by some other
standard of weight or measurement. !t 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. (xample) real estate
tax.

!. *rogressive or graduated tax

Tax the rate of which increases as the tax base or brac*et increases. (xample) income tax.

+igressive tax rate5 progressive rate stops at a certain point. *rogression halts at
a particular stage.

". /egressive tax

Tax the rate of which decreases as the tax base or brac*et increases. There is no such tax in the +hilippines.


Aspects of Taxation


Processes that are included or embodied in the term taxation

. )evying or imposition of the tax which is a legislative act.

!. 3ollection of the tax levied which is essentially administrative in character.

The first is taxation, strictly spea*ing, while the second may be referred to as tax
administration. The two processes together constitute the taxation system.



Tax Systems


Co#"iuio#al ma#dae

The rule of taxation shall be uniform and e(uitable. The 3ongress shall evolve a
progressive system of taxation. >Section !-D', :rticle .I, 3onstitution?

/olentino v. (ecretar0 of Finance5 /egressivity is not a negative standard for courts
to enforce. 7hat 3ongress is re(uired by the 3onstitution to do is to evolve a
progressive system of taxation. This is a directive to 3ongress, 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 3onstitution as moral incentives to legislation, not as judicially
enforceable rights.

$rogressive system of taxation v regressive system of 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.

%egressive tax rates

Tax the rate of which decreases as the tax base or bracket increases. There are no
regressive taxes in the *hilippine jurisdiction.

/egressive tax rates should be differentiated from a regressive system of taxation
which exists when there are more indirect taxes imposed than direct taxes.

Three basic principles of a sound tax system

. 8iscal ade(uacy

!t means that the sources of revenue should be sufficient to meet the demands of public
expenditures. ,Chavez v. Ongpin, 1-. /01A 2213

!. A(uality or theoretical justice

!t means that the tax burden should be proportionate to the taxpayer4s ability to pay. This is
the socalled ability to pay principle.

". :dministrative feasibility

!t means that tax laws should be capable of convenient, just and effective administration.


5ature and #imitations of the +ower of Taxation


!ature of the po"er of taxation

!ature or characteristics of the #tate$s po"er to tax

. It is inherent in sovereignty9 hence, it may be exercised although it is not expressly
granted by the 3onstitution.

!. It is legislative in character9 hence, only the legislature can impose taxes Dalthough the
power may be delegated'.

". It is subject to 3onstitutional and inherent limitations9 hence, it is not an absolute power
that can be exercised by the legislature anyway it pleases.

Power to tax v. Police ower v. Power of eminent domain

T:E:TI<@ *<)I3A *<7A/ A6I@A@T +<6:I@
+A8I@ITI<@
*ower of the State to
demand enforced
contributions for public
purposes
*ower of the State to
enact such laws in
relation to persons and
property as may promote
public health, safety,
morals, and the general
welfare of the public
*ower of the State to take
private property for public
use upon paying to the
owner a just
compensation to be
ascertained according to
law
:uthority
Axercising
the *ower
<nly the government or
its political subdivisions
<nly the government or
its political subdivisions
6ay be granted to public
service companies of
public utilities
*F/*<SA
Anforced contribution is
demanded for the
support of the
government
Fse of property is
regulated for the purpose
of promoting the general
welfare
*roperty is taken for
public use
*ersons
:ffected
<perates upon a
community or class of
individuals
<perates upon a
community or class of
individuals Dusually'
<perates on an individual
as the owner of a
particular property
A88A3T
6oney contributed in the
concept of taxes
becomes part of public
funds
@o transfer of title, at
most, there is restraint on
injurious use of the
property
Transfer of the right to
property whether it be
ownership or a lesser
right
0A@A8ITS
/A3AI.A+
:ssumed that the
individual receives the
e(uivalent of the tax in
the form of protection,
and benefits received
*erson affected receives
no direct and immediate
benefit but only such as
may arise from the
maintenance of a healthy
*erson affected receives
the market value of the
property taken from him
from the government as
such
economic standard of
society
:6<F@T <8
I6*<SITI<@
Cenerally no limit on the
amount of tax that may
be imposed
:mount imposed should
not be more than that
sufficient to cover the
cost of the license and
the necessary expenses
of regulation
@o amount imposed but
rather the owner is paid
the market value of the
property taken
/elationship
to the
3onstitution
Subject to certain
3onstitutional limitations
/elatively free from
3onstitutional limitations
and is superior to the
impairment provisions
Subject to certain
3onstitutional limitations
De.g. inferior to
impairment of contracts
clause'

Power to tax involves the ower to destro0 so it must !e exercised with caution

3hief Gustice 6arshall declared that the power to tax is also called the power to
destroy. Therefore, it should be exercised with caution to minimi4e 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. >3hief Gustice 6arshall in "cCulloch v. "ar0land, reiterated in
Roxas v. C/A, !" S3/: !&%?

Gustice =olmes seemingly contradicted the 6arshallian view by declaring in
Panhandle 1il Coman0 v. "ississii that the power to tax is not the power to
destroy while this court sits.


#omondon2s reconciliation of "arshall and 3olmes

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.

Power to tax is exclusivel0 legislative 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 3ongress can impose
taxes.

%atters "ithin the competence of the legislature

. 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.

Commissioner v. (antos, %++ (CRA )-+ ,-&&+.

The Supreme 3ourt 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
Dkind', object Dpurpose', extent Drate', coverage Dsubjects', and situs Dplace' 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.

Po0er o a! *a##o 'e delegaed

The power of taxation, being purely legislative, 3ongress cannot delegate such power.
This limitation arises from the doctrine of separation of powers among the three
branches of government.

E!*e+io#" o (e #o#1delegaio# rule

. +elegation to the *resident

!. +elegation to local government units

". +elegation to administrative agencies

Taxpayer$s #uit

Ta!+a)er2" "ui

: 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.

0ut 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 paraly4ation of important governmental
functions.

Lo3ada v. C4-ELEC

In this case, the petitioner filed a taxpayer;s suit to compel the 3<6A)A3 to schedule
a special election for vacancies in the 0atasang *ambansa. The Supreme 3ourt held
that this is not a taxpayer;s suit as nowhere is it alleged that tax is being illegally spent.

S3 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.

&nherent 'imitations

%#(ere# limiaio#"

. *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

$ublic purpose 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

a' for the support of the government9 or

b' some of the recogni4ed objects of government9 or

c' to promote the welfare of the community.

E&&e* o& i#*ide#al 'e#e&i o +rivae i#ere"

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. >Pascual v. (ecretar0 of Pu!lic 4or5s, 1 *hil. ""?

E!*e+io#" o (e #o#1delegaio# rule

. +elegation to the *resident

!. +elegation to local government units

". +elegation to administrative agencies

5elegaio# o (e Pre"ide#

3ongress may authori4e, 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 authori4ation is embodied in Section #1 of the Tariff and 3ustoms 3ode which is
also called the flexible tariff clause.

6le!i'le ari&& *lau"e

In the interest of national economy, general welfare andBor national security, the
*resident, upon recommendation of the @ational 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 112 ad valorem9

!. To establish import (uota or to ban imports of any commodity9 and

". To impose additional duty on all imports not exceeding 12 ad valorem.


5elegaio# o lo*al gover#me# u#i"

The power of local government units to impose taxes and fees is always subject to the
limitations which 3ongress may provide, the former having no inherent power to tax.
>6asco v. PA$C1R?

6unicipal corporations are mere creatures of 3ongress which has the power to create
and abolish municipal corporations. 3ongress therefore has power of control over local
government units. If 3ongress 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.

5elegaio# o admi#i"raive age#*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 non-delegation 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 /eview 0oard D8I/0'. >"aceda v.
"acaraig, ,% S3/: &&?

8or delegation to be constitutionally valid, the law must be complete in itself and must
set forth sufficient standards.

3ertain 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.

Reasons for exemting governmental entities

Covernment will be taxing itself to raise money for itself.

Immunity is necessary in order that governmental functions will not be impeded.

7(a gover#me# e#iie" are e!em+ &rom i#*ome a!8

. Covernment Service Insurance System DCSIS'

!. Social Security System DSSS'

". *hilippine =ealth Insurance 3orporation D*=I3'

#. *hilippine 3harity Sweepstakes <ffice D*3S<'

$. *hilippine :musement and Caming 3orporation D*:C3</'

%#er#aio#al *omi)

3ourteous, friendly agreement and interaction between nations.

Fnder international law, property of a foreign State may not be taxed by another State.

Rea"o#" &or e!*e+io#

. 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

Limiaio# o& a erriorial 9uri"di*io#

Tax laws cannot operate beyond a state;s territorial limits.

*roperty outside one;s jurisdiction does not receive any protection from the state.

Constitutional 'imitations

Co#"iuio#al limiaio#"

. +ue process of law

!. A(ual protection of laws

". /ule 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

1. <thers

a. Crant of tax exemption

b. .eto of appropriation, revenue, tariff bills by the *resident

c. @on-impairment of the S3 jurisdiction

d. /evenue bills shall originate exclusively from the =ouse of /epresentatives

e. Infringement of press freedom

f. Crant of franchise

#ue rocess of law

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 3onstitution.

E7ual rotection of laws

: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, 3ongress 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.

Re7uisites of a valid classification

. 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.

#. The classification must apply e(ually to all members of the same class. >/iu v. Court of
Aeals, "1 S3/: !&- D,,,'?

/iu v. Court of Aeals, 89- (CRA %+* ,-&&&.

The 3onstitutional 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 3onstitution 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 @aval 0ase, thereby justifying a valid and reasonable
classification.

&niformity v e'uity in taxation

Section !- Dc', :rticle .I of the 3onstitution 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.

Prohi!ition against imrisonment for non:a0ment of oll tax

@o person shall be imprisoned for debt or non-payment of poll tax. >Section !1, :rticle
III, 3onstitution?

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.

Poll a!

*oll tax is a tax of fixed amount imposed on residents within a specific territory
regardless of citi4enship, business or profession. Axample is community tax.

Prohi!ition against imairment of o!ligation of contracts

@o law impairing the obligation of contracts shall be passed. >Section 1, :rticle III,
3onstitution?

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. 0ut 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 3onstitution provides that a franchise is subject to amendment, alteration or
repeal.

Prohi!ition against infringement of religious freedom

@o 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. @o religious test shall be re(uired
for the exercise of civil or political rights. >Section $, :rticle III, 3onstitution?

The payment of license fees for the distribution and sale of bibles suppresses the
constitutional right of free exercise of religion. >American 6i!le (ociet0 v. "anila, 1
*hil. "-%?

Prohi!ition against aroriation of roceeds of taxation for the use, !enefit, or suort
of an0 church

(ection %&, Article ;I, Constitution

. @o money shall be paid out of the Treasury except in pursuance of an appropriation made
by law.

!. @o 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.

Prohi!ition against taxation of real roert0 actuall0, directl0 and exclusivel0 used for
religious, charita!le and educational uroses

3haritable 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 !- D"' , :rticle .I, 3onstitution?

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 ;alle0 College v. A7uino, %! S3/: 1%?

Prohi!ition against taxation of the revenues and assets of non:stoc5, non:rofit
educational institutions

: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 EI.,
3onstitution?

This exemption from corporate income tax is embodied in Section "1 of the @I/3
which includes a non-stock, non-profit educational institution.

@ote however the last paragraph of Section "1 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.

(epartment of )inance *rder +,-./-

@on-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 utili4ation
and the 0oard resolution or the proposed project to be funded out of the money
deposited in banks shall also be submitted.

(epartment of )inance *rder +01./1

: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 +A3S.

/evenues derived from and assets used in the operation of cafeteriaBcanteens,
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.

Commissioner of Internal Revenue v. Court of Aeals, et.al., %&* (CRA *8 ,-&&*.

The Joung 6en;s 3hristian :ssociation of the *hilippines, Inc. DJ63:' 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 3ourt held that the income derived by J63: from leasing out
a portion of its premises to small shop owners, like restaurant and canteen operators, and from
parking fees collected from non-members are taxable income.

8irst, the constitutional tax exemption granted to non-stock, non-profit educational
institutions does not find application because J63: 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 organi4ed 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 J63: does not show that it
established such a system.

Second, even if it be exempt under Section "1 of the @I/3 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 "1
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 !-D"', :rticle .I of the 3onstitution does not apply as it extends
exemption only from real property taxes L not from income taxes.

/axation of rorietar0 educational institutions

*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 # D"', :rticle EI.,
3onstitution?

Fnder Section !&D0' of the @I/3, proprietary educational institutions and hospitals
which are non-profit shall pay a tax of ten percent D12' on their taxable income except
for passive incomes which are subject to different tax rates.

1ther constitutional limitations

. Crant of tax exemption

@o law granting any tax exemption shall be passed without the concurrence of a
majority of all 6embers of 3ongress. >Section !- D#', :rticle .I, 3onstitution?

2. =eto of appropriation, revenue, or tariff ills y 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 !& D!' :rticle .I, 3onstitution?

: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. >$onzales v. "acaraig, , S3/: #$!?

". @on-impairment of the jurisdiction of the Supreme 3ourt

3ongress cannot take away from the Supreme 3ourt the power given to it by the
3onstitution as the final arbiter of tax cases.

The Supreme 3ourt 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 $ D!' Db',
:rticle .III, 3onstitution?

*. 1evenue ills shall originate exclusively from the <ouse of 1epresentatives

:ll appropriation, revenue or tariff bills, bills authori4ing an increase of the public
debt, bills of local application, and private bills shall originate exclusively in the =ouse of
/epresentatives, but the Senate may propose or concur with amendments. >Section !#,
:rticle .I, 3onstitution?

The 3onstitution simply means that the initiative for the filing of bills must come
from the =ouse of /epresentatives, 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
3onstitution to originate exclusively in the =ouse of /epresentatives, 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. >/olentino v.
(ecretar0 of Finance?

The 3onstitution 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. >/olentino v. (ecretar0 of Finance?

$. 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.

%. Crant of franchise

Tax exemptions included in the grant of a franchise may be revoked by another
law as it is specifically provided in the 3onstitution that the grant of any franchise is
always subject to amendment, alteration, or repeal by the 3ongress when the common
good so re(uires.


SIT,S I! T'-'TI(!


Siu" o& a!aio#

)iterally, situs of taxation means place of taxation. It is the State or political unit which
has jurisdiction to impose a particular tax.

The determination of the situs of taxation depends on various factors including the5

. @ature of the tax9

!. Subject matter thereof Di.e. person, property, act or activity9

". *ossible protection and benefit that may accrue both to the government and the
taxpayer9

#. /esidence or citi4enship of the taxpayer9 and

$. Source of the income.


Siu" o& a! o# +er"o#" :+oll a!;

*oll tax may be properly levied upon persons who are inhabitants or residents of the
State, whether or not they are citi4ens.

Siu" o& a! o# real +ro+er)

&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 sitae

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 3ivil 3ode. : different rule applies to intangible
personal property, specifically, mobilia sequuntur personam.

Siu" o& a#gi'le +er"o#al +ro+er)

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 3ivil 3ode.

(itus of taxation of intangi!le ersonal roert0

"eneral 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.

#xceptions5

. 7hen it is inconsistent with the express provisions of the statute

!. 7hen the property has ac(uired a business situs in another jurisdiction

Mobilia sequuntor personam

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.

7ell" 6argo v. Colle*or, $0 P(il 325

This case involves the collection of inheritance taxes on shares of stock issued by the
0enguet 3onsolidated 6ining 3orporation and owned by )illian Aye. Said shares were already
subjected to inheritance taxes in 3alifornia 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. 0ut 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 3alifornia, and they were in the possession of the secretary of
the 0enguet 3orporation. 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.

Colle*or v. 5e Lara, 102 P(il 813

The Supreme 3ourt 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.
3onsidering 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 3ourt in 4ells Fargo
v. Collector. This has since been incorporated in Section 1# of the @I/3.

T(eorie" re/ "iu" o& i#*ome a!

. +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.

!. @ationality theory

The country of citi4enship is the situs of taxation. This is so because a citi4en 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.

Siu" o& i#*ome a! i# (e P(ili++i#e"

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 0<:3;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. >Commissioner v. 61AC, #, S3/: ",$?

&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.

-uli+li*i) o& "iu"

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.


Double Taxation


#ou!le taxation in the strict sense v. dou!le taxation in the !road sense

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.

Co#"iuio#ali) o& dou'le a!aio#

Fnlike the Fnited States 3onstitution, our 3onstitution 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 recogni4ed 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. >Cit0 of 6aguio v. #e Leon, !$ S3/: ,"-?

Villa#ueva v. Ci) o& %loilo, 265 SCRA 528

: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 @I/3. The
Supreme 3ourt held that there was no double taxation. The same tax may be imposed
by the @ational Covernment 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, Covernment, 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.



6eans of Avoiding or 6inimizing the 7urden of Taxation


Si! 'a"i* &orm" o& e"*a+e &rom a!aio#

. Shifting

!. 3apitali4ation

". Avasion

#. Axemption

$. Transformation

%. :voidance

Note5 7ith the exception of evasion, all are legal means of escape.

#hifting

S(i&i#g

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.

It should be borne in mind that what is transferred is not the payment of the tax but the
burden of the tax.

Ta!e" (a *a# 'e "(i&ed

<nly indirect taxes may be shifted9 direct taxes cannot be shifted.

7a)" o& "(i&i#g (e a! 'urde#

. 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.

#xample5 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.

!. 0ackward shifting

7hen the burden of the tax is transferred from the consumer or purchaser
through the factors of distribution to the factor of production.

#xample5 3onsumer 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* a#d i#*ide#*e o& a!aio#

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.

Statutory taxpayer

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.

Relationshi !etween imact, shifting, and incidence of 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 Di.e. .:T' is on the seller
Dmanufacturer' 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 evasion

Ta! eva"io#

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. ><utivo v. Court of /ax Aeals, S3/: %1?

#xample5 +eliberate failure to report a taxable income or property9 deliberate
reduction of income that has been received.

Eleme#" o& a! eva"io#

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 Dor failure of action' which is unlawful.

Evide#*e o +rove eva"io#

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.

In Reu!lic v. $onzales >" S3/: %""?, the Supreme 3ourt affirmed the assessment
of a deficiency tax against Con4ales, a private concessionaire engaged in the
manufacturer of furniture inside the 3lark :ir 0ase, for underdeclaration of his income.
S3 held that the failure of the taxpayer to declare for taxation purposes his true and
actual income derived from his business for two D!' consecutive years is an indication of
his fraudulent intent to cheat the government if its due taxes.


Tax avoidance

Ta! avoida#*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 #elhers /raders Cor. v. Intermediate Aellate Court >$& S3/: "#,?, the
Supreme 3ourt 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. 0y virtue of the deed of exchange, the *achecho co-owners
saved on inheritance taxes. The Supreme 3ourt 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

Ta! e!em+io#

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.

Raio#ale &or gra#i#g a! e!em+io#"

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.


<rou#d" &or gra#i#g a! e!em+io#"

. 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.

=aure o& a! e!em+io#

. 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.

=inds of tax exemtion according to manner of creation

. 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.

2. #mplied exemption or exemption y 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.

=inds of tax exemtions according to scoe or extent

. Total

8hen certain persons, property or transactions are exempted, expressly or implied, from all taxes.

!. *artial

8hen certain persons, property or transactions are exempted, expressly or implied, from certain taxes, either entirely or
in part.

#oes rovision in a statute granting exemtion from >all taxes? include indirect taxes@

@<. :s a general rule, indirect taxes are not included in the grant of such exemption
unless it is expressly stated.

=aure o& +o0er o gra# a! e!em+io#

. @ational 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 3onstitution, 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. 0ut 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
3onstitution 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.

6asco v. PA$C1R D,% S3/: $!'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 3ongress which has the power to
create and abolish municipal corporations due to its general legislative powers. If
3ongress can grant the power to tax, it can also provide for exemptions or even take
back the power.

Chave2 v3 PC445 43R3 !o3 +061+75 68 (ecember +88/

In a compromise agreement between the *hilippine Covernment, represented by the
*3CC, and the 6arcos heirs, the *3CC granted tax exemptions to the assets which will
be apportioned to the 6arcos heirs. The Supreme 3ourt ruled that the *3CC 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 3ongress.

In fact, the Supreme 3ourt even stated that 3ongress itself cannot grant tax
exemptions in the case at bar because it will violate the e(ual protection clause of the
3onstitution.

Interretation of laws granting tax exemtions

Ceneral 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 mistaen 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.

#trict interpretation does not apply to the government and its
agencies

*etitioner cannot invoke the rule on stritissimi "uris with respect to the interpretation of
statutes granting tax exemptions to the @*3. The rule on strict interpretation does not
apply in the case of exemptions in favor of a political subdivision or instrumentality of the
government. >"aceda v. "acaraig?

#avao $ulf v. Commissioner, %&8 (CRA +) ,-&&*.

: 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 authori4ed under Section $, /: #"$,
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.

Ta! remi""io# or a! *o#do#aio#

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. >Auan Luna (u!d. ;. (armiento, , *hil "&1?

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.
>(urigao Consolidated "ining v. Commissioner of Internal Revenue, , S3/: &!-?

Ta! am#e")

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. >Reu!lic v. Intermediate Aellate Court, ,% S3/: ""$?

)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 amnesty v tax condonation v tax exemption

: 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 Covernment 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.


Sources, Application, Interpretation and Administration of Tax Laws


#ources of Tax 'a"s

Sour*e" o& a! la0"

. 3onstitution

!. @ational Internal /evenue 3ode

". Tariff and 3ustoms 3ode

#. )ocal Covernment 3ode D0ook II'

$. )ocal tax ordinancesB 3ity or municipal tax codes

%. Tax treaties and international agreements

&. Special laws

-. +ecisions of the Supreme 3ourt and the 3ourt of Tax :ppeals

,. /evenue rules and regulations and administrative rulings and opinions

Tax treaty

: tax treaty is one of the sources of our law on taxation. The *hilippine Covernment
usually enters into tax treaties in order to avoid or minimi4e the effects of double
taxation. : treaty has the force and effect of law.

1evenue 1ules and 1egulations and 'dministrative 1ulings and Dpinions

Authorit0 to romulgate rules and regulations and rulings and oinions

The Secretary of 8inance, upon recommendation of the 3ommissioner of Internal
/evenue, shall promulgate needful rules and regulations for the effective enforcement of
the provisions of the @I/3.

This is without prejudice to the power of the 3ommissioner of Internal /evenue 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& rule" a#d regulaio#"

. 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


Re7uisites for validit0 of rules and regulations

. They must not be contrary to law and the 3onstitution.

!. They must be published in the <fficial Ca4ette or a newspaper of general circulation.

Commissioner v. Court of Aeals, %'9 (CRA 8)*

The authority of the 6inister of 8inance, in conjunction with the 3ommissioner of
Internal /evenue, to promulgate rules and regulations for the effective enforcement of
internal revenue rules cannot be controverted. @either 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 (uerte v. Court of /ax Aeals, -8' (CRA %&

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. 3onstruction 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*ivi) o& reve#ue rule" a#d regulaio#"

/evenue 6emorandum 3ircular !1--% was issued to govern the drafting, issuance,
and implementation of revenue tax issuances, including5

. /evenue /egulations9

!. /evenue :udit 6emorandum <rders9 and

". /evenue 6emorandum 3irculars and /evenue 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

. 3opies of the tax issuance have been sent through registered mail to the following
business and professional organi4ations5

a. *hilippine Institute of 3ertified *ublic :ccountants9

b. Integrated 0ar of the *hilippines9

c. *hilippine 3hamber of 3ommerce and Industry9

d. :merican 3hamber of 3ommerce9

e. 8ederation of 8ilipino-3hinese 3hamber of 3ommerce9 and

f. Gapanese 3hamber of 3ommerce and Industry in the *hilippines.

!. =owever, other persons or entities may re(uest a copy of the said issuances.

". The 0ureau of Internal /evenue 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 D"1'
days from the date the issuance has been sent to the above-enumerated
organi4ations.

B(% rulings

:dministrative rulings, known as 0I/ rulings, are the less general interpretation of tax
laws being issued from time to time by the 3ommissioner of Internal /evenue. 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 3ommissioner 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.

/ulings in the form of opinions are also given by the Secretary of Gustice who is the
chief legal officer of the Covernment.


Effectivity and 9alidity of a Tax *rdinance

Tua3o# v. Cour o& A++eal", 212 SCRA $3>

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 Covernment 3ode. 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.

(NT#%$%#T)T(!N )ND )$$L(*)T(!N !+ T), L)-S

=aure o& i#er#al reve#ue la0"

. Internal revenue laws are not political in nature.

!. Tax laws are civil and not penal in nature.

=o +olii*al i# #aure

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.

.ilado v *ollector/ 011 $hil 2335 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.

Civil, #o +e#al, i# #aure

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.

%epublic v !asan/ 44 $hil 4565 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.

Co#"ru*io# o& a! la0"

. /ule 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.

!. /ule when there is doubt

@o 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++li*aio# o& a! la0"

"eneral 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.

#xception5 7hile it is not favored, a statute may nevertheless operate retroactively
provided it is expressly declared or is clearly the legislative intent. 0ut a tax law should
not be given retroactive application when it would be harsh and oppressive.

Directory and mandatory provisions of tax la7s

+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 citi4ens 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. >Roxas v. Raffert0, "& *hil ,$-?