National taxes under the supervision and control of the Bureau of Internal

Revenue (BIR)
-
National Internal Revenue Code (NIRC) -
Internal Revenue Taxes 1.
Supervised or mandated by the local government units -
Independent from Internal Revenue taxes -
Local Government Code -
Local Government Ordinances -
Local/municipal taxes 2.
Imposed on imported goods -
Administrative agency: Bureau of Customs -
Tariff and Customs Code -
Tariff/Duties 3.
Prominent administrative entities: Philippine Economic Zone Authority (PEZA);
Board of Investments; Bases Conversion and Development Authority (BCDA)
-
Incentives like income tax holidays -
Taxes/incentives under special laws 4.
Survey of Philippine taxes/Overview of Philippine tax system A.
The act of laying a tax -
The process or means by which the sovereign, through its law-making
body, raises income to defray the necessary expenses of government
-
A way of apportioning the cost of government among those who in some
measure are privileged to enjoy its benefits and therefore must bear its
burden.
-
Taxation 1.
License and regulatory fee a.
License/Permit Fee Tax
A charge imposed under police power for
purposes of regulation
- An enforced contribution assessed
by sovereign authority to defray
public expenses
-
The legal compensation or reward of an
officer for specific services
- Levied for revenue -
Involves an exercise of police power - Involves the exercise of the taxing
power
-
Amount should be limited to the
necessary expenses of inspection and
regulation
- Generally, no limit on the amount of
tax is imposed
-
Imposed on the right to exercise a
privilege
- Imposed also on persons and
properties
-
Failure to pay a license fee makes the act
or business illegal
- Failure to pay a tax does not
necessarily make the act/business
illegal
-
Special Assessment b.
Tax distinguished from other terms 2.
Meaning of Taxation B.
Meaning, Nature, Basis, Characteristics and Purpose of Taxation I.
Part I: General Principles of Taxation
LAW 124: Taxation

Special Assessment b.
Special Assessment Tax
Enforced proportional contribution from
owners of lands especially or peculiarly
benefited by public improvements
- Enforced contribution to raise
revenues
-
Levied only on land - Levied on persons, property -
Not a personal liability of the person
assessed (liability is limited to the land
involved)
- A person "not enjoying government
services" cannot not pay taxes
-
Based wholly on benefits and not
necessity
- Based upon a person's capacity to
pay/share in the public burden
-
Exceptional both as to the time and place - Has general application -
Toll c.
Toll Tax
A sum of money for the use of
something, generally applied to the
consideration which is paid for the use of
a road, bridge or the like, of a public
nature
-
A demand of proprietorship - A demand of sovereignty -
Paid for the use of another's property - Paid for the support of the
government
-
Amount of toll depends upon the cost of
construction or maintenance of the
public improvement used
- There is generally no limit on the
amount of tax that may be imposed
-
May be imposed by the government or
private individuals or entities
- May be imposed only by the
government
-
Penalty d.
Penalty Tax
Any sanction imposed as a punishment
for violation of law or acts deemed
injurious
-
Designed to regulate conduct - Designed to raise revenue -
May be imposed by the government or
private individuals or entities
- May be imposed only by the
government
-
TARIFF A book of rates drawn usually in alphabetical order containing
the names of several kinds of merchandise with the
corresponding duties to be paid for the same
-
The duties payable on goods imported or exported -
The system or principle of imposing duties on the importation or
exportation of goods
-
Custom
Duties
Taxes imposed on goods exported from or imported into a
country
-
Tariff/Customs Duties e.
Debt Tax
Obligation to pay tax vs. Obligation to pay debt 3.

Generally based on contract, express
or implied
- Based on law -
Assignable - Cannot generally be assigned -
May be paid in kind - Generally payable in money -
May be the subject of set-off or
compensation
- Generally not the subject of set-off or
compensation
-
A person cannot be imprisoned for
non-payment of debt (except when it
arises from crime)
- Imprisonment is a sanction for non-
payment of tax
-
Governed by the ordinary periods or
prescription
- Governed by the special prescriptive
periods provided for in the Tax Code
-
Draws interest when stipulated or
when there is default
- Does not draw interest, except only
when delinquent
-
A tax is not a voluntary payment or donation -
Its imposition is in no way dependent upon the will or assent, open or implied,
of the person taxed.
-
It is an enforced contribution 1.
A tax is laid by some rule of appointment according to which persons share the
public burden
-
Ordinarily based on the ability to pay -
It is proportionate in character 2.
Pecuniary burden -
Exaction to be discharged alone in the form of money which must be in legal
tender
-
It is generally payable in money 3.
May also be imposed on acts, transactions, rights or privileges -
However, it is only a person who pays the tax -
Not all who pay a tax shoulder the burden of the tax -
It is levied on persons or property 4.
The object to be taxed must be subject to the jurisdiction of the taxing state.
(necessary in order that the tax may be enforced)
-
It cannot reach over into another jurisdiction to seize upon person or property
for the purposes of taxation
-
It is levied by the state which has jurisdiction over the person or property 5.
The power to tax is a legislative power which under the constitution only the
congress can exercise through the enactment of tax statues.
-
The obligation of a tax us a statutory liability. -
Local legislative bodies are now given direct authority to levy taxes, fees, and
other charges pursuant to the Constitution subject to such guidelines and
limitations provided for by the law.
-
It is levied by the law-making body of the state 6.
The charge or burden imposed is to provide income for public purposes -- the
support of the government, the administration of the law, or the payment of
public expenses.
-
Revenues for taxes cannot be used for purely private purposes or for the
exclusive benefit of private persons
-
It is levied for public purpose or purposes 7.
Essential Characteristics of tax C.
Existence of government 1.
Theory and Basis of Taxation D.

The power to tax is an attribute of sovereignty emanating from necessity. -
NECESSITY THEORY (tax is a necessary burden to preserve the state's
sovereignty and a means to give citizenry an army to resist an aggression, a navy
to defend its shores from invasion, a corps of civil servants to serve, public
improvements and facilities and protection which the government is supposed
to provide)
-
Existence of government 1.
The basis of taxation is found in the reciprocal duties of protection and support
between the state and its inhabitants
-
Benefits-received principle: In return for their contribution, the taxpayer
receives the general advantages and protection which the government affords
the taxpayer and his property.
-
Reciprocal duties of state and inhabitants 2.
It does not mean that only those who are able to pay taxes can enjoy the
privileges and protection given to a citizen.
-
From the contribution received, the government renders no special or
commensurate benefit to any particular property or person.
-
The government promises nothing to the person taxed beyond that may be
anticipated from an administration of the laws for the general good.
-
A person cannot object to or resist the payment of taxes solely because he is
benefited less than others.
-
Public purpose for requirement for lawful taxation 3.
On the part of the government is to provide funds or property with which to promote
the general welfare and protection of its citizens, which may include various social and
economic (non-revenue) objectives.
1.
Includes every imposition of charge or burden by the sovereign power upon persons,
property, property rights for the use and support of the government.
2.
Strengthen anemic enterprises or provide incentive to greater production
through the grant of tax exemptions or the creation of conditions conducive to
their growth
(1)
Taxes on imports may be increased to protect local industries against foreign
competition or decreased to encourage foreign trade. (Example: stimulus
package)
(2)
Taxes on imported goods may be used as a bargaining tool by setting tariff rates
first at a relatively high level before trade negotiations are entered into with
another country to enhance its bargaining power.
(3)
Taxes may be increased in periods of prosperity to curb spending power and
halt inflation or lowered in periods of slump to expand business and ward off
depression.
(4)
Taxes may be levied to reduce inequalities in wealth and incomes. (5)
To promote science and invention or to finance education activities or to
improve the efficiency of local police forces through grant of subsidy.
(6)
May be made as an implement of the police power to promote the general
welfare.
(7)
May be enacted so that low income individuals pay little or no income taxes
through a system of exclusions, exemptions, deductions, and tax credits.
(8)
Tax provision may provide incentives to encourage investments that will lead to
increased employment.
(9)
Non-revenue Objectives of Taxation (Incidental purpose since the main purpose is to
raise revenue)
3.
Purpose/Objectives of Taxation E.
As to scope 1.
Classification of Taxes F.

Tax imposed by the natural government -
Examples: National internal revenue taxes; custom duties; and national
taxes imposed by special laws
-
National a.
Taxes imposed by municipal corporations or local government units -
Examples: Real estate tax; professional tax -
Municipal/Local b.
As to scope 1.
Tax which is demanded or exacted from the very person who also
shoulders the burden of the tax
-
Taxpayer cannot shift/assign liability -
Examples: corporate and individual income taxes; community (residence)
tax; estate tax; donor's tax
-
Direct taxes a.
Demanded from, or paid by, one person in the expectation and intention
that he hall indemnify himself at the expense of another by passing on the
burden to the latter.
-
Example: business taxes; value-added tax; percentage taxes; custom
duties
-
Indirect taxes b.
As to who shoulders the burden of tax 2.
Tax imposed on property, whether real or personal -
Example: Real estate tax -
Property a.
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.
-
Example: Community (residence) tax -
Personal, Poll or Capitation b.
Any tax which does not fall within the classification of a poll tax or a
property tax
-
A charge imposed upon the performance of an act, the enjoyment of a
privilege, or the engaging in an occupation, profession, or business.
-
"privilege tax" -
Examples: Income tax; value-added tax; estate tax; donor's tax -
Excise c.
As to object or subject matter of tax 3.
Tax of a fixed proportion of the value of the property with respect to
which the tax is assessed
-
"according to value" -
Examples: Real estate tax; excise taxes on automobiles, non-essential
goods (jewellery, perfumes, etc.); custom duties (except cinematographic
films)
-
Ad valorem a.
Tax of a fixed amount imposed by the head or number, or by some
standard of weight or measurement
-
Requires no assessment -
Examples: taxes on distilled spirits, vines and fermented liquors; cigars
and cigarettes
-
Specific b.
As to manner of computing the tax 4.
Based on a fixed percentage of the amount of the property, receipts or
other basis to be taxed
-
Proportional a.
As to graduation or rate 5.

other basis to be taxed
Also called flat/uniform tax -
Examples: Real estate taxes; value-added tax -
The rate of which increases as the tax base or bracket increases -
Examples: Income tax; estate tax; donor's tax -
Progressive/Graduated b.
The rate of which decreases as the tax base or bracket increases -
We have no regressive taxes -
Regressive c.
Refers to the coverage and the kind or nature of the tax -
May be PERSONS (natural or juridical); PROPERTY (real or personal,
tangible or intangible); BUSINESSES, TRANSACTION, RIGHTS or PRIVILEGES
-
The power to tax carries with it the power to grant exemption therefrom. -
The subjects or objects to be taxed a.
The purpose or object of the tax so long as it is a public purpose b.
General Rule: any amount or rate the legislature sees fit -
Exceptions: oppressive and unjust rates -
The amount or rate of the tax c.
The manner, means, and agencies of collection of the tax d.
Levying or imposition of the tax which is a legislative act 1.
Collection of the tax levied; administrative in character 2.
Pay as you earn: Income Tax a.
Pay as you are assessed: Real Estate Tax b.
Pay as you file: When income statement is filed c.
Pay as you transact: Value-added Tax d.
Payment 3.
Aspects of Taxation G.
Progressive system: more direct taxes than indirect taxes -
Regressive system: more indirect taxes that direct taxes -
However, it does not mean that having an indirect tax in a progressive
system is against the system. Example, in the Philippines, a progressive
system of taxation is imposed, but VAT (an indirect tax) is also levied.
-
Progressive/regressive system of taxation a.
Progressive rate of tax is when rate increases as the bracket increases -
Progressive system v. progressive rate of tax b.
Classification 1.
The sources of revenue (receipts taken as a whole) should be sufficient to
meet the demands of public expenditure.
-
Revenues should be elastic or capable of expanding or contracting
annually in response to variations in public expenditures.
-
Incur the risk of a series of deficits or surpluses due to inelastic
revenues
(a)
Adjust the amount of public expenditures to fit the flow of funds
probably by curtailing certain activities so that the budget may be
balanced
(b)
Alternatives: -
Fiscal adequacy a.
The tax burden should be distributed in proportion to the taxpayer's
ability to pay. (ability-to-pay principle)
-
Equality or theoretical justice b.
Basic principle if a sound tax system 2.
Tax Systems H.

ability to pay. (ability-to-pay principle)
The contribution of each person towards the expense of the government
should be so apportioned such that he would feel neither more nor less
inconvenienced from his share of the payments than every other person
experiences from his.
-
Taxation should be uniformas well as equitable. -
Tax laws should be capable of convenient, just and effective
administration or enforcement at a reasonable cost.
-
Administrative feasibility c.
Essential to the existence of every government -
Exists apart from constitutions and without being expressly conferred by people -
Constitutional provisions merely constitute limitations of the power to
tax.
-
Although this power is not expressly provided for in the Constitution, its
existence is recognized by provisions relating to taxation.
-
It can be exercised by the government even if the Constitution is entirely silent
on the subject.
-
Taxation Eminent Domain Police Power
The process or means by
which the sovereign,
through its law-making
body, raises income to
defray the necessary
expenses of government
- Power of the state or those in
power to take private property
for public use upon paying to
the owner a just compensation
to be ascertained according to
law
- Power of the state to enact
laws in relation to persons
and property to promote
public health, public morals,
public safety, general
prosperity and welfare
-
Exercised only by the
government or its political
subdivisions
- Power may be granted to public
service companies or public
utilities
- Exercised only by the
government or its political
subdivisions
-
Property (money) is taken
for the support of the
government
- Property is taken for public use
or benefit (must be
compensated)
- Use of property is regulated
for the purpose of promoting
the general welfare (not
compensable)
-
Operate upon a community
or class of entities or
individuals
- Operates on an entity or
individual as the owner of a
particular property
- Operate upon a community
or class of entities or
individuals
-
Money contributed
becomes part of the public
funds
- There is a transfer of the right to
property whether it be
ownership or a lesser right
- There is no transfer of title; at
most there is restraint on the
injurious use of property
-
It is assumed that the
person affected receives
the equivalent of the tax in
the form of protection and
benefits he receives from
the government
- The person affected receives the
market value of the property
taken from him
- The person affected receives
no direct and immediate
benefit
-
Damnum absque injuria
(damage without injury)
-
No limit on the amount of
tax that may be imposed
- No amount imposed rather the
owner is paid the market value
of the property taken
- The amount imposed should
not be more than sufficient
to cover the cost of the
license and the necessary
expenses of police
-
It is inherent in sovereignty 1.
Nature of the power of taxation A.
Nature and Limitations of the Power of Taxation II.

expenses of police
surveillance and inspection
Subject to certain
constitutional limitations
- Inferior to the impairment
prohibition (government cannot
take property which is bound by
a contract e.g. sale)
- Relatively free from
constitutional limitations and
is superior to the impairment
provisions
-
Cannot be exercised by the executive or juridical branch of the government -
Only the congress can impose taxes, but may also be made by a local legislative
body subject to limitations provided by law
-
Exclusively legislative in nature 2.
Power to tax is not absolute. -
Most limitations are specifically provided in the Constitution or implied
therefrom, while the rest are inherent and they are those which spring from the
nature of the taxing power itself.
-
Subject to inherent and constitutional limitations 3.
Taxpayer's Suit: An action brought by an individual whose income is subjected
to charges imposed by the state or federal government, for the benefit of that
individual and others in order to prevent the unlawful diversion of public funds.
-
General Rule: not only person's individually affected but also taxpayers who
have sufficient interest of preventing the illegal expenditures of public funds
-
However, a taxpayer has no legal standing to question executive acts that do
not involve the use of public funds.
-
Who may question the validity of a tax or expenditure of taxes? 4.
Meaning: for the support of the government ("governmental purpose"); or for
any of the recognized object of government; or to promote the welfare of the
community
a.
Reason: Since the government is established for public purpose and general
welfare, public money can only be spent for the same purpose
b.
Financing of educational activities and programs a)
Promotion of science b)
Erection and maintenance of roads, bridges and piers c)
Aid for victims of a public calamity d)
Relief for the poor and the unemployed and to provide for unemployment
benefits
e)
Payment of pensions and bonuses for services rendered by public officer
or employees
f)
The construction of experimental stations to seek increase of efficiency in
sugar production and the improvement of living and working conditions in
sugar mills or plantations
g)
Instances of public purpose c.
Effect of incidental benefit to private interest: although private individual are
directly benefited, the tax would still be valid provided such benefit is only
incidental.
d.
General rule: not only persons individually affected but also taxpayer have
sufficient interest of preventing the illegal expenditures of money raised
by taxation may question in the proper court the constitutionality of
statutes requiring the expenditures of public funds
-
However, a taxpayer has no legal standing to question executive act that
do not involve the use of public funds
-
Taxpayer's right to question purpose of tax e.
Purpose must be public in nature 1.
Prohibition against delegation of taxing power/exceptions 2.
Inherent Limitations B.

Each local government unit is expressly given the power to create its own
sources of revenue and to levy taxes, subject to such limitations provided
by law
-
Delegation to local governments a.
"to authorize the president to fix within the specified limits, and subject to
such limitations and restrictions as it may impose, tariff rates, import or
export quotas, tonnage and wharfage dues and other duties or imposts"
-
In case of need for speedy action on the matters mentioned -
Congress is prohibited from abdicating its law-making power over the
subjects specified.
-
Delegation to the president b.
The power to value property for purposes of taxation pursuant to
fixed rules
1)
The power to assess and collect taxes 2)
The power to perform any of the innumerable details of
computation, appraisement, and adjustment, and the delegation of
such details
3)
Certain powers which are not legislative (may be vested in an
administrative body):
-
Delegation to administrative agencies c.
Prohibition against delegation of taxing power/exceptions 2.
To levy a tax upon public property would render necessary new taxes on
other public property for the payment of the tax so laid
a)
Being necessary in order that the functions of the government shall not be
unduly impeded
b)
Reduce the amount of money that has to be handled by the government
of its operation
c)
Reason for the exemption: a.
Entities exempted: government entities through which the government
immediately and directly exercises its sovereignty, unless otherwise provided by
law
b.
Government corporations: subject to tax or special laws c.
Exemption of government entities, agencies, and instrumentality 3.
Courteous and friendly agreement and interaction among nations -
Sovereign equality among states (one state cannot exercise its sovereign
powers over another)
1)
Usage among states (when one enters the territory of another, it is
implied that the former does not place itself under the jurisdiction of
another)
2)
Foreign government may not be sued without its consent (useless to
assess tax since it cannot be collected)
3)
The property of a foreign state of government may not be taxed by another
based on any of the following grounds:
-
Impose the obligation on the entity that "does not really care"
Employer will subtract tax from the income and pay for it on behalf of the
employee

Withholding tax -
International comity 4.
Tax laws (all laws) do not operate beyond a country's territorial limits 1)
Property which is in the jurisdiction of another state receives none of the
protection for which tax is supposed to be a compensation
2)
Reason: a.
Where privity of relationship exists: does not mean that a person outside a state
is no longer subject to its taxing powers. (An OFW's income may be taxed) The
b.
Limitation of territorial jurisdiction 5.

is no longer subject to its taxing powers. (An OFW's income may be taxed) The
basis of the power to tax depends upon one's relation as a citizen to the state,
wherever he may be.
Basis: "No person shall be deprived of life, liberty, or property without due
process of law, nor shall any person be denied the equal protection of the laws."
(Sec. 1, Art. 111)
a.
Substantive due process or under the authority of a law that is valid (not
contrary to the Constitution) or of the Constitution itself
1)
Procedural due process or after compliance with fair and reasonable
methods of procedure prescribed by law
2)
Meaning: Any deprivation of life, liberty, or property by the government is with
due process if it is done with:
b.
A tax which is imposed for a private purpose or beyond the jurisdiction of
the government to collect is void or invalid because it offends due process
of law.
1)
If a tax law is juridically declared invalid, any tax levied under it cannot be
enforced. If tax was already collected, the taxpayer should be refunded.
2)
A taxpayer should be given notice for his non-payment, before depriving
him of his property.
3)
A taxpayer should be given opportunity to be heard before judgement is
rendered affecting one's person or property, thus a tax law denying such
is invalid.
4)
Application: c.
The procedure prescribed on law for paying the tax or contesting the same must
be reasonable and not unjust or oppressive otherwise due process of law will be
violated although the tax levy itself is valid.
d.
Due process of law 1.
Basis: "No person shall be deprived of life, liberty, or property without due
process of law, nor shall any person be denied the equal protection of the laws."
(Sec. 1, Art. 111)
1)
Does not necessarily mean that persons or properties which are different
should be treated as though they are the same

What is prohibited is class legislation, which discriminates against some

and favors others

Meaning: "all persons subject to legislation shall be treated alike under like
circumstances and conditions both in the privileges conferred and liabilities
imposed"
2)
Where those with different amounts of incomes are made to pay
different rates for taxes
1)
Where compensation income is subject to a lower tax rate than
business and professional income (recipients of compensated
income are not entitled to make deductions because there are
practically no overhead expenses)
2)
Where certain corporations are made to pay lower taxes (non-
profit, hospitals, educational institutions)
3)
Where unpaid real property taxes are condoned to the exclusion of
taxes already collected. Each set of taxpayers is a class by itself and
all those belonging to one class are treated alike.
4)
Application: What the Constitution requires is equal treatment under the law
and this may involve same or different treatment depending on the
circumstances. Thus, there is no violation of the protection --
3)
Equal protection of the laws 2.
Constitutional Limitations C.

all those belonging to one class are treated alike.
Where stables for race horses are taxed while stable for non-race
horses are not
5)
Where tax is imposed by ordinance on tenement buildings
(rent/lease of buildings), which constitute a distinct class of
property, in the same taxing district do not pay the same tax. Taxes
are uniform and equal when tax imposed on the same class or
character is the same.
6)
When tenement taxes are not imposed in other cities (different
territorial jurisdictions)
7)
When an ordinance imposes a property tax on motor vehicles using
the streets of Manila. Such tax is only payable by those residing in
Manila and not outsiders using the streets of Manila.
1)
When a tax provision is enforced against manufacturers of filled
milk but not on manufacturers of skimmed milk, where both
manufacturers belong to the same class or are similarly situated.
2)
There is denial of the protection:
Basis: "The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation" (Sec. 28, Art. VI) *applies only to
taxation
1)
Uniformity of operation throughout tax unit: uniform application and
operation, without discrimination, of the tax in every place where the
subject of it is found. Example: national tax must be uniform and equal
throughout the country. But it does not mean that a tax in a municipality
is the same with that of an adjoining municipality.
a)
Equality in burden: Not equality in amount or the literal meaning of
equality.
b)
Meaning of uniformity in taxation: "all taxable articles or properties of the same
class shall be taxed at the same rate"
2)
Where a statute imposes a tax of P2.50 a square meter or fraction thereof
on every billboard or sign anywhere in the country.
a)
When a tax is imposed upon hotels and the amount depends on the
number of rooms devoted to the accommodation of the public.
b)
Where those with different incomes are made to pay different rate of tax
(incomes are considered as belonging to different classes)
c)
Where residential houses, regardless of their assessed value, are
considered belonging to the same class and subject to the same rate
(2% of assessed value) but different amounts of tax depending on their
value.
d)
When a municipal ordinance levies on occupation tax on the profession of
"installation manager", and even if this ordinance is only applicable to one
person, the tax applies to all in the same class.
e)
Where a tax (occupation tax) is imposed by certain cities while the same
tax is not imposed by other cities, as long as all of the same occupation
are taxed at the same rate within their respective jurisdictions. ("applies
equally to all persons, firms and corporations placed in similar situation")
f)
Application: The uniformity requirement is not violated: 3)
The concept of equity in taxation requires that such apportionment be
just in the light of the taxpayer's ability to shoulder the tax burden
(depending on one's wealth, property, income) and (if warranted) on the
basis of the benefits he receives from the government. Taxation may be
uniform but unequitable when amount of tax imposed is excessive or
a)
Meaning of equity in taxation: 4)
Uniformity and equity in taxation 3.

uniform but unequitable when amount of tax imposed is excessive or
unreasonable.
Reasonable classification of the entities or individuals to be taxed is also a
requirement of equity in taxation.
b)
Tax laws shall place emphasis on direct rather than indirect taxation, with
ability to pay as the principal criterion.
-
Progressive tax - as your income increases, the amount you are
taxed increases

Progressive tax progressive system of taxation -

Meaning of progressive system of taxation: 5)
Equal protections refers more to the like treatment of persons in like
circumstances while uniformity and equity refer to the proper relative
treatment for tax purposes of persons in unlike circumstances.
-
Relationship with equal protection guarantee 6)
Basis: "No person shall be imprisoned for debt or non-payment of a poll tax" 1)
A person cannot be sent to prison for failure to pay community
(residence) tax.
-
The only penalty according to the Local Government Code is the payment
of surcharge in the form of interest at the rate of 24% per annum which
shall be added to the unpaid amount.
-
A person is subject to imprisonment for violation of the community tax
law other than non-payment (e.g. falsification of the community tax
certificate) and for non-payment of other taxes if so expressly provided
for by the pertinent law.
-
Application: 2)
Prohibition against imprisonment for non-payment of poll tax 4.
Basis: "No law impairing the obligation of contracts shall be passed." 1)
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, weakening
the rights or position of the latter.
-
Includes contracts entered into by the government -
The law includes executive orders or instructions issued by the President,
administrative orders or circulars issued by the heads of departments, and
ordinances by local government units
-
Meaning: 2)
When a tax exemption is based on a contract is revoked by a latter taxing
statute
-
However tax exemptions provided in a franchise may be revoked because
under the Constitution a franchise is "subject to amendment, alteration,
or repeal" by Congress.
-
Application: 3)
Prohibition against impairment of obligation of contracts 5.
Basis: "No law shall be made respecting an establishment of religion, or
prohibiting the free exercise thereof. The free exercise and enjoyment of
religious professions and worship, without discrimination or preference, shall
forever be allowed x x x."
1)
Imposition of license fees on the distribution and sale of bibles and other
religious literature not for purposes of profit by a non-stock, non-profit
religious corporation violates the above-mentioned constitutional
provision.
-
Application: 2)
Prohibition against infringement of religious freedom 6.

provision.
The Constitution however does not prohibit imposing a generally
applicable tax on sale of religious materials by a religious organization.
-
Basis: "No public money or property shall be appropriated, applied, paid, or
employed, directly or indirectly, for the use, benefit, or support of any sect,
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."
1)
Congress does not have power to appropriate funds for a private purpose
e.g. construction of feeder roads on lands owned by a private person.
a)
Lease of public property to a religious sect for nominal rent also objects
the constitution because such public property is used for the benefit or
aid of such sect to the extent that the consideration for the lease
commensurate with the use of property exceeds the nominal amount of
rent charged.
b)
Public property may be leased to religious groups provided that the lease
will be under the same conditions as to private persons, especially as to
amount of rent. There must be no discrimination against religious sects or
denominations.
c)
Application: Taxes can only be levied for a public purpose. 2)
Prohibition against appropriation for religious purposes 7.
Basis: "Charitable institutions, churches and parsonages or convents
appurtenant thereto, mosques, 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."
1)
Test of exemption: It is the use of property and not ownership. Thus, a
property leased by an owner to another who uses it for religious purposes
is exempt from property tax but the owner is subject to income tax on
rents received. Tax exemption is strictly construed against the taxpayer.
a)
Nature of use: to be able to be tax-exempt, the property must be actually,
directly and exclusively (primarily rather than solely) used for the
purposes mentioned above. So property used for another purpose is not
tax-exempt even though the income from such property is devoted for
religious or charitable purposes.
b)
Scope of exemption: Exemption is not only limited to property but extends
to facilities which are incidental to or reasonably necessary for the
accomplishment of said purposes. Example: In hospitals: school for
training a nurse, housing facilities for interns, etc.
c)
Application: The exemption only covers property taxes and not other taxes. 2)
Prohibition against taxation of religious, charitable entities and educational entities 8.
"All revenues and assets of non-stock, non-profit educational institutions
used actually, directly, and exclusively for educational purposes shall be
exempt from taxes and duties x x x."
a)
"Subject to conditions prescribed by law, all grants, endowments,
donations or contributions used actually, directly and exclusively for
educational purposes shall be exempt from tax."
b)
Basis: 1)
Revenue, assets, property or donations must be used actually, directly, a)
Application: The exemption covers income, property, and donor's taxes, and
custom duties.
2)
Prohibition against taxation of non-stock, non-profit educational institutions 9.

Revenue, assets, property or donations must be used actually, directly,
and exclusively for educational purposes
a)
Exemption is limited to property tax for religious and charitable entities
and non-profit cemeteries
b)
Congress is authorized to grant similar exemptions to propriety (for profit)
educational institutions subject to certain limitations (restrictions on
dividends and provisions for reinvestment) to insure that the tax-
exemption benefits are used for educational purposes.
c)
Lands, buildings, and improvements actually, directly and exclusively used
for educational purposes (whether proprietary or non-profit) are exempt
from property tax.
d)
Place of taxation -
Basic Rule: The state where the subject is to be taxed has a situs may rightfully levy
and collect the tax; and the situs is necessarily in the state which has jurisdiction or
which exercises dominion over the subject in question.
-
A person may be subject to taxation in several jurisdictions. -
Meaning of situs of taxation A.
Persons: poll tax may be levied upon persons who are inhabitants or residents of the
state
1.
Real Property: subject to taxation in the state in which it is located, whether the
owner is a resident or not (lex rei sitae)
2.
Tangible Personal Property: it is taxable in the state where it has actual situs (where it
is physically located, lex rei sitae) although the owner resides in another jurisdiction.
3.
At the domicile of the owner for it does not admit actual location (mobilia
sequuntur personam).
-
Examples: credits, bank deposits, bonds, etc -
Example: shares of stock in a domestic corporation owned by a foreigner
must be taxed in the Philippines

Exception is when justice does not demand that it should be, as where the
property has in fact situs elsewhere.
-
Intangible Personal Property 4.
Income: may properly be exacted from persons who are residents or citizens in the
taxing jurisdiction and even from those who are neither residents nor citizens
provided the income is derived from sources within the taxing state.
5.
Business, occupation and transaction: power to levy an excise tax depends upon the
place where business is done, or the occupation is engaged in, or the transaction took
place
6.
Gratuitous transfer of property: subject to taxation upon the place where the
transferee is (was) a citizen or resident, or where the property is located
7.
Situs of subjects of taxation B.
Effect: Due to the variance in the concept of "domicile" for tax purposes, some subject
may be taxed in several taxing jurisdictions.
1.
Taxing jurisdiction may provide for exemptions or allowance of deduction or tax
credit for foreign sales
1)
Taxing jurisdictions may enter into treaties with other states (former Philippine-
American Cases Agreement as to income tax)
2)
Remedy: 2.
Multiplicity of Situs C.
Strict Sense 1.
Double Taxation D.
Situs of Taxation and Double Taxation III.

Also referred to as direct duplicate taxation or direct double taxation -
Taxing twice (a)
By the same the same taxing authority (b)
Within in the same jurisdiction or taxing district (c)
For the same purpose (d)
In the same year (or taxing period) (e)
Some of the property in the territory (f)
Meaning: -
Strict Sense 1.
Also referred to as indirect duplicate taxation or individual double taxation -
Taxation other than direct duplicate and extends to all cases in which there is a
burden of two or more pecuniary impositions
-
A tax on mortgage as a personal property and as a real estate in its full
value
(1)
A tax on a corporation for its property and its shareholders for their
shares
(2)
A tax upon a corporation for its capital stock as a whole and upon the
shareholders for their shares
(3)
A tax on the depositors in a bank for its deposits and a tax on the bank for
the property where the deposits are invested
(4)
An excise tax on the usage of a property and a property tax on the same
property
(5)
A tax on the same property imposed by two different states (6)
Instances: -
Broad Sense 2.
When the tax is imposed by the national government and another by the
city for the exercise of the same occupation or business
(a)
Where the real estate dealer's tax is imposed for engaging in the business
of leasing real estate in addition to the real estate tax on the property
leased
(b)
Where a tax in a manufacturer's products and another on the privilege of
storing in warehouses within a municipality are imposed
(c)
Where, aside from tax, a license fee is imposed in the exercise of police
power
(d)
General Rule: Our Constitution does not prohibit double taxation, hence it may
not be invoked as defense against the validity of a law as:
-
Doubts as to whether double taxation has been imposed should be
resolved in favor of the taxpayer to avoid injustice or unfairness
(a)
Where double taxation (narrow sense) occurs, the taxpayer may seek
relief under the uniformity rule or the equal protection guarantee
(b)
Exception: -
Constitutionality of Double Taxation 3.
Transfer or passing on of the burden of a tax by the original payer or the one
whom the tax was assessed or imposed to another or someone else
-
What is transferred is not the payment of the tax or liability for the tax but
merely the burden of the tax
-
Burden of the tax is transferred from a factor of production through the
factors of distribution until it finally settles on the ultimate purchaser or
consumer
-
Example: A sugar producer shifts tax on retailers by increasing the price. -
Forward Shifting A.
Ways of Shifting the tax burden 1.
Shifting of tax burden A.
Means of Avoiding or Minimizing the Burden of Taxation IV.

Example: A sugar producer shifts tax on retailers by increasing the price. -
Burden of the tax is transferred from the consumer or purchaser through
the factors of distribution to the factor of production
-
Example: the government levies house tax on the tenant, then the tenant
deducts it from his payment to the landlord
-
Backward Shifting B.
Tax is shifted two or more times either forward or backward -
Onward Shifting C.
Indirect Tax (business taxes) -
Direct tax CANNOT be shifted. A tax cannot be shifted when it is purely personal
(community tax). When shifting does not occur tax is absorbed by the statutory
taxpayer.
-
Taxes that can be shifted 2.
The point on which a tax is originally imposed -
Statutory taxpayer: person who must pay the tax to the government, the
one who is formally assessed, subject of tax
-
Impact of Taxation A.
The point on which the tax burden finally rests or settles down. -
Takes place when shifting has been effected from the statutory taxpayer
to another or someone who cannot pass on the burden
-
Incidence of Taxation B.
The impact is the initial phenomenon, the shifting is the intermediate
process, and the incidence is the result.
-
Relations among impact, shifting and incidence of a tax C.
Meaning of impact and incidence of taxation 3.
The use by the taxpayer of illegal or fraudulent means or lessen the payment of tax -
Also known as "tax dodging" -
Punishable by law, subjecting the taxpayer to civil and criminal liabilities -
The end to be achieved (the payment of the less than that known by the
taxpayer to be legally due, or in paying no tax when it is due)
(1)
An accompanying state of mind ("evil", "in bad faith", "wilful", "deliberate and
not accidental")
(2)
A course of action (failure of action) which is unlawful (3)
Factors: -
The failure of the taxpayer to declare for taxation purposes his true and actual
income derived from his business for two consecutive years has been held as an
indication of his fraudulent intent to cheat the government of its due taxes
(1)
The substantial under declaration of income in the income tax returns of the
taxpayer for four consecutive years coupled with his intentional overstatement
of deductions justifies the finding of fraud
(2)
Evidence to prove tax evasion: (may be inferred from the circumstances of the case) -
Evasion of tax takes place only when there are no proceeds. It is tantamount to the
absence of taxation.
-
Tax Evasion B.
Also called "tax planning" or "tax minimization" -
The use by the taxpayer of legally permissible tax rates or methods of assessing
taxable property or income, on order avoid or reduce tax liability
-
Example: A man may change his residence to avoid taxation or change the form of his
property by putting his money into non-taxable securities.
-
Tax Avoidance C.
The grant of immunity to particular persons or corporations or to persons or -
Exemption from taxation D.

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 taxing district are obliged to pay
-
Freedom from financial charge which others are subjected to -
Tax Remission/Tax Condonation (1)
General pardon or intentional overlooking by the State of its authority to
impose penalties on persons otherwise guilty of tax evasion or violation of
a revenue or tax law
-
Absolute forgiveness or waiver by the government of its right to collect
what is due and to give tax evaders a chance to start with a clean slate
-
If granted, the terms of the amnesty must be construed strictly against
the taxpayer and liberally in favor of the government
-
Seeks to address the problem of low revenue collection and poor
voluntary tax compliance
-
Tax Amnesty (2)
Exclusion/deduction (3)
Compared with other terms a.
When certain persons, property, or transactions, are, by express
provision, exempted from all or certain taxes, either entirely or in
part
-
Exemption may be made by provisions in the Constitution, statutes,
treaties, ordinances, franchises, or contracts
-
Express or affirmative exemption (a)
Occurs when tax is levied on certain classes of persons, properties,
or transactions without mentioning the other classes
-
Every tax statute makes exemptions since all those not mentioned
are deemed exempted, whether omission is accidental or
intentional.
-
Exemptions are not presumed, but when public property is
involved, exemption is the rule, and taxation, the exception.
-
Implied exemption or exemption by omission (b)
As to manner of creation: (1)
When certain persons, property, or transactions are exempted,
expressly or impliedly, from all taxes
-
Total exemption (a)
When certain persons, property, or transactions are exempted,
expressly or impliedly, from certain taxes, either entirely or in part
-
Partial exemption (b)
As to scope or extent: (2)
Personal - those granted directly in favor of such persons (a)
Impersonal - those granted directly in favor of a certain class of property (b)
As to object: (3)
Exemption from direct tax v. indirect tax (4)
Kinds of tax exemption b.
The power to exempt from taxation is an attribute of sovereignty. And
since they prescribe who or what is taxed, they also have the power to
prescribe who or what is exempt.
-
The legislative power to exempt is as broad as its power to tax. -
National Government (1)
Municipal corporations have no inherent power to tax, thus, they also
have no inherent power to grant exemption.
-
But the moment the power to impose a particular (local) tax is granted,
they also have the power to grant exemption unless prohibited by a
-
Local Governments (2)
Nature of power to grant tax exemption c.

they also have the power to grant exemption unless prohibited by a
provision in the Constitution or law.
The legislature, to the same extent, may delegate their power to exempt
from taxation.
-
If an exemption is granted, it is expected/implied that such exemption will
benefit the body of the people, and not lessen the burden of the
individuals.
-
Public interest will be subserved by the exemption allowed (1)
Granting a tax exemption always has a reason -
Exemption cannot be considered a gift or donation of public funds, or to
aid the individual.
-
Its avowed purpose is some public benefit or interest, which the law-making
body considers sufficient to offset the monetary loss entailed in the grant of the
exemption
(2)
Rationale of tax exemption d.
The public, represented by the government, is supposed to receive a full
equivalent thereof
-
Usually, the provisions of a contract of exemption from taxation are
contained in the charter of the corporation.
-
Based on contract (1)
Example: to encourage new and necessary industries, foster charitable
and other benevolent institutions,
-
Makes the public at large interested in encouraging or favoring the class
or interest in whose behalf the exemption is made.
-
In this case, government need not receive any consideration in return. -
Based on some ground of public policy (2)
Occurs when there are many taxing jurisdictions (e.g. income and
intangible personal property tax)
-
Created in a treaty on grounds of reciprocity or to lessen the rigors of
international double or multiple taxation
(3)
The fact that one person may not have been required to pay his taxes
does not exempt another from the payment of his legal taxes, or legally
entitle him to a refund of any taxes which he has paid.
-
Exemption from taxation is allowable only if there is a clear provision
therefor
-
A law may validly authorize the condonation of taxes on equitable
considerations even though it cannot be used as a justification for
exemption.
-
Equity is NOT a ground for tax exemption (4)
Grounds for tax exemption e.
An exemption granted to a corporation does not apply to its stockholders,
since a corporation is a juridical personality separate and distinct from its
stockholders/
-
An exemption cannot be transferred or assigned to another without the
consent of the legislature, which may be given either in the original act or
in a subsequent law.
-
Mere personal privilege of the grantee (1)
Unless the exemption is founded on a contract (should have a valid cause)
which is protected from impairment
-
A franchise is a contract in nature but is also a privilege granted by law
thus may be repealed or amended pursuant to the Constitution.
-
Generally revocable by the government (2)
Implies a waiver on the part of the government of its right to collect -
Implies a waiver (3)
Nature of tax exemption f.

Implies a waiver on the part of the government of its right to collect
otherwise would be due to it and is prejudicial thereto
-
Exists only by virtue of an express grant and must be strictly construed -
As long as the exemption has reasonable foundation or rational basis -
When no validation exists, exemption may be challenged as violative of
the equal protection guarantee or the uniformity rule
-
Not necessarily discriminatory (4)
Exemptions are not favored and are construed strictissmi juris (by the
most strict right or law) against the taxpayer
-
A taxpayer claiming a tax exemption must point to a specific provision of
law conferring on the taxpayer exemption from a common burden.
-
He who claims exemption must be able to justify his claim or right
thereto, by a grant expressed in terms "too plain to be mistaken and too
categorical to be misinterpreted."
-
General Rule (1)
When the law itself expressly provides for a liberal construction, that is, in
case of doubt, it shall be resolved in favor or exemption
-
When the exemption is in favor of the government itself or its agencies, or
of religious, charitable, and educational institutions because the general
rule is that they are exempt from tax.
-
If there is an express mention or if the taxpayer falls within the purview of
the exemption by clear legislative intent, the rule on strict construction
does not apply.
-
Exceptions (2)
Construction of statutes granting tax exemption g.
Philippine Constitution 1.
NIRC, as amended 2.
Tariff and Customs Code, as amended 3.
Local Government Code Bk II 4.
Local tax ordinance/city or municipal tax codes 5.
Tax treaties/international agreements 6.
Special laws 7.
Decisions of SC/CTA/CA 8.
Validity of revenue rules and regulations a.
Effectivity of revenue rules and regulations b.
Effectivity and validity of tax ordinance c.
Revenue rules and regulations/administrative/BIR rulings and opinions 9.
Sources of tax laws A.
Nature of internal revenue laws 1.
Rule when legislative intent is clear a.
Rule when there is doubt b.
Provisions granting tax exemptions c.
Construction of tax laws 2.
Application of tax laws a.
Application of revenue regulations/rulings b.
Application of tax laws/revenue regulations/rulings and the effects of repeal 3.
Mandatory and directory provisions of tax laws 4.
Interpretation/Application of tax laws B.
Sources, Application, Interpretation and Administration of Tax Laws V.