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General Principles of Taxation

A. Taxation in General

a.1. Taxation concept inherent power of the State, through the legislative body, to raise revenues for the purpose of
defraying the expenses of government

Q: Does the Constitution contain a provision granting taxation power to the State?
A: There is no provision in the Constitution granting such power. The power to tax is inherent in the State and therefore
requires no constitutional grant in order to exercise the same. What the Constitution contains are provisions limiting such
power of taxation.

Q: What is meant by the power to tax is the power to destroy and is it applicable in the Philippinejurisdiction?
A: The power to tax is the power to destroy is in reference to the fact that taxation is plenary and therefore generally
unlimited, so that it applies to anything that can be subjected to tax, even income arising from an illegal enterprise and
even to the extent that it becomes confiscatory. However, while the power to tax is the power to destroy, this is not so
while the Supreme Court sits, because such power is still subject to judicial review. So that, in sum, the principle that the
power to tax is the power to destroy refers to the vigor with which the power may be exercised and not to its purpose.
Moreover, this theory only applies in Philippine jurisdiction on the presumption that such power is validly exercised. Such
power is validly exercised if it does not contravene the limitations imposed by the Constitution and by law.

a.2. Nature and Scope of the Power of Taxation

Art. V, Section 28(20): Legislative Powers (Plenary)
Art. X, Section 5: Taxation Power of LGU

NATURE:
an attribute of sovereignty
inherent
legislative in character

SCOPE:
Legislative taxing power extends to the following:
subject of taxation (person, property or occupation, excises and privileges)
rates or amount
kinds
purpose (must be for a public purpose)
situs (jurisdiction)
method of collection

Churchill and Tait v. Concepcion, G.R. No. 11572, Sept. 22, 1916

The power to impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely venture to
declare that it is subject to any restrictions whatever, except such as rest in the discretion of the authority
which exercises it. It reaches to every trade or occupation; to every object of industry, use, or enjoyment; to every species
of possession; and it imposes a burden which, in case of failure to discharge it, may be followed by seizure and sale or
confiscation of property. No attribute ofsovereignty is more pervading, and at no point does the power of the government
affect more constantly and intimately all the relations of life than through the exactions made under it." (Cooley's
Constitutional Limitations, 6th Edition, p. 587.)


a.3. Theory of Taxation, Basis or Rationale of Taxation

THEORY:
Necessity Theory the government is necessary since the exercise of governmental functions redounds to
thebenefit of society; this can only be achieved by raising revenues
Symbiotic Theory (Benefits-Protection) government needs revenues to defray expenses; the public benefit from
government

BASIS: Life-blood Theory (taxes are necessary)

RATIONALE:
Symbiotic relationship between State and tax-paying public
State has jurisdiction over the taxpayer

NPC v. City of Cabanatuan, G.R. No. 149110, April 9, 2003

Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure. A principal
attribute of sovereignty, the exercise of taxing power derives its source from the very existence of the state whose social
contract with its citizens obliges it to promote public interest and common good. The theory behind the exercise of the
power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general
welfare and well-being of the people.
CIR v. Algue, G.R. No. L-28896, Feb. 17, 1988
It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the
motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard-earned
income to the taxing authorities, every person who is able to must contribute his share in the running of the government.
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. This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that
it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to
complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be
stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.
Phil. Bank of Communications v. CIR, G.R. No. 112024, Jan. 28, 1999

Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds for the State to
finance the needs of the citizenry and to advance the common weal. [Napocor vs. Province of Albay, 186 SCRA 198
(1990), at p. 207.] Due process of law under the Constitution does not require judicial proceedings in tax cases. This must
necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its
operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be
summary and interfered with as little as possible. [Teodoro and de Leon, Law on Income Taxation, 1993 ed., at 485.]

fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or agents.


a.4. Extent of the Taxing Power
Tio v. Videogram Regulatory Board, G.R. No. L-75697, June 18, 1987

a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed.
The power to impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely venture to
declare that it is subject to any restrictions whatever, except such as rest in the discretion of the authority
which exercises it. In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security
against erroneous and oppressive taxation.

It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that
inequities which result from a singling out of one particular class for taxation or exemption infringe no constitutional
limitation. Taxation has been made the implement of the states police power.


a.5. Purpose and Objectives of Taxation
1. raise revenue
2. regulate
3. promote general welfare
4. reduce social inequality
5. encourage economic growth compensatory because the power to tax necessarily includes the power to grant
tax exemption, providing tax incentives for investors
6. implement of eminent domain

Sumptuary Purpose of Taxation non-revenue raising purpose of taxation; refers to regulatory purpose
Caltex Philippines, Inc. v. COA, G.R. No. 92585, May 8, 1992

POLICE POWER: Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the
government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a
threatened industry which is affected with public interest as to be within the police power of the state.

NO OFFSET: It is settled that a taxpayer may not offset taxes due from the claims that he may have against he
government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed
to be set-off.
Batangas Power Corp. v. Batangas City, G.R. No. 152675, April 28, 2004

SOCIAL JUSTICE AND EQUITABLE DISTRIBUTION OF WEALTH: In recent years, the increasing social challenges of
the times expanded the scope of state activity, and taxation has become a tool to realize social justice and the equitable
distribution of wealth, economic progress and the protection of local industries as well as public welfare and similar
objectives. Taxation assumes even greater significance with the ratification of the 1987 Constitution. Thenceforth, the
power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy
taxes, fees and other charges pursuant to Article X, section 5 of the 1987 Constitution.
Southern Cross Cement Corp. v. Cement Manufacturers Association of the Phils., G.R. No. 158540, Aug. 3, 2005

(HOLY CRAP, CHECK OUT THE INTRO!!!! ^.^)

Cement is hardly an exciting subject for litigation. Still, the parties in this case have done their best to put up a spirited
advocacy of their respective positions, throwing in everything including the proverbial kitchen sink. At present, the burden
of passion, if not proof, has shifted to public respondents Department of Trade and Industry (DTI) and private respondent
Philippine Cement Manufacturers Corporation (Philcemcor),[1] who now seek reconsideration of our Decision dated 8 July
2004 (Decision), which granted the petition of petitioner Southern Cross Cement Corporation (Southern Cross).

This case, of course, is ultimately not just about cement. For respondents, it is about love of country and the future of the
domestic industry in the face of foreign competition. For this Court, it is about elementary statutory construction,
constitutional limitations on the executive power to impose tariffs and similar measures, and obedience to the law. Just as
much was asserted in the Decision, and the same holds true with this present Resolution.

POWER OF PRESIDENT TO IMPOSE TARIFF RATES: Without Section 28(2), Article VI, the executive branch has no
authority to impose tariffs and other similar tax levies involving the importation of foreign goods. Assuming that Section
28(2) Article VI did not exist, the enactment of the SMA by Congress would be voided on the ground that it would
constitute an undue delegation of the legislative power to tax. The constitutional provision shields such delegation from
constitutional infirmity, and should be recognized as an exceptional grant of legislative power to the President, rather than
the affirmation of an inherent executive power.

QUALIFIERS: This being the case, the qualifiers mandated by the Constitution on this presidential authority attain
primordial consideration: (1) there must be a law; (2) there must be specified limits; and (3) Congress may impose
limitations and restrictions on this presidential authority.

POWER EXERCISED BY ALTER EGOS OF PRES: The Court recognizes that the authority delegated to the President
under Section 28(2), Article VI may be exercised, in accordance with legislative sanction, by the alter egos of the
President, such as department secretaries. Indeed, for purposes of the Presidents exercise of power to impose tariffs
under Article VI, Section 28(2), it is generally the Secretary of Finance who acts as alter ego of the President. The SMA
provides an exceptional instance wherein it is the DTI or Agriculture Secretary who is tasked by Congress, in their
capacities as alter egos of the President, to impose such measures. Certainly, the DTI Secretary has no inherent power,
even as alter ego of the President, to levy tariffs and imports.

TARIFF COMMISSION AND DTI SEC ARE AGENTS: Concurrently, the tasking of the Tariff Commission under the SMA
should be likewise construed within the same context as part and parcel of the legislative delegation of its inherent power
to impose tariffs and imposts to the executive branch, subject to limitations and restrictions. In that regard, both the Tariff
Commission and the DTI Secretary may be regarded as agents of Congress within their limited respective spheres, as
ordained in the SMA, in the implementation of the said law which significantly draws its strength from the plenary
legislative power of taxation. Indeed, even the President may be considered as an agent of Congress for the purpose of
imposing safeguard measures. It is Congress, not the President, which possesses inherent powers to impose tariffs and
imposts. Without legislative authorization through statute, the President has no power, authority or right to impose such
safeguard measures because taxation is inherently legislative, not executive.

When Congress tasks the President or his/her alter egos to impose safeguard measures under the delineated conditions,
the President or the alter egos may be properly deemed as agents of Congress to perform an act that inherently belongs
as a matter of right to the legislature. It is basic agency law that the agent may not act beyond the specificall y delegated
powers or disregard the restrictions imposed by the principal. In short, Congress may establish the procedural framework
under which such safeguard measures may be imposed, and assign the various offices in the government bureaucracy
respective tasks pursuant to the imposition of such measures, the task assignment including the factual determination of
whether the necessary conditions exists to warrant such impositions. Under the SMA, Congress assigned the DTI
Secretary and the Tariff Commission their respective functions in the legislatures scheme of things.

There is only one viable ground for challenging the legality of the limitations and restrictions imposed by Congress under
Section 28(2) Article VI, and that is such limitations and restrictions are themselves violative of the Constitution. Thus, no
matter how distasteful or noxious these limitations and restrictions may seem, the Court has no choice but to uphold their
validity unless their constitutional infirmity can be demonstrated.

What are these limitations and restrictions that are material to the present case? The entire SMA provides for a limited
framework under which the President, through the DTI and Agriculture Secretaries, may impose safeguard measures in
the form of tariffs and similar imposts.

POWER BELONGS TO CONGRESS: the cited passage from Fr. Bernas actually states, Since the Constitution has
given the President the power of control, with all its awesome implications, it is the Constitution alone which can curtail
such power. Does the President have such tariff powers under the Constitution in the first place which may be curtailed
by the executive power of control? At the risk of redundancy, we quote Section 28(2), Article VI: The Congress may, by
law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose,
tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the
national development program of the Government. Clearly the power to impose tariffs belongs to Congress and not to the
President.

CIR v. Central Luzon Drug Corp., G.R. No. 159647, April 15, 2005

EMINENT DOMAIN: The concept of public use is no longer confined to the traditional notion of use by the public, but held
synonymous with public interest, public benefit, public welfare, and public convenience. The discount privilege to which
our senior citizens are entitled is actually a benefit enjoyed by the general public to which these citizens belong. The
discounts given would have entered the coffers and formed part of the gross sales of the private establishments
concerned, were it not for RA 7432. The permanent reduction in their total revenues is a forced subsidy corresponding to
the taking of private property for public use or benefit.

As a result of the 20 percent discount imposed by RA 7432, respondent becomes entitled to a just compensation. This
term refers not only to the issuance of a tax credit certificate indicating the correct amount of the discounts given, but also
to the promptness in its release. Equivalent to the payment of property taken by the State, such issuance -- when not
done within a reasonable time from the grant of the discounts -- cannot be considered as just compensation.

Besides, the taxation power can also be used as an implement for the exercise of the power of eminent domain. Tax
measures are but enforced contributions exacted on pain of penal sanctions and clearly imposed for a public purpose.
In recent years, the power to tax has indeed become a most effective tool to realize social justice, public welfare, and the
equitable distribution of wealth.


a.6. Characteristics of a Sound Tax System
1. Fiscal Adequacy meet requirements of government
2. Theoretical Justice progressivity; based on taxpayers ability to pay
3. Administrative Feasibility enforcement should be effective and simple

a.7. Aspects of Taxation
1. Levy determine persons, property or excises to be taxed, their amount and due date, time and manner (taxation
proper)
2. Collection manner of enforcement; includes assessment and administration by BIR (subordinate legislation) (tax
administration)

a.8. Taxation distinguished

v. POLICE POWER (code: PABAT)
1. As to purpose Taxation is to raise revenue; Police Power is to promote public welfare.
2. As to amount Taxation has no limit; Police Power is limited to the cost of regulation, issuance of license or
surveillance
3. As to benefits Taxation offers no special or direct benefit other than benefit to the general public; Police Power
is to promote a healthy economic standard.
4. As to applicability of non-impairment of contracts clause It applies in taxation; It does not apply in police power,
EXCEPT if the grant of franchise was for a valuable consideration.
5. As to transfer of property rights Taxation involves transfer of public funds or money; Police Power does not
contemplate a transfer but merely restraint on property taken or destroyed.

v. POWER OF EMINENT DOMAIN (code: NCAPA)
1. As to nature Taxation is the power to raise revenue; Eminent Domain is the taking of property for public use.
2. As to compensation Compensation for taxation takes the form of a general benefit to the public; in eminent
domain, there must be just compensation.
3. As to applicability of non-impairment of contracts clause It applies in taxation; it does not apply in eminent
domain.
4. As to persons affected Taxation affects all subject to the States jurisdiction; eminent domain affects only the
particular property.
5. As to authority Taxation is exercised by the government; Eminent Domain may be exercised by private entities
exercising public functions.

B. Limitations of the Taxing Power

b.1. Inherent Limitations

(1) Public Purpose this is presumed
Gomez v. Palomar, G.R. No. L-23645, Oct. 29, 1968

The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner means benefit to a
taxpayer as a return for what he pays, then it is sufficient answer to say that the only benefit which the taxpayer is
constitutionally entitled is that derived from his enjoyment of the privileges of living in an organized society, established
and safeguarded by the devotion of taxes to public purposes
Pascual v. Secretary of Public Works, G.R. No. L-10405, Dec. 29, 1960

In accordance with the rule that the taxing power must be exercised for public purposes only, money raised by taxation
can be expanded only for public purposes and not for the advantage of private individuals.

Public funds may be used for a public purpose. The right of the legislature to appropriate funds is correlative with its
right to tax, under constitutional provisions against taxation except for public purposes and prohibiting the collection of a
tax for one purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other
than a public purpose.


(2) Observe International Comity there must be reciprocity

Art. II, Section 2. The Philippines renounces war as an instrument of national policy, adopts the generally accepted
principles of international law as part of the law of the land and adheres to the policy of peace, equality, justice, freedom,
cooperation, and amity with all nations.

Sec. 32(B)(7)(a), NIRC: Income Derived by Foreign Government. - Income derived from investments in the Philippines in
loans, stocks, bonds or other domestic securities, or from interest on deposits in banks in the Philippines by (i) foreign
governments, (ii) financing institutions owned, controlled, or enjoying refinancing from foreign governments, and (iii)
international or regional financial institutions established by foreign governments.

(3) No Improper Delegation, exceptions

- under Flexible Tariff Clause, President may fix:
tariff rates
import-export quotas
tonnage and wharfage duties
other duties and imposts within the framework of the national government program
- LGU (General Welfare Clause)

- administrative agencies:
fix the value of property
assess and collect taxes
perform details of computation
appraisement and adjustment

(4) Limited to the Territorial Jurisdiction

SITUS (Sec. 23, NIRC)
Citizens
Resident Citizens taxed on all sources of income inside or outside the Philippines (based on nationality
principle)
Non-resident Citizens taxed on all sources within the Philippines
Aliens
Resident Aliens taxed on all sources within the Philippines
Non-resident Aliens (whether engaged in business or not) taxed on all sources within the Philippines

NOTA BENE: Only resident citizens are taxed on all sources of income within or without the Philippines.

FACTORS AFFECTING SITUS OF TAXATION:
kind or classification of tax
situs of the thing or property taxed
domicile or residence of the person taxed
citizenship or nationality of the person taxed
source of the income taxed
situs of the excise, privilege, business or occupation being taxed

NOTA BENE: Situs of taxation for personal property follows the principle of mobilia sequuntur personam (personal
property follows the person), EXCEPT shares of stock the situs of which is based on where the corporation has its
principal place of business. Situs of taxation for real property is lex rei sitae (where the property is located).
CIR v. Japan Airlines, Inc., G.R. No. 60714, Oct. 4, 1991

The source of income is the property, activity or service that produced the income. For the source of income to be
considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. In
BOACs case, the sale of tickets in the Philippines is the activity that produces the income. The tickets exchanged hands
here and payments for fares were also made here in the Philippine currency. The situs of the source of payments is the
Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded
by the Philippine government. 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 Philippines is not determinative of the source of income or the situs of
income taxation. The test of taxability is the source; and the source of an income is that activity which produced the
income.
South African Airways v. CIR, CTA 6760, June 9, 2005

It has been consistently ruled that the source of income is the property, activity or service that produced the income and,
in order that the source of income to be considered as coming from the Philippines, it is enough that the income is derived
from activity within the Philippines.

The absence of flight operations to and from the Philippines is not determinative of the source of income or the situs of
income taxation. Petitioner admitted that it sells passage documents in the Philippines through its sales agent. Petitioner,
thus, is deriving revenues from the conduct of its business activity regularly pursued within the Philippines. Petitioner is
therefore a resident foreign corporation engaged in trade or business in the country within the purview of our tax law and
is therefore subject to tax. As held in Commissioner of Internal Revenue vs. American Airlines, Inc.:

xxx foreign airline companies which sold tickets in the Philippines through their local agents, whether called liaison
offices, agencies or branches, were considered resident foreign corporations engaged in trade or business in the country.
Such activities show continuity of commercial dealings or arrangements and performance of acts or works or the exercise
of some functions normally incident to and in progressive prosecution of commercial gain or for the purpose and object of
the business organization.
National Development Co. v. CIR, G.R. No. L-53961, June 30, 1987

The Japanese shipbuilders were liable to tax on the interest remitted to them. The petitioner argues that the Japanese
shipbuilders were not subject to tax under the above provision because all the related activities the signing of the
contract, the construction of the vessels, the payment of the stipulated price, and their delivery to the NDC were done in
Tokyo. The law, however, does not speak of activity but of source, which in this case is the NDC. This is a domestic and
resident corporation with principal offices in Manila.

The Governments right to levy and collect income tax on interest received by foreign corporations not engaged in trade or
business within the Philippine sis not planted upon the condition that the activity or labor and the sale form which the
(interest) income flowed had its situs in the Philippines. The law specifies: interest derived from sources within the
Philippines. Nothing there speaks of the act or activity of non-resident corporations in the Philippines, or place where
the contract is signed. The residence of the obligor who pays the interest rather than the physical location of the
securities, bonds, or notes or the place of payment, is the determining factor of the source of interest income.


(5) Exemption of Government Entities inherent exemption, but Government may tax itself

Sec. 27(C), NIRC: Government-owned or Controlled-Corporations, Agencies or Instrumentalities. - The provisions of
existing special or general laws to the contrary notwithstanding, all corporations, agencies, or instrumentalities owned or
controlled by the Government, except the Government Service Insurance System (GSIS), the Social Security System
(SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO) and the
Philippine Amusement and Gaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable income as are
imposed by this Section upon corporations or associations engaged in s similar business, industry, or activity.

Sec. 32(B)(7)(b), NIRC: Income Derived by the Government or its Political Subdivisions. - Income derived from any public
utility or from the exercise of any essential governmental function accruing to the Government of the Philippines or to any
political subdivision thereof.

Sec. 30(1), NIRC

b.2. Constitutional Limitations

(1) Indirect

a) Due Process and Equal Protection Clause

Art. III, Section 1. 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.

b) Freedom of the Press

Art. III, Section 4. No law shall be passed abridging the freedom of speech, of expression, or of the press, or the right of
the people peaceably to assemble and petition the government for redress of grievances.

c) Religious Freedom

Art. III, Section 5. No 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. No religious test shall be required for the exercise of civil or political rights.

d) Non-impairment Clause

Art. III, Section 10. No law impairing the obligation of contracts shall be passed.

Art. XII, Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines,
at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization
be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except
under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good
so requires. The State shall encourage equity participation in public utilities by the general public. The participation of
foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines.

e) Law-Making Process

Art. VI, Section 26. (1) Every bill passed by the Congress shall embrace only one subject which shall be expressed in the
title thereof.

(2) No bill passed by either House shall be come a law unless it has passed three readings on separate days, and printed
copies thereof in its final form have been distributed to its Members three days before its passage, except when the
President certifies to the necessity of its immediate enactment to meet a public calamity or emergency. Upon the last
reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and
the yeas and nays entered in the Journal.

(2) Direct

a) Non-Imprisonment

Art. III, Section 20. No person shall be imprisoned for debt or non-payment of a poll tax.

b) Uniform & Equitable

Art. VI, Section 28. (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive
system of taxation.

(2) The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development program of the Government.

(3) Charitable institutions, churches and personages 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.

(4) No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the
Congress.

c) Progressive System (Sec. 28 (1), Art. VI)

d) ART Bill

Art. VI, Section 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local
application, and private bills, shall originate exclusively in the House of Representatives, but the Senate may propose or
concur with amendments.

e) Presidents Power to Veto

Art. VI, Section 27 (2) The President 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.

f) Delegated Authority of the President (Sec. 28 (2), Art. VI)

g) Exemption from Tax (Sec. 28 (3), Art. VI)

h) Congress concurrence (Sec. 28 (4), Art. VI)

i) No religious purpose

Art. VI, Sec. 29 (2): 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, 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.

j) Special purpose

Art. VI, Sec. 29 (3): All 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.

k) Judicial Review

Art. VIII, Section 5. The Supreme Court shall have the following powers:

1) Exercise original jurisdiction over cases affecting ambassadors, other public ministers and consuls, and over petitions
for certiorari, prohibition, mandamus, quo warranto, and habeas corpus.

(2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of Court may provide, final
judgments and orders of lower courts in:

(a) All cases in which the constitutionality or validity of any treaty, international or executive agreement, law, presidenti al
decree, proclamation, order, instruction, ordinance, or regulation is in question.

(b) All cases involving the legality of any tax, impost, assessment, or toll, or any penalty imposed in relation thereto.

(c) All cases in which the jurisdiction of any lower court is in issue.

(d) All criminal cases in which the penalty imposed is reclusion perpetua or higher.

(e) All cases in which only an error or question of law is involved.

(3) Assign temporarily judges of lower courts to other stations as public interest may require. Such temporary assignment
shall not exceed six months without the consent of the judge concerned.

(4) Order a change of venue or place of trial to avoid a miscarriage of justice.

(5) Promulgate rules concerning the protection and enforcement of constitutional rights, pleading, practice, and procedure
in all courts, the admission to the practice of law, the integrated bar, and legal assistance to the under-privileged. Such
rules shall provide a simplified and inexpensive procedure for the speedy disposition of cases, shall be uniform for all
courts of the same grade, and shall not diminish, increase, or modify substantive rights. Rules of procedure of special
courts and quasi-judicial bodies shall remain effective unless disapproved by the Supreme Court.

(6) Appoint all officials and employees of the Judiciary in accordance with the Civil Service Law.


TAX PAYERS SUIT proper when there is illegal disbursement of public funds derived from taxation. But note that even
if the taxpayer questions the constitutionality of the law, he is not excused from paying his taxes because of the life-blood
theory.

l) Delegated authority to LGU

Art. X, Section 5. Each local government unit shall have the power to create its own sources of revenues and to levy
taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic
policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments.

Art. X, Section 6. Local government units shall have a just share, as determined by law, in the national taxes which shall
be automatically released to them.

m) Tax exemptions

Art. XIV, Sec. 4 (3): 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. Upon the dissolution or cessation of the
corporate existence of such institutions, their assets shall be disposed of in the manner provided by law.

Sec. 30(H), NIRC: Exemptions from Tax on Corporations -- A nonstock and nonprofit educational institution.

NOTA BENE: Income from school canteens and bookstores which is incidental to the schools primary purpose is
included in the exemption. But such school canteens and bookstores must be owned by the school and located in the
school campus.
ABAKADA Guro Party List v. Ermita, G.R. No. 168056, Sept. 1, 2005

Is there undue delegation of legislative power since the law gives the President stand-by authority to raise the
VAT rate to 12%? The authority does not refer to the power of the President to fix tariff rates. Neither is it a delegation of
legislative power. It is simply a delegation of ascertainment of facts upon which enforcement and administration of the
increase rate under the law is contingent. The legislature has made the operation of the 12% rate effective Jan. 1, 2006,
contingent upon a specified fact or condition. It leaves the entire operation or non-operation of the 12% rate upon factual
matters outside the control of the executive. It is the ministerial duty of the President to immediately impose the 12% rate
upon the existence of any of the conditions specified by Congress.

Is there violation of due process clause as it imposes an unfair and additional tax burden on the
people? Petitioners argue that the law imposes an unfair and additional tax burden on the people as the law does not
provide for the rate to revert to the original 10% in case the conditions set forth are no longer satisfied and as such,
people wont know how much is the rate from year to year. SC said that the law is clear and unambiguous. The fears of
petitioner is merely speculative as the law itself does not provide that the rate would go back to 10%.

Does it violate the rule that ART bills should exclusively originate from the House of Representatives? No
violation. According to petitioners, the amendments introduced to the NIRC did not come from the House, but from the
Senate. SC said that to begin with, it is not the law but the revenue bill which is required by the Constitution to
originate exclusively in the House of Representatives. A bill originating from the House may undergo such extensive
changes in the Senate that the result may be a rewriting of the whole. At this point, what is important to note is that, as
a result of the Senate action, a distinct bill may be produced. To a insist that a revenue statute and not only the bill
which initiated the legislative process culminating in the enactment of the law must substantially be the same as the
House bill would be to deny the Senates power not only to concur with amendments but also to propose amendments.
It would violate the coequality of legislative power of the two houses of Congress and in fact make the House superior to
the Senate. What the Constitution means is that the initiative for filing revenue, tariff or tax bills, bills authorizing an
increase of public debt, private bills and bills of local application must come from the House of Representatives on the
theory that, elected as they are from the districts, the members of the House can be expected to be more sensitive to the
local needs and problems. On the other hand, the senators, who are elected at large, are expected to approach the same
problems from the national perspective. Both views are thereby made to bear on the enactment of such laws.

Does the imposition of limitations on the amount of input tax that may be claimed constitute a deprivation of
property without due process of law? There is no deprivation of property because the input tax in excess of the output
tax is carried over to succeeding quarter or quarters. In addition, a tax credit certificate may be applied for any unused
input taxes, to the extent that such input taxes have not been applied against the input taxes. Such unused input tax may
be used in payment of his other internal revenue taxes. Moreover, input tax is not property under the purview of the
Constitution. It is merely a statutory privilege.

Does it violate the equal protection clause as the limitation on the creditable input tax is not based on real and
substantial differences to meet a valid classification? The equal protection clause does not require the universal
application of the laws on all persons or things without distinction. This might in fact sometimes result in unequal
protection. What the clause requires is equality among equals as determined according to a valid classification. By
classification is meant the grouping of persons or things similar to each other in certain particulars and different from all
others in these same particulars.

Does violate the progressivity of tax laws? By its very nature, the VAT is regressive. Nevertheless, the Constitution
does not really prohibit the imposition of indirect taxes, like the VAT. What it simply provides is that Congress shall evolve
a progressive system of taxation. The constitutional provision has been interpreted to mean simply that direct taxes are
to be preferred and as much as possible, indirect taxes should be minimized.

Does it violate the principle that tax collection and revenue should be solely allocated for public purposes and
expenditures since VAT-registered establishments are allowed to retain a portion of the taxes they collect? No
violation. The input tax is the tax paid by a person, passed on to him by the seller, when he buys goods. Output tax
meanwhile is the tax due to the person when he sells the goods. In computing the variables, there are three possible
scenarios: (1) if the input and output taxes charged are equal, then there is no payment required; (2) when output taxes
exceed the input taxes, the person shall be liable for the excess; and (3) if the input taxes exceed the output taxes, the
excess shall be carried over to the succeeding quarter or quarters. The 70% limitation on input taxes does not mean that
the establishments retain the input tax in excess of 70%. It only means that they can only credit their input tax up to the
extent of 70% of their output tax.

Does it violate uniformity and equitable taxation? Uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. Different articles may be taxed different amounts provided that
the rate is uniform on the same class everywhere with all people at all times. The law is uniform as it provides a standard
rate of 0% or 10% (or 12%) on all goods and services. The law is also equitable as it is equipped with a threshold margin.
Thus the VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or services with gross annual sales or receipts
not exceeding P1,500,000.00.


C. Tax

c.1. Tax Defined, Characteristics

Tax enforced proportional contributions, generally payable in money, from persons, property, rights and privileges levied
by the legislative body of the State by virtue of its sovereignty for the support of government and for public needs.

c.2. Kinds of Taxes
As to subject or object


direct
indirect
CIR v. PLDT, G.R. No. 140230, Dec. 15, 2005

DIRECT v. INDIRECT TAX: based on the possibility of shifting the incidence of taxation. Direct taxes are those that are
exacted from the very person who, it is intended or desired, should pay them; impositions for which a taxpayer is directly
liable on the transaction or business he is engaged in. Indirect taxes are those that are demanded, in the first instance,
from, or are paid by, one person in the expectation and intention that he can shift the burden to someone else; liability for
the payment falls on one person but the burden can be shifted or passed on to another person, such as when the tax is
imposed ex. VAT, advance sales tax, compensating tax upon goods before reaching the consumer who ultimately
pays for it. When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to
the purchaser as part of the price of goods sold or services rendered.

By tacking the VAT due to the selling price, the seller remains the person primarily and legally liable for the payment of the
tax. What is shifted only to the intermediate buyer and ultimately to the final purchaser is the burden of the tax. Stated
differently, a seller who is directly and legally liable for payment of an indirect tax, such as VAT on goods and services, is
not necessarily the person who ultimately bears the burden of the same tax. It is the final purchaser or end-user of such
goods or services who, although not directly and legally liable for the payment thereof, ultimately bears the burden of the
tax.


As to determination of amount
specific
ad valorem
As to purpose
general
special
As to rate
progressive
regressive
proportional
As to imposing authority
national
local

c.3. Tax distinguished from other impositions

v. SPECIAL ASSESSMENT
1. As to subject matter Tax is imposed on persons, property and excises; Special Assessment is levied only on
land
2. As to liability imposed upon taxpayer Tax can be a personal liability or liability on property of the taxpayer;
Special Assessment cannot be made a personal liability of the person assessed
3. As to purpose Tax is to generate revenue; Special Assessment is based wholly on benefit.
4. As to application Tax is of general and uniform application; Special Assessment is exceptional both as to time
and locality.

v. LICENSE
1. As to power Tax is levied in the exercise of taxation power; License Fee emanates from police power.
2. As to purpose Tax is to generate revenue; License Fee is regulatory.>
3. As to amount to be charged Tax is unlimited; License Fee must be of an amount sufficient to cover the
expenses of: a) issuing the license; and b) cost of necessary inspection or police surveillance

v. TOLL
1. As to nature - Tax is a demand of sovereignty for the purpose of raising public revenue; Toll is a demand of
ownership to defray the cost and maintenance of the property.


v. PENALTY
1. As to kind of liability Tax is a civil liability; Penalty is a punishment for the commission of a crime.

v. DEBT
1. As to source Tax is imposed by law; Debt is imposed by obligation created by contract.
2. As to penalty for non-payment Non-payment of tax may cause a person to be criminally prosecuted; Non-
payment of debt does not generally give rise to criminal action or cause a person to be imprisoned.
3. In Tax there is generally no compensation because the government and the taxpayer are not creditors and
debtors as to each other. BUT if both the tax and the tax refund due to the taxpayer are due and demandable,
compensation may be proper. In Debt, compensation may be proper.


DOCTRINE OF EQUITABLE RECOUPMENT

c.4. Sources of Tax Laws, Nature of Tax Laws
1. NIRC
2. Constitution
3. Tariff and Tax Code
4. Local Government Code

NOTA BENE: Tax laws are civil in nature, therefore, the rule on ex post facto law prohibition does not apply. Tax laws
may not be given retroactive effect, even if they are favorable to the taxpayers. Tax laws are likewise not political,
therefore, they still apply even if there is a change in government to a belligerent.

c.5. Interpretation of Tax Laws

Strictissimi juris strictly interpreted against the government and liberally in favor of the taxpayer because it involves the
imposition of a tax burden

- EXCEPTION: Tax exemptions are strictly interpreted against the taxpayer and liberally in favor of the government
because of the life-blood theory and the equal protection clause (exemptions are privileges, therefore, encourages
inequality among taxpayers)
Sea Land Service v. CA, G.R. No. 122605, April 30, 2001

STRICTISSIMI JURIS in TAX EXEMPTION: Laws granting exemption from tax are construed strictissimi juris against the
taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The law does not
look in favor on tax exemptions and that he who would seek to be thus privileged must justify it by words too plain to be
mistaken and to categorical to be misinterpreted.

PURPOSE OF TAX EXEMPTION: Some public benefit or interest, which the lawmaking body considers sufficient to affect
the monetary loss entailed in the grant of the exemption.
CIR v. CA, G.R. No. 107135, Feb. 23, 1999

RULE ON EXCEPTIONS: Exceptions, as a general rule, should be strictly but reasonably construed. They extend only so
far as their language fairly warrants, and all doubts should be resolved in favor of the general provisions rather than the
exception. Where the general rule is established by statute with exceptions, the court will not curtail the former nor add to
the latter by implication.

STRICTISSIMI JURIS in TAX LAWS: Tax burdens are not to be imposed, nor presumed to be imposed beyond what the
statute expressly and clearly imports, tax statutes being construed strictissimi juris against the government.
Maceda v. Macaraig, 197 SCRA 771

(Exception to the Exception) STRICTISSIMI JURIS in GOVERNMENT: It is recognized principle that the rule on strict
interpretation does not apply in the case of exemptions in favor of government political subdivisions or instrumentalities. In
the case of property owned by the state or city or other public corporation, the express exception should not be construed
with the same degree of strictness that applies to exemptions contrary to the policy of the state, since as to such property
exception is the rule and taxation the exception.


c.6. Tax Exemptions

KINDS
(1) express; (2) implied; (3) total; (4) partial; (5) constitutional; (6) statutory

Art. VI, Sec. 28 (3): Charitable institutions, churches and personages 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.

Art. XIV, Sec. 4(3): 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. Upon the dissolution or cessation of the
corporate existence of such institutions, their assets shall be disposed of in the manner provided by law.

Proprietary 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 reinvestment.

NOTA BENE: School canteens and bookstores are considered as incidental income and are therefore included in the
exemption.

Question:
(1) Is a vacant lot adjacent to a school building owned by the non-profit, non-stock educational institution subject to real
property taxation, considering that it is not used actually, directly and exclusively for educational purposes?

(2) Is the exemption under Art. VI, Sec. 28(3) regardless of ownership, so that if the land used by the religious or
charitable institution is owned by a private person, it is still exempted from real property tax?

Art. XIV, Sec. 4 (4): 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.


CONSTITUTIONAL RESTRICTIONS

Art. VI, Sec. 28(4): No law granting any tax exemption shall be passed without the concurrence of a majority of all the
Members of the Congress.

NOTA BENE: Therefore, the President cannot grant tax exemptions through executive agreement. Tax treaties are
entered into with concurrence of the Senate.

EXCEPTIONS

Art. VI, Sec. 28(2): The Congress may, by law, authorize the President to fix within specified limits, and subject to such
limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of the national development program of the Government.

Art. X, Section 5. Each local government unit shall have the power to create its own sources of revenues and to levy
taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic
policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments.

REVOCATION, RESTRICTION

NOTA BENE:
Tax pyramiding (tax on tax) is prohibited.
Tax exemptions are mere privileges so they can be revoked at any time, EXCEPT if there was a contract granting
such tax exemption and such contract was entered into for a valid consideration.

Coconut Oil Refiners v. Torres, G.R. No. 132527, July 29, 2005

WHO HAS AUTHORITY: It is the legislature, unless limited by a provision of a state constitution, that has full power to
exempt any person or corporation or class of property from taxation, its power to exempt being as broad as its power to
tax. Other than Congress, the Constitution may itself provide for specific tax exemptions, or local governments may pass
ordinance on exemption only from local taxes.

v. TAX AMNESTY
1. Tax exemption is prospective. Tax amnesty is retrospective.
2. Tax exemption is civil. Tax amnesty is civil and criminal.
3. Tax exemptions cannot be granted without the concurrence of majority of Congress. Tax amnesty is the
intentional overlooking by the government of tax unpaid and is generally considered an executive act.

CIR v. Marubeni Corp., G.R. No. 137377, Dec. 18, 2001

TAX AMNESTY 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 is due it and to give tax evaders a chance to start with a clean slate; never favored
nor presumed in law; construed strictly against the taxpayer and liberally in favor of government.


NOTA BENE: In both tax exemptions and tax amnesties, the rule on strictissimi juris is the same.

c.7. Tax Avoidance vs. Tax Evasion
1. Tax avoidance is the minimization of tax liabilities through legal means.
2. Tax evasion is the minimization of tax liabilities through illegal means with intent in bad faith or the attendance of
fraud.


Tax Credit vs. Tax Exemption
1. Tax credit contemplates two or more taxing authorities. Tax exemption contemplates only one taxing authority.<
2. Tax credit is based on the principle of reciprocity. Tax exemption is an inherent power of the sovereign state.

c.8. Concept of Double Taxation; Kinds; Modes of Eliminating Double Taxation

Double Taxation (Duplicate Taxation) taxing the same property twice when it should be taxed only once.

KINDS:
Direct double taxation same subject, same purpose, same taxing authority, same taxing period, same character
of tax (elements of double taxation)
Indirect double taxation one or more of the elements of double taxation are absent

NOTA BENE: Double taxation may be avoided through various credit schemes specified under the NIRC and exemptions
under tax treaties entered into with foreign governments.

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