Leo Jose Angelo R.

Cruzate
1. Taxation refers to the act of a taxing authority actually levying tax. Taxation as a term
applies to all types of taxes, from income to gift to estate taxes. It is usually referred to as
an act; any revenue collected is usually called "taxes."
tax (from the Latin taxo; "rate") is a financial charge or other levy imposed upon a
taxpayer (an individual or legal entity) by a stateor the functional equivalent of a state
such that failure to pay, or evasion of or resistance to collection, is punishable by law.
Taxes are also imposed by many administrative divisions. Taxes consist
of direct or indirect taxes and may be paid in money or as its labour equivalent.
2. Nature of the Government Taxing Power
It is the power by which the sovereign raises revenue to settle the expenses of the
government. It is a way of apportioning the cost of government among those who in some
measure are privileged to enjoy its benefits and must bear its burden.
Nature of the Government taxing
i.

The power to tax is an attribute of sovereignty. It is inherent in the State. As an

incident of sovereignty, the power to tax
has been described as unlimited in its range, acknowledging in its
very nature no limits, so that security against its abuse is to be found only in the responsibility of
the legislature which imposes the tax on the constituency who are to pay it. (MCIAA v. Marcos)
ii.
Taxes are the lifeblood of the government. Without taxes, the government can neither
exist nor endure. 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 the common good. (CREBA v. Romulo)
iii.
The power of taxation is an essential and inherent attribute of sovereignty, belonging
as a matter of right to every independent government, without being expressly
conferred by the people. (Pepsi Cola v. Municipality of Tanauan)
iv.
It is legislative in character (Scope of Legislative Taxing Power)

Determination of the Purpose

Determination of the Subjects and Objects of Taxation
Determination of the Amount and Rate of Tax
Determination of the Kind of Tax to be Collected
Determination of the Apportionment of Tax
Determination of the Manner and Mode of Enforcement and Collection

Determination of the Situs of Taxation

v
. It is subject to constitutional and inherent limitations
vi
. It is generally not delegated to the executive or judicial department.
3. Constitutional Limitations on taxing power
i.
Due Process of Law
Sec. 1, Art. III of the Constitution provides in part that
(n)o person shall be deprived of life, liberty
or property without due
process of law.
Substantive Requirement. The tax law should be valid; should not be harsh, oppressive or
confiscatory; must be for a public purpose and imposed within territorial jurisdiction. Procedural
Requirement. This involves the compliance with the fair and reasonable methods of procedure
prescribed bylaw. There must be no arbitrariness in assessment and collection and that the
taxpayer is entitled to right to notice and hearing.
ii.
Equal Protection of Laws
All persons subject to legislation shall be treated alike under like circumstances and conditions
both in the privileges conferred and obligations imposed. The Constitution prohibits class
legislation which discriminates against some and favors others. As long as there are rational or
reasonable grounds for so doing, Congress may, therefore, group the persons or properties to be
taxed and it is
sufficient if all of the same class are subject to the same rate and
the tax is administered impartially upon them. Classification to be valid must:
-Rest on substantial distinctions
-Germane to the purposes of the law
-Not be limited to existing conditions only
-Equally apply to all members of the same class
The State has the inherent power to select the subject of taxation ad inequalities which result
from the singling out of one particular class for taxation or tax exemption infringe no
constitutional limitation. (Sison v. Ancheta)
iii.
Rule of Uniformity and Equity in Taxation
Uniformity in taxation means that all taxable articles or properties of the same class shall be
taxed at the same rate. This means that there must be equality in burden and not necessarily
equality in amount. It does not signify an intrinsic, but simply a geographic, uniformity. A tax is
uniform when it operates with the same force and effect in every place where the subject of it is
found. It does not signify an intrinsic but simply geographic uniformity. A levy of tax is not
unconstitutional because it is not intrinsically equal and uniform in its operation. The uniformity
rule does not prohibit classification for purposes of taxation. (British American Tobacco v.
Camacho)Equity in taxation involves the application of the ability to pay principle. The concept
of equity in taxation requires that such
apportionment be more or less just in the light of the taxpayers

ability to shoulder the tax burden (usually measured in terms of the size of wealth or property
and income, gross or net) and, if warranted, on the basis of the benefits he receives from the
government. Taxation may be uniform but inequitable when the amount of tax imposed is
excessive or unreasonable. To insure and enhance the equity objective, the
Constitution enjoins Congress to evolve a progressive system of taxation. This mean
s that tax laws shall place emphasis on direct rather than indirect taxation, with ability to pay as
the principal criterion. On the basis of the foregoing discussions, it can safely be said that while
equal protection refers more to like treatment of persons in like circumstances, uniformity and
equity refers to the proper relative treatment for tax purposes of persons in unlike circumstances.
Absolute or perfect equality or uniformity and equity is, of course, hardly attainable, if not
impossible. No system has ever been devised which has produced perfect equality and
uniformity of taxation as between persons or corporations or different classes of property and
such a result cannot reasonably be expected. (FirstNat. Bank v. Holmes, 92 N.E. 893.)
Approximation to it is all that can be had.
iv.
Prohibition against impairment of obligation of contracts
The above proceeds from the constitutional provision that
No law impairing the obligation of contracts shall be passed. (Sec.
10, Art. III)The obligation of a contract is impaired when its terms or conditions are changed by
law or by a party without the consent of the other, thereby weakening the position or rights of the
latter. An exemption of impairment by law is when a tax exemption based on a contract is
revoked by a later taxing statute. Note that when the government is a party to the contract
granting exemption, it cannot be withdrawn without violating the non-impairment clause.
However, non-impairment may not be invoked in the case of a public utility franchise grantee;
the legislature can impair a
grantees franchise since a franchise is granted under the
Constitutional condition that it shall be subject to amendment, alteration or repeal by Congress
when the public interest so requires. (See Sec. 11, Art. XII)Thus in the case of PPI v. Chato, the
SC said that since the law granted the press a privilege, the law could take back the privilege
anytime without offense to the Constitution. The reason is simple: by granting exemptions, the
State does not forever waive the exercise of its sovereign prerogative. Indeed, in withdrawing the
exemption, the law merely subjects the press to the same tax burden to which other businesses
have long ago been subject. In Tolentino v. Sec. of Finance, CREBA, one of the petitioners,
alleged that the imposition of the VAT on sales and leases of real estate by virtue of contracts
entered into prior to the effectivity of the law would violate the non-impairment of contracts rule.
The Court ruled that it is not enough to say that the parties to a contract cannot, through the
exercise of prophetic discernment, fetter the exercise of the taxing power of the State. For not
only are existing laws read into contracts in order to fix obligations as between parties, but the
reservation of essential attributes of sovereign power is also read into contracts as a basic
postulate of the legal order. The policy of protecting contracts against impairment presupposes
the maintenance of a government which retains adequate authority to secure the peace and good
order of society.
v.
Prohibition against imprisonment for non-payment of poll tax
This principle is based on the provision of the Constitution
that No person shall be imprisoned for debt or non

-payment of a
poll tax. (Sec.
20, Art. III)A poll tax refers to a personal or capitation tax; it is a tax of a fixed amount on
individuals residing within a specified territory, whether citizen or not, without regard to their
property or occupation. Applying the said provision, no one may be sent to prison for failure to
pay the community tax. One should not be punished on account of his poverty. Under the LGC,
the only penalty for delinquency is the payment of a surcharge in the form of interest at the rate
of 24% per annum which shall be added to the unpaid amount, from the due date until it is paid.
vi.

Non-infringement of Religious Freedom

Sec. 5, Art. III of the Constitution provides that (n)o law

shall be made respecting an establishment of religion or prohibiting the free exercise thereof. The
free exercise and enjoyment of religious profession and worship without discrimination or
preference shall forever be allowed. No religious test shall be required for the exercise of civil or
political rights. The general rule is that activities simply, purely and for propagation of faith are
exempt, as well as sales of bibles and religious articles not for purposes of profit by a non-stock,
non-profit organization. However, as an exception, the Constitution does not prohibit the
imposition of a generally applicable tax on the sale of religious materials when done by
proprietary institution. A municipal license tax on the sale of bibles and religious articles by a
non-stock, non-profit missionary organization at a little profit constitutes curtailment of religious
freedom and worship which is guaranteed by the Constitution. The license tax is actually in the
nature of a condition or permit for the exercise of the right.(American Bible Society v. City of
Manila)
vii.

Prohibition against appropriation for religious purposes

Sec. 29(2) of Art. VI of the Constitution provides that (n)o

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. The above limitation is based on the
requirement that taxes can only be levied for a public purpose. Note that what the Constitution
prohibits is the use of public money or property for the benefit of any priest, etc. as such. When
so employed in the armed forces, any penal institution, or government orphanage or leprosarium,
they may receive their corresponding compensations for services rendered in their non-religious
capacity without violating the constitutional prohibition.
viii.

Exemption of religious, charitable and educational entities, non-profit cemeteries,

and churches from property taxation

Sec. 28(3), Art. VI of the Constitution provides: 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.
Note that the exemption covers only property taxes and not other taxes. (LLadoc v. CIR) The
test of exemption is the use of the property and not ownership. Thus, a property leased by the
owner to another who uses it exclusively for religious purposes is exempt from property tax but
the owner is subject to income tax on rents received. Likewise, that if a property, although
actually owned by a religious, charitable or educational institution, is actually used for a nonexempt purpose, the exemption from tax vanishes. The use of the word exclusively is
synonymous to solely. What is exempted is not the institution itself, those exempted from real
estate taxes are lands, buildings and improvements actually, directly and exclusively used for
religious, charitable and educational purposes. Portions of the land leased to private entities as
well as those parts of the hospital leased to private individuals are not exempt from such taxes.
On the other hand, the portions of the land occupied by the hospital and portions of the hospital
used for its patients, whether paying or non-paying, are exempt from real property taxes. (Lung
Center of the Phils. v.Quezon City)
ix.

Origin of Appropriation, Revenue and Tariff Bills

Sec. 24, Art. VI of the Constitution provides that (a)ll

appropriation, revenue or tariff bills, bills authorizing the 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.
In the Tolentino E-VAT case, the SC said that (A) bill originating in 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 insist that a revenue statute

And not only the bill which initiated the legislative process culminating in the enactment of the
law

must be substantially be the same as the

House bill would be to deny the Senates power not only to only concur with amendments but
also to propose amendments. It
would be to violate the co-equality of legislative power of the two houses of Congress and in fact
make the House superior to the Senate.
x.
Exemption of Non-stock, non-profit educational institutions from taxation
The exemption covers (1) income tax, (2) property tax, (3)
donors taxes, and (4) custom duties.

To be exempt from tax or duty, the revenue, assets, property or donations must be used actually,
directly and exclusively for educational purposes. In the case of religious and charitable entities
and non-profit cemeteries, the exemption is limited to property tax. Congress is authorized to
grant similar exemption to proprietary (for profit) educational institutions subject to limitations
provided by law including restrictions on dividends and provisions for reinvestment. The
restrictions are designed to insure that the tax exemption benefits are used for educational
purposes. Lands, buildings, and improvements actually, directly, and exclusively used for
educational purposes are exempt from property tax whether the educational institution is
proprietary or non-profit. Canteens and bookstores inside schools are exempt from income tax as
long as it operates within the school and is primarily used by the school even if it caters to
outsiders.
xi.

Concurrence by a majority of all the members of Congress for the passage of a law
granting tax exemption
The requirement is obviously intended to prevent
indiscriminate grant of tax exemptions. The phrase a majority of allthe members of the
Congress means at least one-half plus one of all the members thereof voting separately. Such
rule also applies to a law authorizing refund of a tax already collected.
xii.
Power of the President to veto any particular item or items in a revenue or tariff bill
As a general rule, under the Constitution, the President may not veto a bill in part and approve it
in part. The exception lies in the case of revenue or tariff bills whereby the vetoed items shall
simply be not given effect.
xiii. Non-impairment of the jurisdiction of the Supreme Court in tax cases
The Constitution prohibits Congress from taking away the jurisdiction of the SC as the final
arbiter of tax cases.

4. Differentiate Taxation from Police Power and Eminent Domain

Taxation v. Police Power
As to Purpose. Taxation is levied for the purpose of raising revenue; police power is
exercised to promote public welfare through regulations.
As to Amount of Exaction. In taxation there is no limit; in police power, the exaction should
only be such as to cover the cost of regulation, issuance of the license or surveillance.
As to Benefits Received. In taxation, no special or direct benefit is received by the taxpayer
other than the fact that the Government only secures to the citizen that general benefit
resulting from the protection of his person and property and welfare of all.

As to police power, however, while no direct benefits are received, a healthy economic
standard of society known as
damnum absque injuria is attained.
As to Non-Impairment of Contracts. In taxation, the non-impairment of contracts rule subsist.
In the exercise of police power, however, this limitation does not apply.
As to Transfer of Property Rights. In taxation, taxes paid become part of the public funds; in
police power, no transfer, but only restraint on the exercise, of property rights exists

Taxation v. Eminent Domain

As to Nature of the Power Exercised. Taxation is exercised in order to raise public revenue;
eminent domain or expropriation is the taking of private property for public use.
As to Compensation Received. In taxation, payment of taxes results in the general benefit of all
citizens and inhabitants of a State; in eminent domain, a direct benefit results in the form of just
compensation to the property owner.
As to Non-Impairment of Contracts. In taxation, a contract may not be impaired; this is not so in
eminent domain.
As to Persons Affected. Taxation applies to all persons, property and excises that may be subject
thereto; in eminent domain, only a particular property is comprehended.