Constitutional limitations.

1. Observance of due process of law and equal protection of the laws. (sec, 1, Art.
3) Any deprivation of life , liberty or property is with due process if it is done under
the authority of a valid law and after compliance with fair and reasonable methods
or procedure prescribed. The power to tax, can be exercised only for a
constitutionally valid public purpose and the subject of taxation must be within the
taxing jurisdiction of the state. The government may not utilize any form of
assessment or review which is arbitrary, unjust and which denies the taxpayer a fair
opportunity to assert his rights before a competent tribunal. All persons subject to
legislation shall be treated alike under like circumstances and conditions, both in the
privileges conferred in liabilities imposed. Persons and properties to be taxed shall
be group, and all the same class shall be subject to the same rate and the tax shall
be administered impartially upon them.
2. Rule of uniformity and equity in taxation (sec 28(1)Art VI) All taxable articles or
properties of the same class shall be taxed at the same rate. Uniformity implies
equality in burden not in amount. Equity requires that the apportionment of the tax
burden be more or less just in the light of the taxpayers ability to bear the tax
burden.
3. No imprisonment for non-payment of poll tax (sec. 20, Art III) A person cannot be
imprisoned for non-payment of community tax, but may be imprisoned for other
violations of the community tax law, such as falsification of the community tax
certificate, or for failure to pay other taxes.
4. Non-impairment of obligations and contracts, sec 10, Art III . the obligation of a
contract is impaired when its terms and conditions are changed by law or by a party
without the consent of the other, thereby weakening the position or the rights of the
latter. IF a tax exemption granted by law and of the nature of a contract between the
taxpayer and the government is revoked by a later taxing law, the said law shall not
be valid, because it will impair the obligation of contract.
5. Prohibition against infringement of religious freedom Sec 5, Art III, it has been
said that the constitutional guarantee of the free exercise and enjoyment of religious
profession and worship, which carries the right to disseminate religious belief and
information, is violated by the imposition of a license fee on the distribution and sale
of bibles and other religious literatures not for profit by a non-stock, non-profit
religious corporation.
6. Prohibition against appropriations for religious purposes, sec 29, (2) Art. VI,
Congress cannot appropriate funds for a private purpose, or for the benefit of any
priest, preacher or minister or for the support of any sect, church except when such
priest, preacher, is assigned to the armed forces or to any penal institutions,
orphanage or leprosarium.
7. exemption of all revenues and assets of non-stock, non-profit educational
institutions used actually, directly, and exclusively for educational purposes from
income, property and donor's taxes and custom duties (sec. 4 (3 and 4) art. XIV.
8. Concurrence by a majority of all members of Congress in the passage of a law
granting tax exemptions. Sec. 28 (4) Art. VI.
9. Congress may not deprive the Supreme Court of its jurisdiction to review, revise,
reverse, modify or affirm on appeal or certiorari, final judgments and orders of lower
courts in all cases involving the legality of any tax, impost, assessment or any
penalty imposed in the relation thereto.

TAXATION LAW REVIEW NOTES

I. BASIC PRINCIPLES OF TAXATIONA. TAXATION AS AN INHERENT POWER OF THE
STATE
Power to tax is inherent in sovereignty

the moment the State exists, the power to tax automatically exists

enforceable even without any delegation by the Constitution or legislation from
Congress

LGUs have no inherent power to tax; but expressly granted by the Constitution or
legislationLifeblood Theory (CIR v Algue)

Tax is necessary to meet the expenses of government without which the latter
cannotoperate

Every person must contribute his share in the running of the government
B. PHASES AND SCOPE OF TAXATION
Levy where Congress enacts a statute to impose taxesCollectionSubject Matter
refers to persons, things, transaction, privilege, etc.
C. INHERENT LIMITATIONS
1 . Ta x a t i o n s h o u l d b e f o r p u b l i c u s e a.Public welfare should be the
penultimate objective.b.Taxation may be used to implement the States
police power.2 . Ta x a t i o n i s i n h e re n t l y l e g i s l a t i v e . 3 . T h e G o v e rn m e n t i s
s e l f- e x p l a n a t o r y. a.LGUs are expressly prohibited from levying tax from the
NGb.Ng may tax GOCCs, agencies and
instrumentalities4 . Te r r i t o r i a l i t y a.Taxing authority cannot impose taxes
on subjects beyond its territorial jurisdiction.b . I t m a y d e t e rm i n e t h e t a x s i t u s .
D. CONSTITUTIONAL LIMITATIONS
Constitution is not the source of the taxing power. It simply defines and delimits the
power.1. Due Process Clause (Section 1, Art. III)

Enforced contribution from the people cannot be made without a law authorizing the
sameSubstantive Due Process

Requires that the tax statute must be within the constitutional authority of Congress
and thatit must be fair, just and reasonable.Procedural Due Process

Requires notice and hearing, or at least an opportunity to be heard.
Prepared by: Michael Gines Munsayac
Taxation Law Review
2. Equal Protection Clause (Section 1, Art. III)

Means that taxpayers of the same footing should be treated alike, both as to
privilegesconferred as well as on obligations imposed.Violations (Villegas v Hsiu Chiong Tsai
Poi)

When classification is made where there should be none

When no classification is called for Valid Classification (Pp v Cayat)

There must be substantial distinctions that make real differences.

These must be germane and relevant to the purpose of law.

The distinction must not only be applicable to present but also to future conditions.

The distinction must apply to persons, things and transactions belonging to the same class.3.
Freedom of Religion (Section 5, Art. III)Non Establishment Clause

Covers the prohibition to establish a national or official religion since in that case,
there willbe an appropriation from taxes paid by the people.Free Exercise Clause

This is the basis of tax-exemption granted to religious institutions.4. Non-Impairment

of Contracts (Section 10, Art. III) Applications

Peoples right and freedom to contract

Sanctity of contracts

Does not apply to franchises

Not applicable to police power and eminent domain5. Non-imprisonment for Non-
Payment of Tax (Section 20, Art.
III)Poll tax tax imposed on persons without any qualification (e.g. CTC); payment is no
tmandatory (merely permissive)

Principles of a Good Tax System

1. Efficient - A tax system should raise enough revenue such that government projects can be
adequately sponsored, without burdening the economy too much (not particularly the tax
payer), as not to become a disincentive for performance (internal and external investment,
work returns and savings).

2. Understandable - The system should not be incomprehensible to the layperson, nor should
it appear unjust or unnecessary complex. This is to minimize discontent and costs.
3. Equitable - Taxation should be governed by people's ability to pay, that is, wealthier
individuals or firms with greater incomes should pay more in tax while those with lower
incomes should pay comparatively less.

4. Benefit Principle - Those that use a publicly provided service (which is funding primarily through
taxation) should pay for it! However, conflicts in principle may and often do arise between this and
principle 2.