I.
GENERAL PRINCIPLES OF TAXATION
TAXATION – power by which the sovereign
through its law-making body raises revenue to
defray the necessary expenses of government
from among those who in some measure are
privileged to enjoy its benefits and must bear its
burdens.
NATURE OF INTERNAL REVENUE LAWS
Internal revenue laws are not political in
nature and as such were continued in force
during the period of enemy occupation and in
effect were actually enforced by the occupation
government. Such tax laws are deemed to be the
laws of the occupied territory and not of the
occupying enemy. (Hilado v. Collector of Internal
Revenue)
PURPOSE AND OBJECTIVES OF TAXATION
• 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. (Caltex
Philippines, Inc. v. Commission on Audit)
• Taxation may be made the implement of
the state's police power. (Lutz v.
Araneta)
• If the purpose is primarily revenue, or if
revenue is, at least, one of the real and
substantial purposes, then the exaction
is properly called a tax. (Philippine
Airlines, Inc. v. Edu)
• The Constitution does not really prohibit
the imposition of indirect taxes which,
like the VAT, are regressive. 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. (Tolentino v.
Secretary of Finance)
• The tax imposed is not only a regulatory
but also a revenue measure prompted
by the realization that earnings of
videogram establishments have not
been subjected to tax, thereby depriving
the Government of an additional source
of revenue. It is an end-user tax,
imposed on retailers for every
videogram they make available for
public viewing. (Tio v. Videogram
Regulatory Board)
THEORY AND BASIS OF TAXATION
• 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.
Taxes are what we pay for civilized
society. 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.
(Commissioner of Internal Revenue v.
Algue)
• 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.
(National Power Corporation v. City of
Cabanatuan)
• A taxpayer cannot object to or resist the
payment of taxes solely because no
personal benefit to him can be pointed
out as arising from the tax. (Lorenzo v.
Posadas, Jr.)
NATURE OF TAXING POWER
• The power to tax is an attribute of
sovereignty. It is a power emanating
from necessity. It is a necessary burden
to preserve the State's sovereignty and a
means to give the citizenry an army to
resist an aggression, a navy to defend its
shores from invasion, a corps of civil
servants to serve, public improvements
designed for the enjoyment of the
citizenry and those which come within
 the State's territory, and facilities and as to amount of exaction
protection which a government is No limit Limited to No exaction;
supposed to provide. (Phil. Guaranty the cost of but private
Co., Inc. v. Commissioner of Internal regulation, property is
Revenue) issuance of taken by the
the license State for public
• As a general rule, the power to tax is an or purpose
surveillance
incident of sovereignty and is unlimited
in its range, acknowledging in its very
as to benefits received
nature no limits, so that security against
No special No direct A direct
its abuse is to be found only in the or direct benefit is benefit results
responsibility of the legislature which benefit is received; a in the form of
imposes the tax on the constituency who received by healthy just
are to pay it. Nevertheless, effective the economic compensation
limitations thereon may be imposed by taxpayer; standard of to the property
the people through their Constitution. merely society is owner
(Mactan Cebu International Airport general attained
Authority v. Marcos) benefit of
protection
• The power of taxation is sometimes as to non-impairment of contracts
called also the power to destroy. It Contracts Contracts Contracts may
may not be may be be impaired
should, therefore, be exercised with
impaired impaired
caution to minimize injury to the
proprietary rights of a taxpayer. It must
as to transfer of property rights
be exercised fairly, equally and Taxes paid No transfer Transfer is
uniformly (Roxas v. Court of Tax Appeals) become but only favor of the
part of restraint in State
public its exercise
PRINCIPLES OF SOUND TAX SYSTEM funds
• Fiscal adequacy, which is one of the
characteristics of a sound tax system, as to scope
requires that sources of revenues must All persons, All persons, Only upon a
be adequate to meet government property property, particular
expenditures and their variations. and rights and property
(Chavez v. Ongpin) excises privileges

• Administrative feasibility which is one of
the basic principles of a sound tax
system requires that tax laws should be
capable of convenient, just and effective
administration which is why it fixes a
standard or a uniform tax base upon
which taxes should be paid. (Taganito
Mining Corp. v. Commissioner of Internal
Revenue)
POWER OF TAXATION COMPARED WITH OTHER
POWERS
• The basic aim of police power is public
good and welfare. Taxation, in its case,
focuses on the power of government to
raise revenue in order to support its
existence and carry out its legitimate
objectives. Although correlative to each
other in many respects, the grant of one
does not necessarily carry with it the
grant of the other. The two powers are,
by tradition and jurisprudence, separate
and distinct powers, varying in their
respective concepts, character, scopes
and limitations. (Land Transportation
Office v. City of Butuan)

TAXATION POLICE EMINENT

POWER DOMAIN TAXES – enforced proportional contributions
as to purpose from the persons and property levied by the law-
To raise To promote To facilitate making body of the State by virtue of its
revenue public the State‘s sovereignty in support of government and for
purpose need of public needs.
through property for
regulations public use
ESSENTIAL CHARACTERISTICS OF TAXES
• Uniformity of taxation, like the kindred
concept of equal protection, merely
requires that all subjects or objects of
taxation, similarly situated, are to be
treated alike both in privileges and
liabilities.
Uniformity does not forfend
classification as long as:
(1) the standards that are used therefor
are substantial and not arbitrary;
(2) the categorization is germane to
achieve the legislative purpose;
(3) the law applies, all things being
equal, to both present and future
conditions; and
(4) the classification applies equally well
to all those belonging to the same class.
(Tan v. Del Rosario, Jr)
• 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 "inequalities which result from a
singling out of one particular class for
taxation or exemption infringe no
constitutional limitation."
(Commissioner of Internal Revenue v.
Santos)
TAXES AS DISTINGUISHED FROM OTHER FORMS
OF EXACTIONS
A. DEBTS
• It is settled that a taxpayer may not
offset taxes due from the claims that he
may have against the 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.
(Caltex Philippines, Inc. v. Commission on
Audit)
• There is a material distinction between a
tax and debt. Debts are due to the
Government in its corporate capacity,
while taxes are due to the Government
in its sovereign capacity. (Philex Mining
Corp. v. Commissioner of Internal
Revenue)
• Taxes are not in the nature of contracts
between the parties but grow out of a
duty to the government, to the making
and enforcing of which, the personal
consent of the individual taxpayer is not
required. (Republic v. Mambulao
Lumber Co.)
B. LICENSE FEES
• Fees may be properly regarded as taxes
even though they also serve as an
instrument of regulation. Motor vehicle
registration fees as at present exacted
pursuant to the Land Transportation and
Traffic Code are actually taxes intended
for additional revenues of government.
(Philippine Airlines, Inc. v. Edu)
C. SPECIAL ASSESSMENT
• The imposition of a charge on all
property, real and personal, in a
prescribed area, is a tax and not an
assessment, although the purpose is to
make a local improvement on a street or
highway. A charge imposed only on
property owners benefited is a special
assessment rather than a tax
notwithstanding the statute calls it a tax.
(Apostolic Prefect of the Mt. Province v.
El Tesorero de la Ciudad de Baguio)
D. TOLL
• Taxes are levied for the support of
government, while toll is compensation
for the use of another’s property. The
amount of taxes are determined by the
sovereign and may only be imposed by
the State. The amount of toll is
determined by the cost of the property
or of the improvement and may be
imposed by the government or private
individual.
E. PENALTIES
• Violation of tax laws may give rise to
imposition of penalty. The imposition of
the deficiency taxes on the NDC is a
penalty for its failure to withhold the
same from the Japanese shipbuilders.
Such liability is imposed by Section 53(c)
of the Tax Code. (National Development
Co. v. Commissioner of Internal Revenue)
LIMITATIONS ON TAXING POWER
I. INHERENT LIMITATIONS
PUBLIC PURPOSE OF TAXES
• The protection and promotion of the
sugar industry is a matter of public
concern, it follows that the Legislature
may determine within reasonable
bounds what is necessary for its
protection and expedient for its
promotion. The legislative discretion
must be allowed full play, subject only to
the test of reasonableness. (Lutz v.
Araneta)
• Incidental advantage to the public or to
the state, which results from the
promotion of private interests, and the
prosperity of private enterprises or
business, does not justify their aid by the
use of public money. (Pascual v.
Secretary of Public Works and
Communications)
INHERENTLY LEGISLATIVE / NON-DELEGABILITY
• The inherent power and authority of the
State, or its authorized agent, to
regulate the rates charged by public
utilities should be subject always to the
requirement that the rates so fixed shall
be reasonable and just. (Philippine
Communications Satellite Corp. v.
Alcuaz)
• While the local government units are
being strengthened and made more
autonomous, the legislature must still
see to it that (a) the taxpayer will not be
over-burdened or saddled with multiple
and unreasonable impositions; (b) each
local government unit will have its fair
share of available resources, (c) the
resources of the national government
will not be unduly disturbed; and (d)
local taxation will be fair, uniform, and
just (Manila Electric Co. v. Province of
Laguna)
• It is true that the uniformity essential to
the valid exercise of the power of
taxation does not require identity or
equality under all circumstances, or
negate the authority to classify the
objects of taxation. The classification
made in the exercise of this authority, to
be valid, must, however, be reasonable
(Pepsi-Cola Bottling Company of the
Philippines, Inc. v. City of Butuan)
TERRITORIALITY OR SITUS OF TAXATION
• No state may tax anything not within its
jurisdiction without violating the due
process clause of the constitution. The
taxing power of a state does not extend
beyond its territorial limits, but within
such limits it may tax persons, property,
income, or business.
If an interest in property is taxed, the
situs of either the property or interest
must be found within the state.
If an income is taxed, the recipient
thereof must have a domicile within the
state or the property or business out of
which the income issues must be
situated within the state so that the
income may be said to have a situs
therein.
Personal property may be separated
from its owner and he may be taxed on
its account at the place where the
property is although it is not a citizen or
resident of the state which imposes the
tax. (Manila Gas Corp. v. Collector of
Internal Revenue)
• An excise tax can be levied by the taxing
authority only when the acts, privileges
or businesses are done or performed
within the jurisdiction of said authority.
Specifically, the situs of the act of
distributing, bottling or manufacturing
softdrinks must be within city limits,
before an entity engaged in any of the
activities may be taxed (Iloilo Bottlers,
Inc. vs. City of Iloilo)
• As a general rule, the situs of taxation of
intangible personal property is the
domicile of the owner pursuant to the
principle of the mobilia sequuntur
personam or movables follow the
person, except when an express
provision of the statute provide for
another rule. (Collector of Internal
Revenue v. Domingo de Lara)
• If income is to be taxed, the recipient
thereof must be resident within the
jurisdiction, or the property or activities
out of which the income issues or is
derived must be situated within the
jurisdiction so that the source of the
income may be said to have a situs in this
country. (Commissioner of Internal
 Revenue v. British Overseas Airways
Corp.)
INTERNATIONAL COMITY
• A portion of sovereignty may be waived
without violating the Constitution,
based on the rationale that the
Philippines "adopts the generally
accepted principles of international law
as part of the law of the land and
adheres to the policy of cooperation and
amity with all nations. (Tañada v.
Angara)
EXEMPTION OF GOVERNMENT ENTITIES,
AGENCIES, AND INSTRUMENTALITIES
• By the very nature of indirect taxation,
the economic burden of such taxation is
expected to be passed on through the
channels of commerce to the user or
consumer of the goods sold. Because,
however, the NPC has been exempted
from both direct and indirect taxation,
the NPC must be held exempted from
absorbing the economic burden of
indirect taxation. (Maceda v. Macaraig,
Jr.)
• Taxation is the rule and exemption
therefrom the exception, the exemption
may thus be withdrawn at the pleasure
of the taxing authority. (Mactan Cebu
International Airport Authority v.
Marcos)
II. CONSTITUTIONAL LIMITATIONS
DUE PROCESS
• Due process clause may be invoked
where a taxing statute is so arbitrary
that it finds no support in the
Constitution. An obvious example is
where it can be shown to amount to the
confiscation of property. (Sison, Jr. v.
Ancheta)
• Administrative proceedings are not
exempt from the operation of due
process requirements one of which is
that a finding by an administrative
tribunal should be supported by
substantial evidence presented at the
hearing or at least contained in the
records or disclosed to the parties
affected. (Commissioner of Customs. v.
Court of Tax Appeals & Campos Rueda)
EQUAL PROTECTION
• The equal protection clause applies only
to persons or things identically situated
and does not bar a reasonable
classification of the subject of
legislation.
A classification is reasonable where:
(1) it is based on substantial distinctions
which make real differences;
(2) these are germane to the purpose of
the law;
(3) the classification applies not only to
present conditions but also to future
conditions which are substantially
identical to those of the present;
(4) the classification applies only to
those who belong to the same class.
(Ormoc Sugar Co. Inc. v. Treasurer of
Ormoc City)
• Although the equal protection clause of
the Constitution does not forbid
classification, it is imperative that the
classification, should be based on real
and substantial differences having a
reasonable relation to the subject of the
particular legislation.
The shelter of protection under the due
process and equal protection clause is
given to all persons, both aliens and
citizens. (Villegas v. Hiu Chiong Tsai Pao
Ho)
• It is well-settled that the equal-
protection guarantee does not require
territorial uniformity of laws. As long as
there are actual and material differences
between territories, there is no violation
of the constitutional clause (Tiu v. Court
of Appeals)
RELIGIOUS FREEDOM
• The constitutional guaranty of the free
exercise and enjoyment of religious
profession and worship carries with it
the right to disseminate religious
information.
Any restraint of such right can only be
justified like other restraints of freedom
of expression on the grounds that there
is a clear and present danger of any
substantive evil which the State has the
right to prevent. (American Bible Society
v. City of Manila)
NON-IMPAIRMENT OF CONTRACTS
• Charters or special laws granted and
enacted by the Legislature are in the
nature of private contracts. They are
usually adopted after careful
consideration of the private rights in
relation with resultant benefits to the
State. (Commissioner of Internal
Revenue v. Lingayen Gulf Electric Power
Co., Inc.)
• As a charter is in the nature of a private
contract, the imposition of another
franchise tax on the corporation by the
local authority would constitute an
impairment of the contract between the
government and the corporation.
(Province of Misamis Oriental v. Cagayan
Electric Power and Light Co., Inc.)
• The Constitution provides that a
franchise is subject to amendment,
alteration or repeal by the Congress
when the public interest so requires
(Cagayan Electric Power & Light Co., Inc.
v. Commissioner of Internal Revenue)
• A franchise partakes the nature of a
grant which is beyond the purview of the
non-impairment clause of the
Constitution. (Manila Electric Co. v.
Province of Laguna)
UNIFORMITY AND EQUALITY OF TAXATION
• A tax is considered uniform when it
operates with the same force and effect
in every place where the subject may be
found. (City of Baguio v. De Leon)
TAX EXEMPTION OF REAL PROPERTIES
• A gift tax is not an assessment on the
properties themselves. It did not rest
upon general ownership. Rather it is an
excise upon the use made of the
properties and upon the privilege of
receiving them. It is not, therefore a
property tax, but an excise tax imposed
on the transfer of property by way of gift
(Lladoc v. Commissioner of Internal
Revenue)
• The test of exemption from taxation is
the use of the property for purposes
mentioned in the Constitution.
The exemption extends to facilities
which are incidental to and reasonably
necessary for the accomplishment of the
main purposes. (Abra Valley College, Inc.
v. Aquino)
• There must be proof of the actual and
direct use of the lands, buildings, and
improvements for religious or charitable
purposes to be exempt from taxation.
(Province of Abra v. Hernando)
• The test whether an enterprise is
charitable or not is whether it exists to
carry out a purpose reorganized in law as
charitable or whether it is maintained
for gain, profit, or private advantage.
(Lung Center of the Philippines v. Quezon
City)
TAX EXEMPTION OF NON-STOCK, NON-PROFIT
EDUCATIONAL INSTITUTIONS
• To be granted the exemption, it must be
proved with substantial evidence that
(1) it falls under the classification non-
stock, non-profit educational institution;
and (2) the income it seeks to be
exempted from taxation is used actually,
directly, and exclusively for educational
purposes. (Commissioner of Internal
Revenue v. Court of Appeals & YMCA)
• The tax exemption granted by the
Constitution to non-stock, non-profit
educational institutions, unlike the
exemption that may be availed of by
proprietary educational institutions,
is not subject to limitations imposed
by law. (Commissioner of Internal
Revenue v. De La Salle University, Inc.)
MAJORY VOTE OF CONGRESS TO GRANT TAX
EXEMPTION
• Tax exemption cannot be implied as it
must be categorically and unmistakably
expressed. (John Hay Peoples
Alternative Coalition v. Lim)
DOUBLE TAXATION AND TAX EXEMPTIONS
DOUBLE TAXATION
DIRECT DOUBLE TAXATION
• It is a well-settled rule that a license tax
may be levied upon a business or
occupation although the land or
property used in connection therewith is
subject to property tax. (Villanueva v.
City of Iloilo)
 • In order to constitute double taxation in
the objectionable or prohibited sense,
the same property must be taxed twice
when it should be taxed but once; both
taxes must be imposed on the same
property or subject-matter, for the same
purpose, by the same State,
Government, or taxing authority, within
the same jurisdiction or taxing district,
during the same taxing period, and they
must be the same kind or character of
tax. (Villanueva v. City of Iloilo)
• There is no constitutional prohibition
against double taxation in the
Philippines. It is something not favored,
but is permissible, provided some other
constitutional requirement is not
thereby violated, such as the
requirement that taxes must be
uniform. (Villanueva v. City of Iloilo)
MODES OF ELIMINATING DOUBLE TAXATION
• In order to eliminate double taxation, a
tax treaty resorts to several methods.
First, it sets out the respective rights to
tax of the state of source or situs and of
the state of residence with regard to
certain classes of income or capital. In
some cases, an exclusive right to tax is
conferred on one of the contracting
states; however, for other items of
income or capital, both states are given
the right to tax, although the amount of
tax that may be imposed by the state of
source is limited.
The second method for the elimination
of double taxation applies whenever the
state of source is given a full or limited
right to tax together with the state of
residence. In this case, the treaties make
it incumbent upon the state of residence
to allow relief in order to avoid double
taxation. (Commissioner of Internal
Revenue v. S.C. Johnson and Son, Inc.)
• There are two methods of relief — the
exemption method and the credit
method. In the exemption method, the
income or capital which is taxable in the
state of source or situs is exempted in
the state of residence, although in some
instances it may be taken into account in
determining the rate of tax applicable to
the taxpayer's remaining income or
capital.
On the other hand, in the credit method,
although the income or capital which is
taxed in the state of source is still taxable
in the state of residence, the tax paid in
the former is credited against the tax
levied in the latter. The basic difference
between the two methods is that in the
exemption method, the focus is on the
income or capital itself, whereas the
credit method focuses upon the tax.
(Commissioner of Internal Revenue v.
S.C. Johnson and Son, Inc.)
FORMS OF ESCAPE FROM TAXATION
SHIFTING OF TAX BURDEN - the process by
which the tax burden is transferred from the
statutory taxpayer (impact of taxation) to
another (incident of taxation) without violating
the law.
WAYS OF SHIFTING TAX BURDEN
• Forward shifting- when burden of tax is
transferred from a factor of production
through the factors of distribution until
it finally settles on the ultimate
purchaser or consumer.
• Backward shifting- when burden is
transferred from consumer through
factors of distribution to the factors of
production.
• Onward shifting- when the tax is shifted
2 or more times either forward or
backward.
ONLY INDIRECT TAXES MAY BE SHIFTED.
Indirect taxes are those demanded in the
first instance from one person with the
expectation and intention that he can shift
the burden to someone else, not as a tax but
as part of the purchase price (eg. VAT)
IMPACT OF TAXATION – point on which tax
is originally imposed.
INCIDENCE OF TAXATION – point on which
the tax burden finally rests or settles down.
TAX AVOIDANCE - the exploitation by the
taxpayer of legally permissible alternative tax
rates or methods of assessing taxable property
or income, in order to avoid or reduce tax
liability.
• The legal right of a taxpayer to decrease
the amount of what otherwise could be
his taxes or altogether avoid them, by
means which the law permits, cannot be
doubted. (Delpher Trades Corp. v.
Intermediate Appellate Court)

TAX EVASION – use by the taxpayer of illegal or
fraudulent means to defeat or lessen the
payment of the tax.
• Since fraud is a state of mind, it need not
be proved by direct evidence but may be
inferred from the circumstances of the
case. The failure of the appellant to
declare for taxation purposes his true
and actual income derived from his
furniture business for two consecutive
years is an indication of his fraudulent
intent to cheat the Government of its
taxes. (Republic v. Gonzales)
• It should be emphasized that while tax
avoidance schemes and arrangements
are not prohibited, tax laws cannot be
circumvented in order to evade the
payment of just taxes. (Commissioner of
Internal Revenue v. Lincoln Philippine
Life Insurance Co., Inc.)
EXEMPTION FROM TAXATION
TAX EXEMPTION - It is the grant of immunity to
particular persons or corporations or to persons
or corporations of a particular class from a tax
which persons and corporations generally within
the same state or taxing district are obliged to
pay.
NATURE OF TAX EXEMPTION
• Laws granting tax exemption are
construed strictissimi juris against the
taxpayer and liberally in favor of the
taxing authority.
Taxation is the rule and exemption is the
exception.
The law does not look with favor on tax
exemptions and that he who would seek
to be thus privileged must justify it by
words to plain to be mistaken and too
categorical to be misinterpreted.
• He who claims an exemption must be
able to point out some provision of law
creating the right; it cannot be allowed
to exist upon a mere vague implication
or inference. (Floro Cement Corp. v.
Gorospe)
• As the power of taxation is a high
prerogative of sovereignty, the
relinquishment is never presumed and
any reduction or diminution thereof
with respect to its mode or its rate, must
be strictly construed, and the same must
be coached in clear and unmistakable
terms in order that it may be applied.
(Luzon Stevedoring Corp. v. Court of Tax
Appeals)
REVOCATION OF TAX EXEMPTION
• Since taxation is the rule and exemption
therefrom the exception, the exemption
may thus be withdrawn at the pleasure
of the taxing authority. The only
exception to this rule is where the
exemption was granted to private
parties based on material consideration
of a mutual nature, which then becomes
contractual and is thus covered by the
non-impairment claim of the
Constitution. (Mactan Cebu
International Airport Authority v.
Marcos)
OTHER DOCTRINES IN TAXATION
PROSPECTIVITY OF TAX LAWS
• It is established that tax laws are
prospective in application, unless it is
expressly provided to apply retroactively
(Pansacola v. Commissioner of Internal
Revenue)
NON-RETROACTIVITY OF BIR RULINGS
GR: Rulings are not retroactive if they
are prejudicial to the taxpayer. (Sec. 246,
NIRC)
EX:
1. Where the taxpayer deliberately
misstates or omits material facts
from his return or any document
required of him by the BIR.
2. Where the facts subsequently
gathered by the BIR is materially
different from the facts on which the
ruling is based.
3. Where the taxpayer acted in bad
faith.
SET-OFF OF TAXES
• There can be no off-setting of taxes
against the claims that the taxpayer may
have against the government. A person
cannot refuse to pay a tax on the ground
that the government owes him an
amount equal to or greater than the tax
being collected. (Francia v. Intermediate
Appellate Court)
• Internal Revenue Taxes, such as forest
charges, cannot be the subject of set-off
or compensation. It is because taxes are
not in the nature of contracts between
the parties but grow out of a duty to, and
are positive acts of, the government, to
the making and enforcing of which, the
personal consent of the individual
taxpayer is not required. (Republic v.
Mambulao Lumber Co.)
TAX AMNESTY
• A tax amnesty, being a general pardon or
intentional overlooking by the State of
its authority to impose penalties on
persons otherwise guilty of evasion or
violation of a revenue or tax law,
partakes of an absolute forgiveness or
waiver by the Government of its right to
collect what otherwise would be due it,
particularly to give tax evaders, who
wish to relent and are willing to reform a
chance to do so. (Republic v.
Intermediate Appellate Court)

• When both obligations are due and

demandable as well as fully liquidated
and all the requisites for a valid
compensation are present,
compensation takes place by operation
of law, and both debts are extinguished
to the concurrent amount. (Domingo v.
Garlitos)

TAXPAYERS’ SUIT
• To constitute a taxpayer's suit, two
requisites must be met, namely, that
public funds are disbursed by a political
subdivision or instrumentality in doing
so, a law is violated or some irregularity
is committed, and that the petitioner is
directly affected by the alleged ultra
vires act. (Bagatsing v. San Juan)

• The prevailing doctrine in taxpayer's

suits is to allow taxpayers to question
contracts entered into by the national
government or government-owned or
controlled corporations allegedly in
contravention of law.

A taxpayer is allowed to sue where there

is a claim that public funds are illegally
disbursed, or that public money is being
deflected to any improper purpose, or
that there is a wastage of public funds
through the enforcement of an invalid or
unconstitutional law (Abaya v. Ebdane,
Jr.)