GENERAL PRINCIPLES ON

TAXATION
Atty. Vic C. Mamalateo
June 25, 2015
SAN SEBASTIAN RECOLETOS MANILA
 TAXATION
TAXATION is the power by which the sovereign
raises revenue to defray the expenses of
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.
Taxation is described as a destructive power
which interferes with the personal and property
rights of the people and takes away from the a
portion of their property for the support of the
government.
 NATURE OF POWER OF TAXATION
1. Power of taxation is inherent in the State,
being an essential attribute of sovereignty
It exists as a matter of right to every independent
government, without being expressly conferred by
the people.
Unlimited and without limits; security against its
abuse can be found only in the responsibility of
the legislature on the constituency who are to pay
it.
 NATURE OF POWER OF TAXATION
2. Power of taxation is legislative in character
The power to tax includes the authority to:
A. Determine the (i) nature (kind); (ii) object
(purpose); (iii) extent (amount or rate); (iv) coverage
(subjects and objects); (v) apportionment of tax
(general or limited application); (vi) situs (place) of
imposition; and (vii) method of collection;
B. Grant tax exemptions or condonations; and
C. Specify or provide for the administrative as well as
judicial remedies that either the government or the
taxpayers may avail themselves in the proper
implementation of the tax measure.
 NATURE OF POWER OF TAXATION
3. Power of taxation is generally not delegated to
executive or judicial department
General rule: It is purely legislative, which the central
government cannot delegate to executive or judicial
department without infringing upon the theory of separation of
powers.
Exceptions: Delegation of power to tax is allowed in the
following cases:
To local governments in respect of matters of local concern, to be
exercised by local government bodies thereof (Sec 5, Art X, 1987
Constitution)
When allowed by the Constitution
Sec 23(2), Art VI, 1987 Constitution In times of war or national emergency
Sec 28(2), Art VI, 1987 Constitution Power to fix tariff rates by the President
 NATURE OF POWER OF TAXATION
When delegation relates merely to administrative
implementation that may call for some degree of
discretionary powers under a set of sufficient standards
expressed by law, or implied from the policy and
purpose of the Act.

4. It is subject to constitutional and inherent

limitations
 ASPECTS OF TAXATION
Three aspects of taxation:
Power to levy
Vested in Congress
All revenue bills shall originate from the House of
Representatives, but the Senate may propose or concur with
amendments
Involves tax policy
Power to assess and collect
Exercised by the executive department
Involves tax administration
Act of compliance
Taxpayer complies with his obligations under the law and
considers options, schemes or remedies legally available
 UNDERLYING BASIS OF TAXATION
1. Lifeblood Theory
The power to tax proceeds upon the theory that the
existence of government is a necessity. No sovereign State
can continue to exist or endure without the means to pay
its expenses, and for those means, it has the right to
compel all citizens and property within its limits to
contribute.
The theory is used to justify the validity of laws providing
for summary remedies in the collection of taxes; hence,
injunction against assessment and collection of taxes is
generally withheld by laws imposing such taxes.
 UNDERLYING BASIS OF TAXATION
2. Benefits-Protection Theory (Symbiotic
Relationship)
Taxation is the indispensable and inevitable price for
civilized society; without taxes, the government would
be paralyzed.
Every person who is able must contribute his share in
the running of the government, despite the natural
reluctance to surrender part of his hard-earned
income to government
Government is expected to respond in the form of
tangible and intangible benefits to improve the lives of
people and enhance their moral and material values.
 TAXATION, EMINENT DOMAIN AND
POLICE POWER
1. Authority who exercises the power
2. Purpose
3. Persons affected
4. Effect
5. Benefits received
6. Amount of imposition
7. Relationship to Constitution
 TAXATION, EMINENT DOMAIN AND
POLICE POWER
A. Ordinance requiring owners of commercial cemeteries to
reserve 6% of their burial lots for paupers is invalid; it is an
exercise of eminent domain, not of police power.
B. Ordinance prohibiting barbershops from conducting
massage business in another room is valid, for protection of
public morals.
C. Zoning ordinance, reclassifying residential into
commercial or industrial area, is valid exercise of police
power.
D. Collection of universal charge under EPIRA law is valid
exercise of police power, not of taxing power. Distinction
lies in the purpose.
 CHARACTERISTICS OF TAXES
1. Taxes are forced charges, impositions or contributions;
they operate ad invitum;
2. They are assessed in accordance with some reasonable
rule of apportionment;
3. They are pecuniary burdens payable in money;
4. They are imposed by the State on persons, property or
excises within its territorial jurisdiction, pursuant to the
territoriality principle;
5. They are levied by the legislative body for a public
purpose;
6. They are personal to the taxpayer. A corporate tax
delinquency cannot be enforced against its stockholders.
 KINDS OF TAXES
1. Direct or indirect tax
2. General or special tax
3. Property, excise, or poll tax
4. Income, transfer, or business tax
5. National or local tax
6. Progressive or regressive tax
7. Ad valorem or specific tax
 PURPOSES OF TAXATION
1. Revenue
2. Regulatory to provide means for the
rehabilitation and stabilization of a threatened
industry affected with public interest, as to be
within the police power of the State.
3. Reduction of social inequality progressive
system of taxation
4. Encourage economic growth by granting
incentives and exemptions
5. Protectionism
 TAX vs. LICENSE FEE
1. Purpose
2. Basis
3. Amount
4. Time of payment
5. Effect of non-payment
6. Surrender
 TAX vs. DEBT
1. Basis
2. Effect of non-payment
3. Mode of payment
4. Assignability
5. Interest
6. Authority
7. Prescription
 TAX vs. TOLL
1. Definition
2. Basis
3. Amount
4. Authority
 DOUBLE TAXATION
REQUISITES:
Same property or subject matter is taxed twice
For the same purpose
By the same State, government, or taxing authority
Within the same jurisdiction or taxing district
During the same taxable period, and
Such taxes are of the same kind or character.
Double taxation
Strict sense vs. loose sense; national or international
Ways to avoid double taxation: unilateral tax exemption
by one country or tax credit method (subject to limitation),
where both countries impose both taxes
 DOUBLE TAXATION
1. No double taxation where the tax is imposed on sale of
lumber, not upon lumber as forest product; one is excise
tax, the other is property tax.
2. Tax on sugar central and tax on storage of sugar for
compensation are separate taxes. Tax on business is
payable for every separate or distinct establishment or
place where business is conducted.
3. Tax on sale of bottle of liquor is a tax measure, while
fixed sum paid annually for wholesale liquor license is a
license fee, which is a regulatory measure in the exercise of
police power.
4. Gross receipts tax (business tax) on banks is different
from 20% FWT on interest income (income tax).
 HIERARCHY OF LAWS
1. 1987 Constitution
2. Effective tax treaties, duly ratified by the
Philippine Senate (pacta sunt servanda)
3. Statutes (general or special)
4. Supreme Court decisions that have become
final and executory, and revenue regulations
promulgated by the Secretary of Finance
5. Administrative issuances issued by the
Commissioner of Internal Revenue, such as
rulings, RMCs, RMOs, etc.
 CONSTRUCTION OF TAX LAWS
TAX EXEMPTIONS ARE CONSTRUED STRICTLY
AGAINST THE TAXPAYER
To be exempt, exemption must refer only to
machinery used exclusively in the new and necessary
industry. Operation of transportation equipment is
not indispensable to or form part of business of
manufacturing plywood, although it may bring
convenience and economy to taxpayer.
Sale of land and the tax-exempt bonds are 2 different
taxable items; exemption of one does not operate to
exempt the other, unless the law expressly so
provides. Income from expropriation of land is
taxable.
 CONSTRUCTION OF TAX LAWS
IN CASE OF CONFLICT BETWEEN FINANCIAL
ACCOUNTING RULES AND TAX ACCOUNTING RULES,
LATTER SHALL PREVAIL.
Books of accounts done by employees of the taxpayer and
audited financial statements issued by independent CPAs
are made following the generally accepted accounting
principles in the Philippine Financial Reporting Standards
and Philippine Accounting Standards.
Tax returns are done pursuant to the provisions of the Tax
Code, and any conflict between the financial accounting
rules and the Tax Code provisions shall be reconciled and
reflected in the Adjustments to Net Income in the tax
return.
 CONSTRUCTION OF TAX LAWS
PROSPECTIVE APPLICATION OF LAWS
As a rule, taxing statutes must be applied prospectively, except
by express provision of the law.
The mere fact that a tax law is retroactive does not make it invalid or
against due process because retroactivity must be so harsh and
oppressive in its application in order to invalidate the law (e.g.,
enrolled bill exempting lawyers from VAT submitted to President on
Jan 5, 2004 but was not acted upon within 30 days and became
effective on Feb 5, 2004).
When SC interpreted Sec 102(B), 1977 Tax Code (re refund of
VAT), this interpretation became part of the law from the
moment it became effective. Interpretation of a law by the
Court constitutes part of that law from the date it was originally
passed, since the Courts interpretation merely establishes the
contemporaneous legislative intent that the interpreted law
carried into effect.
 CONSTRUCTION OF TAX LAWS
CONSTRUCTION OF STATUTE BY PREDECESSORS IS
NOT BINDING ON THE SUCCESSORS
The Secretary of Finance is vested with authority
to revoke, repeal or abrogate the acts or previous
rulings of his predecessors in office because the
construction of a statute by those administering it
is not binding on their successors, if thereafter the
latter becomes satisfied that a different
construction should be given.
 TAX AVOIDANCE vs. TAX EVASION
TAX AVOIDANCE is the tax saving device within
the means sanctioned by law.
TAX EVASION is a scheme used outside of those
lawful means and when availed of, it usually
subjects the taxpayer to further or additional civil
or criminal liabilities. It connotes the integration
of 3 factors, namely: (1) the end to be achieved;
(2) an accompanying state of mind which is evil,
willful or deliberate; and (3) a course of action or
failure of action which is unlawful.
CIR v. Estate of Benigno P. Toda, Jr., G.R. No. 147188, Sept 14, 2004

PAY TO CORP 1
May & July 1989

SALE SALE
CORP
CORP 1 Aug 89 IND Aug 89
2
 SPECIAL LAW vs. GENERAL LAW
SPECIAL LAWS PREVAIL OVER GENERAL LAWS
The demand on taxpayer to pay is an assessment for deficiency
franchise tax. As such, the right to assess and collect the same
is governed by Sec 331, NIRC, rather than Art 1145 & 1155 of
the Civil Code, which provides prescription of 6 years. Tax Code
is a special law which must prevail over the Civil Code.
RA 7716 (EVAT law) effective Jan 1, 1996, imposes VAT on all
franchise grantees. However, PAGCOR is authorized to engage in
and operate gambling casinos. Its charter (PD 1869), which
grants exemption from all taxes, direct and indirect, is a special
law. Thus, its repeal or modification by a subsequent general
law must be expressed and not just implied.
NOTE: RA 9337 (RVAT law) effective Nov 1, 2005,
exemptions of PAGCOR was expressly repealed.
 SET-OFF OF TAXES
Taxes cannot be the subject of set-off or compensation with
ordinary debts for the following reasons:
1. Taxes are of different kind, essence or nature, and these impositions
cannot be classed in merely the same category as ordinary obligations;
2. The applicable laws and principles governing each are peculiar, not
necessarily common, to each; and
3. Public policy is better subserved, if the integrity and independence
of taxes are maintained.
However, if the obligation to pay taxes and the taxpayers claim
against the government are both overdue and demandable as well
as fully liquidated, compensation takes place by operation of law
and both obligations are extinguished to their concurrent amounts.

The Civil Code applies in a suppletory manner to the Tax Code

provisions.
 POWERS OF GOVERNMENT

SUBORDINATE
LEGIS LEGISLATION

QUASI-
LEGISLATIVE
(DOF/CIR)
INTERPRETATIV
GOVT EXEC E RULES

QUASI-JUDICIAL
(CIR)
JUD
 QUASI-LEGISLATIVE POWER
Quasi-legislative power is the authority delegated by the
lawmaking body to the administrative body to adopt rules and
regulations intended to carry out the provisions of the law and
implement legislative policy. The reason for the delegation of
power is that the lawmaking body finds it impracticable, if not
impossible, to anticipate and provide for the multifarious and
complex situations that may be encountered in enforcement.
To be valid, the administrative issuance must comply with the
following requisites:
1. Its promulgation is authorized by the legislature;
2. It is promulgated in accordance with the procedure;
3. It is within the scope of the authority given by the legislature;
and
4. It must be reasonable.
 A. SUBORDINATE LEGISLATION
Administrative bodies are allowed to implement the broad policies laid
down in the statute by filling in the details. All that is necessary is the
regulation must be germane to the purposes and objectives of the law.
CIR has the exclusive and original power to interpret Tax Code provisions
(Sec 4, NIRC). DOF Secretary may issue needful rules for enforcement of
tax laws, upon recommendation of CIR (Sec. 244, NIRC).
Before the rules are adopted, there must be a hearing under the
Administrative Code of 1987. When an administrative rule substantially
adds to or increases the burden of those concerned (or expands the list of
disqualified taxpayers entitled to tax amnesty [e.g., adverse decision of
CTA is not yet final and executory]), an administrative agency must accord
those directly affected a chance to be heard before its issuance.
This power of subordinate legislation is necessarily limited to what is
provided for in the legislative enactment.
It has the force and effect of law, and it stands at a higher platform
compared to interpretative rules.
 B. INTERPRETATIVE RULES
The rules and regulations construing or interpreting the provisions of a
statute to be enforced are binding on all concerned until they are
changed. They have the effect of law and are entitled to great respect;
they have in their favor the presumption of legality.
There is no constitutional requirement for a hearing in the promulgation
of general regulation by an administrative body. Where the rule is
procedural, or where the rules are merely legal opinions, there is no
notice required. Also, interpretative rules and those merely internal in
nature (as they regulate the personnel and do not apply to public) need
not be published.
Many regulations bear directly on the public. Regulations are not
supposed to be substitutes for the general policy-making that Congress
enacts in the form of a public law.

The erroneous application of the law by public officers does not bar a
subsequent correct application (under the principle of estoppel).
REQUISITES OF VALID REGULATION
Regulation is issued under authority of law
Regulation must be within the scope and purview of
the law.
Regulation does not contract but conforms with the
standards prescribed by law (Public Schools District Supv
Asso v. de Jesus, 2006).
Germane to the objects and purposes of the law, and
not in contravention to, but in conformity with, the
standards prescribed by law.
Customs officers must first assess and determine
classification of imported articles before tariff may be
imposed. CMO 23-2007 violates this rule (COC v. Hypermix
Feeds Corp, 2012).
 QUASI-JUDICIAL POWER
Quasi-judicial power is synonymous to
administrative adjudicatory powers, which
refers to hearing or determining questions of
facts and to decide based on standards laid down
by law.
Only the CIR (excluding the DOF Secretary) has
the power to decide on disputed assessments
and on claims for refunds/tax credits, which
decision is appealable to the CTA.
The power of CIR may be delegated to subordinate
officials of BIR not lower than a division chief.
 INHERENT LIMITATIONS
1. The levy must be for a public purpose
2. Non-delegation of the legislative power to
tax
3. Exemption from taxation of government
entities
4. Territorial jurisdiction
 CONSTITUTIONAL LIMITATIONS
1. No person shall be deprived of life, liberty or property without due process of
law.
2. Nor shall any person be denied the equal protection of the laws.
3. The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.
4. No law impairing the obligation of contracts shall be passed.
5. The free exercise and enjoyment of religious profession and worship, without
discrimination or preference, shall forever be allowed.
6. Freedom of the press Thus, circulation income is exempt, but income from
advertisements is subject to VAT.
7. Tax exemption of properties for religious, charitable, and educational purposes.
8. All appropriation, revenue or tariff bills shall originate from the House of
Representatives, but the Senate may propose or concur with amendments.
9. No law granting any tax exemption shall be passed without the concurrence of a
majority of all the members of the Congress.
10. Congress shall evolve a progressive system of taxation.
BIR ORGANIZATIONAL STRUCTURE
NATIONAL OFFICE
Commissioner of Internal Revenue
Deputy Commissioners + National Evaluation Board
Assistant Commissioners (Large Taxpayers Service Regular and
Excise), Enforcement Service, Legal Service, Collection Service)
Division Chiefs (LTRAD, LTETD, National Investigation Division)

REGIONAL OFFICES
Regional Directors
Assistant Regional Directors
Division Chiefs (Assessment, Collection, and Legal)
Revenue District Officers, LTDO, and Regional Investigation
Division
DUTIES OF BIR
DUTIES OF BIR
To assess and collect taxes
To enforce forfeitures, fines and penalties
To execute judgments in all cases decided in its favor by
the tax court and ordinary courts
To administer supervisory and police powers conferred
upon it by law
BIR OFFICIALS AND COLLECTING AGENTS
BIR Commissioner and subordinate officials
BOC Commissioner and subordinate officials with respect
to taxes on imported goods (VAT and excise tax)
Authorized agent banks (AAB) with contracts with BIR
Taxpayers (as withholding agents)
DUTIES OF TAXPAYERS
To get Taxpayer Identification Number (TIN) [Sec. 236(J), NIRC]
To register as a taxpayer Income tax, Withholding agent, VAT
or Non-VAT, etc. and to update BIR Certificate of Registration
[BIR Form 2303] (Sec. 236(A), NIRC)
To register books of accounts (whether computerized or
manual) [Sec. 232, NIRC] and to keep books and records for 3 years
from date of last entry (Sec. 235, NIRC)
To secure Authority To Print (Sec. 238, NIRC) and to register and
issue sales invoices (Sec. 237, NIRC), incl. delivery receipts, official
receipts, incl. provisional receipts and acknowledgement
receipts, and other accounting records (whether
computerized or manual)
DUTIES OF TAXPAYERS
To register cash register machines and POS
machines
To file tax returns and pay taxes within the
dates prescribed by law; otherwise, penalties
will be imposed
To withhold and remit taxes required by law or
regulations and to issue Certificates of Tax
Withheld (BIR Form 2307)
To submit reports and other information
required by law or regulations (e.g., inventory,
SLS and SLP, SAWT and MAP, alpha list of
employees, audited financial statements, etc.)