LIMITATIONS OF TAXATION:

INHERENT AND
CONSTITUTIONAL
MIAM
TYPES OF LIMITATIONS TO TAXATION

 INHERENT LIMITATIONS
 Limitations imposed by the nature of the power of
taxation itself

 CONSTITUTIONAL LIMITATIONS
 Limitations imposed by the 1987 Constitution
 INHERENT LIMITATIONS
Limitations caused by its nature.
 PUBLIC PURPOSE

 INTERNATIONAL COMITY

 TERRITORIALITY

 EXEMPTION OF GOVERNMENT AGENCIES FROM

TAXATION
 NON-DELEGATION OF THE POWER TO TAX;
INHERENTLY LEGISLATIVE
INHERENT LIMITATIONS; PUBLIC PURPOSE

 WHAT IS MEANT BY PUBLIC PURPOSE?

 Welfare of the nation and/or a greater portion
thereof
 Affects the area as a community rather than as
individuals
 Designed to support the service of government
INHERENT LIMITATIONS; PUBLIC PURPOSE

 PRINCIPLES
 It must not be used for purely private purpose
 Inequalities from singling out of class does not infringe the
inherent limitation
 Public purpose must exist at the time of enactment

 TESTS OF PUBLIC PURPOSE

 DUTY TEST – Is it the duty of the State to provide the
service?
 PROMOTION OF GENERAL WELFARE TEST – will it directly
promote the welfare of the community in equal measure?
Inherent Limitations: INTERNATIONAL
COMITY
 Legally nonbinding practices adopted by states for
reasons of courtesy.
 Laws and issuances must ensure that the reliefs
granted under tax treaties are accorded to the
parties entitled thereto.
 Tax treaties are entered into to minimize the
harshness of international double taxation.
 Still subject to the rule of strictissimi juris against the
taxpayer
Inherent Limitations: TERRITORIALITY

 The power to tax is limited to the territorial

jurisdiction of the State.
 But then, each type of tax has different rules on
“situs” or place.
 INCOME TAX: Citizenship, Residence, Source
 ESTATE TAX/ DONORS TAX

 Source Rules

 CIR v Marubeni (GR No. 137377, 18 Dec 2001)

2016 Bar Exam
 Sure Arrival Airways (SAA) is a foreign corporation, organized under the
laws of the Republic of Nigeria. Its commercial airplanes do not operate
within Philippine territory, or service passengers embarking from Philippine
airports. The firm is represented in the Philippines by its general agent,
Narotel.
 SAA sells airplane tickets through Narotel, and these tickets are serviced by
SAA airplanes outside the Philippines. The total sales of airplane tickets
transacted by Narotel for SAA in 2012 amounted to Pl0,000,000.00. The
Commissioner of Internal Revenue (CIR) assessed SAA deficiency income
taxes at the rate of 30% on its taxable income, finding that SAA's airline
ticket sales constituted income derived from sources within the Philippines.
 SAA filed a protest on the ground that the alleged deficiency income taxes
should be considered as income derived exclusively from sources outside the
Philippines since SAA only serviced passengers outside Philippine territory.
It, thus, asserted that the imposition of such income taxes violated the
principle of territoriality in taxation.
 Is the theory of SAA tenable? Explain. (5%)
Inherent Limitations: EXEMPTION FROM
TAXATION OF GOVT ENTITIES
 G.R. Such requires transfer of public funds from one
government pocket to another
 RULES:
 IF NATIONAL GOVERNMENT IMPOSES THE TAX
 Government is exempt, EXCEPT if it taxes itself
 IF LOCAL GOVERNMENT UNIT IMPOSES THE TAX
 National government, local governments, agencies,
instrumentalities are exempt, except:
 If it performs governmental functions – EXEMPT
 If it performs proprietary functions – TAXABLE
Inherent Limitations: NON-
DELEGATION OF THE POWER TO TAX
 What has been delegated cannot be delegated
again. (Sovereignty resides in the people. The
people delegated the power to tax to the
legislative branch.
 EXCEPTIONS:
 delegation to local governments
 Delegation to the President (power to fix tariff rates)

 Delegation to administrative authorities

CONSTITUTIONAL LIMITATIONS
1. Due Process Clause
2. Equal Protection Clause
3. Religious Freedom
4. Non-impairment Clause
5. Prohibition against imprisonment for non-payment
of poll tax
6. Uniformity and Equality of Taxation and
Progressive System of Taxation
CONSTITUTIONAL LIMITATIONS
7. Delegated Authority to the President to Impose
Tariff Rates
8. Prohibition against Taxation of Real Property of
Charitable Institutions, Churches, Parsonages or
Convents, Mosques and Non-Profit Cemeteries
9. Prohibition against Taxation of Non-Stock, Non-
Profit Educational Institutions
10. Majority Vote of Congress for Grants of Tax
Exemptions
CONSTITUTIONAL LIMITATIONS
11. Prohibition on Use of Tax Levied for a Special
Purpose
12. Tax Bills Should Originate Exclusively in the House
of Representatives
13. President’s Veto Power on Appropriation, Revenue,
and Tariff Bills
14. Judicial Power to Review Legality of Tax
15. Grant of Power to the LGUs to Create its Own
Sources of Revenue
Due Process in Taxation
 SUBSTANTIVE
 The law must be reasonable and not confiscatory
 Public purpose

 Within territorial jurisdiction

 PROCEDURAL
 No arbitrariness or oppression in assessment and
collection
 Follow Rules prescribed (Pre-Assessment Notice (PAN);
Final Assessment Notice (PAN), etc)
Equal Protection Clause in Taxation
 Classification to be valid must:
 Rest on substantial distinctions
 Be germane to the purpose of the law
 Not be limited to existing conditions only
 Apply equally to all members of the same class.

Sison v. Ancheta (compensation earners vs. business income

earners)
CIR v. Hypermix Feeds Corporation (GR No. 179579, 1 Feb
2012) (3% tariff for food grade wheat vs. 7% tariff for feed
grade wheat)
Equality; Uniformity; Progressive
System of Taxation
 EQUALITY – all taxable articles or kinds of
property of the same class shall be taxed at the
same rate.
 UNIFORMITY – burden falls equally and impartially
upon all persons and property subject to it.
 PROGRESSIVE SYSTEM OF TAXATION
 Rate goes up depending on the resources of the person
affected
 Income Tax? VAT?
2017 Bar Exam
 Heeding the pronouncement of the President that the worsening traffic
condition in the metropolis was a sign of economic progress, the Congress
enacted RA No. 10701 also known as An Act Imposing a Transport Tax on
the Purchase of Private Vehicles.
 Under RA 10701, buyers of private vehicles are required to pay a
transport tax equivalent to 5°/o of the total purchase price per vehicle
purchased. RA 10701 provides that the Land Transportation Office (LTO)
shall not accept for registration any new vehicles without proof of payment
of the 5% transport tax. RA 10701 further provides that existing owners of
private vehicles shall be required to pay a tax equivalent to 5% of the
current fair market value of every vehicle registered with the LTO. However,
RA 10701 exempts owners of public utility vehicles and the Government
from the coverage of the 5% transport tax.
 A group of private vehicle owners sue on the ground that the law is
unconstitutional for contravening the Equal Protection Clause of the
Constitution.
 Rule on the constitutionality and validity of RA 10701. (5%)
Religious, Charitable, Educational Purposes

 ART. VI. Sec. 28 (3)

Charitable institutions, churches, and parsonages or
convents appurtenant thereto, mosques, non-profit
cemeteries, and all land, buildings, and improvements,
actually, directly, and exclusively used for religious,
charitable, or educational purposes shall be exempt
from taxation.
 applies only to real property tax
 use, not ownership
Lung Center v. Quezon City
 Lung Center of the Philippines, a non-stock and non-profit entity, is the
registered owner of a parcel of land. In the middle of the land is a
hospital. A big space at the ground floor is being leased to private parties,
for canteen and small store spaces, and to medical or professional
practitioners who use the same as their private clinics for their patients
whom they charge for their professional services. Almost one-half of the
entire area on the left side of the building is vacant and idle, while a big
portion on the right side is being leased for commercial purposes to a
private enterprise.
 Lung Center of the Philippines accepts paying and non-paying patients. It
also renders medical services to out-patients, both paying and non-paying
(60%). Aside from its income from paying patients, the petitioner receives
annual subsidies from the government.
 Quezon City assessed real property taxes, alleging that it is not a
charitable institution, and that the land is not actually, directly, and
exclusively used for charitable purposes. CORRECT?
 EDUCATIONAL INSTITUTIONS
 NON-STOCK, NON-PROFIT
 Allrevenues and assets used ADE for educational
purposes shall be exempt from taxes and duties.
 PROPRIETARY EDUCATIONAL INSTITUTIONS
 10% preferential tax rate
 GOVERNMENT EDUCATIONAL INSTITUTIONS
 Exempt from taxation
MAJORITY VOTE OF CONGRESS FOR
GRANTS OF TAX EXEMPTIONS
 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.