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 . T a 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 State’s police power. 2 . T a x a t i o n i s
i n h e r e n t l y l e g i s l a t i v e . 3 . T h e G o v e r n 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 . T e 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 r m 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

People’s 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 notmandato
ry (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.