Chapter 1 General Principles of Taxation

 Definition of Taxation
Taxation is a power inherent in every sovereign State to impose a charge or burden upon
persons, properties, or rights to raise revenues for the use and support of the government
to enable it to discharge its appropriate functions. http://www.scribd.com/doc/150469451/2012-Ateneo-LawTaxation-Law-Summer-Reviewer

 Purposes of Taxation
1. Revenue-raising
 Taxation is the power by which the sovereign raises revenue to defray the
necessary expenses of government.
 It is to provide funds or property with which to promote the general welfare
and protection of the whole citizenry.
 It is raised to serve as a means to provide public improvements designed
for the enjoyment of the citizenry within the State’s territory.
2. Non-revenue/special or regulatory
 Taxation is also used for regulatory purposes; it is used to attain non-
revenue objectives and pursue policy decisions.
 Imposition of tariffs on imported goods to protect local industries.
 The adoption of progressively higher tax rates to reduce inequalities in wealth and income.
 The increase or decrease of taxes to prevent inflation or ward off depression.

 Nature of Taxation
1. The power of taxation is inherent in sovereignty as an incident or attribute thereof,
being essential to the existence of independent government.
2. The right to tax exists apart from Constitutions and without being expressly
conferred by the people.
3. It is legislative in character.
4. It is generally not delegated to executive or judicial department.
5. It is subject to constitutional and inherent limitations.
6. It must be used for public purposes.
7. It is the strongest of all the inherent powers of the government.
8. It is territorial in operation.

 Scope of Taxation
In the absence of constitutional restrictions and subject to the will of the legislative bodies
with whom it is entrusted and the discretion of the authorities which exercise it, the power
of taxation is unlimited, comprehensive, plenary, and supreme, the principal check upon its
abuse resting in the responsibility of the members of the legislature to their constituents.

 Theory and Basis of Taxation

1. Benefits-Protection Theory (Symbiotic relationship) – The basis of taxation is
found in the reciprocal duties of protection and support between the state and its
inhabitants. In return for this contribution, the taxpayer receives the general
advantages and protection which the government affords the taxpayer and his
property. This is the so-called “benefits received principle.”
2. Lifeblood/Necessity Theory - The power of taxation proceeds upon the theory
that the existence of government is a necessity; that it cannot continue without
means to pay its expenses; and that for those means it has the right to compel all
citizens and property within its limits to contribute.

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 Stages of Taxation
1. Levy – Refers to the enactment of a law by Congress, imposing a tax.
2. Assessment – The act of administration and implementation of the tax law by the
executive department through the administrative agencies.
3. Payment – Act of compliance by the taxpayer, including such options, schemes or
remedies as may be legally available to him.

 Principles of a Sound Tax System

1. Fiscal Adequacy - the sources of tax revenue should coincide with and
approximate the needs of the government expenditures.
2. Administrative Feasibility - the tax system should be capable of being properly
and efficiently administered by the government and enforced with the least
inconvenience to the taxpayer. E.g. withholding tax; quarterly filing & payment of income tax
3. Theoretical Justice - the tax system should be fair to the average taxpayer and
based upon the ability to pay. This is the so-called “ability to pay principle.”

 Limitations of Taxation
Inherent limitations – Those which restrict the power although they are not
embodied in the constitution.
1. Public Purpose – Test is whether the proceeds will be used for something which
is the duty of the State to provide.
2. Inherently Legislative
 General rule – Power of taxation cannot be delegated. Contemplates the
power to determine kind, object, extent, amount, coverage, and situs of
tax.
 Exceptions:
a) Delegation to local governments – It is in line with the principle
that the power to create municipal corporations for purposes of
local self-government carries with it the power to confer the
power to tax on such local governments.
b) Delegation to the President – Certain aspects of the taxing
process that are not legislative in character may be vested to him.
c) Delegation to administrative agencies – They are authorized to fix
within specified limits, Tariff rates, import or export quotas,
tonnage and wharfage dues and other duties or imposts.
3. Territorial – Power to tax is limited to the territorial jurisdiction of the taxing state.
Except where privity of relationship exists, the State can exercise its taxing powers
over its citizen outside its territory.
4. International Comity – Property of a foreign State of government may not be
taxed by another. E.g. US Embassy is not taxable
5. Exemption of Government Entities, Agencies, and Instrumentalities
 Taking money from one pocket to the other.
 Applies only to entities exercising sovereign functions.
 However, it can tax itself if there is a statutory authority to do so and no
express provision against such act.
Privity - n. contact, connection or mutual interest between parties. The term is particularly important in the law of contracts, which requires that there be "privity" if one party to a contract can enforce the contract by a lawsuit against
the other party. Thus, a tenant of a buyer of real property cannot sue the former owner (seller) of the property for failure to make repairs guaranteed by the land sales contract between seller and buyer since the tenant was not "in
privity" with the seller.
Aspects of “Due Process”:
o Procedural due process – refers to the mode of procedure which government agencies must follow in the enforcement and application of laws.
o Substantive due process – prohibition against arbitrary laws.In other words, procedural due process consists of the restrictions that the law places on the legal process; substantive due
process is the determination of whether or not the law itself exceeds government authority.

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Constitutional Limitations – Those restrictions found in the constitutions or implied

from its provisions.
1. Due process [Sec. 1, Art. III]
 Should not be harsh, oppressive, or confiscatory (Substantive).
 By authority of valid law (Substantive).
 Must be for a public purpose (Substantive).
 Imposed within territorial jurisdiction (Substantive).
 No arbitrariness in assessment and collection (Procedural)
 Right to notice and hearing (Procedural)
2. Equal protection [Sec. 1, Art. III]
 All persons subject to legislation shall be treated alike, under like
circumstances and conditions both in privileges conferred and liabilities
imposed.
3. Religious freedom [Sec. 5, Art III]
 The constitutional guaranty of the free exercise and enjoyment of religious
profession and worship carries with it the right to disseminate religious
information. American Bible Society v. City of Manila, [G.R. No. L-9637, April 30, 1957].
 Activities simply and purely for propagation of faith are exempt.
 Tax is unconstitutional if it operates as a prior restraint on exercise of
religion or favors a certain religion (non-establishment of religion)
 Income of religious organizations from any activity conducted for profit or
from any of their property, real or personal, regardless of disposition of
such income, is taxable
4. Non-impairment of obligations [Sec. 10, Art. III]
 Applies only when government is party to the contract granting exemption.
 EXCEPT if Franchise tax-exemption - The Constitution provides that
franchise is subject to amendment, alteration, or repeal by Congress.
5. Prohibition against imprisonment of non-payment of poll tax [Sec. 20, Art. III]
 Can still be made to pay fines and penalties for non-payment.
 Taxpayer may be imprisoned for non-payment of other kinds of taxes
where the law so expressly provides.
6. Uniformity and equality of taxation [Sec. 28 (1), Art VI]
 Uniform: all articles or properties of the same class taxed at the same
rate.
 Equity: apportionment must be more or less just in the light of taxpayer’s
ability to shoulder tax burden.
7. Grant by Congress of authority to the President to impose tariff rates/Flexible tariff
clause [Sec. 28 (2), Art. VI]
 Includes import and export quotas, tonnage and wharfage dues aside
from tariff rates.
 Delegated by Congress.
 Through a law; the Tariff and Customs Code has provided for what has
been termed as “the flexible tariff clause” authorizing the President to
modify import duties. [Sec. 401, TCC]
 Subject to Congressional limits and restrictions.
 Within the framework of national development program.
8. Prohibition against taxation of religious, charitable and educational
entities/Exemption from real property taxes [Sec. 28 (3), Art. VI of the Constitution]

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Covers charitable institutions, churches, and parsonages or convents

appurtenant thereto, mosques and non-profit cemeteries and all lands,
buildings and improvements ACTUALLY, DIRECTLY and EXCLUSIVELY
USED for charitable, religious and educational purposes.
 Pertains only to real estate tax.
 Test of exemption: actual use of the property, not ownership.
9. Prohibition against taxation of non-stock, non-profit [educational] institutions [ Sec.
4(3&4), Art. XIV]
Exempts from taxes all revenues and assets of non-stock, non-profit
educational institutions used ACTUALLY, DIRECTLY AND
EXCLUSIVELY for educational purposes.
 Exemption covers income, real estate, donor’s tax, and customs duties
(distinguish from the previous which pertains only to real estate tax).
 Income exempt provided it is used for maintenance or improvement of
institution (indispensable or essential).
10. Majority vote of Congress for grant of tax exemption [Sec. 28 (4), Art. VI]
 Includes amnesties, condonations and refunds.
 Involves majority of all members voting separately.
 Relative majority (majority of quorum) is sufficient to withdraw exemption.
11. Prohibition on use of tax levied for special purpose [Sec. 29 (3), Art. VI]
 Revenues derived for a special fund shall be administered for the purpose
intended only.
 Once the purpose is achieved, the balance, if any, is to be transferred to
the general funds of the government.
12. President’s veto power on appropriation, revenue, and tariff bills [Sec. 27 (2), Art. VI]
13. Non impairment of jurisdiction of the SC [Sec. 5(2)(b), Art. VIII] Power of review of the SC
14. Grant of power to the local government units to create its own sources of revenue
[Sec. 5, Art. X]
15. No appropriation or use of public money for religious purposes [Sec. 29 (2), Art. VI]

 Power of Taxation Compared with Other Powers

   Taxation Police Power Eminent Domain
(in the form of a FEE)
Power to enforce Power to make and Power to take private
Concept
contribution to raise implement laws for the property for public use
government funds general welfare with just compensation
Plenary, Broader in application Merely a power to take
Scope
comprehensive and General power to make and private property for
supreme implement laws public use
Government or Government or political Maybe granted to
Exercising
political subdivisions subdivisions public service
Authority
companies or public
utilities
Purpose Raise revenue Exercise to promote public The taking of property
welfare through regulation for public use
Limited to the cost of No limit imposed, but
Amount of
No limit regulation, issuance of the amount should be
Imposition
license, or surveillance based on the market
value of the property

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   Taxation Police Power Eminent Domain

(in the form of a FEE)
Applies to all persons, Applies to all persons, Only particular property
Persons
property and excises property and excises that is comprehended
Affected
that may be subject may be subject thereto
thereto
Protection and No direct or immediate Market Value of the
Benefits general benefits from benefit but only such as may property
Received the government arise from the maintenance
of a healthy economic
standard of society
Relationship to Subject to certain Relatively free from Subject to certain
Constitution constitutional constitutional limitations constitutional limitations
limitations

 Doctrines in Taxation
1. Prospectivity of Tax Laws
 This principle provides that a tax bill must only be applicable and
operative after becoming a law.
 As a general rule, taxing authorities must be applied prospectively, except
by express provision of the law.

2. Imprescriptibility
 Unless otherwise provided by the tax law itself, taxes in general are not
cancelable. Commissioner v. Ayala Securities Corporation, [101 SCRA 231]
 Although the NIRC provides for the limitation in the assessment and
collection of taxes imposed, such prescriptive period will only be
applicable to those taxes that were returnable. The prescriptive period
shall start from the time the taxpayer files the tax return and declares his
liability. Collector v. Bisaya Land Transportation Co., [1958]
 As to IAET, the court held that there is no time limit on the right of the BIR
Commissioner to assess this type of tax. [Sec. 25, NIRC]
 The law on prescription being a remedial measure should be interpreted
liberally in order to protect the taxpayer. Republic vs. Ablaza, [108 Phil 1105]

3. Double Taxation
 Direct Duplicate Taxation (Strict sense)
a) Taxing same person, property or right twice;
b) For the same purpose;
c) By the same State Government or taxing authority;
d) Within the same jurisdiction or taxing district;
e) During the same period; and
f) They must be the same kind or character of tax.
 Indirect Duplicate Taxation – It extends to all cases in which there are
two or more pecuniary impositions. The Constitution does not prohibit the
imposition of double taxation in the broad sense. (Broad sense)
 Constitutionality of Double Taxation – The SC held that there is no
constitutional prohibition against double taxation in the Phils. Villanueva v. City of

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, therefore it is not a valid defense against the validity of a tax

Iloilo, [26 SCRA 578]
measure. Pepsi Cola v. Tanauan, [69 SCRA 460] There is no double taxation in the
following cases: However, where there is DDT then there may be violation of the constitutioal precepts
of equal protection and uniformity
a) By taxing corporate income and stockholders’ dividends from the
same corporation.
b) Tax imposed by the State and the local government upon the
same occupation, calling or activity.
c) Real estate tax and income tax collected on the same real estate
property leased for earning purposes. Villanueva vs. City of Iloilo, [26 SCRA 578]
d) Taxes are imposed on taxpayer’s final product and the storage of
raw materials used in the
e) Taxes are imposed on taxpayer’s final product and the storage of
raw materials used in the production of the final product. Procter and
Gamble Philippines vs. Municipality of Jana, [94 SCRA 894]
 Modes of Eliminating Double Taxation
a) Provide for exemptions or allowance of deduction or tax credit for
foreign taxes.
b) Enter into treaties with other states [like the former Phil-Am
Military Bases Agreements as to income tax].
c) Application of the Principle of Reciprocity.

4. Escape from Taxation

 Shifting of tax burden – The imposition of tax is transferred from the
statutory taxpayer to another without violating the law.
Ways of shifting the tax burden:
a) Forward shifting – the transfer of burden from the producer to
distributor until it finally reaches the ultimate purchasers or
consumers. E.g. VAT, Excise tax on excisable articles
b) Backward shifting – the reverse of forward shifting, e.g. the
manufacturer has agreed to buy the supplier’s product only if the
price is reduced by the amount of tax.
c) Onward shifting – the tax burden is shifted twice or more either
forward or backward.
 Tax avoidance – tax saving device that is legally permissible.
 Tax evasion – connotes fraud through the use of pretenses and
forbidden devices to lessen or defeat taxes; must be willful and
intentional.
Tax Avoidance Tax Evasion
Other Name Tax Minimization Tax Dodging
Means Use legal means Use illegal means
Penalty Not punishable by law Punishable by law
Object To merely minimize To entirely escape
payment of taxes payment of taxes
 Capitalization - It is the reduction in the price of the taxed object equal to the capitalized value of future taxes
on the property sold. This is a special form of backward shifting, where the burden of future taxes which the
buyer may have to pay is shifted back to the seller in the form of reduction in the selling price.
Suppose for example an asset is valued at P10,000 which yields an annual income of P500. Suppose it is
taxed at P100 per annum or at the rate of 1 per cent ad valorem. The net income is thus reduced to P400 per
annum. Now, if the buyer is willing to invest his savings (in purchasing this asset) at the rate of an annual return
of 5 per cent, he would be willing to pay P8,000 for the asset.
Since the capital value of a “Perpetual Annuity” is:

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Chapter 1 General Principles of Taxation
Annual net income/Rate of return required, i.e., 400/0.05 = 8,000
A capital of P8,000 at 5 per cent will yield an annual income of P400.
Tax capitalization occurs at the time of purchase of real estate. It can also occur during purchase of many
durable consumer goods. It can occur in the purchase of investment securities (like shares of corporate stock)
and durable capital goods too.

 Transformation - It is a method by which the manufacturer in an effort to avoid losing his customers, maintains
the same selling price and margin of profit, not by shifting the tax burden to his customers, but by improving his
method of production and
Mr. Pascual’s income from leasing his property reaches the maximum rate of tax under the law. He donated ½
of his said property to a non‐stock, non‐profit educational institution whose income and assets are actually,
directly, and exclusively used for educational purposes, and therefore qualified for tax exemption under Art.XIV,
Sec. 4 (3) of the Constitution and Sec. 3 (h) of the Tax Code. Having thus transferred a portion of his said
asset, Mr. Pascual succeeded in paying a lesser tax on the rental income derived from his property.

5. Exemption from taxation

 Meaning – 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
a) Exemption from taxes is personal in nature and covers only taxes
for which the taxpayer-grantee is directly liable. In any case, it
cannot be transferred or assigned by the person to whom it is
given without the consent of the State.
b) Tax exemptions are strictly construed against the taxpayer
because such provisions are highly disfavored and may almost
be said to be odious to the law. [Manila Electric Company v. Vera, [67 SCRA 351]
c) Exemptions are not presumed. Tax exemption is generally revocable.
 Kinds
a) Express (or affirmative) – when certain persons, property or
transactions are, by express provision, exempted from all or
certain taxes, either entirely or in part. E.g. Inter-corporate
dividends by a domestic corporation from another domestic
corporation [Sec. 27 D [4], NIRC]
b) Implied (or by omission) – when a tax is levied on certain classes
of person, properties or transactions without mentioning the other
classes. Every tax statute makes exemptions since all those not
mentioned are deemed exempted. The omission may either be
accidental or intentional.
c) Contractual – those lawfully entered into by the government in
contracts under existing laws. These exemptions must not be
confused with the tax exemptions granted under franchises,
which are not contracts within the context of non-impairment
clause of the Constitution. Cagayan Electronic Co. v. Commissioner, [138 SCRA
629]

6. Compensation and Set-off

 This doctrine states that taxes are not subject to set-off or legal
compensation because the government and the taxpayer are not mutual
creditor and debtor of each other. Republic v. Mambulao Lumber Co., [6 SCRA 622]; Caltex
Phils. V. COA, [208 SCRA 726]
 A person cannot refuse to pay tax on the basis that the government owes
him an amount equal to or greater than the tax being collected. The
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collection of a tax cannot await the results of a lawsuit against the

government. Philex Mining Corp. v. Commissioner, [1998]; Francia v. Intermediate Court, [162 SCRA
753]
 An exception to the rule is where both the claims of the government and
the taxpayer against each other have already become due, demandable
and fully liquidated. In this case, compensation takes place by operation
of law and both obligations are extinguished to their concurrent amounts.
Domingo v. Garlitos, [8 SCRA 443]

7. Compromise
 Compromises are generally allowed and enforceable when the subject
matter thereof is not prohibited from being compromised and the person
entering such compromise is duly authorized to do so.
 The law allows the following persons to do compromise in behalf of the
government:
a) BIR Commissioner as expressly authorized by the NIRC subject
to certain conditions [Sec. 204, NIRC];
b) Collector of Customs with respect to customs duties limited to
cases where the legitimate authority is specifically granted such
as in the remission of duties [Sec. 709, TCC]; and
c) Customs Commissioner subject to the approval of the Secretary
of Finance, in cases involving the imposition of fines, surcharges,
and forfeitures [Sec. 2316, TCC].

8. Tax Amnesty
 Meaning – It is the general 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.
 It partakes of an absolute forgiveness or waiver of the Government of its
right to collect.
 It is a way to give tax evaders, who wish to relent & are willing to reform a
chance to do so.
Amnesty Exemption
Scope of Immunity from all criminal, civil Immunity from civil
immunity and administrative liabilities liability only
from non-payment of taxes
To whom General pardon given to all A freedom from a charge
granted taxpayers or burden to which others
are subjected
Application Applies only to past tax periods Generally, prospective in
hence retroactive application application
Presence of Yes, there is revenue loss since None, because there
Actual there was actually taxes due was no actual taxes due
Revenue but collection was waived by as the person or
Loss the government transaction is protected
by tax exemption

9. Construction and Interpretation of Tax Laws

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 General rule:
a) No person or property is subject to taxation unless within the
terms or plain import of a taxing statute.
b) In case of doubt, tax statutes are construed strictly against the
government and liberally in favor of the taxpayer.
c) Taxes being burdens, they are not to be presumed beyond what
the statute expressly and clearly declares.
d) Tax statutes offering rewards are liberally construed in favor of
informers.
 Exception:
a) The rule of strict construction as against the government is not
applicable where the language of the tax statute is plain and
there is no doubt as to the legislative intent. In such case, the
words employed are to be given their ordinary meaning.
b) Tax statutes are to receive a reasonable construction with a view
to carrying out their purpose and intent. They should not be
construed as to permit the taxpayer to easily evade the payment
of tax. Thus, good faith of the taxpayer is not a sufficient
justification for exemption from the payment of surcharges
imposed by the law for failing to pay tax within the period
required.
c) A tax statute should be construed to avoid the possibilities of tax
evasion.

 Situs of Taxation
Situs of taxation means place of taxation; the country that has power to levy and collect
the tax.
Object Situs Rule
Person Residence,
Domicile,
Citizenship
Real Property Location of the property
Tangible Personal Property Physical location although the owner resides in another
jurisdiction
Intangible Personal Property Domicile of the owner
Income Citizenship
Residence
Source of Income
Transfer of property Citizenship
Residence
Location of Property
Business or Occupation Where the act/business/occupation is performed/exercised

 Definition of Tax
Tax is a burden, charge, exaction, imposition or contribution assessed in accordance with
some reasonable rule of apportionment by authority of the sovereign state upon the
persons or property within its jurisdiction, to provide public revenue for the support of the
government, the administration of the law, or the payment of public expenses.

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Chapter 1 General Principles of Taxation

 Characteristics of Tax
1. Enforced
2. Proportional and (ability to pay principle)
3. Pecuniary contributions (generally payable in money)
4. from person, property and privilege
5. Levied by law-making body of
6. The state having jurisdiction over the subject of the burden
7. For the support of the government and all public needs.

 Classification of Taxes
1. As to subject matter or object
 Personal, poll, capitation tax – Fixed amount imposed on individuals
residing within specified territory without regard to their property,
occupation or business. E.g. Community Tax (Cedula)
 Property tax – Imposed on property, real or personal in proportion to its
value or other reasonable method of apportionment. E.g. Real estate tax
 Excise/Privilege tax – Imposed upon performance of an act, the
enjoyment of a privilege or the engaging in an occupation, profession or
business. E.g. Income tax, VAT, estate tax, donor’s tax (Different from the
excise tax of Title VI of the NIRC /Taxation 2)
2. As to who bears the burden or incidence
 Direct – the tax is imposed on the person who also bears the burden
thereof. E.g. Income tax, community tax, estate tax
 Indirect – imposed on the taxpayer who shifts the burden of the tax to
another. E.g. VAT, customs duties, percentage tax

3. As to tax rates or determination of amount

 Specific – tax imposed and based on a physical unit of measurement, as
by head, number, weight, length or volume. E.g. Tax on distilled spirits,
fermented liquors
 Ad Valorem – tax of a fixed proportion of the value of property with
respect to which the tax is assessed; requires intervention of assessor.
E.g. Real estate tax, excise tax on cars

4. As to purpose
 General, fiscal or revenue – imposed for the general purpose of
supporting the government. E.g. Income tax, VAT, percentage tax
 Special or regulatory – imposed for a special purpose, to achieve some
social or economic objectives. E.g. Protective tariffs or customs duties on
imported goods intended to protect local industries

5. As to scope or authority to impose

 National – imposed by the national government. E.g. National internal
revenue taxes, custom duties
 Municipal or local – imposed by the municipal corporations or local
governments. E.g. Real estate tax, professional tax, community tax

6. As to graduation of rate

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 Proportionate – based on a fixed percentage of the amount of the

property, income or other basis to be taxed. E.g. Real estate tax, VAT,
percentage tax
 Progressive or graduated – tax rate increases as the tax base or
bracket increases. E.g. Income tax
 Regressive – tax rate decreases as the tax base increases.

 Tax as Distinguished from Other Forms of Exactions

Tax Customs Duty

Coverage More comprehensive than Kind of tax
customs duty
Object Person, property, and privilege Goods imported or exported

Tax Toll
Kind of demand Demand of sovereignty Demand of ownership
Purpose Support of government Collection for the use of property
Amount No limit – depends on need of Fair return of the cost of the
the government property or improvement

Tax License Fee

Source Exercise of Taxing power Emanate from the police power of
the State
Purpose Raise revenue Regulation
Object Person, property and privilege Right to exercise a privilege
Amount no limit only necessary to carry out
regulation

Tax Special Assessment

Imposed on Person, property and privilege Only on land
Why imposed Regardless of public Public improvement that benefits
improvement the land
Purpose Support of government Contribution to cost of public
improvement
When imposed Regular exaction Exceptional as to time and
locality
Basis Necessity Benefits obtained

Tax Debt
Source Law; legal obligation Based on contract
Nature Personal Assignable
Right to set- Generally not subject to May be the subject of
off compensation/ set-off compensation/ set-off
Effect Imprisonment is sanction for No imprisonment for non-
non-payment payment
 Philippine Taxes
1. National Internal Revenue Taxes (Sec. 21, NIRC)

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 Income tax
 Estate tax
 Donor’s tax
 Value-added tax 
 Other percentage taxes 
 Excise taxes 
 Documentary stamp tax
2. Local/Municipal Taxes 
3. Tariff and customs duties 
4. Taxes/Tax incentives under special laws

 Revenue
Revenue refers to all funds or income derived by the government, whether from tax or any
other source. It may be derived from the following sources:
1. Grants received from another government
2. Donations from non-government sources
3. Loans from private entities or another government entity
4. Commercial revenues such as those received by government-owned or controlled
enterprises
5. Administrative revenues such as fines, penalties, and forfeitures
6. Taxes as internal revenues and customs duties

 Sources of Tax Laws

1. Constitution
2. National Internal Revenue Code (RA 8424 NIRC)
3. Tariff and Customs Code (RA 1937 TCC)
4. Local Government Code (RA 7160 LGC)
5. Local tax ordinances/ City or municipal tax codes
6. Tax treaties and international agreements
 Tax treaty is one of the sources of our law on taxation.  The Philippine Government usually enters into tax
treaties in order to avoid or minimize the effects of double taxation.  A treaty has the force and effect of law.
7. Special laws
8. Decisions of the Supreme Court and the Court of Tax Appeals
9. Revenue rules and regulations and administrative rulings and opinions

 Tax Treaty
A tax treaty is one of the sources of our law on taxation.  The Philippine Government
usually enters into tax treaties in order to avoid or minimize the effects of double taxation.  
A treaty has the force and effect of law.

 Authority to Promulgate Rules and Regulations and Rulings and Opinions

The Secretary of Finance, upon recommendation of the Commissioner of Internal
Revenue, shall promulgate needful rules and regulations for the effective enforcement of
the provisions of the NIRC.
 

This is without prejudice to the power of the Commissioner of Internal Revenue to make
rulings or opinions in connection with the implementation of the provisions of internal
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Chapter 1 General Principles of Taxation

revenue laws, including rulings on the classification of articles for sales tax and similar
purposes.
 
1. Purposes of rules and regulations
 To properly enforce and execute the laws
 To clarify and explain the law
 To carry into effect the law’s general provisions by providing details of
administration and procedure

2. Requisites for validity of rules and regulations

  They must not be contrary to law and the Constitution.
  They must be published in the Official Gazette or a newspaper of general
circulation.

 BIR Rulings
Administrative rulings, known as BIR rulings, are the less general interpretation of tax laws
being issued from time to time by the Commissioner of Internal Revenue.  They are usually
rendered on request of taxpayers to clarify certain provisions of a tax law.  These rulings
may be revoked by the Secretary of Finance if the latter finds them not in accordance with
law.
 
The Commissioner may revoke, repeal or abrogate the acts or previous rulings of his
predecessors in office because the construction of the statute by those administering it is
not binding on their successors if, thereafter, such successors are satisfied that a different
construction of the law should be given.
 
Rulings in the form of opinions are also given by the Secretary of Justice who is the chief
legal officer of the Government.

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