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Tax Reviewer: Law of Basic Taxation in The Philippines Chapter 1: General Principles
Tax Reviewer: Law of Basic Taxation in The Philippines Chapter 1: General Principles
CABANEIRO) A2011 1
was brushed away by one stroke of Mr. Justice Holmes' pen, thus: The tax law must be capable of effective or efficient
"The power to tax is not the power to destroy while this Court sits." enforcement.
"So it is in the Philippines." It is because of the constitutional There is no law that requires compliance with this principle,
restraints placed on a taxing power that violates fundamental rights. so even if the tax law violates this principle; such tax law is
The power to tax includes the power to destroy if it is used as an valid.
implement of the police power (regulatory) of the State. However, it TAXATION DISTINGUISHED FROM POLICE POWER AND EMINENT
does not include the power to destroy if it is used solely for the DOMAIN
purpose of raising revenue. (ROXAS vs. CTA) TAXATION POLICE POWER EMINENT
If the purpose of taxation is regulatory in character, taxation is used DOMAIN
to implement the police power of the state AS TO PURPOSE For the purpose To promote For public use
raising revenue general welfare
If the power of taxation is used to destroy things, businesses, or through
enterprises and the purpose is to raise revenue, the court will come regulations
in because there will be violation of the inherent and constitutional AS TO Protection and The maintenance Just compensation,
limitations and it will be declared invalid. COMPENSATION benefits received of a healthy not to exceed the
from the economic standard market value by the
government. of society owner or
POWER OF JUDICIAL REVIEW IN TAXATION
(damnum absque administrator or
Courts cannot inquire into the wisdom of a taxing act. (CIR vs injuria) anyone having legal
Lingayen Gulf Electric Power Co) interest in the
Court’s power in taxation is limited only to the application and property, or as
interpretation of the law. determined by the
It is not within the province of the court to inquire into the assessor, whichever
is lower.
wisdom of the law for indeed courts are bound by the words in AS TO PERSONS Operate upon community or a class of Operates on the
the mouth of the lawmaker. “A verbo legis non est recedendum” AFFECTED individuals individual property
(Commissioner of Customs vs Manila Star Ferry inc.) owner
AS TO AUTHORITY Exercised only by the government or its May be exercised
BASIC PRINCIPLE OF A SOUND TAX SYSTEM WHICH EXERCISES political subdivisions. by public services
1) FISCAL ADEQUACY THE POWER corp or public
utilities if granted
The sources of revenues must be adequate to meet gov’t by law
expenditures. (Chavez v. Ongpin, 186 SCRA 331). AS TO AMOUNT OF Generally no limit Limited to the cost There is no
Even if a tax law violates the principle of Fiscal Adequacy IMPOSITION to the amount of of regulation imposition; rather,
and the proceeds may not be sufficient to satisfy the needs tax that may be it is the owner of
of the government, still the tax law is valid imposed the property taken
who is paid just
2) THEORETICAL JUSTICE
compensation.
The tax burden should be in proportion to the taxpayers AS TO THE Subject to certain Relatively free Subject to certain
ability to pay (ABILITY TO PAY PRINCIPLE) RELATIONSHIP TO constitutional from constitutional constitutional
Equitable taxation has been mandated by our constitution; THE CONSTITUTION limitations, limitations and limitations, NOT
as if taxes are unjust and unreasonable then they are not including the superior to the including the
equitable, thus invalid. prohibition against non-impairment prohibition against
impairment of the provisions impairment of the
3) ADMINISTRATIVE FEASIBILITY obligation of obligation of
contracts contracts of a public nature. Taxes, on the other hand, are enforced
AS TO TRANSFER Taxes paid become No transfer, but proportional contributions from persons and property levied by the
OF PROPERTY part of the public only restraint on State by virtue of its sovereignty for the support of the government
RIGHTS funds the exercise, of
property right and all public needs.
exists Toll is a demand of proprietorship; tax is a demand of sovereignty.
ASPECTS OF TAXATION Toll is paid for the used of another’s property; tax is paid for the
1) LEVY or IMPOSITION support of government.
enactment of tax laws The amount paid as toll depends upon the cost of construction or
legislative in character maintenance of the public improvements used; while there is no
2) ASSESSMENT limit on the amount collected as tax as long as it is not excessive,
collection unreasonable, or confiscatory.
administrative in character Toll may be imposed by the government or by private individuals or
entities; tax may be imposed only by the government.
TAXES DISTINGUISHED FROM OTHER IMPOSITIONS
1) toll – amount charged for the cost and maintenance of property Penalty v. Tax
used; Penalty is any sanction imposed as a punishment for violation of law
2) penalty – punishment for the commission of a crime or for acts deemed injurious; taxes are enforced proportional
3) compromise penalty – amount collected in lieu of criminal contributions from persons and property levied by the State by
prosecution in cases of tax violations; virtue of its sovereignty for the support of the government and all
4) special assessment – levied only on land based wholly on the public needs.
benefit accruing thereon as a result of improvements of public works Penalty is designed to regulate conduct; taxes are generally
undertaken by government within the vicinity. intended to generate revenue.
5) license fee – regulatory imposition in the exercise of the police Penalty may be imposed by the government or by private individuals
power of the State; or entities; taxes only by the government.
6) margin fee – exaction designed to stabilize the currency
7) debt – a tax is not a debt but is an obligation imposed by law. Special assessment v. Tax
8) regulatory fees – exaction designed to regulate industries A special assessment tax is an enforced proportional contribution
9) subsidy – legislative grant of money in aid of a private enterprise from owners of lands especially benefited by public improvements
deemed to promote the public welfare. A special assessment is levied only on land; tax is imposed on
10)custom duties and fees – duties charged upon commodities on persons, property and excises.
their being imported into or exported from a country; A special assessment is not a personal liability of the person
11)revenue – broad term that includes not only taxes but income from assessed; it is limited to the land.
other sources as well. A special assessment is based wholly on benefits, not necessity.
12)Tribute – synonymous with tax A special assessment is exceptional both as to time and place; a tax
13)Impost – signifies any tax, tribute or duty. has general application.
Some rules:
Toll v. Tax An exemption from taxation does not include exemption
Toll is a sum of money for the use of something. It is the from a special assessment.
consideration which is paid for the use of a road, bridge, or the like,
The power to tax carries with it the power to levy a special A person cannot be imprisoned for non-payment of tax, except poll
assessment. tax.
A debt is governed by the ordinary periods of prescription, while a
tax is governed by the special prescriptive periods provided for in
the NIRC.
A debt draws interest when it is so stipulated or where there is
default, while a tax does not draw interest except only when
License fee v. Tax delinquent.
PURPOSE: Tax imposed for revenue WHILE license fee for
regulation. Tax for general purposes WHILE license fee for TAXES CLASSIFIED
regulatory purposes only. AS TO SUBJECT MATTER OR OBJECT
BASIS: Tax imposed under power of taxation WHILE license fee 1. Personal, poll or capitation tax
under police power. Tax of a fixed amount imposed on persons residing within a
AMOUNT: In taxation, no limit as to amount WHILE license fee specified territory, whether citizens or not, without regard to their
limited to cost of the license and expenses of police surveillance and property or the occupation or business in which they may be
regulation. engaged, i.e. community tax.
TIME OF PAYMENT: Taxes normally paid after commencement of 2. Property tax
business WHILE LF before. Tax imposed on property, real or personal, in proportion to its value
EFFECT OF PAYMENT: Failure to pay a tax does not make the or in accordance with some other reasonable method of
business illegal WHILE failure to pay license fee makes business apportionment.
illegal. 3. Excise tax
SURRENDER: Taxes, being lifeblood of the state, cannot be A charge imposed upon the performance of an act, the enjoyment of
surrendered except for lawful consideration WHILE a license fee may privilege, or the engaging in an occupation.
be surrendered with or without consideration.
IMPORTANCE OF DISTINCTION BETWEEN TAXES AND LICENSE AS TO PURPOSE
FEES: 4. General/fiscal revenue tax is that imposed for the purpose of
It is necessary to determine whether a particular imposition is a raising public funds for the service of the government.
tax or a license fee, because some limitations apply only to one 5. Special or regulatory tax is imposed primarily for the regulation
and not to the other. of useful or non-useful occupation or enterprises and secondarily
Furthermore, exemption from taxes does not include exemption only for the purpose of raising public funds.
from license fees
AS TO WHO BEARS THE BURDEN
Obligation to pay debt v. obligation to pay tax 6. Direct tax
A debt is generally based on contract, express or implied, while a A direct tax is demanded from the person who also shoul,ders the
tax is based on laws. burden of the tax. It is a tax which the taxpayer is directly or
A debt is assignable, while a tax cannot generally be assigned. primarily liable and which he or she cannot shift to another.
A debt may be paid in kind, while a tax is generally paid in money. 7. Indirect tax
A debt may be the subject of set off or compensation, a tax cannot. An indirect tax is demanded from a person in the expectation and
intention that he or she shall indemnify himself or herself at the
expense of another, falling finally upon the ultimate purchaser or One where a taxpayer who feels aggrieved by the implication of a
consumer. A tax which the taxpayer can shift to another. tax law goes now via judicial review to the SC and asks for a
nullification of the law.
AS TO THE SCOPE OF THE TAX In availing judicial review as a taxpayer, the only option one can
8. National tax look into are the inherent and constitutional limitations on taxation.
A national tax is imposed by the national government. Taxpayers have sufficient interest of preventing the illegal
9. Local tax expenditures of money raised by taxation ( NOT DONATIONS AND
A local tax is imposed by the municipal corporations or local CONTRIBUTIONS)
government units (LGUs). A taxpayer is not relieved from the obligation of paying a tax
because of his belief that it is being misappropriated by certain
AS TO THE DETERMINATION OF AMOUNT officials
10. Specific tax A taxpayer has no legal standing to question executive acts that do
A specific tax is a tax of a fixed amount imposed by the head or not involve the use of public funds. (GONZALES vs. MARCOS)
number or by some other standard of weight or measurement. It It is only when an act complained of which may include a legislative
requires no assessment other than the listing or classification of the enactment of a statute, involves the illegal expenditure of public
objects to be taxed. money that the so-called taxpayers suit may be allowed. LOZADA
11. Ad valorem tax vs. COMELEC
An ad valorem tax is a fixed proportion of the value of the property Taxpayers may be levied with a regulatory purpose to provide
with respect to which the tax is assessed. It requires the means for the rehabilitation and stabilization of a threatened
intervention of assessors or appraisers to estimate the value of such industry which is affected with the public interest as to be within the
property before due from each taxpayer can be determined. police power of the State. CALTEX vs. COA
12. Customs Duties The Supreme Court has discretion whether or not to entertain
Duties charged upon the commodities on theor being imported into taxpayers suit and could brush aside lack of locus standi. KILOS
or exported from a country. BAYAN vs. GUINGONA
Facts: The Philippine Sugar Estate Development Company (PSEDC) are various suits challenging the constitutionality of RA 7716 on various
appointed Algue Inc. as its agent, authorizing it to sell its land, factories, and grounds.
oil manufacturing process. The Vegetable Oil Investment Corporation One contention is that RA 7716 did not originate exclusively in the House of
(VOICP) purchased PSEDC properties. For the sale, Algue received a Representatives as required by Art. VI, Sec. 24 of the Constitution, because
commission of P125,000 and it was from this commission that it paid it is in fact the result of the consolidation of 2distinct bills, H. No. 11197 and
Guevara, et. al. organizers of the VOICP, P75,000 in promotional fees. In S. No. 1630. There is also a contention that S. No. 1630 did not pass
1965, Algue received an assessment from the Commissioner of Internal 3 readings as required by the Constitution.
Revenue in the amount of P83,183.85 as delinquency income tax for years Issue: Whether or not RA 7716 violates Art. VI, Secs. 24 and 26(2) of the
1958 amd 1959. Algue filed a protest or request for reconsideration which Constitution
was not acted upon by the Bureau of Internal Revenue (BIR). The counsel Held: The argument that RA 7716 did not originate exclusively in the House
for Algue had to accept the warrant of distrant and levy. Algue, however, of Representatives as required by Art. VI, Sec. 24 of the Constitution will not
filed a petition for review with the Coourt of Tax Appeals. bear analysis. To begin with, it is not the law but the revenue bill which is
required by the Constitution to originate exclusively in the House of
Issue: Whether the assessment was reasonable. Representatives. To insist that a revenuestatute and not only the bill which
Held: Taxes are the lifeblood of the government and so should be collected initiated the legislative process culminating in the enactment of the law must
without unnecessary hindrance. Every person who is able to pay must substantially be the same as the House bill would be to deny the Senate’s
contribute his share in the running of the government. The Government, for power not only to concur with amendments but also to propose
his part, is expected to respond in the form of tangible and intangible amendments. Indeed, what the Constitution simply means is that the
benefits intended to improve the lives of the people and enhance their moral initiative for filingrevenue, tariff or tax bills, bills authorizing an increase of
and material values. This symbiotic relationship is the rationale of taxation the public debt, private bills and bills of local application must come from the
and should dispel the erroneous notion that is an arbitrary method of House of Representatives on the theory that, elected as they are from
exaction by those in the seat of power. Tax collection, however, should be the districts, the members of the House can be expected to be more
made in accordance with law as any arbitrariness will negate the very reason sensitive to the local needs and problems. Nor does the Constitution
for government itself. For all the awesome power of the tax collector, he prohibit the filing in the Senate of a substitute bill in anticipation of its
may still be stopped in his tracks if the taxpayer can demonstrate that the receipt of the bill from the House, so long as action by the Senate as a body
law has not been observed. Herein, the claimed deduction (pursuant to is withheld pending receipt of the House bill.
Section 30 [a] [1] of the Tax Code and Section 70 [1] of Revenue Regulation
2: as to compensation for personal services) had been legitimately by Algue The next argument of the petitioners was that S. No. 1630 did not pass
Inc. It has further proven that the payment of fees was reasonable and 3 readings on separate days as required by the Constitution because the
necessary in light of the efforts exerted by the payees in inducing investors second and third readings were done on the same day. But this was because
(in VOICP) to involve themselves in an experimental enterprise or a business the President had certified S. No. 1630 as urgent. The presidential
requiring millions of pesos. The assessment was not reasonable. certification dispensed with the requirement not only of printing but also that
of reading the bill on separate days. That upon the certification of a bill by
Tolentino vs. Secetary of Finance the President the requirement of 3 readings on separate days and of printing
GR No. 115455. August 25, 1994 and distribution can be dispensed with is supported by the weight of
legislative practice.
Facts: The value-added tax (VAT) is levied on the sale, barter or exchange
of goods and properties as well as on the sale or exchange of services. RA EXERCISES:
7716 seeks to widen the tax base of the existing VAT system and enhance
its administration by amending the NationalInternal Revenue Code. There Discuss the importance of taxes
SUGGESTED ANSWER: resident foreign) is not valid. This is no longer implementation of the
Taxes are the lifeblood of the government, for without taxes, the law but actually it constitutes legislation because among the powers
government can neither exist nor endure. A principal attribute of that are exclusively within the legislative authority to tax is the power
sovereignty, the exercise of taxing power derives its source from the to determine -the amount of the tax. (See 1 Cooley 176-184).
very existence of the state whose social contract with its citizens Certainly, if the tax is limited to gross income without deductions of
obliges it to promote public interest and common good. The theory these corporations, this is changing the amount of the tax as said
behind the exercise of the power to tax emanates from necessity; amount ultimately depends on the taxable base.
without taxes, government cannot fulfill its mandate of promoting the
general welfare and well-being of the people. (NAPOCOR v. City of Power of Taxation; Inherent in a Sovereign State (2005)Describe
Cabanatuan, G.R. No. 149110, April 9, 2003). the power of taxation. May a legislative body enact laws to raise
revenues in the absence of a constitutional provision granting said body
the power to tax? Explain.
Nature of the Power of Taxation (#1, 2000 Bar Exams) SUGGESTED ANSWER:
Justice Holmes once said: “The power to tax is not the power to Yes, the legislative body may enact laws even in the absence
destroy while this Court (the SC) sits.” Describe the power to tax and its of a constitutional provision because the power to tax is inherent in the
limitations. government and not merely a constitutional grant. The power of taxation is
SUGGESTED ANSWER: an essential and inherent attribute of sovereignty belonging as a matter
The power to tax is an inherent power of the sovereignty which is of right to every independent government without being expressly granted
exercised through the legislature to impose burdens upon subjects and by the people. (Pepsi-Cola Bottling Company of the Philippines, Inc. v.
objects within its jurisdiction for the purpose of raising revenues to Municipality of Tanauan, Leyte, G.R. No. L-31156)
carry out the legitimate objects of gov’t. The underlying basis for its Taxation is the inherent power of a State to collect enforced proportional
exercise is governmental necessity for without it, no gov’t can exist nor contribution to support the expenses of government. Taxation is the
endure. Accordingly, it has the broadest scope of all the powers of power vested in the legislature to impose burdens or charges upon
government because in the absence of limitations, it is considered an persons and property in order to raise revenue for public purposes.
unlimited, plenary, comprehensive and supreme. The two limitations The power to tax is so unlimited in force and so searching in extent that
on the power of taxation are the inherent and constitutional courts scarcely venture to declare it is subject to any restrictions whatever,
limitations which are intended to prevent abuse on the exercise of the except such as rest in the discretion of the authority which exercises it. (Tio
otherwise plenary and unlimited power. It is the Court’s role to see to it v. Videogram Regulatory Board, G.R. No. L-75697, June 18, 1987) So
that the exercise of the power does not transgress these limitations. potent is the power to tax that it was once opined that "the power to tax
involves the power to destroy."(C.J. Marshall in McCulloch v. Maryland)
Power of Taxation: Legislative in Nature (Bar 1994)
The Secretary of Finance, upon recommendation of the Revocation of Exempting Statutes (Bar 1997)
Commissioner of Internal Revenue, issued a Revenue Regulation "X" Corporation was the recipient in 1990 of two tax exemptions both from
using gross income as the tax base for corporations doing business Congress, one law exempting the company's bond issues from taxes and
in the Philippines. Is the Rev.Reg.valid? the other exempting the company from taxes in the operation of its
SUGGESTED ANSWER: public utilities. The two laws extending the tax exemptions were revoked
The regulation establishing gross income as the tax base for by Congress before their expiry dates. Were the revocations constitutional?
corporations doing business in the Philippines (domestic as well as SUGGESTED ANSWER: