G.
NATURE, CONSTRUCTION,
APPLICATION, AND SOURCES OF TAX LAWS
Nature of internal revenue law.
(1) Internal revenue laws are not
political in nature. They are deemed
to be the laws of the occupied
territory and not of the occupying
enemy.
(2) Tax laws are civil and not penal in
nature although there are penalties
provided for their violation.
Construction of tax laws.
(1) Legislative intention must be
considered. – Tax statutes are to
receive a reasonable construction
of interpretation with a view to
carrying out their purpose and
intent.
A tax statute should be construed
to avoid the possibilities of tax
evasion.
(2) Where there is doubt. – No person
or property is subject to taxation
unless within the terms or plain
import of a taxing statute.
Application of tax laws.
A tax payable by “individuals” does
not apply to “corporations.”
(3) Where language is plain. – 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.
The word “individual” or “person”
indicates that the tax applies to
both natural and juridical persons
such as corporations and
partnerships, unless otherwise
expressly provided.
(4) Where taxpayer claims exemption –
Neither does the rule apply where
the taxpayer claims exemption from
the tax.
Tax exemption can only be given
effect when the grant of the law is
clear.
Tax refunds are in the nature of tax
exemptions and are, therefore,
strictly construed against the
claimant who has the burden of
proving the factual basis of his claim
for refund.
(5) Where there is conflict with other
laws. – The National Internal
Revenue Code is a special law that
primarily governs national internal
revenue taxes.
It may be considered a general law
in relation to other laws dealing
with a particular subject matter.
(1) Generally prospective. – The general
rule is that tax laws or amendments
thereof are prospective in
operation.
The nature and amount of the tax
could not be foreseen and
understood by the taxpayer at the
time the transaction which the law
seeks to tax was completed.
 (2) Exception. – While it is not favored,
a statute may nevertheless operate
retroactively provided it is expressly
declared or is clearly the legislative
intent.
(3) Applicability of tax treaties. – The
application of our tax laws may be
subject to the provisions of tax
treaties (infra.) entered into by the
Philippines with other countries.
Mandatory and directory provisions of tax
laws.
The provisions of tax statutes may be either:
(1) Mandatory. – Those provisions
intended for the security of the
citizens (e.g., those requiring the
previous notice to taxpayer of
public sale of his property for tax
delinquency) or which are designed
to insure equality of taxation or
certainty as to the nature and
amount of each person’s tax (e.g.,
those prescribing rates of taxes); or
(2) Directory. – those provisions
designed merely for the
information or direction of officers
or to secure methodical and
systematic modes of proceedings.
The act or proceeding to which it
relates while the omission to follow
directory provisions does not
involve such consequence.
Sources of tax laws.
These sources, aside from the pertinent
provisions of the Constitution, are:
(1) Legal rules on taxation. – Each of
the three organs of the government
contributes in one way or another
to the making of the legal rules on
taxation.
a. Legislation or statutes,
including Presidential
Decrees and Executive
Orders on taxation and tax
ordinances;
b. Administrative rules and
regulations and rulings or
opinions of tax officials
particularly the
Commissioner of Internal
Revenue, including opinions
of the Secretary of Justice;
and
c. Judicial decisions or
decisions of courts or
justice.
Only the Constitution and
legislation (statutes, Presidential
Decrees and Executive Orders) are
to be considered as independent
sources of tax law.
(2) Tax treaties with other countries. –
Tax treaties or agreements entered
into by the Philippines with other
countries are also a source of tax
law.
Tax treaties are entered into for the
avoidance of double taxation.
Existing tax laws.
The following are among the existing tax laws:
(1) National:
a. The National Internal
Revenue Code of 1997
(Pres. Decree No. 1158, as
 amended particularly by government code. (see Sec.
R.A. No. 8424.), which is the 3, Art. X.) It has already
main statutory law on been enacted.
internal revenue taxes;
b. The Tariff and Customs (3) Other important laws. – Among
Code of 1978 (Pres. Decree them are:
No. 1464 as amended.); and a. Republic Act No. 1093. –
c. Special laws, such as: which punishes with
i. The Sugar deportation, tax evasion
Adjustment Act and willful refusal to pay
(C.A. No. 567, as taxes by aliens (Chap. III-I.);
amended.); b. Republic Act No. 1125, as
ii. The Narcotic Drugs amended. – an act creating
Law (R.A. No. 953.); the Court of Tax Appeals
iii. The law imposing (Chap. III-O.); and
travel tax (Pres. c. Republic Act No. 2211. – an
Decree No. 118, as act creating a Joint
amended.); Legislative-Executive Tax
iv. The law imposing a Commission, the principal
motor vehicle function of which is to
user’s charge (R.A. examine and revise the
No. 8794.); and existing tax system and tax
v. The laws imposing policy structure.
energy taxes (Pres.
Decrees No. 844 Authority of Secretary of Finance to
and 845, which promulgate rules and regulations.
amended R.A. No.
776 and 1973 [now Under Section 244 of the Tax Code, it is
Pres. Decree No. provided that the Secretary of Finance, upon
1464.], respectively; the recommendation of the Commissioner of
and B.P. Blg. 36.) Internal Revenue, shall promulgate all needful
(2) Local: rules and regulations for the effective
a. The Local Government enforcement of the provisions of the Tax Code.
Code (R.A. No. 7160.); and
The power to recommend the promulgation of
b. The respective tax
internal revenue rules and regulations by the
ordinances of provinces,
Secretary of Finance is given only to the
cities, municipalities, and
Commissioner and is not allowed by law to
barangays subject to the
delegate such power to any of his subordinates.
limitations provided in the
Local Government Code. Nature of power to make regulations.

Under the new The power to make regulations is not the power
Constitution, Congress is to legislate in the true sense, it may be
directed to enact a local
legitimately exercised only for the purpose of
implementing the law or putting it into effect.
The statute which is being administered may
not be altered or added to by the exercise of a
power to make regulations thereunder.
Necessity and function of regulations.
Regulations are deemed necessary and
intended to clarify or explain the law and carry
into effect its general provisions by providing
the details of administration and procedure.
Validity and effectivity of regulations.
(1) Requisites. – They are:
a. They are necessary to the
proper enforcement of the
law;
b. They must not be contrary
to law and the Constitution
(Art. 7, Civil Code.); and
c. They must be published in
the Official Gazette. (Secs.
79-B and 551, Rev. Adm.
Code; see Olsen & Co. vs.
Herstein and Rafferty, 32
Phil. 520 [1915]; Lim vs
Central Bank, 104 Phil. 573
[1958].)
(2) Effectivity. – it is provided in the
Administrative Code of 1987 that
“Every agency [of the government]
shall file with the University of the
Philippines Law Center three (3)
certified copies of every rule
adopted by it x x x” and that “in
addition to other rule-making
requirements provided by law not
inconsistent with this Book, each
rule adopted shall become effective
fifteen (15) days from the date of
filing as above-provided unless a
different date is fixed by law, or
specified in the rule in cases of
imminent danger to public health,
safety and welfare, the existence of
which must be expressed in a
statement accompanying the rule.”
Force and effect of regulations.
The general purposes and objects of the law
have the force and effect of law, and so they
must be applied and enforced.
In case of conflict with the law or the
Constitution, administrative rules and
regulations are null and void. However, courts
will declare a rule or regulation or provision
thereof invalid only when the conflict with the
law is clear and unequivocal.
Administrative interpretations and opinions.
The power to interpret the provisions of the Tax
Code and other tax laws is under the exclusive
and original jurisdiction of the Commissioner of
Internal Revenue subject to review by the
Secretary of Finance.
(1) Revenue regulations. – As
previously mentioned, revenue
regulations are the formal
interpretation of the provisions of
the Tax Code and other laws by the
Secretary of Finance upon the
recommendation of the
Commissioner of Internal Revenue.
(2) Rulings. – The less general
interpretations of tax laws at the
administrative level are called
“rulings.”
a. They are usually rendered
by the Commissioner of
Internal Revenue on
request of taxpayers to
clarify certain provisions of
a tax law. However, it may
 be revoked by the Secretary
of Finance if the latter finds
them not in accordance
with law.
b. The Commissioner has the
sole authority to issue
rulings but he also has the
power to delegate said
authority to his
subordinates.
(3) Opinions given by the Secretary of
Justice. – Rulings in the form of
“opinions” on tax questions are also
given by the Secretary of Justice
who is the chief legal officer of the
government.
(4) Circular or memorandum. – When
an administrative agency, like the
BIR charged with the
implementation of a law, renders
an opinion by means of circular or
memorandum, it merely interprets
a pre-existing law.
Weight given to administrative interpretation.
It is a principle widely accepted that the
contemporaneous construction placed upon the
statute by the executive officers whose duty is
to enforce it is entitled to great respect by the
courts.
Nevertheless, such interpretation is not
conclusive and will be ignored if judicially found
to be erroneous.
Power of Secretary of Finance to revoke rulings
of his predecessor.
The Secretary of Finance has the power to
revoke, repeal or abrogate the acts or previous
rulings of his predecessors in office.
The reason for this is that the construction of
the statute by those administering it is not
binding’ on their successors if thereafter the
latter becomes satisfied that a different
construction should be given.
Non-retroactivity of repeal of regulations or
rulings.
Any revocation, modification, or reversal of any
of the rules and regulations or any of the rulings
or circulars promulgated by the Commissioner
of Internal Revenue can not be given retroactive
application when such revocation, modification
or reversal will be prejudicial to the taxpayer.
It shall be retroactive in the following cases:
(1) Where the taxpayer deliberately
misstates or omits material facts
from his return or in any document
required of him by the Bureau of
Internal Revenue;
(2) Where the facts subsequently
gathered by the Bureau of Internal
Revenue are materially different
from the facts on which the ruling is
based; and
(3) Where the taxpayer acted in bad
faith.
Decisions of the Supreme Court and Court of
Tax Appeals.
In other cases, the Supreme Court is the
tribunal of last resort or final appeal. The
importance of this statement lies in the fact
that the decisions of the Supreme Court
applying or interpreting existing tax laws are
binding on all subordinate courts and have the
force and effect of law.