2.

Regulation - as in case of taxes levied

on excises or privileges like those
GENERAL PRINCIPLES OF imposed on tobacco and alcoholic
TAXATION products, or amusement places like
night clubs, cabarets, cockpits, etc.
Illustration: In Caltex Philippines v. COA
POWER OF TAXATION
(G.R. No. 92585, May 8, 1992), it was
DEFINITION
held that taxes may also be imposed for
a regulatory purpose as, for instance, in
TAXATION is the power by which the
the rehabilitation and stabilization of
sovereign, through its law-making body,
threatened industry which is affected
raises revenue to defray the necessary
with public interest, like the oil industry.
expenses of the government. It is merely a
way of apportioning the costs of government
3. Reduction of social inequality – also
among those who in some measures are
known as compensatory purpose. This
privileged to enjoy its benefits and must bear
is made possible through the
its burdens
progressive system of taxation in the
(51 Am. Jur. 34)
Philippines which prevents the undue
concentration of wealth in the hands of
It being inherent to the State, no
few individuals. Progressivity is based
constitutional conferment is necessary for its
on the principle that those who are able
exercise. The Constitution merely provides
to pay more should shoulder the bigger
the limitations on how the same will be
portion of the tax burden.
exercised (Recalde, A
Illustration: Present rates on income,
Treatise on Tax Principles and Remedies,
estate, and gift taxes
p.1).
4. Encourage economic growth – In the
Two Concepts of Taxation
realm of tax exemptions and tax reliefs,
1. Power to tax.
the purpose is to grant incentives or
2. The act or process by which the taxing
exemptions to encourage investments
power is exercised.
and thereby promote economic growth.
PURPOSES AND OBJECTIVES
5. Protection of local industry against unfair
competition – In case of foreign
A. Revenue – to raise revenue to support
importations, protective tariffs and
the existence of State and to enable the
customs are imposed for the benefit of
State to promote the general welfare and
local industries.
protection of its citizens.

B. Non-Revenue/Sumptuary Purposes
THEORY AND BASES OF TAXATION
(PR2EP)
A. Life-blood theory - without taxes, the
1. Promotion of General Welfare – taxation
government would be paralyzed for lack
may be used as an implement of police
of motive power to activate and operate
power in order to promote the general
it. Hence, despite the natural reluctance
welfare of the people.
to surrender part of one’s earned income
to the taxing authorities, every person
Illustration: In the case of Lutz v. who is able must contribute his share in
Araneta (G.R. No. L-7859, December the
22, 1955), the Supreme Court upheld running of the government. ‖ (CIR v.
the validity of the Sugar Adjustment Algue,
Act, which imposed a tax on milled
G.R. No. L-28896, Feb. 17, 1988)
sugar since the purpose of the law
was to strengthen an industry that is
B. Necessity Theory – the existence of the
so undeniably vital to the economic
government is a necessity. It cannot
sugar industry.
continue without a means to pay its
expenses and therefore has a right to
compel all citizens and property within its
power to contribute.
 C. Benefits-Protection/Reciprocity
Theory
(Doctrine of Symbiotic Relationship) -
The State demands and receives taxes
from the subjects of taxation within its
jurisdiction so that it may be enabled to
carry its mandate into effect and perform
the functions of Government, and the
citizen pays from his property the portion
demanded in order that he may, by
means thereof, be secured in the
enjoyment of the benefits of organized
society.
This theory spawned the DOCTRINE OF
SYMBIOTIC RELATIONSHIP: Taxes are
what we pay for civilized society. Without
taxes, the government would be
paralyzed for lack of motive power to
activate and operate it. Hence, despite
the natural reluctance to surrender part of
one's hard-earned income to the taxing
authorities, every person who is able
must contribute his share in the burden of
running the government. The
government, for its part, is expected to
respond in the form of tangible and
intangible benefits intended to improve
the lives of the people and enhance their
material and moral values.
(CIR v. Algue, supra)
Thus, the taxpayer cannot question the
validity of the tax law on the ground that
payment of such tax will render him
impoverished, or lessen his financial or
social standing, because the obligation to
pay taxes is involuntary and compulsory,
in exchange for the protection and
benefits he receives from the
government.
Special benefits to taxpayers are not
required. A person cannot object to or
resist the payment of taxes solely
because no personal benefit to him can
be pointed out arising from the tax.
(Aban, Law on Basic Taxation in the
Philippines, citing
Lorenzo v. Posadas, etc., 64 Phil. 353)
CHARACTERISTICS OF A SOUND TAX
SYSTEM (FAT)
1. Fiscal Adequacy – sources of government
revenue must be sufficient to meet
government expenditures and other public
needs. Neither an excess nor a deficiency of
revenue vis-à-vis the needs of government
would be in keeping with the principle.
2. Administrative Feasibility – tax laws must
be capable of being effectively enforced with
the least inconvenience to the taxpayer.
3. Theoretical Justice – a sound tax system
must be based on the taxpayers’ ability to
pay (Ability to Pay Theory). Our laws
mandate that taxes must be reasonable,
fair, just, and conscionable. The
Constitution provides that taxation must be
uniform and equitable and that the State
must evolve a progressive system of
taxation.
Will a violation of these principles invalidate
a tax law?
It depends. A tax law will retain its validity even
if it is not in consonance with the principles of
fiscal adequacy and administrative feasibility
because the Constitution does not expressly
require so. These principles are only design to
make our tax system sound. However, if a tax
laws runs contrary to the principle of theoretical
justice, such violation will render the law
unconstitutional considering that under the
Constitution, the rule of taxation should be
uniform and equitable. (Sec.28(1), Art. VI,
1987 Constitution)
NATURE OF THE TAXING POWER
Broad spectrum of taxation - it is supreme,
plenary, all encompassing, unlimited, awesome,
pierces all kinds of properties, rights and
activities, subject to the no injunction rule and it
is the power of destroy.
I. Inherent Attribute of Sovereignty
The moment the State exists, the power to tax
automatically exists. A. Basis: Life blood
theory
B. Manifestations:
1. Imposition even in the absence of
constitutional grant;
2. State’s right to select objects and
subjects of taxation;
3. Rule: No injunction to enjoin
collection of taxes (see Court of
Tax Appeals chapter, p. 261 for
further discussion of the No
Injunction
Rule);
4. Rule: Taxes could not be the
subject of set-off or compensation;
(see Domingo v. Garlitos, p. 8 for
lone exception)
 5. Taxation is an unlimited or plenary
power.
C. Distinction between National
Government and Local Government
Unit (LGU)
1. National Government - inherent
2. Local Government Unit - not
inherent since it is merely an
agency instituted by the State for
the purpose of carrying out in detail
the objects of the government; can
only impose taxes when there is: a.
Constitutional Grant
b. Legislative Grant
D. Grant of Taxing Power of LGU
Constitutional Grant
• Power is derived from Article X,
Section 5 of the 1987 Constitution,
which is self-executing.
• The taxing power of the
Autonomous Regions is conferred
by Congress through law. Art. X
No. 2, Sec. 20 of the Constitution
which is a non-self-executing
provision. Thus, the power is
granted by Congress because said
provision requires an enabling law.
II. Legislative in Character
A. Basis: “Taxes are a grant of the
people who are taxed, and the grant
must be made by the immediate
representatives of the people. And
where the people have laid the
power, there it must remain and be
exercised. ‖ (1 Cooley Taxation, 3rd
ed., p.43)
B. Scope of Legislative Power
1. Determine:(SM PARKS)
a. Subjects of taxation
(persons, property,
occupation, excises or
privileges to be taxed,
provided they are within the
taxing jurisdiction);
b. Method of collection;
c. Purposes for which taxes
shall be levied provided they
are for public purposes;
d. Apportionment of the tax
(whether the tax shall be of
general application or limited
to a particular locality, or
partly general and partly
local);
e. Amount or Rate of tax;
f. Kind of tax to be collected;
and
g. Situs of taxation.
2. Grant tax exemption or
condonations; and
3. Specify or provide for
the administrative as well as
judicial remedies that either
the government or the
taxpayers may avail
themselves improper
implementation of the tax measure
(Petron v. Pililla, G.R. No. 158881,
April 16, 2008)
Note: As a general rule, the power to tax is
plenary and unlimited in its range,
acknowledging in its very nature no limits, so
that the principal check against its abuse is
to be found only in the responsibility of the
legislature (which imposes the tax) to its
constituency who are to pay it.
Nevertheless, it is circumscribed by
constitutional limitations. At the same time,
like any other statute, tax legislation carries
a presumption of constitutionality. (CREBA
Inc. v. Romulo,
G.R. No. 160756, March 9, 2010)
Is the Power to Tax the Power to
Destroy?
Two Views:
1. U.S. Chief Justice Marshall in
McCulloch v. Maryland (4 Wheat, 316 4
L ed. 579, 607) opined that “the power
to tax involves the power to destroy.”
Taxation is a destructive power which
interferes with the personal and property
rights of the people and takes from them
a portion of their property for the support
of the government.
2. Justice Holmes declared in Panhandle
Oil Co. v. Mississippi (277 US 218) that
“the power to tax is not the power
to destroy while this court sits.”
Reconciliation of the two views:
Marshall’s view refers to a valid tax while the
Holmes’ view refers to an invalid tax.
The imposition of a valid tax could not be
judicially restrained merely because it would
prejudice taxpayer’s property.
An illegal tax could be judicially declared
invalid and should not work to prejudice a
taxpayer’s property.
 The power to tax includes the power to Non-Impairment of Contracts
destroy if it is used validly as an Contracts Contracts
Contracts may
implement of the police power in may not be may be
be impaired
discouraging and in effect, ultimately impaired impaired
prohibiting certain things or enterprises Transfer of Property Rights
inimical to the public welfare. But where Taxes paid No transfer Transfer is
the power to tax is used solely for the become but only affected in
part of restraint in its favor of the
purpose of raising revenues, the modern
public funds exercise State
view is that it cannot be allowed to
confiscate or destroy. If this is sought to Taxatio Police Eminent
be done, the tax may be successfully n Power Domain
attacked as an unconstitutional exercise Scope
of the discretion usually vested in the All persons,
All persons,
legislature in ascertain the amount of the property, Only upon a
property and
tax. (Cruz, rights and particular property
excises
Constitutional Law, 2002, p. 88) privileges
Who Exercises the Power
May be May be:
The power to tax is sometimes called the
exercised a) Exercise
power to destroy. Therefore, it should be
May be only by the d by the
exercised with caution to minimize injury governmen government or its
exercised
to the proprietary rights of a taxpayer. only by the t political
(Roxas v. CTA, G.R. L-25043, April 26, government or its subdivisions;
1968) or its political b) Granted
political subdivision to
subdivisions s public service
companies or
Comparison of Power of Taxation
public utilities
with
Other Inherent Powers
Taxatio Police Eminent
n Power Domain TAXES
Purpose
To promote To facilitate the
public taking of private Taxes are the enforced proportional
To raise property for contributions from persons and property levied
welfare
revenue public use by the law-making body of the State by virtue of
through
regulations its sovereignty for the support of the government
Amount of Exaction and for public needs. (1 Cooley
No limit, but 62)
as much as
possible, Limited to the The term "tax" frequently applies to all kinds of
must be cost of No amount
imposed but exactions of monies which become public funds.
equal regulation,
rather the It is often loosely used to include levies for
to the needs issuance of
owner is paid the revenue as well as levies for regulatory
of Gov’t. in the license
market purposes such that license fees are frequently
order to or value of the
avoid a surveillance called taxes although license fee is a legal
property taken
deficit (fee) concept distinguishable from tax: the former is
scenario for imposed in the exercise of police power
the State. primarily for purposes of regulation, while the
Benefits Received latter is imposed under the taxing power
No special No direct primarily for purposes of raising revenues.
or direct benefit is (Progressive Development Corp. v. Quezon
benefit received; a
A direct benefit City, G.R. No. L-36081, April 24, 1989).
is received healthy
results in the
by economic
form of just Essential Characteristics (SLEP6)
the standard of
compensation
taxpayer; society is 1. It is imposed by the State which has
to the property
merely attained jurisdiction over the person, property, or
general owner
excises;
benefit of
2. It is levied by the Law-making
protection
(legislative) body of the state;
3. It is an Enforced contribution – not
dependent on the will of the person
taxed, not a contract but a positive act of
the government;
4. It is generally Payable in money –
Generally, it is a pecuniary burden payable
in money, but backpay certificates may be
used in payment of tax. (Borja v. Gella, G.R.
No. L-18330 July 31, 1963) Rationale: the
taxpayer is not allowed to settle his tax
liability by conveying property in view of the
problem of assigning value to such property;
5. It is Proportionate in character – taxes
must be based on ability to pay in
accordance with the constitutional
mandate to Congress to evolve a
progressive system of taxation;
6. It is levied on Persons, property, and
excise;
7. It is levied for Public purpose/s;
8. It is paid at regular Periods or intervals;
9. It is Personal to the taxpayer.
Examples:
1. Restitution by the heirs in case of
estate tax deficiency. (Sec. 91(c),
NIRC)
2. A corporation's tax delinquency
cannot be enforced against its
stockholders.
Exception: stockholders may be
held liable for the unpaid taxes of a
dissolved corporation if it appears
that the corporate assets have
passed into their hands.
Requisites of a Valid Tax (JAPUL)
1. That either the person or property taxed
be within the Jurisdiction of the taxing
authority;
2. That the Assessment and collection of
certain kinds of taxes guarantee against
injustice to individuals, especially by
providing notice and opportunity for
hearing;
3. That it should be for a Public purpose;
4. The rule of taxation shall be Uniform;
5. The tax must not impinge on the inherent
and Constitutional Limitations on the
power of taxation
CLASSIFICATION OF TAXES
As to subject matter
A. Personal, poll or capitation – tax of
a fixed amount imposed upon
persons residing within a specified
territory, whether citizens or not,
without regard to their
property, occupation
or business in which they may
be engaged (e.g., Community tax).
B. Property – tax imposed on property,
whether real or personal, in
proportion either to its value or some
other reasonable rule of
apportionment (e.g., Real property
tax).
C. Excise or Privilege – charge
imposed upon the performance of an
act, the enjoyment of a privilege or
engaging in an occupation,
profession or business (e.g., donor’s
tax, estate tax, VAT, income tax).
As to who bears the burden and
incidence
A. Direct – tax which is exacted from the
very persons who are primarily liable to
pay them; the taxpayer cannot shift the
burden of its payment to another. The
liability for the payment of the tax
(incidence), as well as the impact (or
burden) of the tax, falls on the same
person (e.g., income tax, community
tax).
B. Indirect – tax wherein the incidence or
liability for the payment falls on one
person but the burden can be shifted or
passed on to another (e.g.
VAT, percentage tax).
The Constitution does not prohibit the
imposition of indirect taxes like the VAT.
The Constitution has been interpreted to
mean simply that direct taxes are to be
preferred and as much as possible, indirect
taxes should be minimized (Tolentino v.
Secretary of Finance, G.R.
No. 115455, October 30, 1995).
The imposition of indirect taxes is NOT a
violation of the principle that taxes are
personal liabilities, the payment of which
cannot be transferred to another person.
When the seller passes on the tax to his
buyer, he is only shifting the tax burden (not
the liability to pay it) to the purchaser as part
of the costs of the goods sold or services
rendered. (Aban, Law of Basic Taxation in
the Philippines, p. 24)
As to purpose
A. General, fiscal or revenue – tax
imposed for the general or ordinary
 purposes of the Government, to raise
revenue for governmental needs. (e.g.,
income tax)
B. Special, regulatory or sumptuary –
tax imposed for a special purpose, to
achieve some social or economic ends
irrespective of whether revenue is
actually raised or not. (e.g.,
countervailing and dumping duties
under the TCC)

As to how the amount determined

A. Specific – tax of a fixed amount
imposed by the head or number or by
some standard of weight or
Distinctions of Tax from Other
measurement; it requires no valuation Impositions
other than a listing or classification of
the objects to be taxed. (e.g., tax on I. Tax vs. Debt
fermented liquors, cigars, distilled Taxes Debt
spirits) Basis
Taxes Debt
Based on contract or
Based on law
B. Ad Valorem (Value) – tax of a fixed Payment judgment
portion of the value of the property Not subject to Failure to Pay
compensation or set- May be subject to
with respect to which the tax is Failure to pay tax
off (see Domingo compensation or set-
assessed; it requires the intervention (other than poll tax)v.may No imprisonment
off for
of assessors or appraisers to estimate Garlitos,
result p. 8)
in imprisonment. non-payment of debt
the value of such property before the Interest
amount due from each taxpayer can Mode of Payment
be determined. (e.g., real property tax) Tax does not
Generally draw interest
payable in money DebtPayable
draws interest if
in money,
unless delinquent stipulated or delayed
property, or service.
As to taxing authority Assignability
A. National – levied by the National Authority
Imposed by public Imposed by private
Government. (e.g., NIRC taxes,
authority Assignable
individuals
customs duties)
Not assignable
Prescription
B. Local or Municipal – levied by the
local government (e.g., Real Determined by Civil Code
Determined by NIRC
property tax, occupation tax)
C.
As to rate II. Tax vs. Toll
A. Progressive or graduated – the Taxes Toll
tax rate increases as the tax base or Definition
bracket increases. (e.g., income tax Demand of ownership—
on individuals, estate tax and Demand of sovereignty an amount charged for
for the purpose of raising the cost and
donor’s tax)
public revenue maintenance of property
B. Regressive –the tax rate decreases
used
as the tax base increases.
Purpose
C. Proportionate – tax rate is based Taxes are levied for the Tolls are compensation for
on a fixed percentage of the amount support of the the use of another’s
of the property, receipts or other government property
bases to be taxed. (e.g., real Determination of Amount
property tax, The amount of the toll is
The amount of tax is
VAT and 3% percentage tax) determined by the
determined by the
cost of the property or of
sovereign
the improvement
Who may impose
Imposed by the
May only be imposed by
government or private
the State
individual.
III. Tax vs. Special Assessment revenue is also obtained does not make the
Special
Special imposition a tax (Progressive Development
Taxes
Taxes Corp. v. Quezon City, G.R. No. L-36081,
Assessments
Assessments
taxpayer Definition Cannot be made a April 24, 1989).
personal liability of the
Specialperson assessed
levy on the lands If the purpose is primarily revenue, or if
Basis comprised within revenue is, at least, one of the real and
Based on necessity and the territorial substantial purposes, then the exaction is
Based solely on
partially on benefits jurisdiction of a properly called a tax (PAL v. Edu, G.R.
Imposed only on benefits
province, city, or L41383, August 15, 1988).
persons, properties, and
Application
municipality specially
excises
benefited by the public
It is possible for an exaction to be both tax and
works
Special projects or
application
General application improvements funded regulation. License fees are looked to as a
only as to a particular
by the time
LGUandconcerned source of revenue as well as a means of
place
regulation (Sonzinky v. U.S., 300 U.S. 506) This
Subject is true, for example, of automobile license
Taxes are levied on fees (ibid.)
land, persons,
Levied on land
property, income,
business, etc.
Liability Importance of Distinction of Tax from Fee:
Personal liability of the
1. The government instrumentality that imposes
the exaction may have no authority to
collect the tax but is authorized to collect the
fees.

IV. Tax vs. License fee 3. The person, who is required to pay the
Tax License Fee exaction, may be exempt from tax but not
Basis from the payment of fees.
Based on the power of 3. For income tax purposes, the tax, not fees,
Based on police power
taxation may be claimed as income tax deduction.
Purpose (Recalde, A Treatise on Tax Principles and
Purpose is revenue Purpose is regulation Remedies, pp.7-9).
Limitation on Amount
Amount is limited to V. Tax vs. Penalty
the cost of:
1. Issuance of license Tax Penalty
Amount is unlimited Definition
2. Inspection and
surveillance Sanction imposed as a
punishment for
When paid Enforced proportional violation of law or acts
Normally paid before contributions from deemed injurious;
Normally paid the start violation of tax laws
the commencement of persons and property
of business may give rise to
business
Surrender imposition of penalty
Taxes, being the Purpose
lifeblood of the State, License fee may be Intended to raise Designed to regulate
cannot be surrendered with or without revenue conduct
except for lawful consideration
consideration Authority
May be imposed by
Effect of non-payment
the:
Non-payment does not May be imposed only 1. Government
make the business by the government
Non-payment makes 2. Private individuals
illegal but may be
ground for criminal the business illegal. or entities
prosecution
VI. Tax vs. Tariff
If the generating of revenue is the primary Tax Tariff
purpose and regulation is merely incidental, All embracing term to
A kind of tax imposed
include various kinds
the imposition is a tax; but if regulation is the of enforced on articles which are
primary purpose, the fact that incidental contributions upon traded internationally
 persons for the Rationale: If allowed, both the collecting
attainment of public agency and the taxpayer might be
purposes tempted to delay and neglect the pursuit
of their respective claims within the
VII. Tax vs. Compromise Penalty period prescribed by law
VIII. Compromise
Tax Penalty II. Compensation or Set-off –
Collected as a Compensation shall take place when two
Basic imposition on compromise in cases persons, in their own right, are creditors
persons, property, and involving violations of the and debtors of each other (Article 1278,
excises New Civil Code).
Tax Code, rules or
regulations.
This presupposes mutual obligations
between the parties, and that they are
IX. Tax vs. Subsidy mutual creditors and debtors of each
Tax Subsidy other.
Levied by the law- A legislative grant of
making body of the money in aid of a In taxation, the concept of setoff arises
State for the support of the private enterprise where a taxpayer is liable to pay tax but
government and for public deemed to promote the the government, for one reason or
needs. public welfare. another, is indebted to the said taxpayer.

Rule: No set-off is admissible against the

demands for taxes levied for general or local
governmental purposes.

Rationale: Taxes are not in the nature of

contracts between the parties but grow out of
X. Tax vs. Revenue duty to, and are positive acts of the
Tax Revenue government to the making and enforcing of
A broad term that which, the personal consent of the individual
A source of revenue of includes not only taxes taxpayer is not required. (Republic v.
the government but income from other Mambulao, G.R. No. L-17725 February 28,
sources as well. 1962).

Exception: Compensation was allowed in

Special Principles in Taxation
I. Doctrine of Equitable Recoupment -
Where the refund of a tax illegally or
erroneously collected or overpaid by a
taxpayer is barred by prescription, a tax
presently being assessed against a
taxpayer may be recouped or set-off
against the tax whose refund is not
barred by prescription.
This is a case where the taxpayer has a
claim for refund but he was not able to
file a written claim due to lapse of the
prescription period within which to make
a refund is allowed. Under this doctrine,
the taxpayer is allowed to credit such
refund to his existing tax liability.
Note: Equitable recoupment is allowed
only in common law countries, not in the
Philippines. This rule is absolute, there is
no exception at all.
one exceptional case where the Supreme
Court held that the doctrine of set-off may be
applied. (Domingo v. Garlitos, G.R. No.
L-18849, June 29, 1963),
Reason: Compensation was recognized in
this case because both the claim of the
Government for inheritance tax and the claim
of the estate for services rendered have
already become overdue and demandable
and fully liquidated. Further, an amount for
the claim of the estate had already been
appropriated by the Government by virtue of
a law, R.A. 2700 (General Appropriations Act
of 1960).
There can be legal compensation for tax
purposes as long as all the requisites under
Article 1279 of the Civil Code are present.
The claims of the taxpayer and the
Government in such case must be brought
before a court where the aforementioned
claims must be pleaded and proved. If all the
 requisites under Article 1279 are present,
then there is no reason why the court cannot
declare set-off. (Recalde, A Treatise on Tax
Principles and Remedies, p.32).
III. Taxpayer’s Suit
A taxpayer has the right to file an action to
question the validity, or constitutionality, of a
statute or law.
The right is based on the fact that
expenditure of public funds by an officer for
the purpose of administering or implementing
an invalid or unconstitutional law is a
misapplication of such funds.
It is only when an act complained of, which
may include a legislative enactment, directly
involves the illegal disbursement of public
funds derived from taxation that the
taxpayer’s suit may be allowed (Vitug and
Acosta, Tax Law and Jurisprudence citing
Pascual v. Secretary of Public Works, G.R.
No. L-10405, December 29, 1960).
Requisites of a Taxpayer’s Suit
1. Public funds derived from taxation
are disbursed by a political
subdivision or instrumentality and in
doing so, a law is violated or some
irregularity is committed; and
2. Petitioner is directly affected by the
alleged act (Mamba v. Lara, G.R.
No.
165109, December 14, 2009).
In Mamba v. Lara, although the
construction of the town center would be
primarily sourced from the proceeds of
the bonds, which respondents insist are
not taxpayer's money, a government
support in the amount of P187 million
would still be spent for paying the interest
of the bonds. Records also show that the
governor requested the Sanggunian to
appropriate an amount of P25 million for
the interest of the bond. Clearly, the first
requisite has been met.
As to the second requisite, the court, in
recent cases, has relaxed the stringent
"direct injury test" bearing in mind that
locus standi is a procedural technicality.
In cases where serious legal issues were
raised or where public expenditures of
millions of pesos were involved, the court
did not hesitate to give standing to
taxpayers. The Court finds no reason to
deviate from the jurisprudential trend.
The amount involved in this case is
substantial. Under the various
agreements ratified by the Sanggunian,
the province would incur costs totaling
P231,908,232.39.
IV. Rule of NO Estoppel Against the
Government
Rule: The Government is not estopped
by the mistakes or errors of its agents;
erroneous application and enforcement
of law by public officers do not bar the
subsequent correct application of
statutes (E. Rodriguez, Inc. v. Collector,
G.R. No.
L-23041, July 31, 1969).
Rationale: Upon taxation depends the
Government’s ability to serve people for
whose benefit taxes are collected. To
safeguard such interest, neglect or
omission of government officials
entrusted with the collection of taxes
should not be allowed to bring harm or
detriment to the people. (Recalde, A
Treatise on Tax Principles and
Remedies, p.33).
Exception: In the interest of justice and fair
play, as where injustice will result to the
taxpayer (See CIR v. CA, G.R. No. 117982,
Feb. 6, 1997; CIR v. CA, G.R. No.
107135, Feb. 3, 1999).
The Commissioner is precluded from
adopting a position inconsistent with the one
previously taken where injustice would result
therefrom or where there has been a
misrepresentation to the taxpayer.
(Balmaceda v. Corominas and Co., Inc.,
G.R. No. L-21971, September 5, 1975)
LIMITATIONS OF TAXATION
The power to tax is the strongest of all the
powers of government. Nevertheless, effective
limitations thereon may be imposed by the
people through their constitution. Accordingly,
no matter how broad and encompassing the
power of taxation, it is still subject to inherent
and constitutional limitations.
I. Inherent Limitations – they proceed from
the very nature of the taxing power itself.
They are otherwise known as elements or
characteristics of taxation.
(SPINE)
 A. Territoriality or Situs 9. No use of public money or
B. Public Purpose property for religious purposes;
C. International Comity 10. Prohibition on use of tax levied
D. Non-delegability of the taxing power for special purpose or special
E. Exemption of the Government assessments;
11. Supreme Court’s power to review
A violation of the inherent limitations judgments or orders of lower
constitutes taking without due process of courts;
law. (Vitug and Acosta, Tax Law and 12. Grant of authority to LGUs;
Jurisprudence, p.4, citing Pepsi Cola v. 13. Tax exemption granted to
Municipality of Tanauan, G.R. No. L-31156 nonstock, non-profit educational
February 27, 1976) institutions;

II. Constitutional Limitations – INHERENT LIMITATIONS (PINGS)

restrictions imposed by the Constitution. A. Territoriality or Situs of Taxation Situs
of taxation – or ―place of taxation‖. It is
A. General or indirect the place or authority that has the right to
1. Due process requirement; impose and collect taxes (CIR v.
2. Equality of taxation and Marubeni Corp., G.R. No. 137377, Dec.
requirement of uniformity and 18, 2001).
equitability of taxation;
3. Freedom of speech Rule: A state may not tax property lying
and expression; outside its borders or lay an excise or
4. Freedom of religion; privilege tax upon the exercise or
5. No taking of private property enjoyment of a right or privilege derived
without just compensation; from the laws of another state and
6. Non-impairment of obligations of therein exercised or enjoyed (51 Am. Jur.
contract; 87-88).
7. Law-making process;
8. Presidential power to grant Rationale:
reprieves, commutations and 1. Taxation is an act of sovereignty which
pardons, and remit fines and could only be exercised within a
forfeitures after conviction by country’s territorial limits.
final judgment. 2. This is the result of the concept that
taxes are paid for the protection and
B. Specific or direct services provided by the taxing authority
1. Uniformity and equitability; which could not be provided outside the
2. Progressive system of taxation; territorial boundaries of the taxing state
3. Non-imprisonment for (Benefits-Protection Theory).
nonpayment of poll tax;
4. Origin of revenue or tariff bills; Exceptions:
5. Veto power of the President; 1. Where tax laws operate outside
6. Delegated authority of President territorial jurisdiction.
to impose tariff rates, import and Example: Taxation of resident citizens
export quotas, tonnage and and domestic corporations on their
wharfage dues; income from sources without the
7. Tax exemption of charitable Philippines.
institutions, churches and 2. Where tax laws do not operate within
parsonages or convents the territorial jurisdiction of the state.
appurtenant thereto, mosques, a. When exempted by
non-profit cemeteries and all treaty obligations;
lands, buildings and b. When exempted by international
improvements actually, directly, comity.
and exclusively used for
religious, charitable or Factors that Determine Situs: (K-
educational PRICE)
purposes; 1. Kind or classification of the tax being
8. Voting requirement; levied
2. Situs of the thing or Property taxed
 3. Citizenship of the taxpayer
4. Residence of the taxpayer
5. Source of the Income taxed
6. Situs of the Excise, privilege, business
or occupation being taxed
Situs of Subjects of Tax
1. Persons – poll, capitation or community
taxes are based upon the residence of the
taxpayer, regardless of the source of income
or location of the property of the taxpayer.
2. Property
a. Real property – Lex rei sitae or lex
situs (where the property is located).
b. Tangible personal property – where
the property is physically located
although the owner resides in another
jurisdiction (51 Am. Jur. 467).
c. Intangible Personal Property –
i. General Rule: Mobilia sequuntur
personam (movables follow the
person). The situs is the
domicile of the owner.
ii. Exceptions:
• When the property has acquired
a business situs in another
jurisdiction; or
• When the law provides for the
situs of the subject of tax (e.g.,
see Sec. 104, NIRC)
d. Income – Factors that determine the
situs of income tax: (see Sec. 23,
NIRC)
i. Nationality or citizenship of the
taxpayer;
ii. Residence or domicile of the
taxpayer; and
iii. Source of the income
e. Excise or Privilege (upon the
performance of an act or the
engaging in an occupation) -
depends upon the place where the act
is performed or occupation is engaged
in (not upon the domicile of the person
subject to the excise nor upon the
physical location of the property and in
connection with the act or occupation
taxed) (Allied Thread v. City Mayor of
Manila, G.R. No.40296, Nov. 21,
1984)
f. Gratuitous Transfer – the
transmission of property from a donor
to a donee, or from a decedent to his
heirs may be subject to taxation in the
state where the transferor is (was) a
citizen or resident, or where the
property is located in case of a
nonresident.
B. Public Purpose
Public purpose embraces not merely
direct public benefit advantage but also
indirect public benefit. (Cruz,
Constitutional Law,
2002)
The power to determine public purpose is
a legislative prerogative.
The proceeds of the tax must be used
for:
1. The support of the State; or
2. Some recognized object of
government or directly to promote
the welfare of the community. (Vitug
and
Acosta, Tax Law and Jurisprudence,
p.5)
• The legislature is without power to
appropriate public revenues for
anything but a public purpose.
(Sababan, Taxation Law Review,
p.5)
• It is the essential character of the
direct object of the expenditure
which must determine its validity.
Incidental advantage to the public
or the State, which results from the
promotion of private interests,
does not justify their aid by the use
of public money (Pascual v.
Secretary of Public Works, G.R.
No. L-10405, December 29, 1960)
Tests to Determine Public Purpose
1. Duty Test – whether the thing to be
furthered by the appropriation of public
revenue is something which is the duty
of the State as a government to provide.
2. Promotion of General Welfare Test –
whether the proceeds of the tax will
directly promote the welfare of the
community in equal measure. (Aban,
Law of Basic Taxation, pp.53-54)
Cases of Public Purpose
1. Public improvement
2. Unemployment relief
3. Buildings and roads/infrastructure
4. Subsidies for local police forces under
R.A. 6142
 5. Industries classified as indispensable
under P.D. 1987 (An Act Creating the
Videogram Regulatory Board)
6. Construction of home sites
7. Promotion of science and invention
8. Upliftment of the underprivileged
9. Rehabilitation of the sugar industry
10. Pensions to deserving retirees
11. Oil industry's protection
12. Socialized housing
13. Educational subsidy
C. International Comity Basis: Sec. 2, Art.
II, 1987 Constitution which provides that
the Philippines ―adopts the generally-
accepted principle of international law as
part of the law of the
land. ‖
Comity – the respect accorded by nations to
each other because they are sovereign
equals.
If a tax law is passed imposing taxes on the
income of foreign ambassadors or imposing
real property tax upon foreign embassies,
this is not a valid law because the imposition
is in violation of the universal principles of
international law.
Bases of the rule:
1. In par parem non habet imperium -
as between equals there is no
sovereign (Doctrine of Sovereign
Equality).
2. The rule of international law that a
foreign government may not be sued
without its consent. Thus, it would be
useless to impose a tax which could
not be collected
3. The concept that when a foreign
sovereign enters the territorial
jurisdiction of another, it does not
subject itself to the jurisdiction of the
other.
D. Non-Delegation of Taxing Power
Rule: Delegata potestas non potest
delegari. (A delegated power cannot be
further delegated.) Since the power of
taxation is a power that is exercised by
Congress as delegates of the people,
then as a general rule, Congress could
not redelegate this delegated power.
Exceptions:
1. Local governments’ power of taxation
2. When allowed by the constitution
(TEE)
• Delegation of Tariff powers by
Congress to the President under
the flexible tariff clause. (Sec.
28(2), Art. VI, 1987 Constitution)
• Delegation of Emergency powers
to the President (Sec. 23(2), Art.
VI, 1987 Constitution)
• Delegation to the President to
enter into Executive agreements,
and to ratify treaties which may
contain tax exemption provisions
subject to the concurrence by the
Senate in the ratification made
by the President;
3. When the delegation relates merely to
administrative implementation that
may call for some degree of
discretionary powers under a set of
sufficient standards expressed by law
or implied from the policy and
purposes of the act.
Limitations of the exceptions
1. The delegation shall not contravene any
constitutional provisions or the inherent
limitations
2. The delegation is affected either by the
Constitution or by validly enacted
legislative measures or statutes. And
3. The delegated levy power, except when
the delegation is by an express
provision of the constitution itself, should
only be in favor of the local legislative
body of the local or municipal
government concerned.
Stages/Aspects of a System of Taxation
1. Tax legislation (levy) – This refers
to the enactment of a law by
Congress authorizing the imposition
of tax.
a. Determination of the subject of
taxation
b. Determination of the purposes for
which taxes shall be levied;
c. Fixing the rate of taxation;
d. Rules of taxation in general
(manner, means and agencies of
collection)
2. Tax administration – This is the act
of administration and implementation
of the tax law by executive through
its administrative agencies. a.
Assessment;
b. Collection;
 3. Payment – This is the act of
compliance by the taxpayer,
including such options, schemes or
remedies as may be legally available
to him.
Rule:
a. If what is delegated is tax
legislation, the delegation is invalid;
b. If what is delegated is tax
administration, the delegation is
valid.
E. Exemption of the Government Rule:
Properties of the national government as
well as those of the local government units
are NOT subject to tax, otherwise it will
result in the absurd situation of the
government ―taking money from one
pocket and putting it in another‖ (Cooley
on Taxation, Sec. 621, 4th ed. as cited in
Board of Assessment Appeals of Laguna
v. CTA, G.R. No. L-18125, May 31, 1963).
As a matter of PUBLIC POLICY, property of
the State and of its municipal subdivisions
devoted to government uses and purposes
is generally deemed to be exempt from
taxation although no express provision in the
law is made therefore (51 Am. Jur. 503).
As a rule, agencies performing
governmental functions are tax exempt
unless expressly taxed. On the other
hand, agencies performing proprietary
functions are subject to tax unless
expressly exempted. GOCC perform
proprietary functions hence are subject to
taxation, except:
1. GSIS
2. SSS
3. PHIC
4. PCSO
Instrumentality of the National
Government is exempt from real property
tax.
Example:
• Manila International Airport Authority
(MIAA)
• Philippine Fisheries
Development
Authority (PFDA)
The Supreme Court held in Manila
International Airport Authority v. Court of
Appeals (G.R. No. 155650, July 20,
2006) that the real properties of MIAA
are owned by the national government
and thus exempt from real estate tax. It
considered MIAA as a government
instrumentality under Sec. 133(o) of the
LGC which provides that exercise of the
taxing powers…shall not extend to the
levy of: “taxes, fees or charges of any
kind on the National government, its
agencies and instrumentalities and local
government units.”
Note: See case of Mactan Cebu
International Authority v. Marcos (G.R.
No. 120082, September 11, 1996) where
MCIAA was considered as a GOCC and
thus not tax exempt.
This has been echoed in the case of Phil.
Fisheries Development Authority v. The
Municipality of Navotas (G.R. No.
150301, October 2, 2007) wherein the
SC ruled that PFDA, being an
instrumentality if the national
government, is exempt from real property
tax. (Dimaampao, Tax Principles and
Remedies, pp.55-56)
Other reasons for the rule:
1. So that the functions of the
government shall not be unduly
impeded (51 Am. Jur. 550-51)
2. To reduce the amount of money that
has to be handled by the government
in the course of its operations (Maceda
v. Macaraig, G.R. No. 88291, June 8,
1993).
HOWEVER, the Constitution is silent on
whether Congress is prohibited from taxing
the properties of the agencies of the
government. Therefore, nothing can prevent
Congress from decreeing that even
instrumentalities or agencies of the
government performing governmental
functions may be subject to tax. (MCIAA v.
Marcos, G.R. No. 120082, Sept. 11, 1996)
 Pursuant to the provisions of the NIRC,
the National Government may levy
income tax upon corporations, agencies
and instrumentalities owned or
controlled by the government subject to
exceptions as provided therein (Sec.
27(C). However, under Sec. 32(B)(7)(b),
NIRC, income derived by the
government from any public utility and
from the exercise of any essential
governmental functions are exempt from
income tax.

UNLESS OTHERWISE PROVIDED
BY LAW, the exemption applies only to
government entities through which the
government immediately and directly
exercises its government powers.
(Infantry Post Exchange v. Posadas,
G.R. No. 33403, Sept. 4,
1930)
CONSTITUTIONAL LIMITATIONS
A. General or Indirect
Constitutional Limitations
1. Due Process Clause (Sec. 1, Art. III,
1987 Constitution)
Any deprivation is with due process
if it is done:
a. Under the authority of a law that is
valid or under the Constitution itself,
and that it must be reasonable, fair
and just
(Substantive Due Process); and
b. After compliance with fair and
reasonable methods of procedure
prescribed by law, with notice or
hearing, or at least an opportunity to
be heard whenever necessary
(Procedural Due Process).
2. Equal Protection Clause (Sec. 1, Art.
Must the adverse party always be
notified?
No. As a rule, notice and hearing or the
opportunity be heard is necessary only
when expressly required by law. Where
there is no such requirement, notice and
the opportunity to be heard are
dispensable.
Due process in taxation REQUIRES:
a. Tax must be for a public purpose;
b. Imposed within territorial jurisdiction;
c. No arbitrariness or oppression in
assessment or collection.
Due process in taxation DOES NOT
REQUIRE:
a. Determination through judicial inquiry
of the property subject to tax or the
amount of tax to be imposed;
b. Notice and hearing as of amount of
the tax or the manner of
apportionment.
Where the due process clause is
invoked, considering that it is not a fixed
rule but rather a broad standard, there is
a need for proof of such persuasive
character. The taxing power has
authority to make reasonable
classifications for purposes of taxation.
Inequalities resulting from a singling out
of one particular class for taxation or
exemption do not infringe any
constitutional limitation. The real estate
industry is, by itself, a class and can be
validly treated differently from other
business enterprises. (Chamber of Real
Estate and Builders' Associations, Inc. v.
The Hon. Executive Secretary Alberto
Romulo, G.R. No. 160756, March 9,
2010)
Illustration of violations of the due
process clause:
a. If the tax amounts to a confiscation of
property
b. If the subject of confiscation is
outside the jurisdiction of the taxing
authority
c. If the law is imposed for a purpose
other than a public purpose
d. If the law which is applied
retroactively imposes unjust and
oppressive taxes
e. Where the law is in violation of
inherent limitations
III, 1987 Constitution)
• Equal protection neither requires
equal rates of taxation on different
classes of property, nor prohibits
unequal taxation so long as the
inequality is not based upon arbitrary
classification. It merely requires that
all persons (or property, of the same
class) subjected to such legislation
shall be treated alike, under like
circumstances and conditions, both
in the privileges conferred and, in the
liabilities, imposed (Cooley, cited in
Sison, Jr. v. Ancheta, G.R. No.
59431 July 25, 1984).
• The equal protection clause may
be VIOLATED IN TWO WAYS:
a. When classification is made where
there should be none (i.e., where
classification does not rest upon
substantial differences); and
b. When classification is called for (i.e.,
when substantial distinctions exist
but no corresponding classification
is made on the basis thereof.)
(Villegas v. Hiu Chiong Tsai Pao
Ho, G.R. No. L-29646, November
10, 1978)  The power to select
subjects of taxation and apportion
 the public burden among them
includes the power to make
classifications. For the classification
to be valid, the following
REQUISITES must concur:
a. It must be based on substantial
distinctions;
b. It must apply both to present and
future conditions;
c. It must be germane to the purposes
of the law; and
d. It must apply equally to all members
of the same class (Ormoc Sugar
Company v. Treasurer of Ormoc,
G.R. No.
23794, February 17, 1968).
Vertical Equity vs. Horizontal Equity
• Vertical equity connotes a difference in
the tax treatment between those who
are financially well-off and those who
have relatively less.
• Horizontal equity implies that those who
are similarly situated in life should be
taxed similarly.
3. Freedom of the Press (Sec. 4, Art.
III, 1987 Constitution)
• There is curtailment of press
freedom and freedom of thought and
expression if a tax is levied in order
to suppress this basic right and
impose a prior restraint. (Tolentino v.
Secretary of Finance, Supra)
In the case of Grossjean v.
American Press (297 U.S. 233,
1936), it was held that the
separate sales tax on
newspapers with circulation of
over 20,000 imposed was a
deliberate and calculated device
in the guise of tax to limit the
circulation of information to which
the public is entitled in virtue of
the Constitutional guarantees.
In People v. Korins (385 N.Y.S. 2D
474 [1976]), the U.S. Supreme
Court held that to apply an
ordinance requiring a business
license to be obtained before a
person could sell newspapers in
the streets would be to impose a
prior restraint on press freedom
because a newspaper is not in
the same category as a
pineapple or a soap powder, or a
pair of shoes whose sale may be
conditioned on the possession of
a business license.
• However, if the fee imposed is not
for the exercise of a privilege but
only for the purpose of defraying part
of the cost of registration, the
Constitution is not violated.
In Tolentino E-VAT case, it was
held that the requirement to pay
P1,000 (now P500) as annual
registration fee on all persons
subject to VAT is not imposed for
the exercise of a privilege but
only for the purpose of defraying
part of the cost of registration. It
is thus, a mere administrative
fee, one not imposed on the
exercise of a privilege, much less
a constitutional right.
4. Religious Freedom (Sec. 5, Art. III,
1987 Constitution)
• This provision contains three
clauses: (1) the no
establishment clause; (2)
freedom to choose religion
clause and (3) the free exercise
clause. The latter is the basis of
tax exemptions granted to
religious institutions. The first
covers the prohibition to
establish a national or official
religion since in that case, there
would be an appropriation from
taxes paid by the people.  A
municipal LICENSE TAX on the
sale of bibles and religious
articles by a non-stock, non-
profit missionary organization at
minimal profit constitutes
curtailment of religious freedom
and worship which is guaranteed
by the Constitution. (American
Bible Society v. City of Manila,
G.R. No. L-9637, April 30, 1957)
• Not every imposition of tax
constitutes curtailment of
religious freedom:
In the Tolentino E-VAT case, the Court held
that: ―What has been said above also
disposes of the allegations of the PBS that
the publication or importation of books and
religious articles, as well as their printing
and publication, likewise violates freedom of
thought and conscience. For as the U.S.
Supreme Court unanimously held in Jimmy
Swaggart Ministries v. Board of Equalization
 (493 U.S. 378 [1978]), the Free Exercise of
Religion Clause does not prohibit imposing
a generally applicable sales and use tax on
the sale of religious materials by a religious
organization. ‖
• In the case of Tolentino v. Sec.
of Finance, the Supreme Court
distinguished between a Rationale: When the State grants an
―license tax‖ and a ―revenue
tax‖. Under the American Bible
Society case, that was a license
tax; the VAT under R.A. 7716 is
a revenue tax.
Rules on Income of Religious
Organizations (Sec. 30 (E), NIRC)
Rule: Income Exempt from Taxation if:
a. Non-stock corporation;
b. Organized and operated exclusively for
religious, charitable, scientific, athletic or
cultural, and social welfare purposes;
c. No part of the income inures to the benefit of
any member, organizer, or any specific
person.
Exception: Income of Such
Organizations Taxable if Realized
from:
a. Productive use of property, real
or personal (i.e., rents, dividends,
interests)
b. Profitable Business Pursuits
Note: Regardless of the disposition
made of such income.
5. No taking of private property
without just compensation (Sec. 9,
Art. III, 1987 Constitution)
6. Non-impairment Clause
To impair the obligation of a contract
is to alter or change the terms or
effect of the contract, and thus in
contemplation of law, to weaken the
position or rights of one or all of the
parties to it.
Rule: The power to tax is pursuant to
law, therefore, the obligation to pay
taxes is imposed by law, thus the no
impairment clause does not apply.
Instance when the non-impairment
clause becomes a limitation to the
power to tax?
When the taxpayer enters into an
agreement with the government. In
this instance, the obligation to pay
the tax is now based on the contract
between the taxpayer and the
government pursuant to their
compromise agreement.
exemption on the basis of a contract,
consideration is presumed to be paid
to the State, and the public is
supposed to receive the whole
equivalent therefrom.
• The non-impairment clause applies
to the power of taxation but not to
police power and eminent domain.
Note: It applies only where one
party is the Government and the
other party, a private individual.
(Sababan, Taxation Law
Reviewer
2008 ed., p.13)
 Examples:
a. When a tax exemption based on
a contract is revoked by a later
taxing statute
(Cassanova v. Hord, G.R. No.
3473, March 22, 1907);
b. Application of the no impairment
clause depends on how the
exemption was granted.
• When the exemption is bilaterally
agreed upon between the
government and the taxpayer – it
cannot be withdrawn without
violating the non-impairment clause.
• When it is unilaterally granted by
law and the same is withdrawn by
virtue of another law – no violation.
• When the exemption is granted
under a franchise – may be revoked
because under the Constitution, a
franchise is ―subject to
amendment, alteration, or repeal‖
by Congress when the common
good so requires. (Sec.
11, Art. XII, 1987 Constitution)
7. Law-making Process
• Bill should embrace only one
subject expressed in the title
thereof;
• Three (3) readings on three
separate days;
• Printed copies in final
form distributed three days
before passage.

8. Presidential power to grant reprieves,
commutations and pardons and remit
fines and forfeitures after conviction
by final judgment.
B. Specific or Direct Constitutional
Limitation
1. Taxation shall be uniform and
equitable (Sec. 28(1), Art. VI 1987
Constitution)
a. Uniformity – all taxable articles
or properties of the same class
shall be taxed at the same rate.
(City of Baguio v. De Leon, G.R.
No.
24756, October 31, 1968);
Uniformity, not equality
Rationale: the imposition of a single
tax upon all persons, properties or
transactions would result in
inequality. It is manifestly
impractical.
b. Different articles or other
subjects may be taxed at
different rates provided that the
rate is uniform on the same class
everywhere. (De Villata v.
Standley G.R. No.
8154 December 20, 1915);
c. Equitability – requires that the
apportionment of the tax should
consider the taxpayer’s ability to
shoulder the tax burden, usually
measured in terms of wealth,
and, if warranted, on the basis of
the benefits he receives from the
government.
d. Taxation may be uniform but
inequitable where the amount is
excessive or unreasonable.
2. Progressive System of Taxation
(Sec. 28(1), Art. VI, 1987
Constitution)
a. A Progressive System of
Taxation means that as the
resources of the taxpayer
become higher, his tax rate
likewise increases.
b. It is based on the ability to pay
and in implementation of the
social justice principle that the
more affluent should contribute
more for the community’s benefit,
and is best exemplified by the
increase of income tax rate as
net taxable income increases.
c. The Constitution does not really
prohibit regressive taxes. What it
simply provides is that Congress
shall evolve a progressive
system of taxation. This is a
mere directive upon Congress,
not a justiciable right. (Tolentino
v. Secretary of Finance, G.R.
No.
115455, August 25, 1994)
d. In case of VAT, it is an antithesis
of progressive taxation. By its
very nature, it is regressive. The
principle of progressive taxation
has no relation with the VAT
System inasmuch as the VAT
paid by the consumer or
business for every good bought
or services enjoyed is the same
regardless of income.
3. Non-imprisonment for non-payment
of poll tax (Sec. 20, Art. III, 1987
Constitution)
a. Poll Tax – tax imposed on a per
head basis. The present ―poll
tax‖ is the ―community tax. ‖
b. One cannot be imprisoned for
non-payment of poll tax because
payment thereof is not
mandatory.
c. While a person may not be
imprisoned for non-payment of
poll tax, he may be imprisoned
for non-payment of other kinds of
taxes where the law so expressly
so provides.
4. Origin of Revenue or Tariff Bills
(Sec. 24, Art. VI, 1987 Constitution)
a. It is not the law but the revenue
bill which is required by the
Constitution to originate
exclusively in the House of
Representatives. A bill originating in the
House may undergo such extensive
changes in the Senate that the result
may be a rewriting of the whole.
b. The Constitution simply means
that the initiative for filing the bills
must come from the House, on
the theory that, elected as they
are from the districts, the
members of the House can be
expected to be more sensitive to
the local needs and problems
(Tolentino v.
 Secretary of Finance, supra).
5. Veto Power of the President (Sec.
27(2), Art. VI, 1987 Constitution)
 Any particular item or items in an:
a. Appropriation bill;
b. Revenue bill;
c. Tariff bill.  Shall NOT
affect item/(s) to which
he does not object
6. Delegated authority of President to
impose tariff rates, import and export
quotas, tonnage and wharfage dues
(Sec. 28 par. 2, Art.
VI, 1987 Constitution)
Flexible Tariff Clause
The Congress may, by law, authorize the
President to fix within specified limits, and
subject to such limitations and restrictions as
it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and
other duties or imposts within the framework
of the national development program of the
Government. (Sec. 28 par. 2, Art. VI,
1987 Constitution)
7. Tax exemption of charitable
institutions, churches and
parsonages or convents
appurtenant thereto, mosques,
nonprofit cemeteries and all
lands, buildings and
improvements actually, directly,
and exclusively used for
religious, charitable or
educational purposes;
a. Section 28(3), Art. VI, 1987
Constitution, exempts religious
and educational institutions from
real estate tax.
b. Test of Exemption: It is the use
of the property, and not
ownership.
c. Nature of Use: The properties
must be actually, directly and
exclusively used for the
purposes mentioned.
d. ―Exclusive‖ is defined as
possessed and enjoyed to the
exclusion of others; debarred
from participation or enjoyment;
and ―exclusively‖ is defined,
―in a manner to exclude; as
enjoying a privilege exclusively. ‖
If real property is used for one or
more commercial purposes, it is
not exclusively used for the
exempted purposes but is
subject to taxation. The words
―dominant use‖ or ―principal
use‖ cannot be substituted for
the words ―used exclusively‖
without doing violence to the
Constitution’s and the law.
Solely is synonymous with
exclusively. (Lung Center of the
Philippines v. Quezon City,
G.R.
No. 144104, June 29, 2004)
Note: The term extends to
facilities which are incidental to
or reasonably necessary for the
accomplishment of said
purposes. (Abra Valley College
v. Aquino, G.R. No. L-39086,
June 15, 1988).
8. Voting Requirement for Tax
Exemption
a. Rationale: To prevent
indiscriminate grant of tax
exemptions.
b. The phrase ―a majority of all
the members of the Congress‖
means at least ½ plus 1 of ALL
the members voting separately.
c. In granting tax exemptions, an
absolute majority of the members
of Congress is required, while in
cases of withdrawal of such tax
exemption, a RELATIVE
MAJORITY is sufficient.
Rationale: Taxation is the rule and
exemption are the exception. Thus, the
law makes it easier, by requiring a
smaller number of votes, to withdraw
exemption compared to its grant.
d. Tax amnesties, condonations
and refunds are in the nature of
tax exemptions, such being the
case, a law granting them
requires the vote of an absolute
majority.
e. A constitutional grant of
exemption may be self–
executing or may require an act
of Congress for its operation.
Where a Constitutional provision
granting an exemption is self-
executing, the legislature can
neither add nor detract from it. It
may, however, prescribe a
 procedure to determine whether
a claimant is entitled to the
Constitutional exemption.
9. No use of public money or property
for religious purposes (par. 3, Sec.
28, 1987 Constitution)
Except: If a priest is assigned to armed
forces, penal institutions, government
orphanages or leprosarium.
10. Prohibition on use of tax levied for
special purpose or special
assessments (par.3 Sec. 29, Art. VI,
1987 Constitution)  Money collected
on tax levied for special purpose to be
used only for such purpose.  The
balance, if any, shall accrue to the
general fund.
11. Supreme Court’s power to review
judgments or orders of lower courts
(Sec. 5(b), Art. VIII, 1987 Constitution)
 The Supreme Court can review
judgments or orders of lower courts in all
cases involving:
a. The legality of any tax,
impost,
assessment, or toll;
b. The legality any penalty
imposed in relation to the
above;
 Under the Principle of Judicial
Non-Interference, the courts
cannot inquire into the wisdom of
a taxing act, UNLESS there is a
violation of constitutional
limitations or restrictions.
12. Grant of Authority to Local
Government Units  Each local
government unit shall have the power to
create its own sources of revenues and
to levy taxes, fees and charges subject
to such guidelines and limitations as the
Congress may provide, consistent with
the basic policy of local autonomy. Such
taxes, fees, and charges shall accrue
exclusively to the local governments.
(Sec. 5, Art. X, 1987 Constitution) 
Local government units shall have a just
share, as determined by law, in the
national taxes which shall be
automatically released to them. (Sec. 6,
ibid.)
 Local governments shall be
entitled to an equitable share in
the proceeds of the utilization
and development of the national
wealth within their respective
areas, in the manner provided by
law, including sharing the same
with the inhabitants by way of
direct benefits. (Sec. 7, ibid)
13. Tax exemption granted to nonstock,
non-profit educational institutions
Constitutional and
statutory provisions
 All revenues and assets of
nonstock, non-profit educational
institutions used actually,
directly, and exclusively for
educational purposes shall be
exempt from taxes and duties.
(Sec. 4(3), Art. XIV, 1987
Constitution)
Notes:
a. See Section 30, NIRC last
paragraph. Note that its
provisions, particularly the phrase
―regardless of disposition made
of such income‖ is in conflict with
Sec. 4(3), Art. XIV,
1987
Constitution.
b. This conflict, however, has already
been settled. Section 1 of DOF
Order No. 149-95, which amended
DOF Order No. 92-88 and DOF
Order No. 137-87, provides that
these non-stock, non-profit
educational institutions shall “be
subject to internal revenue taxes
on income from trade, business or
other activity the conduct of which
is NOT RELATED to the exercise
or performance by such
educational institution of its
educational purpose of function.”
 Proprietary educational institutions,
including those cooperatively
owned, MAY likewise be entitled to
such exemptions subject to
limitation: a. Provided by law
b. Provisions for reinvestments
 All grants, endowments, donations,
or contributions used actually,
directly, and exclusively for
educational purposes shall be
exempt from tax. (Sec. 4(4), ibid.)
Article XIV and Article VI compared
Art. XIV, Sec. 4(3) Art. VI, Sec. 28(3)
Grantee
Non-stock, non-profit Religious, educational,
educational institution charitable
Taxes Covered
1. Income tax
2. Custom duties,
Property
3. Property tax (DECS
Order No. 137-87)
Summary of Rules on Exemption of
Assets and Revenues
a. Non-stock, Non-Profit Educational
Institution whose income is actually,
directly, and exclusively used for
educational purposes
• EXEMPT (See Sec. 30(H), NIRC)
• Rationale: Constitutional provision
is self-executing.
b. Proprietary Educational Institution
• TAXABLE under Sec 27(B), NIRC
Predominance theory - if the
predominant income (more than
50%) comes from school related
activities, the 10% tax on taxable
income applies. Conversely, it is
subject to 30% tax if its gross
income from unrelated trade,
business or activity exceeds 50% of
its the total gross income.
• Rationale: Constitutional provision
used the word MAY, which gives
Congress discretion to grant tax
exemption.
c. Grants, Endowments, Donations or
Contributions used actually, directly and
exclusively for educational purposes to:
• TAXABLE: Proprietary
educational institution
• EXEMPT: Non-Stock, non-profit
educational institution
B. Indirect Duplicate Taxation (Broad sense)
DOUBLE TAXATION
DEFINITION
Taxing the same person [same subject or
object] twice by the same jurisdiction over
the same thing (Victoria Milling v. Mun. of
Victoria, Negros Occidental, G.R. No. L-
21183, Sept.
27, 1968).
According to the Supreme Court there is no
constitutional prohibition against double
taxation in the Philippines (Villanueva v.
City of Iloilo, G.R. No. L-26521, December
28, 1968). It is something not favored, but is
nevertheless permissible.
KINDS OF DOUBLE TAXATION
A. Direct Duplicate Taxation / Obnoxious
(Strict sense) – The objectionable kind
or double taxation in its prohibited
sense. This violates the equal
protection clause of the Constitution,
and is prohibited.
Double taxation means taxing the
same property twice when it should
be taxed only once; that is, ―taxing
the same person twice by the same
jurisdiction for the same thing. ‖ It is
obnoxious when the taxpayer is taxed
twice, when it should be but once.
Otherwise described as ―direct
duplicate taxation. ‖ (The City of Manila,
Liberty M. Toledo In Her Capacity as
the
Treasurer of Manila v. Coca-Cola
Bottlers Philippines, Inc., G.R. No.
181845, August
4, 2009.)
Elements:
1. The same property or subject matter
is taxed twice when it should be
taxed only once;
2. Both taxes are levied for the same
purpose;
3. Imposed by the same taxing
authority;
a. Within the same jurisdiction;
b. During the same taxing period;
c. Covering the same kind or character
of tax (Villanueva v. City
of Iloilo, supra)
– The permissible kind of double taxation,
this arises in the absence of one or more of
the above-mentioned elements of direct
double taxation.
There is no double taxation if the tax is
levied by the LGU and another by the
national government. The two (2) are
different taxing Authorities. (Pepsi-Cola
Bottling Co. v. Municipality of Tanauan,
Leyte, G.R. L-31156, February 27, 1976
Examples of Indirect Duplicate
Taxation:
 1. A tax upon a corporation for its property
and upon its shareholders for their
shares.
2. A tax upon the same property imposed
by two different states.
3. A tax on a mortgage as personal
property and upon the mortgaged
property as real estate.
C. International Juridical Double Taxation –
the imposition of comparable taxes in two or
more states on the same taxpayer in respect
of the same subject matter and for identical
periods. (Commissioner v. SC Johnson &
Sons, Inc., G.R. No.127105, June 25, 1999).
• This double taxation usually takes place
when a person is a resident of the first
contracting State and derives income
from, or owns capital in the second
contracting State and both States impose
taxes on such income or capital. In order
to eliminate double taxation, a tax treaty is
entered into by the two contracting States.
• International juridical double taxation only
occurs when the State of residence of the
taxpayer imposes tax on the income of
said taxpayer from sources within and
without their State. There is no
international juridical double taxation if the
citizens or nationals are only taxed on
their income from sources within.
• See Section 23, NIRC: Except for income
earned by resident citizens and domestic
corporations, only income from Philippine
sources is taxable by the government.
D. Local Double Taxation- the imposition of
taxes of similar nature both by the national
government and the local government unit
where the object of tax is located (Recalde,
A Treatise on Tax Principles and Remedies,
p.79).
The Phil. tax system provides for certain
schemes in order to avoid or minimize
the harsh or burdensome effects of
double taxation. The means, however,
depend on whether there is international
double taxation or local double taxation.
(ibid, p.75).
METHODS OF REDUCING THE RIGORS
OF DOUBLE TAXATION (CD – RET)
1. Tax Credits – an amount subtracted
from an individual’s or entity’s tax liability
to arrive at the total tax liability.
2. Tax Deductions – tax write-off or
reduction in the gross amount on which a
tax is calculated.
(refer to illustration of Tax Credit v.
Deduction, last page of this section)
3. Reduction of the Philippine income
tax rate
Example: Tax Sparing Rule – the dividend
earned by a non-resident foreign
corporation (NRFC) within the Phil. is
reduced by imposing a lower rate of 15%
(in lieu of the 30%), on the condition that
the country to which the NRFC is
domiciled shall allow a credit against the
tax due from the NRFC, which taxes are
deemed to have been paid in the Phil.
(Sec.28 [B] [5] b) (CIR v. Procter &
Gamble G.R. No 66838 December 2,
1991)
4. Tax Exemptions – a grant of immunity to
particular persons or corporations from
the obligation to pay taxes.
5. Tax Treaties – Agreement between two
countries specifying what items of
income will be taxed by the authorities of
the country where the income is earned.
METHODS RESORTED TO BY A TAX
TREATY IN ORDER TO ELIMINATE
DOUBLE TAXATION:
First method: An exclusive right to tax is
conferred in one of the contracting states;
however, for other items of income or capital,
both states are given the right to tax although
the amount of tax that may be imposed by
the state of source is limited.
Second method: The state of source is given a
full or limited right to tax together with the state
of residence. In this case, the treaty makes it
incumbent upon the state of residence to allow
relief in order to avoid double taxation.
There are 2 ways under the 2nd method:
1. The exemption method – the income or
capital which is taxable in the state of
source or situs is exempted in the state of
residence, although in some instances it
may be taken into account in determining
the rate of tax applicable to the taxpayer’s
remaining income or capital. (This may be
done using the tax deduction method which
allows foreign income taxes to be deducted
from gross income, in effect exempting the
payment from being further taxed.) The
focus here is on the income or capital itself.
2. The credit method – although the income
or capital which is taxed in the state of
 source is still taxable in the state of
residence, the tax paid in the former is
credited against the tax levied in the latter.
(CIR v. S.C Johnson and Son, G.R.
No.127105, June 25,1999) The focus is on
the tax.
Most Favored Nation Clause in Tax Treaties
The purpose of the most favored nation clause
is to grant to the contracting party treatment not
less favorable than that which has been or may
be granted to the ―MOST FAVORED‖ among
other countries. The most favored nation clause
is intended to establish the principle of equality
of international treatment by providing that the
citizens or subjects of the contracting nations
may enjoy the privileges accorded by either
party to those of the most favored nation.
FORMS OF ESCAPE FROM
TAXATION
6 FORMS OF BASIC ESCAPE FROM
TAXATION:
1. Shifting - The transfer of the burden of tax
by the original payer or the one on whom the tax
was assessed (impact of taxation/statutory
taxpayer) or imposed to another or someone
else (incidence of taxation).
• Direct tax cannot be shifted – a tax
taxpayer and liberally in favor of the
taxing cannot be shifted when it is purely
power. Taxation is the rule and
exemption personal or when it has no
relation to is the exception. The law
does not look any business dealings of
the taxpayer. with favor on tax
exemptions and that he (Schultz and
Harris, American Public who would seek
to be thus privileged must
Finance)
justify it by words too plain to be mistaken
• Impact of Taxation – point on which
and too categorical to be misinterpreted
tax is originally imposed or the one on
(SeaLand Service v. CA, G.R. No.
57828 whom the tax is formally
assessed. June 14, 1993).
• Incidence of Taxation – point on which
the tax burden finally rests or settles
down.
• Illustration: Value added tax. The 2.
To minimize differential treatment and
seller is required by law to pay tax, but
foster impartiality, fairness and the
burden is actually shifted or equality of
treatment among taxpayers passed on
to the buyer. (Maceda v. Macaraig, G.R.
No. 88291,
• Ju
Kinds of shifting
 Forward shifting – when the
burden sovereignty whose
relinquishment is of tax is
transferred from a factor of never
presumed (Luzon Stevedoring
production through the factors of v.
CA, G.R. No 58897, Dec. 3, 1987)
distribution until it finally settles on
the ultimate purchaser or consumer
 Backward shifting – when burden
is transferred from the 1. When the
statute granting exemption
consumer through the factors of
provides for liberal construction
distribution to the factors of
production thereof
 Onward shifting – when the tax is
2. In case of special taxes relating to
shifted 2 or more times either
forward or backward
2. Capitalization- The reduction in the price of
the taxed object equal to the capitalized
value of future taxes which the purchaser
expects to be called upon to pay.
3. Transformation- The manufacturer or
producer upon whom the tax has been
imposed, fearing the loss of his market if
he should add the tax to the price, pays
the tax and endeavors to recoup himself
by improving his process of production,
thereby producing his units at a lower
cost.
4. Tax Exemption- is the grant of immunity to
particular persons or corporations or to
persons or corporations of a particular
class form a tax which persons or
corporations generally within the same
state or taxing district are obliged to pay.
(51 Am. Jur. 503)
Principles of Strictissimi Juris
Laws granting tax exemption are
construed in strictissimi juris against the
taxpayer and liberally in favor of the
 taxing power. Taxation is the rule and
exemption are the exception. The law
does not look with favor on tax
exemptions and that he who would seek
to be thus privileged must justify it by
words too plain to be mistaken and too
categorial to be misinterpreted (SeaLand
Service v. CA, G.R. No. 57828 June 14,
1993).

Rationale for the Application of

Strictissimi Juris

1. Life blood Theory

2. To minimize differential treatment and

foster impartially, fairness and equality of
treatment among taxpayers

3. Taxation is a high prerogative of

sovereign whose relinquishment is never
presumed.

Kinds of Tax Exemption

Express- expressly granted by organic or

statute law.

Implied- whenever particular persons,

properties or excise are deemed exempt
as they fall outside the scope of the
taxing provision itself.

Contractual- tax exemption in

consideration of a contract

Revocation of Tax Exemptions

Since taxation is the rule and exemption is
the exception, the exemption may thus be
withdrawn at the pleasure of the taxing
authority. (Mactan Cebu Int’l Airport
Authority v. Marcos, supra)
Restrictions on Revocation
1. Non–impairment clause – Where
the exemption was granted to private
parties based on material
consideration of a mutual nature, it
then becomes contractual and is
covered by the non-impairment
clause of the Constitution.
2. Adherence to form – If the tax
exemption is granted by the
Constitution, its revocation may be
affected through constitutional
amendment only.
3. Where the tax exemption grant is in
the form of a special law and not by a
general law even if the terms of the
general act are broad enough to
include the codes in the general law
unless there is manifest intent to
repeal or alter the special law.
(Province of Misamis Oriental v.
Cagayan Electric Power & Light Co.
Inc., G.R. No. 45355, Jan. 12, 1990)
Nature of Tax Refunds
Tax refunds are in the nature of tax
exemptions. They are regarded as in
derogation of sovereign authority and to
be construed strictissimi juris against the
person or entity claiming the exemption.
The burden of proof is upon him who
claims the exemption in his favor and he
must be able to justify his claim by the
clearest grant of organic or statute law
(CIR v. Court of Appeals, G.R. No.
104151, March 10, 1995)
Nature of Tax Amnesty
1. 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.
2. Partakes of an absolute forgiveness
or waiver of the government of its
right to collect.
3. To give tax evaders, who wish to
relent and are willing to reform a
chance to do so.
Rules on Tax Amnesty
a. Tax amnesty
a. Like tax exemption, it is never
favored nor presumed
b. construed strictly against the taxpayer
(must show complete
compliance with the law)
b. The government is not estopped from
questioning the tax liability even if amnesty
tax payments were already received.
Rationale: Erroneous application and
enforcement of the law by public officers
do not block subsequent correct
application of the statute. The government
is never estopped by mistakes or errors of
its agents.
Note: There could be no tax amnesty
granted by the President of the Philippines
because the same is in the nature of tax
exemption which could be granted only by
a concurrence of Congress.
Basis: Lifeblood Theory
c. Defense of tax amnesty, like insanity,
is a personal defense.
Rationale: Relates to the circumstances
of a particular accused and not the
character of the acts charged in the
information.
5. Tax Avoidance – also called tax
minimization. The exploitation by the taxpayer
of legally permissible alternative tax rates or
methods of assessing taxable property or
income, in order to avoid or reduce tax liability.
• Tax avoidance is the tax saving device
within the means sanctioned by law. This
method should be used by the taxpayer in
good faith and at arm’s length. (CIR v.
Estate of Benigno Toda Jr., G.R. No.
30554, Feb.28, 1983)
• A taxpayer has legal right to decrease the
amount of what would otherwise be his
taxes or altogether avoid them by means
which the law permits. (Delpher Trades v.
IAC, G.R. No. 69259, Jan. 26, 1988)
• Example: Availing of all deductions
allowed by law or refraining from engaging
in activities subject to tax.
(see p. 26 for illustrative example of difference
between tax credit and
avoidance)
6. Tax Evasion – an illegal means of
escaping taxation. It connotes fraud through
the use of pretenses and forbidden devices to
 lessen or defeat taxes. (Yutivo Sons
Hardware v. CTA, CONSTRUCTION OF TAX LAWS 1. Tax laws are
G.R. No. L-13203, January 28, 1961) prospective in operation (subject to exceptions).
2. Legislative intention must be considered – Tax
A scheme used outside of those lawful statutes are to receive a reasonable
means and when availed of, it usually construction with a view to carrying out their
subjects the taxpayer to (further or purpose and intent (51 Am. Jur. 361).
additional) civil or criminal liabilities. (CIR 3. Where there is doubt – In every case of doubt,
v. Estate of Benigno Toda Jr., G.R. No. in tax statutes imposing payment of tax, laws
78583, March 26, 1990.) are construed strictly against the government
and liberally in favor of the taxpayer (Manila.
Factors of Tax Evasion (ESC) Railroad v. Collector of Customs, G.R. No.
1. The End to be achieved, i.e., payment 10214, Nov. 4, 1915). Taxes, being burdens,
of less than that known by the are not to be presumed beyond what the
taxpayer to be legally due, or paying statute expressly and clearly declares.
no tax when it is shown that the tax is 4. Where language is plain – Rule of strict
due. construction against the government does not
2. An accompanying State of mind which apply where the language of the tax law is
is described as being evil, in bad faith, plain and there is no doubt as to the legislative
willful, or deliberate and not intent (51 Am. Jur. 368). The words employed
coincidental. are to be given their ordinary meaning.
3. A Course of action which is unlawful. 5. Where taxpayer claims exemption –
Exemptions are construed strictly against the
Proof of tax evasion one who asserts the claim of exemption.
a. Failure to declare for taxation Public purpose is always presumed.
purposes true and actual income 6. Provisions of the taxing act are not to be
derived from business for 2 extended by implication.
consecutive years. (Republic v. 7. Tax laws are special laws and prevail over
Gonzales, G.R. No. L-17962, April 30, general laws.
1965)
b. Substantial under-declaration of Hornbrook Doctrine - the interpretation of tax
income in the tax returns of the laws that ―(a) statute will not be construed as
taxpayer for 4 consecutive years imposing a tax unless it does so clearly, expressly,
coupled with intentional overstatement and unambiguously. ‖ x x x (A) tax cannot be
of deductions. (CIR v. Reyes, Nos. imposed without clear and express words for that
G.R. L-11534 and G.R. L-11558, purpose. Accordingly, the general rule of requiring
November 25, 1958) adherence to the letter in construing statutes
applies with peculiar strictness to tax laws and the
Tax Avoidance Tax Evasion provisions of a taxing act are not to be extended
Validity by implication.‖ Parenthetically, in answering the
Legal and not subject Illegal and subject to question of who is subject to tax statutes, it is
to criminal penalty criminal penalty basic that ―in case of doubt, such statutes are to
Effect be construed most strongly against the
Almost always results in government and in favor of the subjects or citizens
Minimization of taxes the absence of tax because burdens are not to be imposed nor
payments presumed to be imposed beyond what statutes
expressly and clearly import.‖ (CIR v. CA, G.R.
No. 115349, April 18,
1997)
TAX LAWS
APPLICATION OF TAX LAWS
Rule: Tax laws are prospective in operation.
NATURE OF TAX LAWS
1. Not political in character; effective even
Exception: While it is not favored, a statute may
under belligerent occupation (Hilado v.
nevertheless operate retroactively provided it is
CIR, G.R. No. L-9408, October 31, 1956)
expressly declared or is clearly the legislative
2. Civil in nature, not subject to ex post facto intent (Cebu Portland Cement v.
law prohibitions;
CIR, G.R. No. 18649, Feb. 27, 1965).
3. Not penal in character.
APPLICATION OF TAX RULINGS (Sec. 246,
NIRC)
Rule: Any revocation, modification or reversal
of any of the rules and regulations
promulgated (in accordance with the preceding
Sections) or any of the rulings or circulars
promulgated by the CIR shall not be given
retroactive application if the revocation,
modification or reversal will be prejudicial to
the taxpayers.
particularly the CIR, including opinions of the
Secretary of Justice
5. Judicial Decisions – 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. They form part of
the legal system of the Philippines (Art. 8, Civil
Code). They constitute evidence of what the
law means (People v. Licera, G.R. No.
L-39990, July 22, 1975).

Exceptions to non-retroactive application

of tax rulings to taxpayers:
1. Where the taxpayer deliberately misstates
or omits material facts from his return or
any document required of him by the BIR;
2. Where the facts subsequently gathered by
the BIR are materially different from the
facts on which the ruling is based, or
3. Where the taxpayer acted in bad faith

KINDS OF PROVISIONS OF TAX LAWS

1. Mandatory – those provisions intended for
the security of the citizens or which are
designed to insure equality of taxation or
certainty as to the nature and amount of
each person’s tax.
2. Directory – those provisions designed
merely for the information or direction of
officers or to secure methodical and
systematic modes of proceedings.

Importance of Distinction The omission to

follow mandatory provisions renders invalid the
act or proceeding to which it relates while the
omission to follow directory provisions does
not involve such consequence.

SOURCES OF TAX LAWS

1. Constitution
2. Legislation or statutes, including
presidential decrees and executive orders
on taxation and tax ordinances, tax
treaties and conventions with foreign
countries
3. Contemporaneous Construction by
Executive or Administrative Officers,
including Revenue Regulations by the
Department of Finance and Administrative
issuances by the BIR or the BOC.
4. Administrative rules and regulations,
rulings and opinions of tax officials