RIZAL TECHNOLOGICAL UNIVERSITY

Cities of Mandaluyong and Pasig

SESSION NO./ WEEK NO.2

MODULE NO.1: FUNDAMENTAL PRINCIPLES OF TAXATION

Notes
1.1 Definition of Taxation
1.2 Three (3) Inherent Powers of the State
1.3 Similarities and differences among the three (3) inherent powers of the State
1.4 Purposes of Taxation
1.5 Theory and Basis of Taxation
1.6 Manifestation of Lifeblood Theory
1.7 Scope of the Power of Taxation
1.8 Essential Elements of Tax
1.9 Aspects of Taxation
1.10 Nature/Characteristics of the State’s Power to Tax
1.11 Classification of Taxes
1.12 Elements of Sound Tax System
1.13 Limitations on the State’s Power to Tax
1.14 Situs of taxation
1.15 Tax as distinguishes from other terms
1.16 Double taxation
1.17 Means of Avoiding or Minimizing the Burden of Taxation
1.18 Sources of Tax Laws

The key to the understanding and interpretation of the tax rulings is through a sound
knowledge of its basic principles. Taxation is important to everyone. It encompasses
every area of our daily life, including property, family, employment, and our daily
transaction as well as business affairs. That is why, it is very important that we know the
rules and principles in taxation.

This module discusses the relevant principles of taxation which aims to fully
understand the importance of tax system in the Philippines. Included topics are the
nature of taxation, its scope, classification of taxes and essential characteristics of tax,
tax laws and powers of BIR and CIR.

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Study Guide

Content

• Learning Outcomes

• Topic Presentation

• Exercises/Quizzes

• Assignment

• References

Learning Outcomes

1. Enumerate the three inherent powers of the state

2. Classify the similarities and difference of the three inherent powers
3. Explain the nature, purpose, scope, aspect and classifications of taxes
4. Discuss the inherent and constitutional limitations of taxes
5. Explain the situs of taxation
6. Differentiate tax from other related terms
7. Explain double taxation and its forms
8. Enumerate the sources of tax laws in the Philippines

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Topic Presentation

1.1 TAXATION defined

• It is the process or means by which the sovereign (independent state), through its law-making
body (the legislature), imposes burdens upon subjects and objects within its jurisdiction for the
purpose of raising revenues to carry out legitimate objects of government. In simple terms, it is
the act of levying a tax to apportion the cost of government among those, in some measure, are
privileged to enjoy its benefits and must therefore bear its burden.
• It is the power inherent in every sovereign state being essential to the existence of every
government. Hence, even if not mentioned in the constitution, the state can still exercise the
power. Therefore, any constitutional provision regarding the state’s power to tax should not be
interpreted as a “grant of power”, but merely a limitation on the state’s power to tax.

Taxes are the enforced proportional contributions from persons and property levied by the
law-making body of the state by virtue of its sovereignty for the support of the government and
all public needs.

1.2 THREE (3) INHERENT POWERS OF THE STATE

1. Police Power. It is the power of the state for promoting public welfare by restraining and
regulating the use of liberty and property. It may be exercise only by the government. The property
taken in the exercises of this power is destroyed because it is noxious or intended for a noxious
purpose.

2. Power of Taxation. It is the power by which the State raises revenue to defray the necessary
expenses of the government.

3. Power of Eminent Domain. It is the power of the State to acquire private property for public
purpose upon payment of just compensation.

1. 3 SIMILARITIES AND DIFFERENCES AMONG THE THREE (3) INHERENT POWERS OF THE STATE
1. They are inherent in the state.
2. They exist independently of the constitution although the conditions for their exercise may be

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prescribed by the constitution.

3. Ways by which the State Interfere with private rights and property.
4. Legislative in nature and character.
5. Presuppose an equivalent compensation received, directly or indirectly, by the persons affected.

TABLE 1.1: DISTINCTIONS AMONG THE THREE (3) INHERENT POWERS

Taxation Police Power Eminent Domain
1. Nature Power to enforce Power to make and Power to take private
contributions to raise implement laws for the property for public use
gov't funds. general welfare. with just compensation.
2. Authority Government only Government only May be granted to public
service/utility companies.
3. Purpose For the support of the Promotion of general The taking of private
government welfare through property for public use.
regulation
4. Persons affected Community or a class of Community or a class of On an individual as the
individuals. Applies to all individuals. owner of personal
persons, property and property.
excises that may be Applies to all persons, Only particular property is
subject thereto property and excises that comprehended.
may be subject thereto.
5. Scope Plenary, comprehensive, Broader in application. Merely a power to take
supreme General power to make private property for public
and implement law. use.
6. Effect Contribution becomes No transfer or title. There There is a transfer of title
part of public fund. may just be a restraint on to property.
the injurious use of
property.
7. Benefits received In form of protection and No direct and immediate Market value of property
benefits received from benefit but only such as taken.
government may arise from the
maintenance of a healthy
economic standard of
society.
8. Amount of imposition No limit Sufficient to cover the No imposition. The owner
cost of the license and is paid equivalent to the
the necessary expenses of fair value of his property.
police surveillance and
regulation.

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1.4 PURPOSES OF TAXATION

1. Primary: Revenue or Fiscal Purpose
The primary purpose of Taxation on the part of the government is to provide funds or property
with which to promote general welfare and the protection of its citizens and to enable it to finance
its multifarious activities. A government can run its administrative set up only through public
funding which is collected in the form of tax.

Examples of taxes imposed for raising revenues are income and business taxes.

2. Secondary: Regulatory Purpose (or Sumptuary/Compensatory)

While the primary purpose of taxation is to raise revenue for the support of the government,
taxation is often employed as a devise for regulation or control (implementation of State’s police
power) by means of which certain effects or conditions envisioned by the government may be
achieved such as:
a) Promotion of General Welfare
b) Reduction of Social Inequality
c) Economic Growth

Examples of Taxes imposed for ◉ Excise taxes for sin products such as cigarettes
regulation and alcohols
◉ Amusements taxes for "amusement places"
such as night and day clubs, cockpits and
racetracks

Examples of means of attaining some ◉ Increasing taxes in periods of prosperity to curb

social or economic objectives through spending power and halt inflation.
taxation
◉ Granting tax incentives to promote new/pioneer
industries and encourage growth of local
industries.

1.5 THEORY and BASIS OF TAXATION

1. Theory (Authority): LIFEBLOOD THEORY or NECESSITY THEORY
• Necessity Theory
The power of taxation proceeds upon the theory that the existence of government is a
necessity (“Necessity theory”). It is a necessary burden to preserve the State’s sovereignty
and a means to give the citizenry an army to resist aggression, a navy to defend its shores

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from invasion, a corps of civil servants to serve, public improvements for the enjoyment of
the citizenry, and those which come within the State’s territory and facilities and protection
which a government is supposed to provide.

• Lifeblood Theory
The power of taxation is essential because the government can neither exist nor endure
without taxation. “Taxes are the lifeblood of the government and their prompt and certain
availability is an imperious need” (Lifeblood Doctrine). The government cannot continue to
perform its basic functions of serving and protecting its people without means to pay its
expenses. Consequently, the state has the right to compel all its citizens and property within
its limits to contribute.

2. BASIS of Taxation: BENEFITS RECEIVED or RECIPROCITY THEORY

The basis is the reciprocal duties of protection and support between the state and its
inhabitants. The state collects taxes from the subjects of taxation in order that it may be able to
perform the functions of government. The citizens, on the other hand, pay taxes in order that
they may be secured in the enjoyment of the benefits of organized society. This theory spawned
the Doctrine of Symbiotic Relationship which means, taxes what we pay for a civilized society
(Commissioner v. Algue).

1.6 MANIFESTATION OF LIFEBLOOD THEORY:

a) Rule of “No Estoppel against the Government.”
It means that in the performance of its government functions,
▪ The state cannot be estopped by the neglect of its agents/officers.
▪ Erroneous application and enforcement of law by public officers do not block the subsequent
correct application of statutes.

b) Collection of taxes cannot be enjoined (stopped) by injunction.

Under section 218 of the Tax Code (as amended), no court, except the Court of Tax Appeals
(through administrative remedies when collection could jeopardize the interest of the
government or taxpayer – Section 11, RA 1125), shall have the authority to grant an injunction
to restrain the collection of any national internal revenue tax, fee or change imposed by the tax
code.

Taxes are the lifeblood of the government. Thus, it should be collected without unnecessary
delay. Its collection, however, should not be tainted with arbitrariness.

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c) Taxes could not be the subject of compensation or set-off.

Taxes cannot be subject to set-off or compensation since claim for taxes is not a debt or
contract. A distinguishing feature of a tax is that it is compulsory rather than a matter of bargain.
If taxes could be a subject of compensation or set off, it can easily give rise to confusion and
abuse, depriving the government of authority over the manner by which taxpayers can credit
and offset their tax liabilities.

d) Right to select objects (subjects) of taxation

The power of tax is essentially legislative in nature. Hence, the right to select the
objects/subjects of taxation rests with the Congress. The matters within the competence of the
legislative include the determination of:

1) The subject or object to be taxed

2) The purpose of the tax as long as it is a public purpose.
3) The amount or rate of the tax
4) Kind of tax
5) Apportionment of the tax
6) Situs of taxation
7) The manner, means, and agencies of collection of the tax.

e) A valid tax may result in the destruction of the taxpayer’s property.

The power to tax includes the “power to destroy”, where the tax is a valid tax. This is so
because a taxpayer could not seek the nullification of the valid tax solely upon the premise that
the tax will impoverish him. Likewise, the exercise of the power to tax is “not destructive of
taxpayer’s property” where it is an invalid tax, which violates the inherent or constitutional
limitations. This is so because there is a sympathetic court that shall come to the succor of the
taxpayer and declare such tax as invalid. (Philippine Bar Exam)

1.7 SCOPE OF THE POWER OF TAXATION

In the case of Sison vs. Ancheta (139 SCRA 654), the Supreme Court held that the power of
taxation is the most absolute of all the powers of the government. It has the broadest scope of all
the powers of the government because in the absence of limitations, it is considered as
comprehensive, unlimited, plenary and supreme.
a) Comprehensive – as it covers persons, businesses, activities, professions, right and
privileges.
b) Unlimited – In the absence of limitations prescribed by law or the constitution, the power of

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tax is unlimited and comprehensive. Its force is so searching to the extent that the courts
scarcely venture to declare that it is subject to any restrictions.
c) Plenary – as it is complete; BIR may avail of certain remedies to ensure collection of taxes.
d) Supreme – In so far as the selection of the subject of taxation.

1.8 ESSENTIAL ELEMENTS OF TAX

a) It is an enforced contribution. Payment of tax is not voluntary payment or donation, but an
enforced contribution, exacted pursuant to legislative authority.
b) It is generally payable in money. It is a pecuniary burden payable in money which must be
in legal tender.
c) It is proportionate in character. Payment of taxes should be based on the ability to pay
theory or theoretical justice. The use of a graduated tax rates is in consonance with this
rule.
d) It is levied on persons, property, or the exercise of right or privilege (subjects or objects of
taxation).
e) It is levied by the law-making body of the state. The power of “imposing” a tax, being purely
legislative function. Congress cannot delegate such power. This limitation arises from the
doctrine of separation of powers among the three branches of the government.
f) It is levied for public purpose.

1.9 ASPECTS OF TAXATION

Aspects refer to “stages, phases or process” that are included or embodied in the term
“taxation” such as:
1. Levying or imposition of the tax which is legislative act or function.
2. Assessment or determination of the correct amount of applicable tax.
3. Collection of tax levied which is essentially administrative in character. The national
agency charged with the function of collecting internal revenue taxes is the Bureau of
Internal Revenue.
TABLE 1.2: ASPECTS OF TAXATION

3. Collection 1. Levying
(Executive Function) (Legislative Function)

2. Assessment
(Executive Function)

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1.10 NATURE/CHARACTERICTICS OF THE STATE’S POWER TO TAX

1. It is inherent in sovereignty.
The state, having sovereignty, can enforce contribution (tax) even in the absence of a
constitutional provision because the state has the supreme power to command and enforce
obedience to its will from the people within its jurisdiction.

2. It is legislative in character.
The power to tax (levying or imposition) is peculiarly and exclusively legislative in nature. It
cannot be exercise by the executive or judicial branches of the government.

EXEMPTION to non-delegation rule:

a) Delegation as provided for in the 1987 Constitution such as “Delegation to the President”
under Section 28, Article VI stating that the Congress may authorize, by law, the President
to fix, within specified limits and subject to such limitations and restrictions as it may impose:
▪ Tariff rates
▪ Import & export quotas
▪ Tonnage & wharfage dues; and
▪ Other duties or imposts within the framework of the national development program in
the government.

b) Delegation to local government units as provided under Section 5, Art. X of the Constitution.
The power of local government units to impose taxes and fees is always subject to the
limitations which Congress may provide, the former having no inherent power to tax.

TABLE 1.3 POWER TO TAX: NATIONAL VERSUS LOCAL

NATIONAL LOCAL
Authority Inherent Delegated
Nature Legislative in nature Legislative in nature through
through enactment of tax enactment of local
laws by the Congress and ordinances by the local
the Senate legislative branch

c) Delegation to administrative agencies

Certain aspects of the taxing process that are not really legislative in nature are invested
in administrative agencies such as:
▪ Power to value property
▪ Power to assess and collect taxes
▪ Power to perform details of computation, appraisement or adjustment; among others

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d.) It is subject to Constitutional and inherent limitations.

3. Exemption of government entities, agencies and instrumentalities

Immunity is necessary in order that governmental functions will not be impeded. Otherwise,
the government will be taxing itself to raise money for itself. The following rules shall apply in
determining whether or not government entities and agencies are subject to tax:
a) Agencies performing governmental functions are tax exempt unless expressly taxed
b) Agencies performing proprietary functions are subject to tax unless expressly exempted
c) GOCCs performing proprietary functions are subject to tax, however the following were
granted tax exemptions:
▪ Government Service Insurance System (GSIS)
▪ Social Security System (SSS)
▪ Philippine Health Insurance Corporation (PHIC)
▪ Philippine Charity Sweepstakes Office (PCSO)
▪ Local Water Districts (RA 10026)

4. International Comity (Polite and friendly agreement[s] among nations)

Under international law, property of foreign state may not be taxed by another state due to:
▪ Sovereign equality of states.
▪ When one state enters the territory of another state, there is an implied
understanding that the former does not intend to denigrate its dignity by
placing itself under the jurisdiction of the other state.
▪ Immunity from suit of a state

5. Limitation of territorial jurisdiction

Tax laws cannot operate beyond a state’s territorial limits. Property outside one’s jurisdiction
does not receive any protection from the state.

6. Strongest among all the inherent powers of the state

1.11 CLASSIFICATION OF TAXES

1. As to scope:
a. National - imposed by the National Government (e.g. income tax, estate tax, donor’s tax,
VAT other percentage taxes, documentary stamp tax)

b. Local – imposed by the local government units such as municipal corporations (e.g. real
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estate tax and professional tax receipts). The local government unit’s power to tax is based
on a constitutional grant that paved the way for the enactment of the Local Government
Code of the Philippines. Hence, the local government’s power to tax is not inherent.

2. As to subject matter or object:

a. Personal, poll, or capitation – tax of a fixed amount imposed upon individual, whether citizens
or not, residing within a specified territory without regard to their property or the occupation
in which he may be engaged (e.g. community tax)

b. Property – tax imposed on property, whether real or personal, in proportion either to its value,
or in accordance with some other reasonable method of apportionment (e.g. real estate tax)

c. Excise – any tax which does not fall within the classification of a poll tax or a property tax.
This is a tax on the exercise of certain rights and privileges (e.g. income tax, estate tax,
donor’s tax). Excise tax may also refer to the tax levied or imposed on sin products and non-
essential goods such as cigars and liquors. Excise taxes of this nature are taxes applicable
to certain specified articles or products manufactured in the Philippines for domestic sale or
consumption or any other disposition and to specified things or goods imported into the
Philippines. It may be specific or ad valorem.

3. As to who bears the burden:

a. Direct – tax which is demanded from the person who also shoulders the burden of tax or tax
which the taxpayer cannot shift to another. Both incidence (liability for the payment of the
tax) as well as the impact or burden of the tax falls on the same person. (e.g. income tax,
estate tax, donor’s tax).

b. Indirect – tax which is demanded from one person in the expectation and intention that he
shall indemnify himself at the expense of another. These are taxes wherein the incidence of
or burden thereof can be shifted or passed on to another person (e.g. VAT, percentage tax,
excise tax on excisable articles).

4. As to determination of amount:
a. Specific- tax of fixed amount imposed by the head or number, or by some standard of weight
or measurement (e.g. excise tax on cigars and liquors)
b. Ad valorem – tax of fixed proportion of the value of the property with respect to which the tax
is assessed (e.g. vat, income tax, donor’s tax and estate tax).

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TABLE 1.3: SAMPLE COMPUTATION OF AD-VALOREM and SPECIFIC TAX

DISTILLED SPIRIT (based on Republic Act No. 10351)
2013 2014 2015 2016 2017
AD-VALOREM TAX RATE

Based on Net Retail Price

(NRP) per proof (excluding
the excise and value-added
taxes) 15% 15% 20% 20% 20%
SPECIFIC TAX- Per proof liter ₱20 ₱20 ₱20 ₱20.80 ₱20.63

CIGARETTES, PER PACK (based on Republic Act No.

10351)
2013 2014 2015 2016 2017

SPECIFIC TAX ON
Cigarettes packed by
machine where the NRP
(excluding excise and VAT
per pack is
• Ᵽ11.50 and below ₱12 ₱17 ₱21 ₱25 ₱30
• More than Ᵽ11.50 ₱25 ₱27 ₱28 ₱29 ₱30

5. As to purpose:
a. Primary, Fiscal, or Revenue Purpose – tax imposed solely for the general purpose of the
government, i.e., to raise revenue for government purposes (e.g. income tax, donor’s tax
and estate tax).
b. Secondary, Regulatory, Special, or Sumptuary Purpose – tax imposed for a specific purpose,
i.e., to achieve some social or economic ends irrespective of whether revenue is actually
raised or not (e.g. tariff and certain duties on imports).

6. As to graduation or rate:
a. Proportional – tax based on fixed percentages of amount of the property, receipts, or other basis
to be taxed [e.g. VAT, Table 1:3 above (Ad-valorem tax on distilled spirits)]
b. Progressive or graduated – tax the rate of which increases as the tax base or bracket increases
(e.g. income tax on individual taxpayers)
c. Regressive - tax the rate of which decreases as the tax base or bracket increases.

7. As to taxing authority:
a. National – taxes imposed under National Internal Revenue Code (commonly known as Tax
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Code) collected by the national government through the Bureau of Internal Revenue (BIR)
and other national government agencies. Other national taxes other than those collected by
the BIR as provided for under special laws include butt not limited to:
▪ Customs duties
▪ Taxes on narcotic drugs
▪ Special education fund taxes
▪ Energy taxes on aircraft, motorized watercraft, and electric power consumption
▪ Sugar adjustment taxes
▪ Travel tax
▪ Private motor vehicle tax

b. Local – taxes imposed by local government units

1.12 ELEMENTS OF SOUND TAX SYSTEM

a) Fiscal Adequacy
The fundamental purpose of taxation is to raise the revenue necessary to fund public
services. Consequently, it is necessary that the sources of revenues must be adequate to
meet government expenditures and sustain the level of public services demanded by citizens
and policymakers.

b) Theoretical Justice or Equity (“ability to pay principle”)

Taxpayer’s ability to pay must be taken into consideration. The tax burden should be
proportionate to the taxpayer’s ability to pay.

c) Administrative Feasibility
Tax laws must be capable of effective and efficient enforcement. A good tax system
requires informed stakeholders who understand how taxes are assessed, collected and
complied with. It should be clear who and what is being taxed, and how tax burdens affect
them.

1.13 LIMITATIONS ON THE STATE’S POWER TO TAX

1. Inherent Limitations
These are restrictions arising from the very nature of the power to tax itself. Inherent
limitations are those limitations which exist despite the absence of an expressed constitutional
provision.
a) Purpose must be public in nature
This one is synonymous to “governmental purpose”. A tax must always be imposed

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for a public purpose, otherwise, it will be declared as invalid. No tax law may be enacted
for the purpose of raising revenue for private purposes. The purpose should affect the
inhabitants of the state or taxing district as a community and not merely as individuals. It
has been said that the best test of rightful taxation is that the proceeds of the tax must be
used.
a. For the support of the government; or
b. For some of the recognized objects of government; or
c. To promote welfare of the community.

b) Prohibition against delegation of the taxing power

What cannot be delegated is the legislative “enactment/imposition/levying” of tax
measure. However, as regards to administrative implementation of a tax law (i.e.,
assessment, collection, valuation of property for tax purposes), that can be delegated.

c) Territorial limitation (refer to page 10)

2. Constitutional Limitations
a) Due process of law
There must be a valid law and the measure should not be unconscionable and unjust as
to amount to confiscation of property. Tax statute must not be arbitrary as to find no support
in the Constitution. The power to tax should not be harsh, oppressive or confiscatory. This
limitation is also known as the right to notice and hearing.

b) Equal protection of laws

All persons subject to legislation shall be treated alike under similar circumstances and
conditions both in the privileges conferred and liabilities imposed. The doctrine does not
require that persons or properties different in fact be treated in law as though they were
the same. What it prohibits is class legislation which discriminates against some and favors
others.

c) Rule of uniformity and equity in taxation

“The rule of taxation shall be uniform and equitable”. It requires the uniform application
and operation, without discrimination, of the tax in every place where the subject of the tax
is found. It does not, however, require absolute identity or equality under all circumstances,
but subject to reasonable classification.

A progressive system of taxation means that tax laws shall place emphasis on direct

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taxes rather than on indirect taxes, with ability to pay as the principal criterion.

Regressive tax rates refer to tax rates which decreases as the tax base or bracket
increases. Regressive tax rates should be differentiated from a regressive system of
taxation which exists when there are more indirect taxes imposed than direct taxes.

d) Prohibition against imprisonment for non-payment of “poll tax”

No person shall be imprisoned for debt or non-payment of poll tax. The non-
imprisonment rule applies to non-payment of poll tax which is punishable only by a
surcharge, but not to other violations like falsification of community tax certificate and
non-payment of other taxes. Poll tax is a tax of fixed amount imposed on residents within
a specific territory regardless of citizenship, business or profession.

e) Prohibition against impairment of obligation of contracts

No law impairing the obligation of contracts shall be passed. The obligation of a
contract is impaired when its terms or conditions are changed by law or by a party without
the consent of the other, thereby weakening the position or rights of the latter. An example
of impairment by law is when a later taxing statute revokes a tax exemption based on a
contract. But this only applies to when the tax exemption has been granted for a valid
consideration. If the tax exemption pertains, for instance, to a franchise tax, a later statute
may revoke such exemption because the constitution provides that a franchise tax is
subject to amendment, alteration or repeal.

f) Prohibition against infringement of religious freedom

No law shall be made respecting an establishment of religion, or prohibiting the free
exercise thereof. The free exercise and enjoyment of religious profession and worship,
without discrimination or preference, shall forever be allowed. No religious test shall be
required for the exercise of civil or political rights. The payment of license fees for the
distribution and sale of bibles suppresses the constitutional right of free exercise of
religion.

g) Prohibition against appropriation of proceeds of taxation for the use, benefit, or support
of any church
No public money or property shall be appropriated, applied, paid, or employed directly
or indirectly, for the use, benefit, or support of any church, denomination, sectarian
institution or system of religion, or of any priest, preacher, minister or other religious
teacher, or dignitary as such except when such priest, preacher, minister or dignitary is
assigned to the armed forces, or to any penal institution, or government orphanage or
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leprosarium.

h) Prohibition against taxation of religious, charitable and educational entities

Charitable institutions, churches and parsonages or convents appurtenant thereto,
mosques, non-profit cemeteries, and all lands, buildings and improvements, actually,
directly, and exclusively used for religious, charitable, or educational purposes shall be
exempt from taxation. This is an exemption from real property tax only. The test of
exemption refers to actual use, not ownership. The term “exclusively” should be
interpreted as “primarily” rather than “solely”.

i) Prohibition against taxation of non-stock, non-profit educational institutions.

All revenues and assets of non-stock, non-profit educational institutions used actually,
directly, and exclusively for educational purposes shall be exempt from taxes and duties.
However, they shall be subject to internal revenue tax 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 education purposes or functions.

j) OTHERS
1. Grant of tax exemption
No law granting any tax exemption (i.e., amnesties, condonations and refunds)
shall passed without the concurrence of a majority of all Members of Congress (voting
separately).

2. Veto of appropriation, revenue, tariff bills by the President

The President shall have the power to veto any particular item or items in an
appropriation, revenue, or tariff bill, but the veto shall not affect the item or items to
which he does not object.

3. Delegated authority of President to impose tariff rates, import and export quotas,
tonnage and wharfage dues as delegated by Congress through a law (subject to
Congressional limits and restrictions) within the framework of national development
program.

4. Non-impairment of the Supreme Court (SC) jurisdiction

Congress cannot take away from the Supreme Court the power given to it by the
Constitution as the final arbiter of tax cases. The Supreme Court shall have the
following powers: Review, revise, reverse, modify, or affirm on appeal or certiorari, as
the law or the Rules of Court may provide, final judgments and orders of lower courts
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in all cases involving the legality of any tax, impost, assessment, or toll, or any penalty
imposed in relation thereto.

5. REVENUE BILLS shall originate exclusively from the House of Representatives

All appropriation, revenue or tariff bills, bills authorizing an increase of the public
debt, bills of local application, and private bills shall originate exclusively in the House
of Representatives, but the Senate may propose or concur with amendments. The
Constitution simply means that the initiative for the filing of bills must come from the
House of Representatives, on the theory that, elected as they are from districts, the
members of the House can be expected to be more sensitive to the local needs and
problems.

6. Infringement of press freedom

This limitation does not mean that the press is exempt from taxation. Taxation
constitutes an infringement of press freedom when it operates as a prior restraint to the
exercise of this constitutional right. When the tax is imposed on the receipts or the
income of the press it is a valid exercise of the sovereign prerogative.

7. Revocation of Tax Exemptions

Tax exemptions, such as “grant of franchise” may be revoked by another law as it
is specifically provided in the Constitution that the grant of any franchise is always
subject to amendment, alteration, or repeal by the Congress when the common good
so requires.

1.14 SITUS OF TAXATION

Situs means “place of taxation. It is the state or political unit which jurisdiction. It is the state or
political unit which has jurisdiction to impose a particular tax. The state where the subject to be taxed
has a situs may rightfully levy and collect the tax. The situs is necessary in the state which has
jurisdiction or which exercises dominion over the subject in question.

FACTORS TO CONSIDER IN DETERMINING THE SITUS OF TAXATION:

a. Subject matter (persons, property, or activity)
b. Nature of the tax
c. Citizenship
d. Residence of the taxpayer
e. Source of income
f. Place of excise, business or occupation being taxed
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TABLE 1.4: EXAMPLES OF SITUS OF TAXATION

Persons Residence of the taxpayer
Real Property Location
Personal Property Location; Place of sale or transaction
Intangible Personal Domicile of the owner except when the intangible has a situs elsewhere such as:
Property
• Franchise, patents, copyrights, trademarks: Situs is the place or country where such
intangibles are exercised.
• Receivables: Domicile or residence of the debtor
• Bank deposits: Location of the depository bank.
***shares of stock in a domestic corporation of a nonresident alien are taxable in the
Philippines because the said shares receive the protection and benefit of the Philippines
laws.
Income ***Source of Income
• Occupation - where the occupation is engaged in
• Transaction - where the transaction took place
Business Place of the business
Gratuitous Transfer Residence or citizenship of the taxpayer; location of the property

1.15 TAX DISTINGUISHED FROM OTHER TERMS OR IMPOSTS

1. TAX versus TOLL

A toll is a sum of money for the use of something, generally applied to the consideration,
which is paid of the used of a road, bridge or the of a public nature

TOLL TAX
Demand of proprietorship Demand of sovereignty

Paid for the use of another’s property Paid for the support of government
Amount is based on cost of construction or
Amount is based on the necessities of the
maintenance of the public improvement
State
used
Maybe imposed by the government or
May be imposed only by the State
private individual or entities

2. TAX versus PENALTY

Penalty is a sanction imposed as a punishment for violation of laws or acts deem injurious.
The violation of law may give right to imposition of penalty.

PENALTY TAX
Designed to regulate conduct Primarily aimed at rising revenue

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May be imposed by the government or May imposed by the government only be

private individuals or entities the government

3. TAX versus REVENUE

Revenue refers to all the funds or income derived by the government, whether from tax or
any other source.

PENALTY TAX
Designed to regulate conduct Primarily aimed at rising revenue
May be imposed by the government or May imposed by the government only be
private individuals or entities the government

4. TAX versus SPECIAL ASSESSMENT

Special assessment is an enforce proportional contribution from owners of lands for special
benefits resulting from public improvements. A special assessment is a levy on property which
derives some special benefit from the improvement. Its purpose is to finance is to finance such
improvement, thus accruing only to the owners thereof who, after all, pay the assessment.

It is not a tax measure intended to raise revenues for the government because the
proceeds thereof may be devoted to the specific purpose for which the special assessment was
authorized.

Characteristics of Special Assessment:

a. Levied only on land
b. Not a personal liability of the person assessed
c. Based wholly on benefits (not necessary)
d. Exceptional both as to time and place

5. TAX versus SUBSIDY

Subsidy is a pecuniary aid directly granted the government to an individual or private
commercial enterprise deemed beneficial to the public. Subsidy is not a tax although tax may
be imposed to pay it.

6. TAX versus PERMIT or LICENSE FEE

Permit or licenses is a charge imposed under the police power for purposes of regulation.

PERMIT OR LICENCE FEE TAX

For regulation For revenue
Exercise of police power Exercise of taxing power
Amount is limited to the necessary Generally no limit
expenses of regulation

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Imposed on the right of reward of an officer Imposed also on persons or property

for specific services
As enforced contribution assesses by
Legal compensation or reward of an officer
sovereign authority to defray public
for specific services
expenses
As enforced contribution assesses by
Failure to pay license fee makes the act or
sovereign authority to defray public
business illegal
expenses

7. TAX versus Debt

DEBT TAX
Based on contract Based on law
May be paid in kind Generally payable in money
Assignable/May be the subject of set-off or Cannot generally be assignable/subject of
compensation set-off or computation
A person cannot be imprisoned for non- Imprisonment is a sanction for non-
payment of debt (except when it arises payment of tax (except poll tax)
from a crime)
Draw interest when stipulated oe when of Does NOT draw interest except only when
prescription default delinquent

8. TAX versus CUSTOMS DUTIES

Custom duties are taxes imposed on goods exported from or imported into a country.

9. TAX versus TARIFF

Tariff may be used in one of three (3) senses:
a. A book of rates drawn usually in alphabetical order containing the names of several
kinds of merchandise with corresponding duties to be paid for the same; or
b. The duties payable on goods imported or exported; or
c. The system or principle of imposing duties on the importation (or exportation) of goods.

1.16 Double Taxation

In its strict sense, double taxation referred to is direct duplicate of taxation. In its broad sense,
double taxation is referred to indirect double taxation. It extends to all cases in which there is a
burden of two or more impositions.
Direct double taxation means taxing twice
1. By the same taxing authority, jurisdiction or taxing district
2. For the same purpose
3. In the same year or taxing period
4. Same subject or object
5. Same kind/character of the tax

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There is indirect double/duplicate taxation if any of the elements above is not present. Our
Philippine Constitution does not expressly prohibit direct double taxation. However, it is
something not favored. Such taxation should whenever possible, be avoided and prevented.

1.17 Means of Avoiding or Minimizing the Burden of Taxation

1. Shifting
It is the transfer of burden of a tax by the original payer or the original payer or the one whom
the tax was assessed or imposed to someone else.

Example:
• Manufacturer or producer may shift tax assessed to wholesaler, who in turn shifts it to the
retailer, who also shift to the final purchaser or consumer.
Taxes that may be shifted:
• VAT; Percentage Taxes; Excise taxes on excisable articles
• Ad-valorem taxes that oil companies pay to BIR upon removal of petroleum products from
its refinery

2. Transformation
An escape from taxation where the producer or manufacturer pays the tax and endeavor
to recoup himself by improving his process of production thereby turning out his units of
products at a lower cost.

3. Evasion
Tax evasion is the use by the taxpayer of illegal or fraudulent means to defeat or lessen the
payment of a tax. It is also known as “tax dodging”. It is connotes fraud through the use
of pretenses or forbidden devices to lessen or defeat taxes.

4. Tax Avoidance
It is 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. It is politely called
“tax minimization” and is not punishable by law.

5. Exemption
It is the grant of immunity to a particular persons or corporations or to persons or
corporations of a particular class from a tax which persons and corporation generally within
the same state or taxing district are obliged to pay. It is an immunity or privilege: it is freedom
from a financial charge or burden to which others are subjected. Exemption is allowed only if
there is a clear provision therefore. It is not necessarily discriminatory as long as there is a

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reasonable foundation or rational basis. In the construction of tax statutes, exemptions are not
favored and are construed against the tax payer.

Kinds of Exemption
As to basis:
• Constitutional – Immunities from taxation which originate from the constitution.
• Statutory - Immunities from taxation which emanates from legislation.
As to form:
• Express – Exemptions expressly granted by statute.
• Implied – When particular persons, property, or rights are deemed exempt as they fall
outside the scope of the taxing provisions itself.
As to extent:
• Total – Connotes absolute immunity.
• Partial – One where a collection of a part of the tax is dispensed with.

Amnesty
It is the general or intentional overlooking by the State of its authority to impose
penalties on persons otherwise guilty of evasion or violation of a revenue or tax law. It
partakes of an absolute forgiveness or waiver of the Government of its right to collect. It is
a way to give tax evaders, who wish to relevant and are willing to reform a chance to do.

6. Capitalization
The reduction in the selling price of income producing property by an amount equal to the
capitalized value of future taxes that may be paid by the purchaser

1.18 SOURCES OF TAX LAWS

1. Constitution
2. National Internal Revenue Code
3. Train Law
4. Tariff and Customs Code
5. Local Government Code
6. Local Tax Ordinances
7. Tax Treaties
8. Special Laws
9. Decision of the Supreme Court and the Court of Tax Appeals
10. Revenue Rules and Regulations

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Tabag, E. & Garcia, J. E. (2018). Income Taxation. Sampaloc,Manila: (n.p.)

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