MODULE 1 3. Power of Eminent Domain.

It is the power
Fundamental Principles Of Taxation of the State to acquire private property for
public purposes upon payment of just
Taxation compensation.
RA 8424 - NIRC - Tax Code (Enacted in 1997, took ○ Not all properties are owned by the
effect January 1998) government — mostly by private
● Latest main amendment - TRAIN Law citizens. One way to construct
● RA 11534 - CREATE Law certain structures is to take these
private properties for public use in
Taxation is the process or means by which the exchange for just compensation.
sovereign (independent state), through its law ○ Innate to the government, and may
making body (the legislature), imposes be granted to public service/utility
(enactment of law) burdens upon subjects and companies.
objects within its jurisdiction for the purpose of ○ Also called expropriation
raising revenues to carry out the legitimate proceedings.
objects of government.
● Congress - upper house and lower house, Inherent Power
senate and house of representatives ● Built-in, inborn, ingrained
● Subjects of taxation - persons (natural, ● Existing in something as a permanent,
juridical), property (real), essential, or characteristic attribute
rights/privileges/excises ● Vested in someone (i.e., State or
government) as a right or privilege
In simple terms, it is the act of levying a tax to
apportion the cost of government among those Similarities:
who, in some measure, are privileged to enjoy its 1. They are inherent in the state.
benefits and must therefore bear its burdens. 2. They exist independently of the
● The power to tax is considered inherent to constitution although the conditions for
the State because it is a necessary their exercise may be prescribed by the
attribute of sovereignty. Without this constitution.
power, no sovereign State can exist or ○ Only the limitations of the exercise
endure. of these powers are written in the
● The power to tax is inherent in the constitution. These limitations are
government and not merely a essential so that the government
constitutional grant. does not abuse their power to
● Innate and inseparable from the state. overtax people or use the tax for
other purposes.
The Three Inherent (Essential/Fundamental) 3. Ways by which the State interferes with
Powers of the State private rights and property.
1. Police Power. It is the power of the state ○ Eminent Domain - nalilimitahan
for promoting public welfare by ang pag-enjoy mo ng property
restraining and regulating the use of ○ Police power - Bayanihan Act (hindi
liberty and property. ka na makalabas due to Covid)
○ e.g. permit, licenses, Bayanihan Act ○ Power of taxation - makukuhanan
○ Has nothing to do with police ka ng pera
enforcement (PNP and AFP). 4. Legislative in nature and character.
2. Power of Taxation. It is the power by 5. Presuppose an equivalent compensation
which the State raises revenue to defray (benefit) received, directly or indirectly, by
the necessary expenses of the the persons affected.
government. ○ Eminent domain - benefit is the
○ e.g. tax, customs just compensation (in exchange for
the property)

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 ○ Police power - the benefit is not
contracting the Covid virus (from
being restrained inside the house)
Distinctions:
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 the general welfare and the
protection of its citizens and to enable it to
finance its multifarious activities.
● Example: 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 device 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
○ Taxes sa kotse para mabawasan
ang traffic
b. Reduction of Social Inequality
○ Donor’s tax to those who are
privileged
c. Economic Growth
○ Pinababa tax ng private schools
during pandemic
Examples of Taxes imposed for regulation:
● Excise tax (for sin products, like cigarettes
and alcohol)
● Amusement taxes (for “amusement
places”)
Examples of means of attaining some social or
economic objectives through taxation
● Increasing taxes in periods of prosperity to
curb spending power and halt inflation
● Granting tax incentives to promote
new/pioneer industries and encourage
growth of local industries.
Theory and Basis of Taxation
1. Theory (Authority): Lifeblood Theory or
Necessity Theory
Lifeblood Doctrine
● Taxes are the lifeblood of the government
and should be collected without
unnecessary hindrance.
● “Taxes are the lifeblood of the government
and their prompt and certain availability
is an imperious need”.
● Without taxes, the government would be
paralyzed for lack of motive power to
activate and operate it. 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 moral and material
values (COMMISSIONER v. ALGUE).
Necessity Doctrine
● Existence of the government is a necessity;
it is a power emanating from necessity.
● It is a necessary burden to preserve the
state's sovereignty and a means to give the
citizenry an army to resist an aggression, a
navy to defend its shores from invasion, a
corps of civil servants to serve, public
improvements designed 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. (PHIL.
GUARANTEE CO., INC. v CIR, 13 SCRA 775)
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2. Basis Of Taxation: Benefits Received Or
Reciprocity Theory
Basis of Taxation
● 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 are what we pay for a civilized society
(Commissioner v. Algue).
Manifestation of the Lifeblood Theory
a. Rule of “No Estoppel against the
Government.”
● 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, shall have the authority to
grant an injunction to restrain the
collection of any national internal revenue
tax, fee, or charge imposed by the tax
code.
● This prohibition shall apply to all collection
activities.
c. Taxes could not be the subject of
compensation or set-off.
● Claim for taxes is not a debt or contract
● Tax is compulsory rather than a matter of
bargain
● In the case of Republic vs. Mambulao
Lumber Co, the no set-off rule also states
that taxes are not subject to set-off or legal
compensation because the government
and the taxpayer are not a mutual creditor
and debtor.
● An exception is where both claims of the
government and the taxpayer against
each other have become due,
demandable, and fully liquidated. In this
case, compensation takes place by
operation of law and both obligations are
extinguished to their concurrent amounts.
d. Right to select objects (subjects) of taxation
● The power to tax is essentially legislative in
nature.
● The right to select the objects/subjects of
taxation rests with the Congress.
e. A valid tax may result in the destruction of
the taxpayer’s property.
● The power of tax includes the “power to
destroy”, where the tax is a valid tax.
○ The taxpayer could not seek the
nullification of the valid tax solely
upon the premise that the tax will
impoverish him.
● The exercise of the power to tax is “not
destructive of the taxpayer's property”
where it is an invalid tax, which violates the
inherent or constitutional limitations.
Scope of the Power of Taxation
The Supreme Court held that the power of
taxation is the most absolute of all powers of the
government. It has the broadest scope because
in the absence of limitations, it is considered as
(CUPS)
a. Comprehensive – as it covers persons,
businesses, activities, professions, rights
and privileges.
b. Unlimited – In the absence of limitations
prescribed by law or the constitution, the
power to 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.
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 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.
Essential Elements of a Tax
a. It is an enforced contribution - not a
voluntary payment or donation, exacted
pursuant to legislative authority.
b. It is generally payable in money - must be
in legal tender.
c. It is proportionate in character - payment
should be based on the ability to pay
theory or theoretical justice.
d. It is levied on persons, property, or the
exercise of a right or privilege (subjects
or objects of taxation).
e. It is levied by the law-making body of the
state - a legislative function. This limitation
arises from the doctrine of separation
powers among the three branches of the
government.
f. It is levied for public purpose
Aspects of Taxation
Refers to “stages, phased, or process”
1. Legislative - levying or imposition of the
tax (paggawa ng batas)
a. Congress of the Philippines
b. House of Representatives and
Senate
c. The president can veto some part
of the bill
● Tax law - national
● Tax ordinance - local
2. Executive - assessment or determination
of the correct amount of applicable tax
a. Decide on tax cases
b. Court of tax appeals and Supreme
Court, elevated on appeal
■ BIR, Bureau of Customs
3. Executive - collection of the tax,
administrative in character. The Bureau of
Internal Revenue (BIR) is the national
agency in charge of this function.
a. Assessment and collection
b. Bureau of Internal Revenue, Bureau
of Custom
Levy - only legislature can impose taxes
Nature/Characteristics of the States’ Power to
Tax
1. It is inherent in sovereignty.
● The state can enforce taxes even in the
absence of a constitutional provision.
2. It is legislative in character.
● The power to tax is peculiarly and
exclusively legislative in nature.
Exemptions to non-delegation rule:
A. Delegation to the president
B. Delegation to local government units
(Section 5, Art. X of the Constitution)
C. Delegation to administrative agencies
D. It is subject to Constitutional and inherent
limitations
3. Exemption of government entities, agencies
and instrumentalities.
● Immunity is necessary in order that
government functions will not be
impeded.
The following rules shall apply in determining
whether or not government entities and agencies
are subject to tax:
a. Agencies performing government
functions are tax exempt unless expressly
taxed
b. Agencies performing proprietary functions
(kumikita) are subject to tax unless
expressly exempt
c. GOCCs performing proprietary functions
are subject to tax, however the following
were granted tax exemptions:
○ GSIS, SSS, PHIC, PCSO, Local Water
Districts
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4. International Comity or Treaty
● The principle of international comity
recognizes that States are co-equal
sovereigns such that one cannot exercise
its inherent sovereign powers over
another, including the power to tax.
● States find it mutually advantageous to
create self-imposed restraints on their
taxing powers with reference to properties
of foreign governments. Moreover, when
on state enters the territory of another,
there is an implied understanding that the
former does not intend to degrade its
dignity by placing itself under the
jurisdiction of the latter, note that a foreign
state cannot be sued without its consent,
thus it would be useless to impose or
assess a tax which cannot be collected.
5. Limitation on territorial jurisdiction
● Tax is territorial in application in the sense
that the object and/or subject of the tax
must be within the territorial jurisdiction of
a State.
● As such, income earned by non-residents
and aliens are not subject to tax in the
Philippines unless they are earned herein –
here the subject of the tax is the income.
● On the other hand, resident citizens are
subject to income tax for their worldwide
income – here the object of the tax is the
individual who is subject to the protection
of the State.
6. Strongest among the inherent powers of the
State
Classification of Taxes
1. As to scope:
a. National - (tax law, BIR) imposed by
the National Government (income
tax, estate tax, donor’s tax, VAT
other percentage tax, documentary
stamp tax)
b. Local - (tax ordinance, LGU)
imposed by LGUs, such as
municipal corporations (e.g. real
estate tax and professional tax
receipts). The local government’s
power to tax is not inherent, it is
based on a constitutional grant.
2. As to subject matter or object:
a. Personal, poll or capitation – tax of
fixed amount imposed upon
residents of a territory, regardless of
citizenship, property, occupation,
business (e.g. community tax).
b. Property – those imposed upon
real and personal property
depending on their value (e.g. Real
estate tax).
c. Excise or privilege/rights – those
imposed upon the performance of
an act, enjoyment of a privilege, or
engaging in an occupation,
profession or business (e.g. income
tax, estate tax, donor’s tax). May be
specific or ad valorem.
3. As to who bears the burden (incidence):
a. Direct – where the burden for the
payment of the tax as well as the
impact falls on the same person; as
such, the person who pays is the
person who is statutory liable to
pay the tax (e.g., income tax);
b. Indirect – where the incidence falls
on one person but the burden falls
on another (e.g., VAT).
4. As to determination of amount:
a. Specific – amounts fixed and is
imposed by the head or number or
some measurement, hence, no
valuation is needed except for the
list of things to be taxed — (with
standard weight/measurement)
b. Ad valorem – one which is based
on the value of the object to be
taxed.
5. As to purpose:
a. Primary, Fiscal, or Revenue
imposed solely for the general
Purpose – purpose is to raise
revenue for the government’s
ordinary needs. For the general
purpose of the government.
b. Secondary, Regulatory, Special or
Sumptuary Purpose - purpose is
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 some social or economic ends
irrespective of whether revenue is
actually raised. For specific
purposes.
6. As to graduation or rate:
a. Proportional – tax is based on a
fixed percentage of the amount of
the property, receipts or other
bases to be taxed.
b. Progressive or graduated – tax
rates increase as the tax base or
bracket increases
c. Regressive – tax rate decreases as
tax base or bracket increases.
7. As to taxing authority:
a. National – taxes imposed under the
National Internal Revenue Code
(Tax Code) collected by the national
government through BIR and other
national agencies.
b. Local – levied by the local
government through its
sanggunian and enforced by the
treasurer
Elements of Sound Tax System
a. Fiscal Adequacy – revenue raised must be
sufficient to meet government/public
expenditures and other public needs.
(Chavez vs. Ongpin; GR No. 76778; June 6,
1990)
○ Enough collection for country’s
expense
○ Source of tax that the government
will be collecting should be
sufficient enough to cover the
expenses of the government. They
will think of ways on how to impose
taxation for the funding to be
sufficient.
○ Government should avoid being in
deficit.
○ Example: Public hospitals’ building,
equipment, and eservice.
b. Theoretical Justice or Equity - must take
into consideration the taxpayer’s ability to
pay (Ability to Pay Theory). Art. VI, Sec. 28(1)
of the 1987 Constitution mandates that the
rule on taxation must be uniform and
equitable and that the State evolve a
progressive system of taxation.
○ The tax law should consider the
taxpayer’s ability to pay.
○ It is useless if the government will
impose an unconscionable tax rate
if the taxpayer would not be able to
settle it.
c. Administrative Feasibility - tax laws must
be clear and concise; capable of effective
and efficient enforcement; convenient as
to time and manner of payment, must not
obstruct business growth and economic
development.
○ Easy to understand, follow, and
implement.
○ If there is a law, taxpayers should
know how to pay, where to pay, why
to pay, when to pay — should be
clear
○ Government should encourage the
taxpayers to pay their tax dues by
making it easier for them to pay
their dues
○ Tax enforcers should know how to
assist the taxpayers
The VAT law cannot be considered as
violative of the Administrative Feasibility
principle because it is principally aimed to
rationalize the system on taxes of goods
and services. Thus, simplifying tax
administration and making the system
more equitable to enable the country to
attain economic recovery. (Kapatiran ng
Mga Naglilingkod sa Pamahalaan v. Tan;
June 30, 1988)
NOTE: Non-observance of Fiscal Adequacy
and Administrative Feasibility will render
the tax measure unsound but not
unconstitutional. However,
non-observance of the Principle of
Theoretical Justice is invalid because the
Constitution itself requires that taxation
must be equitable.
Limitations on the State’s Power to Tax
1. Inherent Limitations
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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 express constitutional provision.
1. Situs or territoriality of taxation
2. Public purpose
3. International comity
○ A state cannot tax another State
based on the principal of Sovereign
Equality among States (i.e., tax law
passed imposing taxes on foreign
ambassadors is not a valid law).
○ no sovereign will be greater than
another sovereign
4. Non-delegability of the taxing power
5. Exemption of the government
a. Purpose must be public in nature
● Synonymous to “governmental purpose”
● A tax must always be imposed for a public
purpose, otherwise, it will be declared as
invalid.
● No tax law may be enacted for the purpose
of raising revenue for public purposes.
● The best test of rightful taxation is that the
proceeds of the tax must be used:
○ For the support of the government;
or
○ For some of the recognized objects
of government; or
○ To promote the welfare of the
community.
● Tax has been unutilized for public
purposes if the welfare of the nation or the
greater portion of its population has
benefited for use (Gomez vs Palomar,
Philippine Guarantee Company cv. CIR)
Effect of incidental benefit to private interest
● The purposes to be accomplished by
taxation need not to be exclusively public.
Although private individuals are directly
benefited, the tax would still be valid
provided such benefit is only incidental.
Legislative Prerogative
● It is the Congress which has the power to
determine whether the purpose is public
or not.
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, that can be
delegated.
c. Territorial limitation
2. Constitutional Limitations — limitations found
in the constitution. Provisions found in the
constitution pertaining to the power of taxation
will only pertain to the limitations and restrictions
as to the exercise of the power. This is to avoid the
abuse of power.
Provisions indirectly affecting taxation (Art III,
1987 Constitution)
a. Due process of law (Sec. 1) - there must be a
valid law and the measure should not be
unconscionable and unjust as to amount to
confiscation of property. This limitation is also
known as the right to notice or hearing.
● No person shall be deprived of their money
without due process
● We give them time and right to defend
themselves in a formal forum
● If there is violation, the tax assessment of
the government will be considered as a
mere scrap of paper (walang bisa)
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.
c. Rule of uniformity and equity in taxation - It
requires the uniform application and operation,
without discrimination, of th etax in evert 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.
d. Prohibition against imprisonment for
non-payment of “poll tax” - no person shall be
imprisoned for debt or non-payment of poll tax.
Poll tax is a tax of fixed amount imposed on
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residents within a specific territory regardless of Literally, situs of taxation means “place” of
citizenship, business, or profession. taxation. It is the state or political unit which has
jurisdiction to impose a particular tax. The state
e. Prohibition against impairment of obligation where the subject to be taxed has a situs may
of contracts - no law impairing the obligation of rightfully levy and collect the tax. The situs is
contracts shall be passed. necessarily in the state which has jurisdiction or
which exercises dominion over the subject in
f. Prohibition against infringement of religious question.
freedom - no law shall be made respecting an
establishment of religion, or prohibiting the free Factors To Consider In Determining The Situs Of
exercise thereof. Taxation:
a. Subject matter (person, property, or
g. Prohibition against appropriation of proceeds activity)
of taxation for the use, benefit, or support of b. Nature of the tax
any church - except when such priest, preacher, c. Citizenship
minister, or dignitary is assigned to the armed d. Residence of the taxpayer
forces, or to any penal institution, or government e. Source of income
orphanage or leprosarium. f. Place of excise, business or occupation
being taxed
h. Prohibition against taxation of religious,
charitable and educational entities - the test of Tax Distinguished From Other Terms Or
exemption refers to actual use, not ownership. Imposts
1. Tax Versus Toll
i. Prohibition against taxation of non-stock, ● A toll is a sum of money for the use of
non-profit educational institutions - all revenues something, generally applied to
and assets of non-stock, non-profit educational consideration, which is paid for the use of a
institutions used actually, directly, and exclusively road, bridge or the like of a public nature.
for educational purposes shall be exempt from
taxes and duties. However, they shall be subject to
TOLL TAX
internal revenue tax on income from trade,
business or other activities. Demand of proprietorship Demand of sovereignty

Paid for the use of another’s Paid for the support of

j. Others property government
● Grant of tax exemption
Amount is based on cost of Amount is based on the
● Veto of appropriation, revenue, tariff bills construction or necessities of the State
by the President maintenance of the public
● Delegated authority of president to improvement used

impose tariff rates, import and export May be imposed by the May be imposed only by the
quotas, tonnage and wharfage dues as government of private State
individuals or entities
delegated by Congress through a law
within the framework of national
development program 2. Tax Versus Penalty
● Non-impairment of the Supreme Court ● Penalty is a sanction imposed as a
(SC) Institution punishment for violation or acts deemed
● Revenue Bills shall originate exclusively injurious. The violation of tax may give
from the House of Representatives right to imposition of penalty.
● Infringement of press freedom
● Revocation of tax exemptions PENALTY TAX

Situs of Taxation Designed to regulate Primarily aimed at rising

conduct revenue

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 May be imposed by the May be imposed only by the Exercise of police power Exercise of taxing power
government or private government
individuals or entities Amount is limited to the Generally no limit
necessary expenses of
regulation
3. Tax Versus Special Assessment
● Special assessment is an enforced Imposed on the right of Imposed also on persons or
reward of an officer for property
proportional contribution from owners of specific services
land for special benefits resulting from
Legal compensation or An enforced contribution
public improvements. reward of an officer for assesses by sovereign
● Its purpose is to finance such specific services authority to defray public
expenses
improvement, thus accruing only to the
owners thereof who, after all, pay the Failure to pay license fee An enforced contribution
assessment. makes the act or business assess by sovereign
illegal authority to defray public
● Not a tax measure intended to raise expenses
revenues for the government because the
proceeds thereof may be devoted to the
7. Tax Versus Debt
specific purpose for which the assessment
● Debt is based on contract and may be paid
was authorized.
in kind.
● Characteristics
○ Levied only on land
○ Not a personal liability of the DEBT TAX
person assessed
Based on contract Based on law
○ Based wholly on benefits
○ Exceptional both as to time and May be paid in kind Generally payable in money
place
Assignable/May be the Cannot generally be
subject of set-off or assignable/subject of set-off
4. Tax Versus Revenue compensation or compensation
● Revenue refers to all the funds or income
A person cannot be Imprisonment is a sanction
derived by the government, whether from imprisoned for for non-payment of tax
tax or any other source. non-payment of debt (except poll tax)
(except when it arises from a
crime)

REVENUE TAX Draw interest when Does NOT draw interest

stipulated or when of except only when
Amount collected Amount imposed prescription default delinquent

5. Tax Versus Subsidy 8. Tax Versus Customs Duties

● Subsidy is a pecuniary aid directly granted ● Custom duties are taxes imposed on
the government to an individual or private goods exported from or imported into a
commercial enterprise deemed beneficial country.
to the public. This is not a tax although tax
may have to be imposed to pay it. 9. Tax Versus Tariff
● Tariff may be used in one of the three
6. Tax Versus Permit Or License Fee senses:
● Permit or license is a charge imposed a. A book of rates drawn usually in
under the police power for purposes of alphabetical order containing the
regulation. names of several kinds of
merchandise with the
PERMIT OR LICENSE TAX corresponding duties to be paid for
FEE the same; or
b. The duties payable on goods
For regulation For revenue imported or exported; or

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 c. The system of principle of imposing
duties on the importation (or
exportation) of goods.
Double Taxation
● means taxing the same person for the
same tax period and the same activity
twice, by the same jurisdiction.
● In a strict sense, this is referred to as direct
duplicate taxation.
● Double Taxation in Broad sense is the
opposite of direct double taxation and is
not legally objectionable. The absence of
one or more of the foregoing requisites of
obnoxious direct tax makes it indirect.
● Direct double taxation means taking
twice
a. At the same taxing authority,
jurisdiction, or taxing district
b. For the same purpose
c. In the same year or taxing period
d. Same subject or object
e. Same kind/character of the tax
● Our Constitution does not prohibit double
taxation. However, double taxation will not
be allowed if it results in a violation of the
equal protection clause
Means Of Avoiding Or Minimizing The Burden
Of Taxation
1. Shifting - the transfer of the burden of tax
by the original payer or the one on whom
the tax was assessed or imposed to
another or someone else without violating
the law.
2. Transformation – the manufacturer or
producer upon whom the tax has been
imposed, fearing for the loss of his market
share if he should add the tax to the price,
pays the tax and endeavors to recoup
himself by improving his process of
production , thereby turning out his units
at a lower cost.
3. Evasion - is a scheme where the taxpayer
uses illegal or fraudulent means to defeat
or lessen payment of a tax.
4. Tax Avoidance - is a scheme where the
taxpayer uses a legally permissible
alternative method of assessing taxable
property or income, in order to avoid or
reduce tax liability.
5. Exemption - It is the grant of immunity,
express or implied, to particular persons or
corporations, from a tax upon property or
an excise tax which persons or
corporations generally within the same
taxing districts are obliged to pay.
Grounds for granting tax exemptions
a. May be based on contract
b. May be based on some ground of public
policy
c. May be based on grounds of reciprocity
Nature of power to grant tax exemption
a. National government
b. Local government
Kinds of Exemption
As to basis:
1. Constitutional. Immunities from taxation
which originate from the constitution.
2. Statutory. Immunities from taxation
which emanates from legislation.
As to form:
1. Express. Exemptions expressly granted by
statute.
2. Implied. When particular persons,
property, or rights are deemed exempt as
they fall outside the scope of the taxing
provision itself.
As to extent:
1. Total. Connotes absolute immunity.
2. Partial. One where a collection of a part of
the tax is dispensed with.
Principles Governing Tax Exemptions
● Exemptions from taxation are highly
disfavored in law.
● He who claims an exemption must be able
to justify his claim by the clearest grant of
organic or statute law because tax
exemptions are not presumed.
● If ambiguous, there is no tax exemption.
● He who claims exemption should
convincingly prove that he is exempted.
Therefore, tax exemption must be strictly
construed.
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 ● No law granting any tax exemption shall
be passed without the concurrence of the
majority of all members of Congress.
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 relent and are willing to reform a chance
to do so.
Amnesty involves immunity from all criminal, civil
and administrative liabilities from non-payment
of taxes.
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
7. Avoidance - 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. Tax evasion, on the other
hand, is a scheme used outside of those
lawful means which is not acceptable.
Tax evasion connotes the integration of three
factors:
a. The end to be achieved, i.e., the payment
of less than that known by the taxpayer to
be legally due, or the non-payment of tax
when it is shown that a tax is due,
b. An accompanying state of mind which is
described as being “evil”, in “bad faith”,
“willful”, or “deliberate and not accidental”;
and
c. A course of action or failure of action which
is unlawful
Sources of Tax Laws
1. Constitution
2. National Internal Revenue Code
3. Tariff and Customs Code
4. Local Government Code (Book II)
5. Local tax ordinances/ City or municipal tax
codes
6. Tax treaties and international agreements
7. A tax treaty is one of the sources of our law
on taxation. The Philippine Government
usually enters into tax treaties in order to
avoid or minimize the effects of double
taxation. A treaty has the force and effect
of law.
8. Special laws
9. Decisions of the Supreme Court and the
Court of Tax Appeals
10. Revenue rules and regulations and
administrative rulings and opinions
Effectivity of revenue rules and regulations
Order of priority: (1) constitution, (2) tax
treaties/international agreements, (3) tax
code/laws/ordinance/judicial decisions, (4)
revenue issuances,
Purpose of rules and regulations
a. To properly enforce and execute the laws
b. To clarify and explain the law
c. To carry into effect the law’s general
provisions by providing details of
administration and procedure
Requisites for validity of rules and regulations
a. They must not be contrary to law and the
Constitution
b. They must be published in the Official
Gazette or a newspaper of general
circulation
Nature of Internal Revenues Laws
Internal revenue laws are not political in nature.
Tax laws are civil and not penal in nature,
although there are penalties provided for their
violation. The purpose of tax laws in imposing
penalties for delinquencies is to compel the
timely payment of taxes or to punish evasion or
neglect of duty in respect thereof.
Construction of Tax Laws
● Public purpose is always presumed.
● If the law is clear, apply the law in
accordance to its plain and simple tenor.
● A statute will not be construed as
imposing a tax unless it does so clearly,
expressly and unambiguously.
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 ● In case of doubt, it is construed most
strongly against the Government, and
liberally in favor of the taxpayer.
● Provisions of a taxing act are not to be
extended by implication.
● Tax laws operate prospectively unless the
purpose of the legislature to give
retrospective effect is expressly declared or
may be implied from the language used.
● Tax laws are special laws and prevail over a
general law

Rule when there is doubt in statute or law

In every case of doubt, tax statutes are construed
strictly against the government and liberally in
favor of the taxpayer.

Provisions granting Tax Exemptions

Such provisions are construed strictly against the
taxpayer claiming exemption.

Application of Tax Laws

General rule: Tax laws are prospective in
operation because the nature and amount of the
tax could not be foreseen and understood by the
taxpayer at the time the transactions which the
law seeks t o tax was completed.

Taxpayer’s Suit
● One brought or filed by a taxpayer arguing
the validity of a tax statute and its
enactment or the constitutionality of its
alleged public purpose.
● General rule: Not only persons individually
affected but also taxpayers have sufficient
interest of preventing the illegal
expenditures of money raised by taxation.
● Lozada vs. Comelec. “It is only when an act
complained of which may include a
legislative enactment of a statute, involves
the illegal expenditure of public money
that the so-called taxpayers’ suit may be
allowed.”

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