MODULE 1: ○ Tax payments made during occupations of
GENERAL PRINCIPLES OF TAXATION
I. Definition of Taxation
○ BOOK DEFINITION:
■ Process by which the sovereign (artificial
being) through its law-making body
(legislative) raises income to defray the
expenses of the government
○ Refers to either the power to tax or the process
by which the power is exercised or both.
○ The inherent power of the sovereign to impose
burdens upon subjects and objects within its
jurisdiction to raise revenues.
○ Taxation may be defined as a State power
(inherent power of the State to enforce
proportional contributions from its subjects), a
legislative process (legislature’s responsibility
of levying taxes from its subjects for public
purpose), and a mode of government cost
distribution (allocation of the State’s costs to
subjects who benefited from its spending)
II. Nature and Internal Revenue Laws
○ Civil and not political in nature
■ Tax laws must be made for the benefit of
the taxpayers and not a single political
alliance
○ Effective even during periods of enemy
occupation
○ Laws of the occupied territory and not by the
occupying enemy
foreign enemies are valid,
○ Not penal in nature (although violation may lead
to prosecution) because they do not define crime
○ Penalty provisions are merely intended to secure
taxpayers’ compliance
III. Nature of the Power of Taxation
○ Inherent in sovereignty
■ 1987 constitution granted the local
government the power to tax
■ State’s power to tax - inherent, local
government power to tax - granted,
constitutional
○ Essentially a legislative function
■ It’s only the congress who can pass tax
laws
○ Subject to constitutional and inherent
limitations
IV. Purpose of Taxation
○ PRIMARY PURPOSE: to raise revenue for public
spending
○ Lifeblood doctrine
■ taxation is the lifeblood of the
government, indispensable to state’s
existence to support its operations
■ early tax settlement > late tax settlement
■ Large tax base > small tax base
○ SECONDARY PURPOSE: non-revenue purposes
■ regulatory/sumptuary
● Strengthen anemic enterprises
or provide incentive to greater
 production through grant of tax
exemptions or the creation of
conditions conducive to their
growth.
● Protect local industries against
foreign competition by imposing
additional taxes on imported
goods, or encourage foreign trade
by providing tax incentives on
imported goods.
● Be a bargaining tool by setting
tariff rates first at a relatively
high level before trade
negotiations are entered into with
another country.
● Halt inflation in periods of
prosperity to curb spending
power; ward off depression in
periods of slump to expand
business.
● Reduce inequalities in wealth
and incomes, as for instance, the
estate, donor's and income
taxes, their payers being the
recipients of unearned wealth or
mostly in the higher income
brackets.
- Ex. estate tax
● Taxes may be levied to promote
science and invention or to
finance educational activities (see
RA. No. 5447) or to improve the
efficiency of local police forces in
the maintenance of peace and
order through grant of subsidy
● Be an implement of the police
power to promote the general
welfare.
● Help low-income individuals pay
little to no taxes through tax
provisions
● Provide incentives for certain
desirable activities
- If the purpose of the tax is purely
regulatory, is it a tax? For example, to
support a particular industry?
- For the exaction to be considered
to be a tax, revenue must be a
PRINCIPAL (real and substantive)
or at least ONE OF THE
SIGNIFICANT purposes
- If purely regulatory, license only
and cannot afford ____ plenary
something??
- Licenses have more limitations
than taxes
- Commissioner vs. Pineda (21
SCRA 105)
● “Taxes are the lifeblood of
the Government and their
prompt and certain
 availability are an
imperious need.”
- Vera v. Fernandez
● Upon taxation depends
the Government’s ability
to serve the people
whose benefit taxes are
collected.
- Commissioner vs. Algue
- It is said that taxes are
what we pay for civilized
society. Without taxes, the
government would be
paralyzed for lack of the
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 to must
contribute his share in the
running of 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 moral and
material values. This
symbiotic relationship is
the rationale of taxation
and should dispel the
erroneous notion that it
is an arbitrary method
of exaction by those in
the seat of power. But
even as we concede the
inevitability and
indispensability of
taxation, it is a
requirement in all
democratic regimes that it
be exercised reasonably
and in accordance with
the prescribed procedure.
-
a. Compensatory (provide incentives and
disincentives)
- Key instrument of social control
● Check inflations
- Reduces inequities in wealth distributions
● Tools on international bargains
- Strengthens anemic enterprises
● Promotes science and inventions
- Provides incentives
- Uses as implement in the exercise of
police power to promote general welfare
V. Scope of Taxation (CPUS)
○ The extent of the power of the state is that:
■ Comprehensive - covers all persons,
activities, businesses, professions, rights
and privileges.
■ Unlimited - the only limitation is the
responsibility of the legislature which
imposes tax to the constituents who pay
it.
■ Plenary - it in not incomplete. The
government may avail of valid remedies
to make sure that tax is collected.
■ Supreme - whatever subject may be
selected to pay the tax.
● The principal check on its abuse
rests only on the responsibility of
the members of the legislature to
their constituents.
○ INHERENT LIMITATIONS
■ Territoriality of Taxation
● Tax obligations can only be
demanded upon subjects within a
state’s territorial jurisdiction
● The State has no basis for taxing
foreigners abroad as they do not
benefit from the government
■ International Comity
● Mutual courtesy among countries
to respect each other’s policies
regardless of race, religion,
culture, economic condition, or
military power
● The government cannot tax the
income and properties of other
states and must prioritize the
fulfillment of treaty obligations
over local tax laws
■ Public purpose
● Intended for the common good
and cannot be used to further any
private interest
■ Exemptions of the government
● Government properties and
income from essential public
functions are not subject to
taxation
■ Non-delegation of taxing power
● Taxing power is inherently
legislative and is non-delegatable
○ CONSTITUTIONAL LIMITATIONS
■ Due process of law
● Tax Laws should not be
oppressive to a person’s life, or
property
● Tax must be imposed only for
public purposes and collected
under the authority of a valid law,
otherwise, it is a violation of the
substantive due process of law
● There should also be no
arbitrariness in assessments and
the courts shall respect the
 citizen's right to notice and
hearing
■ Equal protection of the Laws
● Taxpayers with the same
circumstances should be treated
equally with the regard to their
rights and obligations
■ Uniformity and Equity in taxation
● Taxation shall be equitable in such
a way that the classifications
should be made according to
common attributes
● Same circumstances and
differences should be considered
in tax classifications
■ Progressive system
● Tax rates increase as tax base
increases to be consistent with
taxpayer’s ability to pay
● This is equitable as the rich, who
have more to pay are taxed more
than the poor.
■ Prohibition against imprisonment for
non-payment of poll tax
● Applies only to debts acquired in
good faith and basic community
tax
■ Prohibition against the impairment of
obligations and contracts
● Exemptions granted under
contracts should still be honored
by th government
■ Prohibition against infringement of
religious freedom
● Exercise of religion is not taxed
except for income earned from
commercial properties or
activities
■ Prohibition against appropriation for
religious purposes (free worship rule)
● To support and highlight the
separation of religion and the
State (not to favor one religion
over another)
■ Prohibition against taxation of religious,
charitable, educational entities
● Exemption from property taxes on
properties actually, directly, and
exclusively used for the R,C,E
purposes
■ Prohibition against taxation of non-stock,
non-profit, educational institutions
● Recognition of education as a
necessity in state building
■ Tax exemptions
● Exemptions must proceed only
upon a valid basis and an absolute
majority of all the members of the
Congress
 ■ Non-impairment of the jurisdiction of the
Supreme Court
● All tax cases can be raised to and
decided by the Supreme Court
without prejudice to the Court of
Tax Appeals
■ Grant of power to LGUs
● LGUs have the power to create
their own sources of revenue
through taxes, fees, & charges
subject to guidelines set by the
Congress
■ Veto power on appropriation, tariff and
revenue bills
● Constitutional power of the
President to veto any particular
item on these kinds of bills
VI. Theory of Taxation
○ Taxation stems from the government’s need for
funding and the people’s need for a civilized
society
○ Taxes are the lifeblood of the government and,
because of its significance, should be collected
without unnecessary hindrance. (lifeblood
doctrine)
○ The existence of the government cannot continue
without means to pay so it has the right to
compel all its citizens and property within its
limits to contribute (necessity theory)
○ There is a symbiotic relationship between the
people and its government, thus resulting to
reciprocal duties of protection and support
between the State and its inhabitants (benefits-
protection theory)
○ General protection afforded and provided by
government - the enjoyment of living in an
organized and civilized society
■ If B is a tax evader, can the government
deny him the opportunity to get
vaccinated? NO, because the state has a
duty to protect all of its citizens, so the
protection and privileges can be enjoyed
by those who pay and those who do not.
■ Non-payment of tax cannot be a basis for
you to be denied of protection
■ Protection by the government is owed by
the state to every citizen
■ You cannot demand the government for
special protection
■ If unsatisfied with the protection
provided - the solution is a legislative
procedure or in the electoral process
VII. Basis of Taxation
○
○ The mutuality of support between the public and
the government is the basis of taxation
 ○ The citizens provide the government with funds
through taxes and the government will provide
the citizens with public services for their comfort
and safety.
VIII. Aspects of Taxation
○ Levy or imposition – involves enactment of a tax
law by Congress (HoR and the Senate). Tax bills
should originate from HoR not Senate
○ Assessment and Collection – implementation
involves assessment of tax liabilities and
collection
- Tax laws are implemented by the administrative
branch
- Referred to as incidence of taxation or the
administrative act of taxation
IX. Principles of a sound tax system - satisfies all purposes
of taxation
○ FISCAL ADEQUACY
■ Sufficiency of government funds to cover
government costs
■ The sources of revenue must approximate
and supply the needs of the people, and
must be able to expand or contract in
relation to the circumstances of the State
○ ADMINISTRATIVE FEASIBILITY
■ Encouragement of compliance through
capability for efficient and effective
administration
■ This encourages compliance as taxation
will be enforced with less inconvenience
for the taxpayers and minimal
disturbance to business activity
○ THEORETICAL JUSTICE
■ Taxation should not be unjust and
oppressive and should consider the
ability to pay.
■ Taxation must be a proportional burden
to the taxpayer’s ability to pay. This is the
basis of the progressive tax rates
increases as tax bases increase.
● Regressive tax system is not
unconstitutional, progressive tax
system is only a moral obligation
● There is an attempt to be
progressive - income tax.
● No country adopts a 100%
progressive tax system
> Note: The non-observance of the above principles will not
necessarily render the tax imposed invalid except to the
extent those specific constitutional limitations are violated. (De
Leon)
- Based on your experience, is the current tax system in
the Philippines sound? It’s not sound, but not so much
unsound.
- Fiscal adequacy - we are in a budgetary deficit, so
we do not have sufficient revenue from taxes
alone to cover our expenses so we resorted to
local and ?? loans
- Equality or theoretical justice - congress shall
evolve a progressive system of taxation
 - Only a moral obligation. If current
Domain
congress won’t push for a progressive
system, then the only remedy is to elect Definition Power of the Power of the Power of the
new representatives that will create a State to State to enact State to
progressive system demand laws about convert
X. Comparison with Police Power and Eminent Domain enforced public health, private
(other inherent powers of the State) contributions safety, morals facilities for
○ Taxation power - the power of the State to for public and general public use
enforce proportional contributions from its purposes welfare upon
subjects to sustain itself. It is the strongest of all compensation
powers, because without it, the State will be of the owner
immobilized.
○ Police Power - general power of the State to Purpose Contribution Regulation of Property
enact laws to protect the well-being of the people. demanded to property and taken for
■ “the power of promoting the public support the the public use
welfare by restraining and regulating the Government promotion of
use of liberty and property” general
■ Broad but subject to limitations such as welfare
due process
Effect Tax Restrain on Transfer of
○ Eminent Domain - the power of the State to take
contributed the injurious ownership or
private property for public use after paying just
becomes part use of a lesser right
compensation
of public property of property
■ Regalian Doctrine; 'the highest and most
funds
exact idea of property remaining in the
government' that may be acquired for Relationship Subject to Relatively Subject to
some public purpose through a method in to the certain free; Superior certain
the nature of a forced purchase by the Constitution Constitutiona to the non- Constitutiona
State. l Limitations impairment l Limitations
provisions
Taxation Police Power Eminent
XI. Taxes
○ Definition
Tax Debt
■ Enforced proportional contributions
from persons and property levied by the Arises from law Arises from
law-making body of the State by virtue private contracts
of its sovereignty for the support of the
government and public needs. Non-payment Non-payment does
○ Essential Characteristics of Taxes constitutes tax not lead to
■ An enforced contribution evasion, a criminal imprisonment,
● Not voluntary payment or offense, w/c leads except when it
donation to imprisonment, arises from a
■ It is levied on persons, property, rights, except of poll tax crime (civil case)
acts, privileges, or transactions. It must
Generally cannot assignable
be uniform and equitable, not unjust,
be assigned
excessive, oppressive confiscatory, or
discriminatory Not subject to set- Can be subject to
■ Must be levied by the taxing power off set-off
having jurisdiction over the object of
taxation Generally payable Can be paid in
■ Must not violate Constitutional and in money kind (dacion en
Inherent Limitations pago)
■ Levied by the State
■ Levied by the law making body of the Draws interest Draws interest
state only when the when it is so
■ Must be proportionate in character taxpayer is stipulated by the
● Progressive system; based on the delinquent contracting
taxpayer’s ability to pay parties or when
■ Must be for public purpose the debtor incurs
■ Is generally payable in money legal delay
○ Taxes distinguished from
Imposed only by Can be imposed by
■ DEBTS
 public authority private individual

Governed by the Governed by the

special ordinary periods Tax License Fee
prescriptive of prescription
periods provided Emanates from Emanates from
for in the NIRC taxation power police power and
Dacion en pago is the delivery and transmission of
and imposed upon is imposed to
ownership of a thing by the debtor to the creditor as an any object such as regulate the
accepted equivalent of the performance of an existing persons, exercise of a
obligation. It is a special mode of payment where the debtor properties, or privilege such as
offers another thing to the creditor who accepts it as privileges to raise the
4 revenue commencement of
equivalent to the payment of an outstanding debt. For
a business or a
dacion en pago to exist, the following elements must concur:
(a) existence of a money obligation; (b) the alienation to the profession
creditor of a property by the debtor with the consent of the
Failure to pay Failure to pay
former; and (c) satisfaction of the money obligation of the
does not makes the act or
debtor.
(G.R. No. 155716 October 2, 2009 necessarily make business illegal
the act or business
ROCKVILLE EXCEL INTERNATIONAL EXIM CORPORATION, illegal
Petitioner,
Generally Should not
vs. unlimited as to unreasonably
SPOUSES OLIGARIO CULLA and BERNARDITA MIRANDA, amount exceed the
Respondents) expenses of
issuing the license
■ LICENSE FEES - charge imposed under and of supervision
the police power for purposes of
regulation (this in turn, gives the payor Post-activity Pre-activity
the right to exercise a profession or imposition - imposition -
engage in a business endeavor)
 imposed after the imposed before imprisonment become a personal
commencement of engagement in obligation of the
a business or a activities land owner so
profession non-payment will
not result to
imprisonment of
■ SPECIAL ASSESSMENTS - charges to
the owner
private properties to meet the cost of
public improvements that enhance the For the support of For the
value of the land the government construction of the
public
Tax Special improvement
Assessment
It has general Exceptional both
Levied not only on Levied only on application both as to time and
land land as to time and locality
place
Imposed upon Levied by the
persons, government on
■ TOLLS - the sum of money for the use of
properties, or lands adjacent to a
something, generally applied to the
privileges public
consideration which is paid for the use of
improvement
a road, bridge or the like, of a public
Levied without Basis is the benefit nature
expectation of a in terms of the
direct proximate appreciation in Tax Tolls
benefit (regardless land value caused
of public by the public Paid for the Paid for the use of
improvements) improvement support of the another’s property
government
Non-payment Attaches to the
results to land. It will not Demand of Demand of
 sovereignty- levy ownership - wealth, services, and financial
of government charge for the use sales, etc transactions
of other’s property

Amount depends Amount is ○ Classification of Taxes

upon the needs of dependent upon ■ AS TO SUBJECT MATTER:
the government; the value of the ● Capitaltion (capital) or Poll
generally no limit property leased, Taxes
on the amount cost of ○ also called Personal tax -
collected as long construction or tax of a fixed amount
as not excessive, maintenance of imposed on persons
unreasonable, or the public residing within a specified
confiscatory improvement used territory, whether citizens
or not, without regard to
Private entities Both government their property or the
cannot impose and private occupation or business in
taxes entities impose which they may be
tolls engaged, i.e. community
tax.
● Property taxes
■ CUSTOM DUTIES - used interchangeably
○ a tax on properties, real or
with tariff in the Tariff and Customs Code
personal, in proportion to
or PD No. 1464
its value or in accordance
with some other
Tax Custom Duties reasonable method of
apportionment.
Broad in scope Taxes imposed on ■ Real property -
goods exported immovable
from or imported ■ Personal property
into a country - movable
Levied on income, Levied on goods
 ○ The obligation to pay the
tax is absolute and
unavoidable and is not
based upon the voluntary
action of the person
assessed.
○ primarily liable and which
● Excise/privilege/license taxes
○ also called privilege tax, a
tax imposed upon the
performance of an act,
enjoyment of a privilege
or engagement in an
occupation
○ E.g. income tax, VAT,
privilege tax on business
or occupation, estate tax,
donor’s tax
○ any tax which does not fall
within the classification of
a poll tax or a property
tax.
○ The obligation to pay the
tax is based on the
voluntary action of the
person taxed in
performing the act or
engaging in the activity
which is subject to the
excise. (?)
■ AS TO INCIDENCE OR BURDEN:
● Direct taxes
○ A direct tax is demanded
from the person who also
shoulders the burden of
the tax. It is a tax which
the taxpayer is directly or
he or she cannot shift to
another.
● Indirect Taxes
○ An indirect tax is
demanded from a person
in the expectation and
intention that he or she
shall indemnify himself or
herself at the expense of
another, falling finally
upon the ultimate
purchaser or consumer.
○ A tax which the taxpayer
can shift to another.
○ Ex: tax that shifts from
businesses to consumers
■ AS TO DETERMINATION OF AMOUNT
● Specific taxes
○ a tax of a fixed amount
imposed on a per unit
basis or by some other
standard of weight or
measurement such as per
kilo, liter or meter, etc.
 ○ It requires no assessment
other than the listing or
classification of the
objects to be taxed.
● Ad valorem taxes
○ a tax of a fixed proportion
imposed upon the value of
the tax object.
○ It requires the
intervention of assessors
or appraisers to estimate
the value of such property
before the amount due
from each taxpayer can be
determined. (ex. 5% of the
FMV)
■ AS TO PURPOSE
● General or fiscal
○ also called revenue tax. A
tax imposed for a general
purpose/for the purpose
of raising public funds for
the service of the
government.
● Special, regulatory or
sumptuary
○ A special or regulatory tax
is imposed primarily for
the regulation of useful or
non-useful occupation or
enterprises and
secondarily only for the
purpose of raising public
funds.
■ AS TO SCOPE:
● National taxes
○ Tax imposed by the
national government.
○ Examples:
■ Income Tax - tax
on annual income,
gains or profits
■ Estate tax - tax on
gratuitous transfer
of properties by a
decedent upon
death
■ Donor’s tax - tax
on gratuitous
transfer of
properties by a
living donor
■ Value Added Tax
(VAT) -
consumption tax
collected by VAT
business payers
■ Other percentage
tax - consumption
tax collected by
non-VAT business
taxpayers
 ■ Excise tax - tax on ○ Professional tax - tax
sin products and paid yearly by
non-essential professionals in the
commodities such Philippines
as alcohol, ○ Business taxes, fees, and
cigarettes and charges
metallic minerals. ○ Community tax - imposed
(This should be on all the inhabitants of
differentiated with the community who are
the privilege tax eighteen years old and
which is also above as well as to
called excise tax) juridical persons, like
■ Documentary corporations, doing
stamp tax - a tax business in the community
on documents, or whose office or
instruments, loan establishment is located in
agreements, and the community.
papers evidencing ○ Tax on banks and other
the acceptance, financial institutions
assignment, sale or ■ AS TO GRADUATION OR RATE
transfer of an ● Progressive
obligation, right of ○ also called graduated; tax
property incident the rate of which increases
thereto as the tax base or bracket
● Local taxes increases. Example:
○ imposed by municipal income tax.
corporations or local ○ The use of progressive tax
government units (LGUs). rates results in equitable
○ Examples: taxation because it gets
○ Real property tax - tax more tax to those who are
paid if you own a property more capable. It aids in
 lessening the gap between
the rich and the poor
● Regressive
○ this tax imposes
decreasing tax rates as the
tax base increase. This is
the total reverse of the
progressive tax.
Regressive tax is regarded
as anti-poor. It directly
violates the Constitutional
guarantee of progressive
taxation.
● Mixed
○ this tax manifest tax rates
which is a combination of
any of the other types of
tax
● Proportionate
○ This is a flat or fixed rate
tax. The use of
proportional tax
emphasizes equality as it
subjects all taxpayers with
the same rate without
regard to their ability to
pay.
○ Tax based on a fixed
percentage of the amount
of the property receipts or
other basis to be taxed.
Example: real estate tax
XII. Doctrines of Taxation
○ Prospectivity of Tax Laws
■ Tax laws are generally prospective in
operation (pertains to the future)
■ An ex post facto law or a law that
retroacts is prohibited by the
Constitution.
■ Exceptionally, income tax laws may
operate retrospectively if so intended by
Congress under certain justifiable
conditions.
■ Ex: Congress can levy tax on income
earned during periods of foreign
occupation even after the war.
○ Imprescriptibility of Taxes
■ Prescription is the lapsing of a right due
to the passage of time. When one sleeps
on his right over an unreasonable period
of time, he is presumed to be waiving his
right.
■ The government’s right to collect taxes
does not prescribe unless the law itself
provides for such a prescription.
■ Provisions in NIRC regarding this
exemption:
● Tax prescribes if not collected
within 5 years from the date of its
assessment.
 ● In the absence of an assessment,
tax prescribes if not collected by
judicial action within 3 years from
the date the return is required to
be filed.
● Taxes due from taxpayers who did
not file a return or those who filed
fraudulent returns do not
prescribe.
○ Double Taxation
■ Occurs when the same taxpayer is taxed
twice by the same tax jurisdiction for the
same thing
■ Elements of double taxation:
● Primary element: same object
● Secondary elements:
○ Same type of tax
○ Same purpose of tax
○ Same taxing jurisdiction
○ Same tax period
■ Types of double taxation:
● Direct double taxation - all
elements exists for both
impositions
● Indirect double taxation - at least
one of the secondary elements of
double taxation is not common for
both impositions
■ Nothing in our law expressly prohibits
double taxation. In fact, indirect double
taxation is prevalent in practice, however,
direct double taxation is discouraged
because it is oppressive and burdensome
to taxpayers. It is also believed to counter
the rule of equal protection and
uniformity in the Constitution.
○ Tax Avoidance vs Tax Evasion
■ Tax avoidance (tax minimization) - any
act or trick that reduces or totally escapes
taxes by any legally permissible means
● Examples: selection and execution
of transaction that would expose
taxpayer to lower taxes;
maximizing tax options, tax carry-
overs or tax credits; careful tax
planning
■ Tax evasion (tax dodging) - any act or
trick that tends to illegally reduce or
avoid the payment of tax
● Examples: gross understatement
of income, non-declaration of
income, overstatement of
expenses or tax credit;
misrepresenting the nature or
amount of transaction to take
advantage of lower taxes
8. Mandatory and directory provisions of tax statutes
● Directory provisions are those designed merely for
the information or direction of officers or to secure
methodical and systematic modes of proceedings.
 ● Mandatory provisions are those intended for the ● Local
security of the citizens or which are designed to ensure ○ Book II, The Local
equality of taxation or certainty as to the nature and Government Code of 1991
amount of each person’s tax. (R.A. No. 7160)
● The omission to follow mandatory provisions renders ■ govern the power
invalid the act or proceeding to which it relates while of provinces, cities,
the omission to follow directory provisions does not municipalities and
involve such consequence. [Roxas v. Rafferty, 37 Phil Barangays to
958] impose taxes and
○ create their own
XIII. Sources of Tax Laws sources of
○ Statutes revenue.
■ Existing tax laws: ● Other special laws
● National ○ Bases Conversion and
○ The National Internal Development Act of 1992
Revenue Code of 1997 (RA 7227)
(Pres. Decree No. 1158, as ■ created the Bases
amended particularly by Conversion
R.A. No. 8424) Development
■ the main statutory Authority (BCDA)
law on internal ■ registered
revenue taxes enterprises under
○ The Tariff and Customs BCDA are entitled
Code of 1978 (Pres. to fiscal incentives
Decree No. 1464 as ○ Special Economic Zone Act
amended) of 1995 (RA 7916)
■ covers the ■ Philippine
provisions on tariff Economic Zone
duties that are Authority (PEZA)
imposed on ■ PEZA-registered
imported goods. enterprises are
 granted tax ○ Revenue Regulations
exemptions and ■ formal pronouncements of the
other benefits Department of Finance that specify,
● preferentia prescribe, or define rules and regulations
l final tax in order to ensure that the provisions of
of gross the Tax Code and related statutes are
income in enforced effectively
lieu of all ■ signed by the Secretary of Finance upon
national the recommendation of the Commissioner
and local of Internal Revenue (CIR)
taxes ■ have the force and effect of law once if
● tax they are not contrary to law and the
holidays Constitution
for certain ■ Must be published in the Official Gazette
years ○ BIR Issuances
○ Omnibus Investment Code ■ Revenue Memorandum Orders (RMOs)
of 1987 (EO 226) ● issuances that provide directives
■ Under EO 226, the or instructions; prescribe
Board of guidelines; and outline processes,
Investments (BOI) operations, activities, workflows,
is the agency methods and procedures
responsible for necessary in the implementation
providing tax of stated policies, goals,
breaks and other objectives, plans and programs of
incentives for the Bureau in all areas of
registered operations, except auditing
companies ■ Revenue Memorandum Rulings (RMRs)
involved in ● Rulings, opinions, and
strategic interpretations of the
investment Commissioner of Internal
projects. Revenue with respect to the
 provisions of the Tax Code and
other tax laws as applied to
specific set of facts
● The Commissioner of Internal
Revenue may issue RMRs from
time to time for the purpose of
providing taxpayers guidance on
the consequences in specific
situations.
● BIR Rulings cannot contravene
duly issued RMRs; otherwise the
Rulings are null and void ab initio
■ Revenue Memorandum Circulars (RMCs)
● issuances that publish pertinent
and applicable portions, as well as
amplifications, of laws, rules,
regulations and precedents issued
by the BIR and other
agencies/offices.
■ Revenue Bulletins (RB)
● Periodic issuances, notices, and
official announcements of the
Commissioner of Internal
Revenue that consolidate the
Bureau of Internal Revenue’s
position on certain specific issues
of law or administration in
relation to the provisions of the
Tax Code, relevant tax laws, and
other issuances for the guidance
of the public.
■ BIR Rulings
● Official positions of the Bureau to
queries raised by taxpayers and
other stakeholders relative to
clarification and interpretation of
tax laws
● Rulings are issued by the
Commissioner of Internal
Revenue but they may be revoked
by the Secretary of Finance if they
are not in accordance with the
law.
● Rulings are merely advisory or a
sort of information service to the
taxpayer such that none of them is
binding except to the addressee
and may be reversed by the BIR at
anytime.
○ Court Decisions
■ Based on the Constitution or existing laws
■ Judicial decision are not laws but
evidence of what the law means
■ The interpretation of the laws or the
Constitution forms part of the legal
system of the Philippines
XIV. Construction of Tax Laws
○ General Rules of construction of tax laws
■ Legislative intention must be considered.
● Tax statutes are to receive a
reasonable construction or
interpretation with a view to
 carrying out their purpose and
intent.
● They should not be construed as
to permit the taxpayer easily to
evade the payment of tax.
● Thus, the good faith of the
taxpayer is not a sufficient
justification for exemption from
the payment of surcharges
imposed by the law for failing to
pay tax within the period required
by law.
● It is easy for a taxpayer to claim
good faith but difficult for the
government to prove that he
acted in bad faith in not paying a
tax. The disastrous effect on tax
collection is not difficult to
discern if such a defense were
available. A tax statute should be
construed to avoid the
possibilities of tax evasion.
■ Where there is doubt.
● No person or property is subject
to taxation unless within the
terms or plain import of a taxing
statute.
● In every case of doubt, tax
statutes are construed strictly
against the government and
liberally in favor of the taxpayer.
● Taxes, being burdens, are not to
be presumed beyond what the
statute expressly and clearly
declares.
● Thus, a tax payable by
“individuals” does not apply to
“corporations.”
■ Where language is plain
● The rule of strict construction as
against the government is not
applicable where the language of
the tax statute is plain and there is
no doubt as to the legislative
intent. In such case, the words
employed are to be given their
ordinary meaning.
● Where, for instance, the word
“individual” was changed by the
law to “person.” This clearly
indicates that the tax applies to
both natural and juridical persons
such as corporations and
partnerships, unless otherwise
expressly provided.
○ Construction of Tax Exemptions
■ Tax exemptions must be shown to exist
clearly and categorically, and supported
by clear legal provisions.
■ General rule: In the construction of tax
statutes, exemptions are not favored and
are construed strictissimi juris (by the
 most strict right or law) against the
taxpayer.
■ Exemption provisions are construed
strictly not against the government but
against the one who asserts the claim of
exemption.
■ Tax exemption can only be given effect
when the grant of the law is clear. Any
doubt is reserved in favor of taxation. The
reason is that taxation is the rule, and
exemption from tax is the exception.
■ Exceptions: (In the following cases, tax
exemption statutes are liberally
construed)
● When the law itself expressly
provides for a liberal
construction, that is, in case of
doubt, it shall be resolved in favor
of exemption;
● When the exemption is in favor of
the government itself or its
agencies, or of religious,
charitable, and educational
institutions because the general
rule is that they are exempt from
tax.
● When the exemption is granted
under special circumstances to
special classes of persons.
● If there is an express mention or if
the taxpayer falls within the
purview of the exemption by clear
legislative intent, the rule on strict
construction does not apply.
○ Construction of Tax Refunds
■ Tax refunds are in the nature of tax
exemptions and are, therefore, strictly
construed against the claimant who has
the burden of proving the factual basis of
his claim for refund.
■ Requisites for tax refund:
● The claim for refund or credit
must be in writing
● It must be filed with the
Commissioner of Internal
Revenue within 2 years after the
payment of the tax or penalty
● It (a) should clearly state the
amount being claimed and the
ground or grounds relied upon;
and (b) should be accompanied
with all pertinent papers (ex.
Xerox copies of official receipt
evidencing payment) in support of
the claim, so as to appraise the
Commissioner accordingly.
■ A mere objection to the payment of a tax
or payment under protest does not
amount to a request for refund or tax
credit. But a return filed showing an
overpayment shall be considered as a
written claim for tax refund or credit.
 XV. QUIZ c. Statutes
1. Which of the following is not an essential characteristic of d. BIR Rulings
taxes? Explanation: Revenue regulations are formal pronouncements
a. Uniform and equitable that specify rules and regulations so that the provisions of the
b. Generally payable in any kind Tax Code will be properly enforced.
c. Proportional in character 6. True or False. The good faith of the taxpayer is not a sufficient
d. Does not violate Constitutional limitations justification for exemption from the payment of surcharges
2. Which of the following is an example of tax avoidance or tax imposed by the law for failing to pay tax within the period
dodging? required by law.
a. Maximizing tax options, carry-overs or tax credits True. Taxation is the general rule and tax statutes should be
b. Gross understatement of income interpreted to avoid the possibility of tax evasion.
c. Misrepresenting amount of transaction 7. This type of tax is demanded from the person who also
d. Non-declaration of income shoulders the burden of the tax. It is a tax which the taxpayer is
3. The following are doctrines in taxation except for: directly or primarily liable and which he or she cannot shift to
a. Tax laws operate prospectively another.
b. Courts are allowed to issue an injunction against the a. General or fiscal tax
government’s pursuit to collect tax b. National taxes
c. The government’s right to collect taxes does not prescribe c. Proportionate
d. Nothing in our law prohibits double taxation d. Direct taxes
4. True or False. In every case of doubt, tax statutes are 8. A tax of a fixed proportion imposed upon the value of the tax
construed strictly against the taxpayer. object. It requires the intervention of assessors or appraisers to
False. Tax statutes are construed strictly against the government estimate the value of such property before the amount due from
and liberally in favor of the taxpayer when there is doubt. No one each taxpayer can be determined.
is subject to taxation unless it’s clearly expressed in the a. Ad valorem taxes
provisions of a tax law. b. Specific taxes
5. Which of the following pertains to the formal pronouncements c. Local taxes
intended to clarify or explain the tax law and carry into effect its d. Property taxes
general provisions by providing details of administration and 9. Tax imposed on personal or real property in proportion to its
procedure? value or some other reasonable method of appointment.
a. Court decision a. Property
b. Revenue regulations b. Personal, poll or capitation tax
c. Excise tax
d. Regressive
10. Principle of a sound tax system which refers to the
sufficiency of funds to cover government expenses
a. Administrative Feasibility
b. Theoretical Justice
c. Eminent Domain
d. Fiscal Adequacy
11. Constitutional Limitation of taxation restraining taxation
from being oppressive to taxpayers
a. Progressive System
b. Due Process of Law
c. Uniformity in Taxation II – LIMITATIONS UPON THE POWER OF TAXATION
d. Equal Protection Summary:
12. True or False: The theory of taxation stems from the A. Inherent Limitations
mutuality of support between the public and the government. a. For a public purpose
True. b. Taxing power is inherently legislative
i. In general - delegata potestas non potest
Ma’am ‘s lecture: delegari
Tax pyramiding: tax on tax ii. Exceptions:
All laws have their own implementing rules and regulation (IRR) 1. LGUs
Revenue regulations should be published in the Official Gazette 2. Delegation to President
issued by DOF and with collaboration of the BIR commissioner 3. Administrative Rate fixing
c. Territoriality or Situs of Taxation
Highest: revenue regulation i. Meaning and Scope of limitation
RMCs and RMOs ii. Situs of Taxation
Least: BIR Rulings iii. Meaning
iv. Situs of subjects of Taxation
1. Persons
a. Community tax -
individuals and corporate
 b. Lex Situs or Lex Rei Sitae -
Personal Property
c. Mobilia Sequuntur
Personam - Personal
property
2. Income
3. Business, occupation, transaction
4. Transfer of property by death or
gift
d. International Comity (in par parem, non habet
imperium - An equal has no power over an equal)
B. Constitutional Limitations
a. Due process Clause
b. Equal protection Clause
c. Rule of Taxation shall be Uniform and Equitable
d. Non-impairment of Contracts
e. Non-imprisonment for non-payment of poll tax
f. Prohibition against taxation of real property of
charitable institutions, churches, parsonages or
convents, mosques, and non- profit cemeteries
g. Prohibition against taxation of non-stock non-
profit educational institutions
h. Passage of tax bills
i. Granting of tax exemption
j. Veto power of the president
k. Judicial Power to Review legality of tax
A. Inherent Limitations
- Not enumerated in the constitution
- Restrictions arising from the very nature of tax
itself
1. Public Purpose
● tax is imposed is for a public purpose,
and not for a private purpose.
● Otherwise, it will be declared as invalid.
● For a public purpose: the purpose of the
tax should affect the inhabitants as a
community and not merely as inhabitants
or individuals
● The proceeds of the tax must be used:
i. for the support of the State; or
ii. for some recognized objects of
government or directly to promote the
welfare of the community.
● Tests in Determining Public Purpose:
○ 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.
○ Promotion of General Welfare
Test – Whether the proceeds of
the tax will directly promote the
welfare of the community in equal
measure.
○ Character of the Direct Object of
the Expenditure – It is the
essential character of the direct
object of the expenditure which
must determine its validity as
justifying a tax and not the
magnitude of the interests to be
affected nor the degree to which
the general advantage of the
community, and thus the public
welfare, may be ultimately
benefited by their promotion.
[Pascual v. Sec. of Public Works,
supra]
■ The test is not as to who
receives the money, but
the character of the
purpose for which it is
expended; not the
immediate result of the
expenditure, but rather
the ultimate results. It is
the purpose that
determines the public
character of the tax law,
not the number of persons
benefited. [Dimaampao,
Tax Principles and
Remedies (2015)]
● Effect of incidental benefit to private
interest
○ The purposes to be accomplished
by taxation need not be
exclusively public. Although
private individuals are directly
benefited, the tax would still be
valid provided such benefit is only
incidental. Additionally, the public
purpose of a tax may legally exist
even if the motive which impelled
the legislature to impose the tax
was to favor one industry over
another. [Tio v. Videogram,
G.R.No. L-75697 (1987)]
○ The appropriation of public
money to construct a road on
private land is not a public
purpose. [Pascual v. Secretary of
Public Works, 110 Phil. 331]
● Legislative Prerogative
○ It is within the power of the
CONGRESS to determine whether
the purpose is public or private.
 ○ Questions can be raised before
courts as to the validity of the
appropriation on the ground that
it is not for public purpose.
However, once its validity is
established, it can no longer be a
subject of inquiry.
2. Taxing power is inherently legislative
a. In general – Delegata potestas non potest
delegari
● General Rule: Delegata potestas
non potest delegari. (No delegated
powers can be further delegated.)
● Taxation may exceptionally be
delegated, subject to such well-
settled limitations as:
a. The delegation shall not
contravene any constitutional
provision or the inherent
limitations of taxation;
b. The delegation is effected either
by: the Constitution; or by validly
enacted legislative measures or
statute; and
c. 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. [VITUG
and ACOSTA]
b. Exceptions: (ENUMERATED)
i. Local Government Units
■ Article X, Section 5 of the
1987 Constitution- LGUs
are given the power to
create their own sources
of revenues, levy taxes,
fees and charges. The
delegation of taxation
powers in LGUs stems
from the power of the
Congress to create
municipal corporations or
LGUs for their local self-
government. (Congress,
therefore, has control over
local government units.)
If Congress can grant a
municipal corporation the
power to tax certain
matters, it can also
provide for exemptions or
even to take back the
power.
ii. Delegation to President
■ Congress may authorize,
by law, the President to
fix, within specified limits
and subject to such
 limitations and
restrictions as it may
impose:
1. tariff rates;
2. import and export
quotas;
3. tonnage and wharfage
dues; and
4. other duties or imposts
within the national
development program of
the government. ·
This authorization is
embodied in Section 401
of the Tariff and Customs
Code which is also called
the flexible tariff clause
■ Additional powers that
may delegated by the
Congress to the president
include:
1. Emergency
Powers [Sec.
23(2), Art. VI,
1987 Constitution.
2. To enter into
Executive
agreements; and
3. To ratify treaties
which grant tax
exemption subject
to Senate
concurrence.
iii. Administrative Rate Fixing
■ Delegation of legislative
powers has become the
rule and non-delegation
the exception, because the
legislation may not have
enough time and
resources to perform all
these undertakings. The
legislature could not be
expected to state all the
detailed situations
wherein the tax exemption
privilege would be
restored. The task may be
assigned to an
administrative body like
the Fiscal Incentives
Review Board (FIRB).
[Maceda v. Macaraig, 196
SCRA 771]
■ For delegation to be
constitutionally valid, the
law must be complete in
itself and must set forth
sufficient standards.
■ Certain aspects of the
taxing process that are not
really legislative in nature
 can be vested to
administrative agencies.
These aspects include:
a) power to value property; (for
the purposes of taxation pursuant
to fixed rules)
b) power to assess and collect
taxes; and
c) power to perform details of
computation, appraisement or
adjustment; among others.
❖ The exercise of the above powers
is really not an exception to the
rule as no delegation of the
strictly legislative power to tax is
involved. The powers which
cannot be delegated include:
➢ The determination of the
subjects to be taxed;
➢ The purpose of the tax, the
amount or rate of the tax;
➢ The manner, means, and
agencies of collection; and
➢ The prescribing of the
necessary rules with
respect thereto.
3. Territoriality or Situs of Taxation
a. Meaning and scope of limitation
- Tax laws cannot operate beyond a country’s territorial
limits. Property that is wholly and exclusively within the
jurisdiction of another state receives none of the
protection for which a tax is supposed to be
compensation.
- Note: Where privity of relationship exists. It does not
mean, however, that a person outside of the state is no
longer subject to its taxing powers. A person may be
taxed where there is between him and the taxing state, a
privity of the relationship justifying the levy. Thus, the
citizen’s income may be taxed even if he resides abroad
as the personal jurisdiction of his government over him
remains. In this case, the basis of the power to tax is not
dependent on the source of the income nor upon the
location of the property nor upon the residence of the
taxpayer but upon his relation as a citizen to the state.
b. Situs of Taxation
c. Meaning
- Literally, situs of taxation means “place” of taxation. It is
the State or political unit which has jurisdiction to
impose a particular tax.
- Basically, the state where the subject to be taxed has a
situs may rightfully levy and collect the tax.
- The determination of the situs of taxation will depend
upon various factors including the:
- Nature of the tax and the
- Subject matter thereof (which may be person,
property, or activity),
- Possible protection and benefit that may accrue
both to the government and the taxpayer,
- Citizenship or residence of the taxpayer and
- Source of income
d. Situs of subjects of taxation
i. Persons
1. Community Tax – for
individuals and corporate
- Poll tax may be properly
levied upon persons who
are inhabitants or
residents of the State,
whether or not they are
citizens.
- Included here are
juridical persons like
corporations, doing
business in the
community or whose
office or establishment is
located in the community.
2. Lex Situs or Lex Rei Sitae
- Real Property
(immovables)
- Lex rei sitae – THE LAW
OF THE PLACE WHERE
THE PROPERTY IS
SITUATED
- Is the principle followed in
fixing the situs of taxation
of a property.
- This means that the
property is taxable in the
State where it has its
actual situs, specifically in
the place where it is
located, even though the
owner resides in another
jurisdiction.
- This is so because the
taxing authority has
control over the property
which is of a fixed and
stationary character. ·
- The place where the real
property is located gives
protection to the real
property, hence, the
owner must support the
government of that place
- With respect to property
taxes, real property is
subject to taxation in the
State where it is located
whether the owner is a
resident or non-resident,
and is taxable only there.
- Also applies to tangible
personal property ( Lex
rei sitae has also been
adopted for tangible
personal property under
Article 16 of the Civil
Code.)
- Situs of tangible personal
property
- The rule is that it is
taxable in the State where
 it has actual situs – where
it is physically located -
although the owner
resides in another
jurisdiction.
- Art 16 of our Civil Code
says that: Real property as
well as personal property
is subject to the law of the
country where it is
situated.
3. Mobilia Sequuntur
Personam - Personal
Property (Intangible)
- Intangible personal
property such as credits,
bills receivable, bank
deposits, bonds,
promissory notes,
mortgage loans, and
corporate stocks, does not
admit of actual location,
and as to such property,
- Mobilia sequuntur
personam- movables
follow the law of the
person
- General rule: Situs is the
domicile of the owner
- Exceptions:
- 1. When it is
inconsistent with
the express
provisions of the
statute
- 2. When the
property has
acquired a
business situs in
another
jurisdiction
- Thus, shares of stock in a
domestic corporation of a
non-resident foreigner are
taxable in the Philippines.
The reason is that said
shares receive the
protection and benefit of
our laws
ii. Income
- Income tax may be properly
exacted from persons who are
residents or citizens in the
taxing jurisdiction and even from
those who are neither residents
nor citizens provided the
income is derived from sources
within the taxing state.
- Theories re: situs of income tax
- Domiciliary theory - The
location where the
 income-earner resides is
the situs of taxation. This
is where he is given
protection, hence, he must
support it
- Nationality theory - The
country of citizenship is
the situs of taxation. This
is so because a citizen is
given protection by his
country no matter where
he is found or no matter
where he earns his
income.
- Source law - The country
which is the source of the
income or where the
activity that produced
the income is the situs of
taxation
- In accordance with the 3 Theories,
Income tax may be properly
exacted from persons who are
residents or citizens in the taxing
jurisdiction and even from those
who are neither residents nor
citizens provided the income is
derived from sources within the
taxing state.
- For interest income, the Situs of
tax on interest income is the
residence of the borrower who
pays the interest, irrespective of
the place where the obligation
was contracted. If the borrower is
a resident of the Philippines, the
interest payment paid by him can
have no other source than within
the Philippines.
iii. Business, Occupation,
Transaction
- The general rule is that the power
to levy an excise tax depends
upon the place where the business
is done, the occupation is engaged
in, or the transaction took place
iv. Transfer of property by death
or gift
- 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
e. Multiplicity of Situs
i. The multiplicity of situs, or the
taxation of the same income or
intangible subject in several
taxing jurisdictions, arises from
various factors:
 1. The variance in the
concept of domicile for tax
purposes;
2. Multiple distinct
relationships that may
arise with respect to
intangible personal
property; or
3. The use to which the
property may have been
devoted all of which may
receive the protection of
the laws of jurisdictions
other than the domicile of
the owner thereto.
ii. The remedy to avoid or reduce
the consequent burden in case of
multiplicity of situs is either to:
1. Provide exemptions or
allowance of deduction or
tax credit for foreign
taxes; or
2. Enter into tax treaties
with other States.
4. International Comity (in par parem, non habet
imperium – An equal has no power over an
equal)
a. The international comity refers to the
courteous and mutual agreement
between nations which states that the
properties of a foreign State is not subject
to the taxation of another State, under the
foreign law. Tax laws can only be imposed
within the State. This is the basis of
Article II, Section 2.
b. The rationale for this is the concept of In
par in parem non habet imperium.– An
equal has no power over an equal. As
between equals there is no sovereign
(Doctrine of Sovereign Equality among
states under international law). One state
cannot exercise its sovereign powers over
another.
c. Additionally, international law provides
immunity from suits to foreign states,
unless there is consent. Lastly, it is
understood that when one state enters
the territory of another, the former has no
intention to denigrate its dignity by
placing itself under the jurisdiction of the
other State.
B. Constitutional Limitations
- Provisions can either be directly or indirectly
written in the constitution
1. Due process Clause
- Provision indirectly affecting taxation
- “No person shall be deprived of life,
liberty or property without due process of
law, nor shall any person be denied the
equal protection of the laws.”
- Sec 1, Art 3, 1987 Constitution
- Two categories of due process
 1. Substantive due process
● the deprivation is done
under the authority of a
valid law or the
Constitution
2. Procedural due process
- done after complying with
fair and reasonable
methods prescribed by
law.
- Requirements of due process in taxation
1. Public purpose
2. Imposed within the territorial
jurisdiction
3. Assessment is not arbitrary or
oppressive
● If not met, tax law is VOID
- If the tax law has been declared invalid
but the tax has already been paid, the
payment should be refunded to the
taxpayer. This is based on the general rule
that no one shall unjustly enrich himself
at the expense of another.
- Due process of law - also known as the
right to notice and hearing
- Nonpayment of taxes: the law
provides that a taxpayer must be
notified of his tax liability and of
the sale of his property, if
applicable, in payment of such
liability.
- the constitutional limitation is violated if
a tax law denies a taxpayer a fair
opportunity to assert his substantial right
before the court.
- “due process of law” does not necessarily
mean that the amount of tax that will be
paid by a taxpayer has to be determined by
judicial inquiry
- what this limitation ensures is that the
procedures prescribed in law must be
both reasonable and just.
2. Equal Protection Clause
- Provision indirectly affecting taxation
- Sec 1, Art 3, 1987 Constitution
- All persons must be treated as equal
under similar circumstances and
conditions
- Prohibits class legislation in which some
are discriminated against, while some are
favored.
- Congress may group persons or
properties to be taxed
- All members of the same class must
be subject to the same rate
- No violation
1. Different incomes, different rates
2. Compensation income is subject
to a lower tax rate than business
and professional income
3. Certain corporations are subject
to lower taxes
 - Test of Valid Classification:
1. It is based upon the substantial
distinctions which make real
differences;
2. These are germane to the purpose
of the legislation or ordinance;
3. The classification applies not only
to present conditions but also to
future conditions substantially
identical to those of the present;
and
4. The classification applies equally
to all those who belong to the
same class
3. Rule of Taxation shall be Uniform and
Equitable
- Provision directly affecting taxation
- Sec. 28 (1), Art 6, 1987 Constitution
- “all taxable articles or properties of the
same class shall be subject to the same tax
rate” -> no need for ABSOLUTE identity or
equality under all circumstances.
- Uniformity (without discrimination in
every place where the subject is found)
- Uniformity of operation
throughout tax unit
- Equality in burden
- uniformity does not imply that
taxes have to be directly
proportional to the relative value
of the subject since taxes may be
progressive.
- Equity
- Equity =/= Equality of tax payable
- the most important factor is the
taxpayer’s ability to pay the tax.
- tax burden is usually measured in
terms of the size of wealth or
property and income
- Equitable = fair, just, reasonable,
and proportionate to the
taxpayer’s ability to pay
- While equal protection refers more to
like treatment of persons in like
circumstances, uniformity and equity
refer to the proper relative treatment
for tax purposes of persons in, unlike
circumstances.
4. Non-Impairment of Contracts
- Provision indirectly affecting taxation
- Sec 10, Art 3, 1987 Constitution
- “no law impairing the obligation of
contracts shall be passed.”
- prohibits the law or a party of a
contract to change its terms and
conditions, without the consent of
the other party.
- Impairment: when the terms of a contract
are changed by law or by a party without
the consent of the other
- Example: Tax exemption
- a taxing statute eventually
 revoked a tax exemption that was
previously granted to specific
persons. Unless it is stated that
such exemption is subject to
amendment, the doctrine of non-
impairment is violated by the act.
5. Non-imprisonment for non-payment of poll
tax
- Sec. 20, Art 3, 1987 Constitution
- “no person shall be imprisoned for debt
or non-payment of a poll tax.”
- community/poll tax - a tax of fixed
amount imposed on residents within a
specific territory regardless of citizenship,
business, or profession. Instead of
imprisonment, there should only be a
penalty for delinquency which is a
payment of a surcharge in the form of
interest.
- Non-payment of the poll tax must be
punishable only by a surcharge
- This does not apply to other violations
6. Prohibition against taxation of real property
of charitable institutions, churches,
parsonages or convents, mosques and non-
profit cemeteries
- Article 6, Sec. 28(3)
- Requisite: actually, directly and
exclusively used for religious, charitable,
or educational purposes
- the basis of this provision is the use of the
property, not the ownership.
- Exemption on real property tax only
- Also extends to facilities incidental to and
reasonably necessary for their purposes
- Example:
- For example, Foundation A has
land used by it for its charitable
institution. Generally, Foundation
A is exempted from paying
property taxes. However, should
Foundation A lease a portion of
the land to a commercial
establishment, that leased portion
is now subject to property tax.
7. Prohibition against taxation of non-stock non-
profit educational institutions
- Article 14, Sec. 4(3)
- Requisite: actually, directly and
exclusively used for educational
purposes
- They shall still be subject to internal
revenue tax on income from trade,
business or other activity unrelated to the
exercise or performance of the
institution’s educational purposes or
functions
- Taxation of proprietary educational
institutions (non-profit private schools)
- May be entitled to such
exemptions subject to limitations
provided by law including
 restrictions on dividends and
provisions for investment
- Shall pay for 10% of their taxable
income except for passive
incomes which are subject to
different tax rates
8. Passage of tax bills
- Article 4, Sec. 24
- Revenue bills or tax bills shall originate
exclusively in the House of
Representatives, but the Senate may
propose or concur with amendments
- Initiative for filing of bills must come
from the House of Representatives
- They are expected to be more
sensitive to local needs and
problems
- Example:
- In simpler terms, Senator A cannot draft a
tax bill without any Representative’s
initiation. If Representative B is drafting a
tax bill, Senator A can now draft a similar
bill even if Representative B is not yet
done with it. The important thing is that it
is the House of Representatives who
initiated the creation of revenue or tax
bills.
9. Granting of tax exemption
- Article 4, Sec. 28(4)
QUIZ
- No law granting any tax exemption shall
be passed without the concurrence of a
majority of all Members of Congress
10. Veto power of the President
- Article 6, Sec. 28(4)
- 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.
- House of Representatives may overturn a
presidential veto by garnering a 2/3rds
vote. If the President does not act on a
proposed law submitted by Congress, it
will lapse into law after 30 days of receipt
11. Judicial Power to review legality of tax
- Article 8, Sec. 5(2) (b)
- This provision states that the Congress
cannot take away the power of the
Supreme Court as the final arbiter of tax
cases.
- The Supreme Court shall have the power
to 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 in:
- all cases involving the legality of
any tax, impost, assessment, or
toll, or any penalty imposed in
relation thereto.
1. It tests whether the proceeds of the tax will directly 7. Non-profit private schools generally pay a tax of _% on
promote the welfare of the community in equal measure. their taxable income, which is lower than the corporate
a. Duty test tax of 30%.
b. Promotion of general welfare test a. 5%
c. Public purpose test b. 10%
d. Character of the direct object of the expenditure c. 15%
2. True or False. The purposes to be accomplished by d. 20%
taxation need not be exclusively public. 8. It refers to when the terms of a contract are changed by
3. That a property is taxable where it has its actual situs law or by a party without the consent of the other
although the owner resides in another jurisdiction is in a. Impairment
accordance with which principle? b. Non-impairment
a. Mobilia Sequuntur Personam c. Due process
b. Delegata potestas no potest delegari d. Uniformity
c. Lex Rei Sitae 9. True or False. The president’s power to exercise line-
d. In par parem, non habet imperium item veto can affect all items of the bill.
4. “The country which is the source of income or where the 10. True or False. If the House of Representatives is drafting
activity that produced the income is the situs of taxation” a tax bill, a Senator can draft a similar bill even if the
is under which theory regarding situs of income tax? House of Representatives is not yet done with it.
a. Mobilia Sequuntur Personam
b. Domiciliary Theory
c. Nationality theory
d. Source law
5. Which of the following constitutional limitations is based
on a provision directly affecting taxation?
a. Due process clause
b. Equal protection clause
c. Rule of taxation shall be uniform and equitable
d. Non-impairment of contracts
6. True or False. Falsification of the tax certificate or any
other violation of community or poll tax will not warrant
imprisonment.