LIMITATIONS ON THE POWER OF TAXATION
INHERENT LIMITATION
1. Public purpose
2. Inherently legislative
 Power to assess and collect – EXECUTIVE
3. Territorial
4. International comity
5. Exemptions of government agencies, entities
and instrumentalities
GOCCs are subject to tax
EXC:
a. GSIS
b. SSS
c. HDMF
d. PHIC
e. LOCAL water districts
SOURCES WITHIN THE PHILIPPINES
1. Interest bearing obligations of
residents of the Philippines
2. Dividends from domestic
corporation
3. Foreign Corp -if at least 50% of
income within 3yrs are derived from of income within 3yrs are derived
Philippines
4. compensation for services
performed in the Philippines
5. rentals and royalties for the use
of property and rights within the
Philippines
6. sale of real property located in
the Philippines
7. sale of personal property
Produced within
Sold within
* taxpayer if producer
* taxpayer is NOT producer
Income shall be treated as derived from sources within which the personal property was SOLD
EXC:
1. Shares of stock of a domestic corporation
CONSTITUTIONAL LIMITATIONS
1. Prohibition against imprisonment for non-
payment of taxes
2. Uniformity and equality of taxation
3. Grant by congress of authority of the President
to impose tariff rates
4. Prohibition against taxation of religious,
charitable and educational entities (RPT)
5. Prohibition against non-stock, non-profit
educational institutions
6. Majority vote of congress for the grant of tax
exemption
 Relative majority (majority of quorum) is
sufficient to withdraw exemption
7. Prohibition on the use of the special tax levied
8. President’s veto power on appropriation,
revenue and tariff bills
9. Grant of power to LGU to create its own
income
10. Flexible tariff clause
11. No appropriation or use of public money for
religious purposes
12. Tax bills should originate exclusive from the
HREP
13. Judicial Power to review legality of tax
SITUS OF TAXATION
SOURCES WITHOUT PARTLY WITHIN & WITHOUT
Foreign Corp -if at LOWER than 50%
from Philippines
7. sale of personal property 7. sale of personal property
Produced without Produced within or without
Sold without Sold without or without
* taxpayer if producer * taxpayer if producer
 RELIGIOUS, CHARITABLE AND EDUCATIONAL ENTITIES
WHO (TAXPAYER) REVENUES ASSESTS
NON-PROFIT one registered with the (SEC) EXEMPT as long as it is use for EXEMPT from RPT as
NON-STOCK as a non-stock corporation ACTUALLY, DIRECTLY OR long as it is use for
EDUCATIONAL to engage in maintaining and EXCLUSIVELY (ADE), for ACTUALLY, DIRECTLY
INSTITUTION administering a school educational purpose regardless OR EXCLUSIVELY
of its source (ADE)
NON-PROFIT one registered with the (SEC) EXEMPT from INCOME tax if: EXEMPT from RPT as
NON-STOCK as a non-stock corporation a. Organized and operated long as it is use for
HOSPITALS to engage in maintaining and EXCLUSIVELY for charitable ACTUALLY, DIRECTLY
administering a hospital purposes OR EXCLUSIVELY
b. NO PART of its income or (ADE) for charitable
assets inure to the benefit of purposes
any member
INCOME from REAL or
PERSONAL properties or from
activities conducted for profit,
regardless of the disposition
made, SUBJECT to TAX
OTHER NON-PROFIT A charitable institution, also EXEMPT from INCOME tax if: EXEMPT from RPT as
NON-STOCK called a nonprofit c. Organized and operated long as it is use for
CHARITABLE organization, aims to EXCLUSIVELY for charitable ACTUALLY, DIRECTLY
INSITUTIONS advance a public benefit. purposes OR EXCLUSIVELY
Charitable institutions can NO PART of its income or assets (ADE) for charitable
be run publicly or privately. inure to the benefit of any purposes
member
INCOME from REAL or
PERSONAL properties or from
activities conducted for profit,
regardless of the disposition
made, SUBJECT to TAX
PROPRIETARY A proprietary educational EXEMPT from INCOME tax if: EXEMPT from RPT as
NON-PROFIT HOSPITAL institution refers to any d. Organized and operated long as it is use for
& private school maintained EXCLUSIVELY for charitable ACTUALLY, DIRECTLY
EDUCATIONAL and administered by private purposes OR EXCLUSIVELY
INSTITUTIONS individuals or groups with an NO PART of its income or assets (ADE) for charitable
issued permit to operate inure to the benefit of any purposes
from the (DepEd), (CHED), or member
the (TESDA) INCOME EARNED from profit
activities:
a. Retain its EXEMPTION for its
charitable activities
b. BUT will be subjected to 10%
preferential rate
* beginning July 1, 2020 to
June 30, 2023 rate of 1% shall
apply
GROSS income from
UNRELATED trade or business
Does not EXCEED 50% of its
total gross income