GENERAL PRINCIPLES OF TAXATION
I. TAXATION PURPOSE OF TAXATION
TAXATION is the inherent power by which the sovereign, through its law-
making body, raises revenue to defray the necessary expenses of the
government.
It is a manner of apportioning the costs of the government among those who,
in some measure, are privileged to enjoy its benefits and must bear its
burdens.
INHERENT TO THE STATE: It is inherent in character because its exercise
is guaranteed by the mere existence of the state. It could be exercised even
in the absence of a constitutional grant. The power to tax proceeds upon the
theory that the existence of a government is a necessity and this power is an
essential and inherent attribute of sovereignty, belonging as a matter of right
to every independent state or government. (Pepsi-Cola Bottling Co. of the
Philippines vs. Municipality of Tanauan, Leyte, G.R. No. L-31156, February 27,
1976)
SCOPE OF LEGISLATIVE POWER TO TAX
1. The determination of purposes for which taxes shall be levied provided
it is for the benefit of the public.
2. The determination of subjects of taxation such as the person, property
or occupation within its jurisdiction.
3. The determination as to the amount or rate of tax unless
constitutionally prohibited.
4. The determination as to the kind of tax to be collected (i.e. property
tax, income tax, inheritance tax, etc).
5. The determination of agencies to collect the taxes.
6. The power to specify or provide for administrative and judicial
remedies.
7. The power to grant tax exemptions and condonations.
THEORY AND BASIS
1. Life Blood Theory – Taxes are the lifeblood of the government and so
should be collected without unnecessary hindrance. (Commissioner of
Internal Revenue vs. Algue; GR No. L-28896; Feb. 17, 1988)
2. Necessity Theory - government is necessary; however, it cannot
continue without the means of paying for its existence; hence, it has the
right to compel all citizens and property within its power to contribute
for the same purpose. (71 Am. Jur. 2d 346)
The power to tax is an attribute of sovereignty. 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 improvement 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.
Guaranty Co., Inc. vs. CIR; GR No. L-22074; April 30, 965)
3. Symbiotic relationship theory - It is said that taxes are what we pay
for civilization 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. (Commissioner of
Internal Revenue vs. Algue, supra)
4. Jurisdiction over Subject and Objects – Taxation shall only be
imposed on persons, properties and excises within the territory of the
taxing power.
Cesar Nickolai F. Soriano Jr.
1 Arellano University School of Law 2011-0303
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1. Primary – to raise revenues; to support the existence of the State and
enable the state to promote the general welfare.
2. Secondary – non-revenue or sumptuary
a. Promotion of general welfare – taxation may be used to implement
police power;
b. Regulation - where taxes are levied on excises or privileges for
purposes of rehabilitation and stabilization of threatened industry
which is affected by public interest or to discourage consumption of
harmful products (e.g., excise taxes on cigarettes and alcohol);
c. Reduction of Social Inequity – This is made possible through the
progressive system of taxation where the objective is to prevent the
undue concentration of wealth in the hands of few individuals.
Progressivity is keystoned on the principle that those who are able
to pay should shoulder the bigger portion of the tax burden.
Examples – Income tax, Donor’s tax and Estate tax.
d. Encouragement of economic growth – tax incentives and reliefs
may be granted to encourage investment (i.e., Income Tax Holiday,
5% preferential gross income tax for PEZA registered entities);
e. Protectionism – for the protection of local industries, in case of
foreign importations, protective tariffs and customs duties and fees.
CHARACTERISTICS OF THE POWER TO TAX (CUPS)
1. Comprehensive – it covers persons, businesses, activities, professions,
rights and privileges.
2. Unlimited – it is so unlimited in force and searching in extent that courts
scarcely venture to declare that it is subject to any restrictions, except
those that such rests in the discretion of the authority which exercises it.
(Tio vs. Videogram Regulatory Board; GR No. 75697; June 18, 1987)
3. Plenary – it is complete; unqualified; absolute. Under the Tax Code, the
BIR may avail of certain remedies to ensure collection of taxes.
4. Supreme – insofar as the selection of the subject of taxation is
concerned.
PRINCIPLES OF A SOUND TAX SYSTEM (FAT)
1. 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)
2. 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.
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)
3. Theoretical Justice – 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.
NOTE: Non-observance of Fiscal Adequacy and Administrative Feasibility will
not render the tax imposition invalid. It will be an unsound tax but legal.
However, non-observance of the Principle of Theoretical Justice is invalid
because the Constitution itself requires that taxation must be equitable.
“THE POWER TO TAX IS THE POWER TO DESTROY”
According to Justice Marshall: The power to tax includes the power to destroy.
Taxation is a destructive power which interferes with the personal and
property rights of the people and takes from them a portion of their property
for the support of the government. (McCulloch vs. Maryland, 4 Wheat, 316 4
L ed. 579, 607)
However, according to Justice Holmes: The power to tax is not the power to
destroy as long as this court (Supreme Court) sits.
While taxation is said to be the power to destroy, it is by no means unlimited.
When a legislative body having the power to tax a certain subject matter
actually imposes such a burdensome tax as effectually to destroy the right to
perform the act or to use the property subject to the tax, the validity of the
enactment depends upon the nature and character of the right destroyed. If
so great an abuse is manifested as to destroy natural and fundamental rights
which no free government consistently violate, it is the duty of the judiciary
to hold such an act unconstitutional.
While the power to tax is so broad as to extend to every business, trade or
occupation; or every object of an industry; use or enjoyment; or any form of
possession, and may impose such rates as to be effectively depriving and
preventive of an act or enjoyment of a property, the same is not unlimited
since there are inherent and constitutional limitations to prevent abuse of the
exercise of such power. Accordingly, if a tax measure is violative of any of
such limitations, it is the Court’s duty to strike it down.
Taxpayers may seek redress before the courts in case of illegal imposition of
taxes and irregularities. The Constitution, as the fundamental law, overrides
any legislative or executive act that runs counter to it. In any case, therefore,
where it can be demonstrated that the challenged statutory provision fails to
abide by its command, then the court must declare and adjudge it null.
(Sison Jr. v. Ancheta; G.R. No. L-59431; July 25, 1984)
PROSPECTIVITY OF TAX LAWS:
General Rule: Tax Laws are prospective in application.
Exceptions:
a. Where no vested right will be impaired;
b. Where the law allows retroactive application; and
c. If there is bad faith on the part of the taxpayer.
BIR Rulings: Section 246 of the Tax Code provides that tax rulings or any
revocation, modification, or reversal of any of the rules and regulations
promulgated by the Commissioner or any rulings or circulars promulgated by
him shall not be given retroactive application if such revocation, modifications,
or reversal is prejudicial to the taxpayers EXCEPT:
1. When the taxpayer deliberately misstated or omitted from his return
certain facts or documents required by him by the BIR;
2. When the facts subsequently gathered are different from the facts on
which the tax ruling was based; and
3. When the taxpayer is in bad faith.
IMPRESCRIPTIBILITY OF TAXES: Taxes are generally imprescriptible,
except when the law provides otherwise, e.g. the statute of limitations
provided under the Tax Code.
DOUBLE TAXATION: means taxing the same person for the same tax period
and the same activity twice, by the same jurisdiction.
Double taxation in strict sense is when:
1. Both taxes are imposed on the same property or subject matter;
2. For the same purpose;
3. Imposed by the same taxing authority;
4. Within the same jurisdiction;
5. During the same taxing period;
6. Covering the same kind or character of tax.
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.
Constitutionality of double taxation: Double taxation in its stricter sense
is unconstitutional but that in the broader sense is not necessarily so.
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.
Cesar Nickolai F. Soriano Jr.
2 Arellano University School of Law 2011-0303
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Modes of eliminating double taxation
1. Tax Deduction – an amount subtracted from the gross income to arrive
at taxable income.
2. Tax Credit - an amount subtracted from an individual’s or entity’s tax
liability (tax due) to arrive at the tax liability still due.
 A deduction differs from a tax credit, in that a deduction reduces
taxable income while a credit reduces tax liability.
 Under the Expanded Seniors Citizens Act of 2003, the 20% discount
shall be considered as a tax deduction not as a tax credit.
3. Treaties with other states: a tax treaty sets out the respective rights
to tax of the state of source (situs) and the state of residence with regard
to certain cases, an exclusive right to tax is conferred on one of the
contracting states; however, for other items of income or capital, both
states are given the right to tax, although the amount of tax that may
be imposed by the state of source is limited.
It applies whenever the state of source is given full or limited right to
tax. The treaty makes it incumbent upon the state of residence to allow
relief in order to avoid double taxation.
Note: The BIR issued RMO No. 1-2000, as amended by RMO No. 72-2010,
requiring taxpayers to file for a Tax Treaty Relief Application on or before the
transaction date before availing of the provisions of a tax treaty.
“Failure to comply with the requirements of RMO No. 1-2000, as
amended by RMO No. 72-2010, is not fatal to the availment of tax
treaty relief”
Tax treaties are entered into to minimize, if not eliminate the harshness of
international juridical double taxation, which is why they are also known as
double tax treaty or double tax agreements.
Laws and issuances must ensure that the reliefs granted under tax treaties
are accorded to the parties entitled thereto. The BIR must not impose
additional requirements that would negate the availment of the reliefs
provided for under international agreements. More so, when the Tax Treaty
does not provide for any pre-requisite for the availment of the benefits under
said agreement.
The obligation to comply with a tax treaty must take precedence over the
objective of RMO No. 1-2000. Logically, noncompliance with tax treaties has
negative implications on international relations, and unduly discourages
foreign investors. While the consequences sought to be prevented by RMO
No. 1-2000 involve an administrative procedure, these may be remedied
through other system management processes, e.g., the imposition of a fine
or penalty. But we cannot totally deprive those who are entitled to the benefit
of a treaty for failure to strictly comply with an administrative issuance
requiring prior application for tax treaty relief. (Deutsche Bank AG Manila
Branch vs. CIR, GR No. 188550 dated August 19, 2013)
FORMS OF ESCAPE FROM TAXATION
1. Shifting – the burden of payment is transferred from the statutory
taxpayer to another without violating the law (e.g., VAT);
2. Capitalization – the reduction in the price of the taxed object equal to
the capitalized value of future taxes the purchaser is expected to be
called upon to pay.
3. Transformation - for manufacturers or producers, upon whom tax are
imposed, fearing the loss of his market if he should add to the price,
pays the tax and endeavor to recoup himself by improving his process of
production, thereby producing his units at a lower cost.
4. Tax Avoidance – exploitation by the taxpayer of legally permissible
alternative tax rates or methods of assessing taxable property or income,
in order to avoid or reduce tax liability. Also known as “tax minimization.”
(e.g. utilizing all permissible allowable deductions)
5. Tax Exemption – grant of immunity to particular persons or
corporations of a particular class from a tax which persons or
 corporations generally within the same rate or taxing district are obliged
to pay.
Basic Principles Regarding Tax Exemption
a. Exemptions are highly disfavored by law and he who claims an
exemption must be able to justify his claim by the clearest grant of
law. An exemption from the common burden cannot be permitted
to exist upon vague implication. (Asiatic Petroleum Co. vs. Llanes,
49 Phil. 466; see also House vs. Posadas, 53 Phil. 338)." (Collector
of Int. Revenue vs. Manila Jockey Club, Inc., G.R. No. L-8755,
March 24, 1956)
b. He who claims exemption should prove his factual and legal basis
for exemption. (Commissioner of Internal Revenue v. Acesite
(Philippines) Hotel Corporation, G.R. No. 147295, February 16,
2007)
c. Tax exemptions are strictly construed against the person claiming
it. (Esso Standard Eastern, Inc. vs. Acting Commissioner of
Customs; GR No. L-21841; Oct. 28, 1966)
d. Constitutional grant of exemptions are self-executing.
e. In the same way that taxes are personal, tax exemptions are also
personal.
f. Deductions from income tax purposes partake of the nature of tax
exemptions, therefore should also be construed strictly against the
taxpayer. (Commissioner of Internal Revenue vs. General Foods
(Phils), Inc.; GR No. 143672; April 24, 2003)
g. The same is true with regards tax refunds. (Commissioner of
Internal Revenue v. Eastern Telecommunications Phils., Inc., G.R.
No. 163835, July 7, 2010)
Kinds of Tax Exemption
As to Form:
a. Express - Expressly granted by the Constitution, statutes, treaties,
franchises or similar legislative acts.
b. Implied - When particular persons, properties, or exercise are
deemed exempt as they fall outside the scope of the taxing
provision itself.
c. Contractual - Are those agreed to by the taxing authority in contract
lawfully entered into by them under enabling laws.
As to Basis:
a. Constitutional Exemptions – Immunities from taxation which
originate from the Constitution.
b. Statutory Exemptions – those which emanate from legislation.
As To Extent:
a. Total Exemption – connotes absolute immunity.
b. Partial Exemption – one where a collection of a part of the tax is
dispensed with.
Grounds for Tax Exemption
a. Contract – the grant of tax exemption is usually contained in the
charter of the corporation to which the exemption is granted.
b. Public policy - to encourage new and necessary industries, or to
foster charitable institutions.
c. Reciprocity – to reduce the rigors of international double or multiple
taxation, tax exemptions maybe granted in treaties. A tax
exemption is a personal privilege of the grantee and therefore not
assignable; it is generally revocable by the government, unless
founded on contract and must not be discriminatory.
Revocation of Tax Exemption: If the grant of an exemption does not
constitute a contract, but merely “a spontaneous concession by the
legislature, not connected with any service or duty imposed” it is
REVOCABLE by the power which made the grant.
Thus, if the basis of the tax exemptions is by virtue of a franchise granted
by Congress, the exemption may be revoked.
However, if the tax exemption constitutes a binding contract and for a
valuable consideration, the government cannot unilaterally revoke the
tax exemption.
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3 Arellano University School of Law 2011-0303
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6. Tax Evasion – use of a taxpayer of illegal or fraudulent means to defeat
or lessen the payment of tax. Also known as “tax dodging,” it
presupposes malice, fraud, bad faith, or willful intent on the part of the
taxpayer either to underdeclare income or overdeclare deductions to
defeat tax liability.
Indicia of Fraud in Tax Evasion
a. Failure to declare for taxation purposes true and actual income
derived from business for 2 consecutive years; or
b. Substantial under declaration of revenues in the income tax returns
of the taxpayer for 4 consecutive years coupled with intentional
overstatement of deductions.
Connotes the integration of 3 Factors:
a. The end to be achieved, i.e. the payment of less than that known
by the taxpayer to be legally due;
b. An accompanying state of mind which is described as being “evil”,
in “bad faith”, “willful”, or “deliberate and not merely accidental”,
and
c. A course of action or failure of action which is unlawful.
7. Compensation or Set-off: as a general rule, taxes cannot be the
subject of a set-off or compensation because of the lifeblood doctrine;
they are not contractual obligations but arise out of duty to the
government; and the government and the taxpayer are not mutually
debtors and creditors of each other. (Francia vs. IAC No. L-67649; June
28, 1988)
Taxes are of a distinct kind, essence and nature, and these impositions
cannot be classed in merely the same category as ordinary obligations;
the applicable laws and principles governing each are peculiar, not
necessary common, to each; and public policy is better subserved if the
integrity and independence of taxes are maintained. (Republic vs.
Mambulao Lumber Co.)
A person cannot refuse to pay tax on the basis that the government owes
him an amount equal to or greater than the tax being collected. The
collection of a tax cannot await the results of a lawsuit against the
government. (Philex Mining Corp. v. Commissioner)
Exception: when both the claim of the Government for inheritance
taxes and the claim of the intestate for services rendered have already
become overdue and demandable as well as fully liquidated.
Compensation, therefore, takes place by operation of law, in accordance
with Article 1279 and 1290 of the Civil Code, and both debts are
extinguished to the concurrent amount. In this case, the estate tax
liability has already been established and the amount owed by the
Government to the estate has already been confirmed by the court and
subject of an appropriation law. (Domingo vs. Moscoso)
Doctrine of Equitable Recoupment: is a doctrine in common law
applicable where the taxpayer has a claim for refund but he was not able
to file a written claim due to the lapse of the prescription period within
which to make a refund.
The taxpayer is allowed to credit such refund to his existing tax liability.
This doctrine is not allowed in the Philippines.
Note that the prescription of tax refunds in this jurisdiction is generally
two years from the date of payment and the assessment of taxes is
generally 3 years from filing. Thus, if the taxpayer failed to file a refund
within the 2 year period, his liability as assessed by the BIR cannot be
recouped against such prescribed refund claim.
8. Compromise and Abatement (see discussion under Remedies)
9. Tax Amnesty refers to the articulation of the absolute waiver by a
sovereign of its right to collect taxes and power to impose penalties on
persons or entities guilty of violating a tax law. Tax amnesty aims to
 grant a general reprieve to tax evaders who wish to come clean by giving property for
them an opportunity to straighten out their records. (Metropolitan Bank public use
and Trust Co. v. Commissioner of Internal Revenue, G.R. No. 178797, 4
August 2009) No limit BUT Limited to the No specific
must be equal cost of amount BUT just
Distinguished with tax exemption: Tax amnesty is an immunity to the needs of regulation and compensation
from all criminal and civil obligations arising from non-payment of taxes. the issuance of must be paid to
It is a general pardon given to all taxpayers. It applies only to past tax Amount of
government license or the owner which
periods. (People vs. Castañeda, G.R. No. L-46881, September 15, 1988) Exaction
surveillance fees is equivalent to
It applies to past tax liabilities. the market value
of the property
Tax exemption is an immunity from the civil liability only. It is an
immunity or privilege, a freedom from a charge or burden of which No direct No direct Direct benefit in
others are subjected. (Florer vs. Sheridan, 137 Ind. 28, 36 NE 365). It benefit; only benefit; only a the form of just
applies prospectively after the grant of exemption or qualification general benefit healthy compensation
therefrom. Benefits
of protection economic
Received
standard of
CONSTRUCTION AND INTERPRETATION: society

Tax laws must be construed reasonably to carry out the purpose, intent and Non- Contracts may Contracts MAY Contracts MAY
the objective of the law. impairmen NOT be be impaired be impaired
t of impaired
As a rule, if the tax law is clear and free of ambiguity, it will be applied in its Contracts
literal import. If there is doubt as to its validity or if it is ambiguous, the law Taxes become No transfer but Transfer in favor
will be construed strictly against the Government and liberally in favor of the Transfer of
part of the only restraint in of the State
taxpayer. Property
public funds its exercise
Rights
Tax Exemptions; deductions and refund: in case of ambiguity, the law All persons, All persons, Only upon a
will be construed strictly against the taxpayer and liberally in favor of the property and property and particular
government, except: Scope
excises privileges property
1. Where the statute granting exemption expressly provides for a liberal
interpretation; Only by the Only by the May be by (1)
2. Special taxes relating to special cases and affecting only special classes government government and the government
of persons; and its political its political or its political
3. Property held in private ownership; Who subdivisions subdivisions subdivisions OR
4. Traditional exemptees, such as those in favor of religious and charitable exercises (2) public service
institutions; the power companies or
5. In favor of the government, its political subdivisions or instruments; and public utilities
6. By clear legislative intent. granted with
such power
Tax exemptions are never presumed. It must be established and proved by
the taxpayer; must be limited to what the law says; and personal to the person
III. TAXES
entitled to the same.
TAXES: are enforced proportional contributions from the persons and
II. TAXATION and the other INHERENT POWERS property levied by the law-making body of the State by virtue of its
sovereignty in support of government and for public needs.
1. Taxation is the power of the State to demand from the members of
society their proportionate share or contribution in the maintenance of ESSENTIAL CHARACTERISTICS OF TAX
the government.
1. Imposed by the State which has jurisdiction over the person, property or
2. Eminent Domain is the power of the State to forcibly acquire private excises (activity);
property, upon payment of just compensation, for some intended public
2. Levied by the Legislature;
use 3. It is an enforced contribution;
3. Police Power is the power of the State to regulate liberty and property
4. Generally payable in money;
for the promotion of general welfare 5. Proportionate in character – based on the taxpayer’s ability to pay;
6. Levied on persons, property or excises;
SIMILARTITIES: 7. Levied for public purpose;
1. Inherent in the State and need not be conferred by the Constitution;
8. Paid at regular periods of intervals;
2. Indispensable in that the State cannot continue or be effective unless it 9. Personal to the taxpayer.
is able to exercise the same;
3. Methods whereby the State interferes with private rights; CLASSIFICATOIN OF TAXES
4. Presuppose an equivalent compensation, tangible or otherwise, for the 1. As to purposes:
private rights interfered with; and a. General/Fiscal or Revenue – purpose is to raise revenue for the
5. Primarily exercised by the legislature. government’s ordinary needs;
b. Special/Regulatory or Sumptuary – purpose is some social or
DIFFERENCES: economic ends irrespective of whether revenue is actually raised.
2. As to subject matter:
Eminent a. Personal, poll or capitation – those imposed upon residents of a
Taxation Police Power
Domain territory, regardless of citizenship, property, occupation, business.
Raise revenue Promote public Facilitate the b. Property – those imposed upon real and personal property
Purpose welfare through taking of private depending on their value.
regulations
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4 Arellano University School of Law 2011-0303
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 c. Excise or privilege – those imposed upon the performance of an Determination Determined by the Determined by the cost of
act, enjoyment of a privilege, or engaging in an occupation, of Amount sovereign the property or
profession or business. improvement
3. As to incidence: Who may Imposed by the Imposed by the government
a. Direct – where the burden for the payment of the tax as well as the impose State or private individual
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 TAX VS. PENALTY
falls another. (e.g., VAT).
4. As to amount: Tax Penalty
a. Specific – amounts fixed and is imposed by the head or number or Definition Enforced proportional Sanction imposed for
some measurement, hence, no valuation is needed except for the contributions from persons violation of laws
list of things to be taxed. and property
b. Ad valorem – one which is based on the value of the object to be Purpose For revenue To regulate conduct
taxed. Authority Imposed only by the Imposed either by the
5. As to rate/progression: government government or by private
a. Progressive – tax rates increase as the tax base or bracket individuals or entities
increases.
b. Regressive – tax rate decreases as tax base or bracket increases. TAX VS. SPECIAL ASSESSMENT
c. Proportionate – tax is based on a fixed percentage of the amount
of the property, receipts or other bases to be taxed. Tax Special Assessment
6. As to authority imposing the tax: Definition Demand of Special levy on lands
a. National – levied by the national government and enforced by the sovereignty for raising comprised within the territorial
BIR; revenue jurisdiction of a Province, City
b. Local – levied by the local government through its sanggunian and or Municipality specially
enforced by the treasurer. benefitted by public works,
projects, improvements funded
TAX VS. LICENSE FEES by the LGU concerned
Subject Imposed on lands, Imposed on land only
Tax License Fee persons, property,
Basis Taxation power Police power income, business, etc.
Purpose Revenue Regulation Liability Personal Non-personal
Limitation on Subject only to inherent Limited to the cost of Basis Based on necessity Based solely on benefits
Amount and constitutional issuance of license and (and partially on
limitations cost of inspection and benefits)
surveillance Application general special to a particular time and
When paid After the start of Before the start of place
business business
Surrender vis- Cannot be surrendered Lawful consideration not TAX VS. CUSTOMS DUTIES
a-vis except for lawful necessary
necessity of consideration Tax Custom Duties
consideration Purpose Raising revenue Controlling the flow of the
Effect of non- Will not render the Will render the business goods of the country
payment business illegal BUT illegal Broadness Broader term Tariff or tax on the importation
criminal prosecution will (usually) or exportation
result (unusually) of goods

IMPORTANCE OF DISTINCTION:
TAX VS. DEBT
1. Government instrumentality concerned may not be authorized to exact
taxes but IS authorized to exact license fees
2. Person imposed upon may be exempt from taxes BUT NOT exempt from Tax Debt
license fees Basis law contract/ judgment
3. Tax, NOT fees, may be claimed as income tax deduction for income tax Effect of imprisonment non-imprisonment
purpose. However, fees may be considered as expenses ordinary and
failure to pay
necessary for business. [see deductions for discussion on Sec. 34(A)(1)]
4. In Local Government Taxation, Sec. 187 of the Local Government Code Mode money money, property or service
covers only “tax” ordinance. Such that, if the ordinance is regulatory, it
does not come within the purview of Sec. 187 and the CTA does not
have jurisdiction over the legality of the same, jurisdiction thereof being Assignability no yes
under the RTC. Subjectivity to no yes
Compensation
TAX VS. TOLL / Set-off
Interest General Rule: no General Rule: no interest;
Tax Toll interest; except: if Except: if stipulated or
Definition Demand of Amount charged for the cost delinquent after demand
sovereignty for and maintenance of Authority public authority private individuals
raising revenue property used
Purpose For support of the As compensation for use of Prescription determined by Tax determined by Civil Code
government another's property Code

Cesar Nickolai F. Soriano Jr.

5 Arellano University School of Law 2011-0303
GENERAL PRINCIPLES OF TAXATION

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SOURCES OF REVENUE: the following are considered national internal
revenue taxes:
1. Income tax;
2. Estate and donor’s taxes;
3. Value-added tax;
4. Other percentage taxes;
5. Excise taxes;
6. Documentary Stamp Taxes; and
7. Such other taxes as are or hereafter may be imposed and collected by
the Bureau of Internal Revenue.
IV. INHERENT LIMITATIONS
A. IT MUST BE FOR A PUBLIC PURPOSE
A revenue measure must be laid for a public purpose determined by the
legislature. The proceeds of the tax must be used either for the support of
the State or for some recognized objective of government or directly to
promote the welfare of the community.
The public purpose must exist at the time the law is enacted. (Pascual vs.
Secretary of Public Works, GR No. L-10405; Dec. 29, 1960)
Tests in determining public purpose:
1. Duty Test – whether the thing to be furthered by the appropriation of
public revenue is something which is the duty of the State, as a
government.
2. Promotion of General Welfare Test – whether the law providing the
tax directly promotes the welfare of the community in equal measure.
One sector is not benefited: Public purpose is not destroyed by the fact that
the tax law may not be beneficial to one group. The fact that one sector is
benefited and in the process another sector is being in a way prejudiced would
not diminish the public character of the tax (Tio v. Videogram Regulatory
Board, G.R. 75697, June, 1987)
B. THE POWER TO TAX IS INHERENTLY LEGISLATIVE
Taxation is the inherent power of the state and it is exercised primarily by the
Legislature as delegates of the people.
Exceptions:
1. Delegation to Local Government – the Constitution, as implemented
by the Local Government Code, empowers the local government units
(LGU) to create its own sources of revenue and to levy taxes, fees and
charges which shall accrue exclusively to the LGU. (Sec. 5, Art. X of the
Constitution)
2. Delegation to the President – the Constitution, as implemented by
the Tariff and Customs Code, allows the President to fix tariff rates,
import and export quotas, tonnage and wharfage dues and other duties
or imposts. (Sec. 28[2], Art. VI of the Constitution)
Likewise, the President may exercise emergency powers (Sec. 23[2], Art.
VI of the Constitution) and enter into executive agreements or treaties
which may contain tax exemption provisions subject to the concurrence
of the Senate. (Sec. 27, Art. VII of the Constitution)
3. Delegation to Administrative Agencies – administrative agencies
may issue rules and regulations to implement tax laws, under their quasi-
legislative powers, subject to the following tests:
a. Completeness test – in order for the delegation to be valid, the
law must be complete in all aspects when it leaves the legislature.
The only thing left for the delegate to do is to implement the law.
b. Sufficiently Determinable Standards test – there must exist
sufficient standards which should limit the boundaries of the
delegate’s authority by defining legislative policy and the
circumstance under which it is to be pursued and implemented.
Cesar Nickolai F. Soriano Jr.
6 Arellano University School of Law 2011-0303
GENERAL PRINCIPLES OF TAXATION
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Secretary of Finance’s determination of conditions to increase
VAT from 10% to 12%: the legislature may delegate to executive
officers or bodies the power to determine certain facts or conditions, or
the happening of contingencies, on which the operation of a statute is,
by its terms, made to depend, but the legislature must prescribe
sufficient standards, policies or limitations on their authority. While the
power to tax cannot be delegated to executive agencies, details as to
the enforcement and administration of an exercise of such power may
be left to them, including the power to determine the existence of facts
on which its operation depends.
The case before the Court is not a delegation of legislative power. It is
simply a delegation of ascertainment of facts upon which enforcement
and administration of the increase rate under the law is contingent. The
legislature has made the operation of the 12% rate effective January 1,
2006, contingent upon a specified fact or condition. It leaves the entire
operation or non-operation of the 12% rate upon factual matters outside
of the control of the executive.
No discretion would be exercised by the President. Highlighting the
absence of discretion is the fact that the word shall is used in the
common proviso. Where the law is clear and unambiguous, it must be
taken to mean exactly what it says, and courts have no choice but to see
to it that the mandate is obeyed. (ABAKADA Guro vs. Exec Secretary,
G.R. No. 168056, etc., Sep 1, 2005 & MR on October 18, 2005).
C. TERRITORIAL IN APPLICATION
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. (see Income Tax
for discussion on the situs of tax)
D. INTERNATIONAL COMITY
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.
E. EXEMPTION OF GOVERNMENT ENTITIIES, AGENCIES and
INSTRUMENTALITIES
As a rule, the government, its agencies and instrumentalities performing
governmental function are exempt from VAT. This is because taxes are
financial burdens imposed for the purpose of raising revenues to defray
the cost of the operation of the Government, and a tax on property of
the Government, whether national or local, would merely have the effect
of taking money from one pocket to put it in another pocket (Board of
Assessment of Appeals of Laguna vs. CTA, G.R. No. L-35683, May 7,
1987).
Exceptions:
1. Agencies performing proprietary functions;
2. When the charter creating the agency or instrumentality or the law
provides that they are subject to tax.
3. If the government wishes to tax itself.
 GOCCs: performing proprietary functions are taxable similar to a
corporation. However, Sec. 27(c) of the Tax Code provides for the
following corporations as exempt:
1. Government Service Insurance System (GSIS)
2. Social Security System (SSS)
3. Philippine Health Insurance Corporation (PHIC)
4. Philippine Charity Sweepstakes Office (PCSO)
PAGCOR: is no longer exempt from income tax by its omission from the
above list. (PAGCOR vs. BIR, GR No. 12087, March 15, 2011) However,
PAGCOR remains exempt from income tax for its income arising from
casino operations which are subject to franchise tax in lieu of all taxes.
(PAGCOR vs. BIR, GR No. 215427, Dec. 10, 2014)
The government can tax itself: notwithstanding the immunity of the
government from taxes, the principle is also well recognized that the
Government may tax itself. In one case, the SC held that there is no
constitutional limitation on the power of the Congress to tax the AFP if it
wishes to do so (Bisaya Land Transportation Co., Inc. vs. CIR, 102 Phil
438)
V. CONSTITUTIONAL LIMITATIONS
A. DUE PROCESS REQUIREMENT
Art. III, Sec. 1: No person shall be deprived of life, liberty or property
without due process of law.
Procedural due process: requires that taxpayers must be notified of the
assessment in writing and must state the fact and the law upon which it is
based. Moreover, assessments and collection must not be arbitrary.
Substantive due process: requires that assessments must not be harsh,
oppressive or confiscatory; it must be made under authority of a valid law;
and must be imposed within the territorial jurisdiction of the State.
Specific Cases:
1. There is a denial of due process on account of the passage of an
ordinance in the City of Manila which imposes a permit fee of P50.00 on
aliens as a condition to employment or engaging in any business or
occupation, where it appears that under said ordinance, the City Mayor
of Manila could withhold or refuse issuance of such permit at will. Aliens,
once admitted in the Philippines, cannot be deprived of life without due
process of law and this guarantee includes the means of livelihood
(Villegas vs. Hiu Chiong Tsai Pao Ho, G.R. No. L-29646, November 10,
1978)
2. Due process was not violated when the VAT law (EO 273) was
promulgated. Petitioners failed to show that EO 273 was issued
capriciously and whimsically or in arbitrary or despotic manner by
passion or personal hostility since it appears that a comprehensive study
of the VAT was made before EO 273 was issued (Kapatiran vs. CIR, G.R.
No. L-81311, June 30, 1988).
3. The modified schedular income tax whereby individual income was
classified into three different classes under different tax rates
(compensation, business/other income and passive investment income)
is not a denial of due process because there is no proof of arbitrariness
in the imposition of tax rates (Sison vs. Ancheta, G.R. No. 59431, July
25, 1984).
4. Section 112 (B) allows a VAT registered person to apply for the issuance
of a tax credit certificate or refund for any unused input taxes, to the
extent that such input taxes have not been applied against output taxes.
The input tax is not a property or property right within the constitutional
purview of the due process clause. A VAT-registered person’s entitlement
to the creditable input tax is merely a statutory privilege (Abakada Guro
Party List vs. Ermita, Ibid.).
B. EQUAL PROTECTION OF THE LAWS
Art. III, Sec. 1: … nor shall any person be denied the equal protection
of laws.
Cesar Nickolai F. Soriano Jr.
7 Arellano University School of Law 2011-0303
GENERAL PRINCIPLES OF TAXATION
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The requirement of equal protection of the laws requires that the law must
apply equally to all persons within the same class. As such, providing for a
classification and applying the law only to a particular class is not violative of
the constitutional right so long as it comes from a valid classification.
Requisites for a valid classification:
1. Must be based upon substantial distinctions;
2. Must be germane to the purpose of law;
3. Must apply to both present and future conditions; and
4. Must apply equally to all members of a class.
Two ways by which equal protection clause is violated:
1. When classification is made when there should be none
2. When classification is not made when called for
Specific Cases:
1. If the ordinance is intended to apply to a specific taxpayer and to no one
else regardless of whether or not other entities belonging to the same
class are established in the future, it is a violation of the equal protection
clause, but if intended to apply also to similar entities which may be
established in the future, then the tax ordinance is valid (Ormoc Sugar
Central vs. CIR, G.R. No. L-23794, February 17, 1968)
2. The fact that the taxpayer is the only sugar central or refinery in the
municipality where the tax ordinance is enacted does not make said
ordinance discriminatory. The reason is that since other refineries to be
established in the future would also be taxable, no singling out of the
taxpayer to its disadvantage has ever taken place (Victorias Milling Co.,
Inc. vs. Municipality Of Victoria, G.R. No. L-21183, September 27, 1968)
3. The remission of taxes due and payable to the exclusion of taxes already
collected does not constitute unfair discrimination. Each set of taxes is a
class by itself, and the law would be open to attack as class legislation
only if all taxpayers belonging to one class were not treated alike (Juan
Luna Subd. Vs. Sarmiento, G.R. No. L-3538, May 28, 1952)
4. A local ordinance which levies an ad valorem tax on motor vehicles
registered in Manila without also taxing those which are registered
outside the city but which enters the city and use its streets occasionally
violates the rule on the equality of taxation (Assoc. of Customs Brokers
vs. Municipality Board of Manila, G.R. No. L-4375, May 22, 1953).
5. Taxpayers may be classified into different categories. It is enough that
the classification must rest upon substantial distinctions that make real
differences (Antero M. Sison, Jr. vs. Ruben B. Ancheta, G.R. No. L-59431,
July 25, 1984).
6. With regard to the 5% creditable withholding tax imposed on payments
made by the government for taxable transactions, Section 114 par. C
merely provides a method of collection, or as stated by respondents, a
more simplified VAT withholding system. Since it has not been shown
that the class subject to the 5% final withholding tax has been
unreasonably narrowed, there is no reason to invalidate the provision.
Petitioners, as petroleum dealers, are not the only ones subjected to the
5% final withholding tax. It applies to all those who deal with the
government (Abakada Guro Party List vs. Ermita, Ibid.).
C. UNIFORMITY AND PRGRESSIVITY OF TAXATION
Art. VI, Sec. 28 (1) The rule of taxation shall be uniform and equitable.
The Congress shall evolve a progressive system of taxation.
UNIFORMITY means that all taxable articles or kinds of property of the same
classes shall be taxed at the same rate. A tax is uniform when it operates with
the same force and effect in every place where the subject of it is found.
(Commissioner vs. Lingayen Gulf Elec. Co., G.R. No. L-23771, August 4, 1988)
Amusement Tax: Uniformity is not disregarded if a tax is levied on admission
to cinema, theaters, vaudeville companies, theatrical shows and boxing
exhibitions but does not tax other places of amusement such as race tracks,
cockpits, cabarets, concert halls, circuses and other places of amusement.
(Eastern Theatrical Co. vs. Alfonso, G.R. No. L-1104, May 31, 1949)
Uniformity vs. Equitability vs. Equality
 Uniformity – All taxable property shall be alike to be subjected to tax
 Equitability – The burden of taxation falls to those better able to pay.
 Equality – When the burden of the tax falls equally and impartially upon
all persons and property subject to it.
PROGRESSIVITY means that the tax rate increases as the tax base thereof
increases. Our income tax system is one good example of such progressivity
because it is built on the principle of the taxpayer’s ability to pay. Taxation is
progressive when its rate goes up depending on the resources of the person
affected (Reyes vs. Almanzor, G.R. Nos. 49839-46, April 26, 1991)
D. NO IMPRISONMENT FOR PAYMENT OF POLL TAX
Art. III, Sec. 20. No person shall be imprisoned for debt or non-payment
of a poll tax.
Poll Tax is a tax on individuals residing within a specified territory, whether
citizens or not, without regard to their property or the occupation in which
they may be engaged.
E. EXEMPTION FROM PROPERTY TAX OF REGILIOUS,
CHARITABLE AND EDUCATIONAL INSTITUTIONS
Art. VI, Section 28.
(3) Charitable institutions, churches and parsonages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all lands,
buildings, and improvements, actually, directly, and exclusively used for
religious, charitable, or educational purposes shall be exempt from
taxation.
Property Tax: The tax exemption under this constitutional provision covers
property taxes only. As Chief Justice Hilario G. Davide, Jr., then a member of
the 1986 Constitutional Commission, explained: ". . . what is exempted is not
the institution itself . . .; those exempted from real estate taxes are lands,
buildings and improvements actually, directly and exclusively used for
religious, charitable or educational purposes." (Lung Center of the Philippines
vs. Quezon City, GR No. 144104, June 29, 2004)
Estate and donor’s tax are excise taxes on the privilege to transfer property
gratuitously. Accordingly, the above exemption does not cover estate and
donor’s tax unless specifically provided under the Tax Code. (see Sections
101(A)(3) and 101(B)(2) of the Tax Code)
“Exclusive”: is defined as possessed and enjoyed to the exclusion of others;
debarred from participation or enjoyment; and “exclusively” is defined, “in a
manner to exclude; as enjoying a privilege exclusively.” If real property is
used for one or more commercial purposes, it is not exclusively used for the
exempted purposes but is subject to taxation. The words “dominant use” or
“principal use” cannot be substituted for the words “used exclusively” without
doing violence to the Constitution and the law (Lung Center of the Phil. vs.
Quezon City, G.R. No. 144104, June 29, 2004).
Actual and Direct Use is necessary: To be exempt from tax, the lands,
buildings and improvements must not only be exclusively but also actually and
directly used for religious and charitable purposes (Province of Abra vs.
Hernando, G.R. No. L-49336, August 31, 1981)
Thus, even if a property is owned by a religious, educational or charitable
institution, if it is rented out and used for activities other than the main
purpose of the institutions, it will be subject to tax and not covered by the
exemption. Note that in Real Property Taxation, the actual use is
determinative of assessment and taxability NOT OWNERSHIP.
Incidental Use: the exemption likewise covers activities which are incidental
to the main activity. As such, canteens owned and operated by the school, as
well as libraries are covered by the exemption extended to schools.
If the use is not incidental, exemption does not apply: While the use of the
second floor of the main building for residential purposes of the Director and
his family may find justification under the concept of incidental use, which is
Cesar Nickolai F. Soriano Jr.
8 Arellano University School of Law 2011-0303
GENERAL PRINCIPLES OF TAXATION
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complimentary to the main or primary purpose, i.e., educational, the lease of
the first floor to the Northern Marketing Corporation cannot be considered
incidental to the purpose of education. Since only a portion is used for the
purpose of commerce, it is only fair that half of the assessed tax be returned
to the school involved (Abra Valley vs. Aquino, G.R. No. L-39086, June 15,
1988).
Only the portion used for commercial purpose are subject to the tax:
While portions of the hospital are used for the treatment of patients and the
dispensation of medical services to them, whether paying or non-paying,
other portions thereof are being leased to private individuals for their clinics
and a canteen. Accordingly, we hold that the portions of the land leased to
private entities as well as those parts of the hospital leased to private
individuals are not exempt from such taxes. On the other hand, the portions
of the land occupied by the hospital and portions of the hospital used for its
patients, whether paying or non-paying, are exempt from real property taxes.
(Lung Center of the Phil. vs. Quezon City, G.R. No. 144104, June 29, 2004).
Use of income: As a general principle, a charitable institution does not lose
its character as such and its exemption from taxes simply because it derives
income from paying patients, whether out-patient, or confined in the hospital,
or receives subsidies from the government, so long as the money received
is devoted or used altogether to the charitable object which it is
intended to achieve; and no money inures to the private benefit of the persons
managing or operating the institution.
Receipt of Donation: The institution does not lose its character as a
charitable institution simply because the gift or donation is in the form of
subsidies granted by the government.
F. EXEMPTION OF NON-STOCK, NON-PROFIT EDUCATIONAL
INSTITUTIONS
Art. XIV, Sec. 4(3): All revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and exclusively for
educational purposes shall be exempt from taxes and duties. Upon the
dissolution or cessation of the corporate existence of such institutions,
their assets shall be disposed of in the manner provided by law.
Proprietary educational institutions, including those cooperatively owned,
may likewise be entitled to such exemptions subject to the limitations
provided by law including restrictions on dividends and provisions for
reinvestment.
Coverage: the above exemption does not only cover property tax but also
income tax unlike the exemption of religious and educational institutions
provided under (E) above which covers only property taxes.
Proprietary educational institutions: are taxable under Sec. 27(B) of the
Tax Code.
G. GRANT OF EXEMPTION REQUIRES THE MAJORITY VOTE OF
CONGRESS
Art. VI, Sec. 28(4): No law granting any tax exemption shall be passed
without the concurrence of a majority of all the Members of the Congress.
Rationale: in order to prevent the indiscriminate grant of tax exemptions.
H. PROHIBITION ON TAX LEVIED FOR SPECIAL PURPOSE
Art. VI, Sec. 29(3): All money collected or any tax levied for special
purposes shall be treated as special fund and paid out for such purpose
only. If the purpose for which a special fund was created has been fulfilled
or abandoned, the balance, if any, shall be transferred to the general funds
of the government.
I. VETO POWER OF THE PRESIDENT
 Art. VI, Sec. 27(2): 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 which he does not object.
J. REVENUE OR TARIFF BILL MUST EXCLUSIVELY ORIGINATE
FROM THE LOWER HOUSE
Art. VI, Sec. 24: All appropriation, revenue or tariff bills, bills authorizing
the increase of public debts, bills of local application and private bills, shall
originate exclusively in the House of Representatives, but the Senate may
propose or concur with amendments.
interest so requires. (Cagayan Electric Power & Light Co., Inc. vs. CIR, G.R.
No. L-60126, September 25, 1985)
Rules applicable to revocation:
a. When the exemption is unilaterally granted by law and the same is
withdrawn by virtue of another law, there is no violation.
b. When the exemption is bilaterally agreed upon between the government
and the taxpayer, it cannot be withdrawn without impairing the contract.
c. When the exemption is granted under a franchise, it may be revoked
because a franchise is subject to amendment, alteration, or repeal by
Congress.

K. LOCAL GOVERNMENT’S POWER TO TAX O. NON-IMPAIRMENT OF THE JURISDICTION OF THE SUPREME

Art. X, Sec. 5: Each local government unit shall have the power to create
its own sources of revenues and to levy taxes, fees and charges subject to
such guidelines and limitations as the Congress may provide, consistent
with the basic policy of local autonomy. Such taxes, fees, and charges shall
accrue exclusively to the local governments.
L. NO APPROPRIATION FOR RELIGIOUS PURPOSES
Art. VI, Sec. 29(2): No public money or property shall be appropriated
applied, paid or employed, directly or indirectly, for the use, benefit or
support of any sect, church, denomination, sectarian institution or system
of religion, or of any priest, preacher, minister, other religious teacher, or
dignitary as such, except when such priest, preacher, minister, or dignitary
is assigned to the armed forces, or to any penal institution, or government
orphanage or leprosarium.
M. RELIGIOUS FREEDOM
COURT
Art. VIII, Sec. 5[2]: The Supreme Court shall have the power to review,
revise, 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.
Thus, Congress cannot enact a law which makes the decisions of the Court of
Tax Appeals final and non-appealable to the Supreme Court.
VI. STAGES OF TAXATION
1. Levy
The determination by Congress of the subject and object of taxation as well
as the rate (Domondon, 9th ed, p. 29). It refers to the enactment of tax laws
or statutes (Dimaampao, 2011 ed, p. 14).

Art. III, Sec. 5: No law shall be made respecting an establishment of
religion, or prohibiting the free exercise thereof. The free exercise and
enjoyment of religious profession and worship, without discrimination or
preference, shall forever be allowed. No religious test shall be required for
the exercise of civil or political rights.
Sale of Bibles at cost or at a low premium: The Constitutional guaranty
of the free exercise of religion carries with it the right to disseminate religious
information. Any restraint on such right can only be justified on the ground
that there is a clear and present danger of any substantive evil which the
State has the right to prevent.
Activities simply and purely for propagation of faith are exempt (i.e., sale of
bibles and religious articles by non-stock, non-profit organizations at minimal
profit). A license tax, which, unlike an ordinary tax, is mainly for regulation.
Its imposition on the press is unconstitutional because it lays a prior restraint
on the exercise of its right. Hence, although its application to others is valid,
its application to the press or to religious groups, such as the Jehovah’s
Witnesses, in connection with the latter’s sale of religious books and
pamphlets, is unconstitutional (American Bible Society v. City of Manila, G.R.
L-9637, April 1957)
Note: This is NOT the “Levy” under Sec. 207 of NIRC, which refers to the
remedy of the Government to collect taxes.
2. Assessment and Collection
Assessment is a notice to the effect that the amount therein stated is due as
tax and a demand for payment thereof.
Rules governing assessment and collection of taxes to prevent its
abuse
1. The tax law must designate which agency will collect the taxes
2. The circulars or regulations issued by the Secretary of Finance or the
Commissioner of the Internal Revenue must be in accordance with the
tax measures imposed by Congress
Collection is the final stage and goal of tax administration.
3. Payment
The act of compliance by the taxpayer, including such options, schemes or
remedies as may be legally open or available to him.

N. NON-IMPAIRMENT OF CONTRACTS 4. Refund

The taxpayer asks for restitution of the money paid as tax which is either
Art. III, Sec. 10: No law impairing the obligation of contracts shall be
excessive or erroneous.
passed.

Revocability of Tax Exemption: A law which changes the terms of the

contract by making new conditions, or changing those in the contract, or
dispenses with those expressed, impairs the obligation.

However, the non-impairment rule does not apply to public utility franchises
since a franchise is subject to amendment, alteration or repeal by the
Congress when the public interest so requires (Article XII, Section 11). This is
so because under the Constitution [now Section 11, Article XII, 1987
Constitution], the legislature can impair a grantee’s franchise since a franchise
is subject to amendment, alteration or repeal by the Congress when the public

Cesar Nickolai F. Soriano Jr.

9 Arellano University School of Law 2011-0303
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