Constitutional Provisions Related to Taxation

Taxation is the imposition of burdens upon persons, property or rights within its jurisdiction for the
purpose of raising revenue in order to defray the government’s expenditures. Taxation is an inherent
power of the State. It does not need a constitution or a law before it can exercise this enormous power.
Constitutional provisions do not give rise to the power to tax but merely imposes limitations. Taxation is
a power vested to the legislatures (Capuno, 2022).

Taxation is the rule and exemption.

The exception:

1. where the statute granting the exemption expressly provides for a liberal interpretation
2. Special Taxes relating to special cases and affecting only special classes of persons
3. In case of property owned by the state or the city or other public corporation
4. Traditional exemptees, such as those in favor of religious and charitable institutions
5. In favor of the government, its political subdivisions or instrumentalities
6. If the taxpayer falls within the purview of exemption by clear legislative intent

a) Provisions directly affecting taxation

1. Prohibition against imprisonment for nonpayment of poll tax.

Article III, Section 20. No person shall be imprisoned for debt or non-payment of a poll tax.

- A constitutionally guaranteed right, as enshrined in the Bill of Rights. Poll tax is commonly
known as the community tax or cedula. The cedula generally serves as the personal
identification certificate.

The non-imprisonment clause was intended to protect the poor (Bernas, 2009).

Prior to the 1935 constitution, imprisonment for non-payment of poll tax was authorized, by
virtue of the revised administrative code (Bernas, 2009).

In the United States, payment of poll tax is a requirement for the exercise of suffrage. However,
in the Philippines, by virtue of the provision under Article V which prohibits the imposition of
"literacy, property, or other substantive requirement" on the exercise of the right of suffrage,
payment of poll tax is not required for the exercise of suffrage.

2. Uniformity and equality of taxation

Article VI, Section 28. (1) The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation.

- Although the power to tax is legislative in nature, Section 28(2) itself authorizes Congress to
delegate it to the President.
 The uniformity applies to taxation in general. The tax is uniform when it operates in the same
force and effect in every place where the subject of it is found (Bernas, 2009).

Uniformity and Equality of Taxation means all taxable articles or kinds of property of the same
class shall be taxed at the same rate. To satisfy this requirement, it is enough that the statute or
ordinance applies equally to all persons, forms, and corporation placed in similar situation
(Capuno, 2020).

With regards to progressive system, a tax is progressive when the rate increases as the tax base
increases. The provision means that direct taxes are to be preferred and indirect taxes be
minimized, which is a regressive tax (Capuno, 2020). Direct taxes are those that are paid directly
to the government. Those imposed on profits and income. While indirect taxes are those
imposed on goods and service (i.e. VAT).

3. Grant by Congress of authority to the president to impose tariff rates…

Article VI, Section 28. (2) The Congress may, by law, authorize the President to fix within specified
limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national
development program of the Government.

- Also known as the Flexible Tariff Clause under the Tariff and Customs Code.

Such authority must be exercised in the interest of national economy, general welfare, and
national security. Customs duties may be reduced or even removed for the purpose of
protecting consumers from the high prices and inferior quality and inefficient service that tariff-
protected and subsidized local manufacturers may impose upon the community (Capuno, 2020).

4. Flexible tariff clause

In the interest of national economy, general welfare and/or national security, the President, upon
recommendation of the National Economic and Development Authority, is empowered:

1. To increase, reduce, or remove existing protective rates of import duty, provided that the increase
should not be higher than 100% ad valorem;
2. To establish import quota or to ban imports of any commodity; and
3. To impose additional duty on all imports not exceeding 10% ad valorem.

- A trade remedy when foreign imports be coming in harmful volumes, section 1608 of the
Customs Modernization and Tariffs Act (Gatdula, 2019).

5. Prohibition against taxation of religious, charitable entities and educational entities

Article VI, Section 28 (3) Charitable institutions, churches and personages 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.

Requisites:
1. non-stock non-profit
2. organized exclusively for charitable purposes
3. operated exclusively for charitable purposes
4. no part of its net profit or assets shall accrue to the benefit of its directors and personnel.

- The policy on the law on tax exemptions is that, while they must be applied strictly, they must
also be applied fairly in a manner that will achieve the intent for which the exemptions were
created. " Thus, it is important to bear in mind that tax exemptions for charitable institutions
are given in order to enhance the service they are capable of giving; tax exemptions for
religious property are given in order to ensure religious liberty; and tax exemptions for
educational institutions are given for the sake of making quality education affordable to all
(Bernas, 2009).

The exemption is not only limited to properties indispensably used for charitable and
educational purposes but extends to facilities which are incidental to and reasonably necessary
for the accomplishment of said purpose (i.e. in a hospital, a school for training of nurses)
(Capuno, 2020).

In Abra Valley College vs. Aquino, a two-story building owned by the educational institution. The
first floor was leased for commercial purposes and the second floor was occupied by the
school’s director and his family. It was held that the second floor is exempt from property tax for
its use is incidental and necessary for the accomplishment of the purpose of the institution. The
first floor shall be subjected to property tax since its use cannot be considered as incidental to
the purpose of the institution (Capuno, 2020).

The exemption created by the constitutional provision is only for "taxes assessed ... as property
taxes, as contra-distinguished from excise taxes (Bernas, 2009).

Cases:

CIR v. St. Lukes, G.R. 195909, September 26, 2012

FACTS:
St. Luke’s Medical Center, Inc. is a hospital organized as a non-stock and non-profit corporation.
The BIR assessed St. Luke’s deficiency taxes for 1998, comprised of deficiency income tax, value-
added tax, withholding tax on compensation and expanded withholding tax. St. Luke’s filed an
administrative protest with the BIR against the deficiency tax assessments. The BIR did not act
on the protest within the 180-day period under Section 228 of the NIRC. Thus, St. Luke’s
appealed to the CTA.

St. Luke’s contention: St. Luke’s contended that the BIR should not consider its total revenues,
because its free services to patients was P218,187,498 or 65.20% of its 1998 operating income.
St. Luke’s also claimed that its income does not inure to the benefit of any individual. St. Luke’s
maintained that it is a non-stock and non-profit institution for charitable and social welfare
purposes under Section 30(E) and (G) of the NIRC. It argued that the making of profit per se does
not destroy its income tax exemption.

ISSUE:
Whether St. Luke’s is liable for deficiency income tax in 1998 under Section 27(B) of the NIRC,
which imposes a preferential tax rate of 10% on the income of proprietary non-profit hospitals.

RULING:
To be exempt from real property taxes, Section 28(3), Article VI of the Constitution requires
that a charitable institution use the property “actually, directly and exclusively” for charitable
purposes. To be exempt from income taxes, Section 30(E) of the NIRC requires that a charitable
institution must be “organized and operated exclusively” for charitable purposes. Likewise, to be
exempt from income taxes, Section 30(G) of the NIRC requires that the institution be “operated
exclusively” for social welfare.

The last paragraph of Section 30 provides that if a tax-exempt charitable institution conducts
“any” activity for profit, such activity is not tax exempt even as its not-for-profit activities
remain tax exempt. This paragraph qualifies the requirements in Section 30(E) that the “[n]on-
stock corporation or association [must be] organized and operated exclusively for x x x
charitable x x x purposes x x x.” It likewise qualifies the requirement in Section 30(G) that the
civic organization must be “operated exclusively” for the promotion of social welfare.

The Court finds that St. Luke’s is a corporation that is not “operated exclusively” for charitable or
social welfare purposes insofar as its revenues from paying patients are concerned.

CIR v. St. Lukes, G.R. 203514, February 13, 2017

FACTS:
The respondent St. Luke’s Medical Center, Inc. (SLMC) received a tax payment assessment from
the Large Taxpayers Service-Documents Processing and Quality Assurance Division of the Bureau
of Internal Revenue Audit Result/Assessment Notice on December 14, 2007. Based on the
assessment the respondent SLMC has a deficiency income tax under Section 27 (B) of the 1997
National Internal Revenue Code (NIRC), as amended for the taxable year 2005 in the amount of
P78, 617,434.54 and for taxable year 2006 in the amount of P57, 119,867.33.

The SLMC alleged that they are exempted from paying the income tax since SLMC is a non-stock,
non-profit, charitable and social welfare organization under Section 30 (E) and (G) of the 1997
NIRC as amended.

ISSUE:
Whether or not SLMC is liable for income tax under Section 27 (B) of the 1997 NIRC.

RULING:
Yes. Based on Section 27 (B) of the NIRC imposes 10% preferential tax rate on the income of (1)
proprietary non-profit educational institutions and (2) proprietary non-profit hospitals. The only
qualifications for hospitals are they must be proprietary and non-profit. Proprietary means
private, following the definition of a proprietary educational institution, as any other private
 school maintained and administered by private individuals or groups with government permit.
While non-profit means no net income or asset accrues to or benefits any member or specific
person with all the net income or asset devoted to the institution’s purposes and all its activities
conducted not for profit.

RP v. City of Paranaque, G.R. No. 191109, July 18, 2012

FACTS:
Philippine Reclamation Authority, formerly Philippine Estates Authority, reclaimed several
portions of the foreshore and offshore areas of Manila Bay, including those located in
Parañaque City. Parañaque City Treasurer Liberato M. Carabeo issued Warrants of Levy on PRA’s
reclaimed properties based on the assessment for delinquent real property taxes made by then
Parañaque City Assessor Soledad Medina Cue for tax years 2001 and 2002.

ISSUE:
Whether or not PRA is exempt from real property tax.

RULING:
Yes. PRA is a government instrumentality vested with corporate powers and performing an
essential public service pursuant to Section 2 (10) of the Introductory Provisions of the
Administrative Code. Being an incorporated government instrumentality, it is exempt from
payment of real property tax.

6. Majority vote of Congress of grant of tax exemption

Article VI, Section 28 (4) No law granting any tax exemption shall be passed without the concurrence
of a majority of all the Members of the Congress.

- Pertains to the total membership of Congress and not simply the majority of the quorum in a
given business day (Capuno, 2020).

An added limitation on the power to tax.

7. Prohibition on use of tax levied for special purpose

All money collected on any tax levied for a special purpose shall be treated as a 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. (Article
VI, Section 29, paragraph 3)

- This is intended to prevent abuse in the disposition of special funds (Bernas, 2009)

When that purpose has been fulfilled or is no longer forthcoming, the balance, if any, shall then
be transferred to the general funds of the government, which may thereafter be appropriated
by Congress and expended for any legitimate purpose within the scope of the general fund
(PCGG vs. COCOFED / Bernas, 2009).
8. Origin of Revenue or Tariff Bills / President’s veto power on appropriation, revenue, tariff bills

All appropriation, revenue or tariff bills, bills authorizing the increase of the public debt, bills of local
application and private bills shall originate exclusively in the House of Representatives but the Senate
may propose or concur with amendments (Article VI, Section 24).

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. (Article VI,
Section 27, second paragraph)

- The theory behind the rule requiring that these originate in the House of Representatives is that
district Representatives are closer to the pulse of the people than senators are and are
therefore in a better position to determine both the extent of the legal burden they are capable
of bearing and the benefits that they need (Bernas, 2009).

- The veto may be overridden by congress with 2/3 vote of all its members.

As a general rule, if the President disapproves of a provision in a bill approved by Congress, he

should veto the entire bill. He is not allowed to veto separate parts of a bill while retaining
others. It is only in the case of appropriation, revenue, and tariff bills that he is authorized to
exercise item-veto. Such veto is a useful check on improvident (spendthrift) use of public funds
and on oppressive revenue measures (Bernas, 2009).

9. Non-impairment of jurisdiction of the Supreme Court

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
x x x all cases involving the legality of any tax, impost, assessment, or toll or any penalty imposed in
relation thereto. (Article VIII, Section 5 (2b)).

- Supreme Court is the Court of last resort. Having been vested with the power to have the last
and final say over any controversies.

10. Grant of power to the local government units to create its own sources of revenue

Article X, Section 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.

- It is established Philippine jurisprudence that municipal corporations possess no inherent power

to tax (Bernas, 2009).

The power to tax of LGUs is no longer by virtue of a delegation of authority by Congress, but
pursuant to a direct authority conferred by the Constitution. This is due to a realization that
 development can be achieved only by strengthening local autonomy and promoting
decentralization of governance. For a long time, the local government leaders were dependent
upon the national leadership (Capuno, 2020).

11. Prohibition against taxation of non-stock, non-profit institutions

Article XIV, Section 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.

- Taxpayer must factually prove that it used actually, directly, and exclusively for educational
purposes the revenues or income sought to be exempted. Propriety institutions’ exemption is
subject to limitations imposed by law (Capuno, 2020).

The constitutional provision thus has a threefold rationale. It is intended (1) to preserve the
democratic choice of students; (2) to enable educational institutions to improve their quality;
and (3) to make quality education affordable to students (Bernas, 2009).

CASES:

CIR v. De La Salle University, Inc., G.R. No. 196596, November 9, 2016

Facts:
In 2004, the Bureau of Internal Revenue (BIR) issued to DLSU Letter of Authority (LOA) No. 2794
authorizing its revenue officers to examine the latter's books of accounts and other accounting
records for all internal revenue taxes for the period Fiscal Year Ending 2003 and Unverified Prior
Years.

BIR through a Formal Letter of Demand assessed DLSU the following deficiency taxes: (1) income
tax on rental earnings from restaurants/canteens and bookstores operating within the campus;
(2) VAT business income; and (3) documentary stamp tax (DST) on loans and lease contracts.
The BIR demanded the payment of P17,303,001.12, inclusive of surcharge, interest and penalty
for taxable years 2001, 2002 and 2003.

DLSU ARGUMENTS:

DLSU stresses that Article XIV, Section 4 (3) of the Constitution is clear that all revenues and
assets of non-stock, non-profit educational institutions used actually, directly and exclusively for
educational purposes are exempt from taxes and duties.

On this point, DLSU explains that: (1) the tax exemption of non-stock, non-profit educational
institutions is novel to the 1987 Constitution and that Section 30 (H) of the 1997 Tax Code
cannot amend the 1987 Constitution; (2) Section 30 of the 1997 Tax Code is almost an exact
replica of Section 26 of the 1977 Tax Code — with the addition of non-stock, non-profit
educational institutions to the list of tax-exempt entities; and (3) that the 1977 Tax Code was
promulgated when the 1973 Constitution was still in place.

DLSU thus invokes the doctrine of constitutional supremacy, which renders any subsequent law
that is contrary to the Constitution void and without any force and effect. Section 30 (H) of the
1997 Tax Code insofar as it subjects to tax the income of whatever kind and character of a non-
stock and non-profit educational institution from any of its properties, real or personal, or from
any of its activities conducted for profit regardless of the disposition made of such income,
should be declared without force and effect in view of the constitutionally granted tax
exemption on "all revenues and assets of non-stock, non-profit educational institutions used
actually, directly, and exclusively for educational purposes."

DLSU further submits that it complies with the requirements enunciated in the YMCA case, that
for an exemption to be granted under Article XIV , Section 4 (3) of the Constitution, the taxpayer
must prove that: (1) it falls under the classification non-stock, non-profit educational institution;
and (2) the income it seeks to be exempted from taxation is used actually, directly and
exclusively for educational purposes.

Issue:
W/N it is required that the revenues and income of a non-stock, non-profit educational
institution must have also been sourced from educational activities or activities related to the
purposes of an educational institution for it to be tax-exempt.

Ruling:
No, it is not required that the revenues and income of a non-stock, non-profit educational
institution must have also been sourced from educational activities or activities related to the
purposes of an educational institution for it to be tax-exempt.

The tax exemption granted by the Constitution to non-stock, non-profit educational institutions
is conditioned only on the actual, direct and exclusive use of their assets, revenues and income
for educational purposes.

A plain reading of the Constitution would show that Article XIV, Section 4 (3) does not require
that the revenues and income must have also been sourced from educational activities or
activities related to the purposes of an educational institution. The phrase all revenues is
unqualified by any reference to the source of revenues. Thus, so long as the revenues and
income are used actually, directly and exclusively for educational purposes, then said
revenues and income shall be exempt from taxes and duties.

We find it helpful to discuss at this point the taxation of revenues versus the taxation of assets.

REVENUES consist of the amounts earned by a person or entity from the conduct of business
operations. It may refer to the sale of goods, rendition of services, or the return of an
investment. Revenue is a component of the tax base in income tax, VAT, and local business tax
(LBT).
ASSETS, on the other hand, are the tangible and intangible properties owned by a person or
entity. It may refer to real estate, cash deposit in a bank, investment in the stocks of a
corporation, inventory of goods, or any property from which the person or entity may derive
income or use to generate the same. In Philippine taxation, the fair market value of real
property is a component of the tax base in real property tax. Also, the landed cost of imported
goods is a component of the tax base in VAT on importation and tariff duties.

Thus, when a non-stock, non-profit educational institution proves that it uses its revenues
actually, directly, and exclusively for educational purposes, it shall be exempted from income
tax, VAT, and Local Business Tax. On the other hand, when it also shows that it uses its assets in
the form of real property for educational purposes, it shall be exempted from Real Property
Tax.

La Sallian v. CIR, GR NO 202792, FEB 27, 2019

Facts:
The Commissioner of Internal Revenue (CIR) assessed petitioner La Sallian Educational
Innovators Foundation, Inc. (De La Salle University-College of St. Benilde Foundation) with
deficiency income and value-added taxes on the ground that the foundation, a non-stock non-
profit entity was actually a profit-oriented organization because it collected expensive tuition
fees from its students and that seventy percent (70%) of the foundation’s earning went to
administrative purposes.

Issue:
Whether or not petitioner is no longer tax-exempt.

Ruling:
The Court held that the taxpayer is still tax-exempt as it falls under the classification of non
stock, non-profit educational institution and the income it seeks to be exempted from
taxation is used actually, directly and exclusively for educational purposes. Petitioner fulfilled
these requirements: its articles of incorporation provides its principal purpose; its capital is not
divided into shares; no part of its income was distributed to its members, trustees and officer;
and the member of the board do not receive any compensation for the performance of their
duties, including attendance in meetings.

Tax privilege granted by the Constitution itself to non-stock non-profit educational institution is
necessary to promote quality and affordable education in the country. A profit on the part of an
educational institution will ensure liquidity on the part of the institution and will ensure that
they have enough resources to improve and develop quality education. The tax exemption
will redound to the benefit of the students, without tax exemption students will be charged
unreasonable tuition fees.

University of the Philippines v. City Treasurer of Quezon City, G.R. No. 214044, June 19, 2019
Ruling:
UP is exempt from real property tax on its property (a parcel of land where Ayala Technohub is
located). However, Ayala (ALI) is taxable on the improvements made thereon.

Legal Bases/SC’s Discussion:

 1. UP is a chartered academic institution with specific legislated tax exemptions. These tax
exemptions come from the Local Government Code, as well as from its legislative charter,
Republic Act No. 9500.

2. For LGC: A combined reading of Sections 205 and 234 of the Local Government Code also
provides for removal of the exemption to government instrumentalities when beneficial use
of a real property owned by a government instrumentality is granted to a taxable person.
Stated differently, when beneficial use of a real property owned by a government
instrumentality is granted to a taxable person, then the taxable person is not exempted from
paying real property tax on such property.

3. However, the enactment and passage of Republic Act No. 9500 in 2008 superseded Sections
205(d) and 234(a) of the Local Government Code.

4. The contract of lease between UP and Ayala states that UP will shoulder the real property
taxes imposable on such property. For this one, SC compared the case with NPC vs. Province of
Quezon.

5. Considering that the subject land and the revenue derived from the lease thereof are used by
UP for educational purposes and in support of its educational purposes, UP should not be
assessed, and should not be made liable for real property tax on the land.

12. Exemption from real property taxes

Article 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.

- The policy on the law on tax exemptions is that, while they must be applied strictly, they must
also be applied fairly in a manner that will achieve the intent for which the exemptions were
created. " Thus, it is important to bear in mind that tax exemptions for charitable institutions
are given in order to enhance the service they are capable of giving; tax exemptions for
religious property are given in order to ensure religious liberty; and tax exemptions for
educational institutions are given for the sake of making quality education affordable to all
(Bernas, 2009).

The exemption is not only limited to properties indispensably used for charitable and
educational purposes but extends to facilities which are incidental to and reasonably necessary
for the accomplishment of said purpose (i.e. in a hospital, a school for training of nurses)
(Capuno, 2020).

In Abra Valley College vs. Aquino, a two-story building owned by the educational institution. The
first floor was leased for commercial purposes and the second floor was occupied by the
school’s director and his family. It was held that the second floor is exempt from property tax for
its use is incidental and necessary for the accomplishment of the purpose of the institution. The
 first floor shall be subjected to property tax since its use cannot be considered as incidental to
the purpose of the institution (Capuno, 2020).

The exemption created by the constitutional provision is only for "taxes assessed ... as property
taxes, as contra-distinguished from excise taxes (Bernas, 2009).

13. No appropriation or use of public money for religious purposes

Under Section 29 (2), Article VI of the Constitution, “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, or other religious teacher, or dignitary as such, except when such priest, preacher, minister,
or dignitary is assigned to the armed forces, or to any penal institution, or government orphanage or
leprosarium.” (PLAGO)

- The separation of church and state shall be inviolable (Article II, Section 6, 1987 Constitution).

b) Provisions indirectly affecting taxation

1. Due process
2. Equal protection

Section 1 of Article III of the Constitution.

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.

- The due process clause may be invoked to invalidate a revenue measure when it
amounts to a confiscation of property (Capuno, 2020).

Substantive due process requires that the enactment of the tax law must be within the
powers of Congress granted by the Constitution. While the procedural due process is
the right to be informed and heard. The taxpayer must be duly informed of the nature
and basis of the tax assessment and must be given the opportunity to respond or
challenge the assessment (Capuno, 2020).

- In equal protection clause, persons similarly situated should be treated alike as to rights
and obligations. It is not absolute equality but only equality among equals. Thus, a
different treatment is allowed where there is substantial distinction among the
taxpayers (Capuno, 2020).
- To be reasonable, the classification (a) must be based on substantial distinctions which
make for real differences; (b) must be germane to the purpose of the law; (c) must not
be limited to existing conditions only; and (d) must apply equally to each member of the
class.

CASES:

CIR v. Avon Manufacturing, G.R. Nos. 201398-99 & GR Nos. 201418-19, October 3, 2018
Facts:
Avon filed its VATReturns and Monthly Remittance Returns of Income Tax Withheld for the
taxable year 1999. They were served a Collection Letter requiring them to pay P80,
246,459.15. These deficiency assessments were the same deficiency taxes covered by
the Preliminary Assessment Notice. Hence, Avon filed a letter protesting against the
PAN. Without ruling on Avon's protest, the Commissioner prepared the Formal Letter of
Demand and Final Assessment Notices. Avon then protested by resubmittingtheprotest.
Avon informed the revenue officers that all the documents necessary to support its
defenses had already been submitted. The revenue officers allegedly expressed that
they would cancel the assessments resulting from the alleged discrepancy in sales if
Avon wouldpay part of the assessments.Avon paid the portions of the Final
Assessment Notices. However, in a Memorandum, the Bureau of Internal Revenue's
officers recommended the enforcement and collection of the assessments on the sole
justification that Avon failed to submit supporting documents within the 60-day period
as required under Section 228 of the Tax Code.Avon asserted that the items already paid
were still included inthe deficiency tax assessments. Avon requested the reconsideration
and withdrawal of the Collection Letter. It argued that it was devoid of legal and factual
basis, and was premature as the Commissioner of Internal Revenue had not yet acted
on its protest againstthe Final Assessment Notices.The Commissioner did not act on
Avon's request for reconsideration. Thus, Avon was constrained to treat the Collection
Letter as denial of its protest.Avon filed a Petition for Review before the Court of
Tax Appeals.The CTA partially grantedAvon's insofar as it ordered the cancellation of
the Final Demand and Final Assessment Notices for deficiency excise tax, VAT,
withholding tax on compensation, and expanded withholding tax. However, it ordered
Avon to pay deficiency income tax. The CTAalso made apronouncement that there was
no deprivation of due process in the issuance by the CIR of the assessment for
AVON wasafforded an opportunity to explain and present its evidence.The Court of Tax
Appeals En Banc further affirmed the Court of Tax Appeals Special First Division's
factual findings with regard to the cancellation of deficiency tax assessmentsand
disallowance of Avon's claimed tax credits. Finally, the Court of Tax Appeals En Banc
rejected Avon's contention regarding denial of due process. It held that Avon was accorded
by the Commissioner a reasonable opportunity toexplain and present evidence.Moreover,
the Commissioner's failure to appreciate Avon's supporting documents and arguments
did not ipso facto amount to denialof due process absent any proof of irregularityin
the performance of duties.Avon argues that the assessments are void ab initio due to the
failure of the Commissioner to observe due process.It maintains that from the start up to
the end of the administrative process, the Commissioner ignored all ofits protests and
submissions.

Issue:
Whether or not the Commissioner of Internal Revenue failed to observe administrative due
process, and consequently, whether or not the assessments are void.

Ruling:
Avon's arguments are well-taken.The Bureau of Internal Revenue is the primary agency
tasked to assess and collect proper taxes, and to administer and enforce the Tax Code.
However, these powers must "be exercised reasonably and [under] the prescribed
procedure." The Commissioner and revenue officers must strictly comply with the
requirements of the law, with the Bureau of Internal Revenue's own rules, and with
due regard to taxpayers' constitutional rights.The Commissioner exercisesadministrative
adjudicatory power or quasi-judicial function in adjudicating the rights and liabilities of
persons. Quasi-judicial power has been described as: the power of the administrative
agency to adjudicate the rights of persons before it. In carrying out these quasi-judicial
functions, the Commissioner is required to "investigate facts or ascertain the
existence of facts, hold hearings, weigh evidence, and draw conclusions from them
as basis for their official action and exercise of discretion in a judicial nature."Tax
investigation and assessment necessarily demand the observance of due process
because they affect the proprietary rights of specific persons.In Ang Tibay v. The Court of
Industrial Relations, this Court observed that although quasi-judicial agencies "may
be said to be free from the rigidity of certain procedural requirements[, it] does
not mean that it can, in justiciable cases coming before it, entirely ignore or disregard
the fundamental and essential requirements of due process in trials and investigations of
an administrative character." It then enumerated the fundamental requirements of
due process that must be respected in administrative proceedings:1.The party interested
or affected must be able to present his or her own caseand submit evidence in
support of it.2.The administrative tribunal or body must consider the evidence
presented.3.There must be evidence supporting the tribunal's decision.4.The evidence
must be substantial or "such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion."5.The administrative tribunal's decision must be
rendered on the evidence presented, or at least contained in the record and disclosed to
the parties affected.6.The administrative tribunal's decision must be based on the
deciding authority's own independent consideration of the law and facts governing the
case.7.The administrative tribunal's decision is rendered in a manner that the parties may
know the various issues involved andthe reasons for the decision.The first requirement
is the party's substantive right at the hearing stage of the proceedings, which, in
essence, is the opportunity to explain one's side or to seek a reconsideration of the
adverse action or ruling.
It was emphasized, however, that the mere filing of a motion for reconsideration does
not always result in curing the due process defect,"especially if the motion was filed
precisely to raise the issue of violation of the right to due process and the lackof
opportunity to be heard on the merits remained."The second to the sixth requirements
refer to the party's "inviolable rights applicable at the deliberative stage."The decision-
maker must consider the totality of the evidence presented as he or she decides the
case.The last requirement relating to the form and substance of the decision is the
decision-maker's '"duty to give reason' to enable the affected person to understand
how the rule of fairness has been administered in his [or her] case, to expose the reason
to public scrutiny and criticism, and to ensure that the decision will be thought
through by the decision-maker."The Ang Tibay safeguards were subsequently "simplified
into four basic rights,"as follows:(a) [T]he right to notice, be it actual or constructive, of
the institution of the proceedings that may affect a person's legal right; (b) reasonable
opportunity to appear and defend his rights and to introduce witnesses and relevant
evidence in his favor; (c) a tribunal so constituted asto give him reasonable assurance
of honesty and impartiality, and one of competent jurisdiction; and (d) a finding
or decision by that tribunal supported by substantial evidence presented at the
hearing or at least ascertained in the records or disclosed to the parties.The due
process requirement before administrative bodies are not as strict compared to
judicial tribunals in that it suffices that a party is given a reasonable opportunity to
be heard. Nevertheless, such "reasonable opportunity" should not be confined to the
mere submission of position papers and/or affidavits and the parties must be
given the opportunity to examine the witnesses against them. The right to a hearing is a
right which may be invoked by the parties to thresh out substantial factual issues. It
becomes even more imperative when the rules itself of the administrative body
provides for one. While the absence of a formal hearing does not necessarily result in the
deprivation of due process, it should be acceptable only when the party does not invoke the
said right or waives the same. "[A] fair and reasonable opportunity to explain one's
side"is one aspect of due process. Another aspect is the due consideration given by the
decision-maker to the arguments and evidence submitted bythe affected
party.Administrative due process is anchored on fairness and equity in procedure.It is
satisfied if the party is properly notified of the charge against it and is given a fair
and reasonable opportunity to explain or defend itself.Moreover, it demands that the
party's defenses be considered by the administrative body in making its
conclusions,and that the party be sufficiently informed of the reasons for its
conclusions.WHEREFORE, the Petition of the CIR is DENIED. The Petition of Avon is
GRANTED. The remaining deficiency Income Tax is hereby declared NULL and VOID and is
CANCELLED.

Ferrer v. Bautista, G.R. No. 210551, June 30, 2015

Facts:
The LGU of QC enacted two ordinances. One imposes socialized housing tax (SHT) based on
the assessed value of realty, to be paid by landowners. The other imposes a garbage fee
(GF) to be paid by landowners based on the floor area or land area of their property.

Ferrer, a landowner in QC, want to question the validity of these two (2) ordinances.
 Issue:
1. Whether or not SHT tantamount to penalty on realty owners.
2. Does the SHT violate equal protection, considering that those who occupy land illegally or
informally do not pay while legitimate owners of land are made to pay?
3. Does the LGC allow the imposition of SHT, considering there is already property tax?
4. Is GF a tax or a fee?
5. Is GF valid, considering that it imposes a fee based on land or floor area?

Ruling:
1. No, it does not. Property ownership bears a social function. Also, the SHT will improve the
status of property owners by increasing investment, raising land value, etc., after the
relocation of informal settlers. The foundation is police power.

2. No, equal protection admits of exception. As long as there is real and substantial
distinction, which is germane to the purpose of the law, it does not violate. The difference
between informal settlers and property owners is very clear and unmistakable. Again, the
foundation is police power, that power which allows the State to regulate life, liberty and
property in order to promote the welfare of the people.

3. Yes, the LGC allows this. The LGC, under the general welfare clause, provides local
governments the power to enact measure that will benefit the people. Moreover, SHT has
another basis in law: RA 7279 or the Urban Development and Housing Act. Again, the
foundation is police power.

4. It is a fee, not a tax. The main purpose is to regulate, not to raise revenue. The power of
LGUs to collect fees in order to manage wastes is recognized and conferred by RA 9003.
How can LGUs do something without the means to do it?

5. No, GF in not valid. Substantive due process requires reasonable means and reasonable
purpose. Although the purpose of the GF is reasonable and admirable, the means employed
is unreasonable and oppressive. Rather than basis on actual waste output or estimate
garbage use, the ordinance uses as a yardstick the people’s land or floor area which has
nothing to do with how much waste they produce.

3. Religious freedom
The separation of Church and State shall be inviolable.

- The separation of Church and State doctrine is reinforced by Section 2(5), Article IX-C,
which provides that no religious sect may be registered as a political party; by Section
5(2) of Article VI, which provides that no sectoral representative from the religious
sector may participate in the party-list system; and by Section 29(2), Article VI, which
prohibits the use of public funds for the benefit of religious sects, system of religion, or a
religious dignitary thereof (Davide Jr., n.d)
4. Non-impairment of obligations of contracts
No law impairing the obligation of contracts shall be passed (Sec. 10, Art. III, 1987
Constitution).

c) Other topics related to the Constitution

A. Enumerate and define the principles of a sound tax system.

1. Fiscal Adequacy – the taxes collected by the government must be sufficient, adequate, or at
least approximate, to the government expenditures. Sources of revenues must be adequate to
meet government expenditures (Capuno, 2020)

2. Administrative Feasibility – the tax system should be capable of being effectively

administered and enforced with the least inconvenience to the taxpayers (Capuno, 2020).

3. Theoretical Justice – the tax burden should be proportional to the taxpayers’ ability to pay. It
is mandated by Section 28 (1) of the Constitution that taxation shall be uniform and equitable
(Capuno, 2020).

Any violation of the first 2 principles does not render the tax law invalid because there
are no constitutional provision(s) tackling the sufficiency of tax collection and effective
administration.

B. Ex Post Facto Law application

- Ex post facto law are laws that has retroactive effects. These laws are prohibited by the
constitution to be enacted.

C. Inherent limitations on taxation (Capuno, 2020 p30)

- Inherent limitations emanate from the very nature, characteristics, and rationale of
taxation.

Inherent Limitations are as follows:

1. Public Purpose – taxes are collected only for public purposes.

2. Inherently Legislative – taxation is purely legislative, and Congress cannot delegate
such power to others. This limitation arises from the doctrine of separation of powers
among the 3 branches of the government.

Exceptions – delegation to LGUs; delegation to the president; delegation to

administrative agencies.

3. Territoriality – tax laws cannot operate beyond the State’s territorial limits.

4. International Comity – the property or income of a state or foreign government may

not be taxed by another state where the said income is derived or sourced or the
property is located.

5. Exemption of Government Entities, Agencies, and Instrumentalities – the constitution

does not prohibit the imposition of taxes on government entities, but congress chose
not to impose tax on those performing government functions.

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