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General Principles
General Principles
General Principles
Taxation Defined
The exercise of the sovereign power to raise revenues for the expenses of the government.
Taxation covers three (3) separate areas or aspects of government activity, namely:
1. Levying or imposition of the tax. This involves the passage of tax laws which is
generally a legislative act. In the Philippines, the taxing power is exercised by Congress.
3. Collection and payment – the act of compliance with the tax law by the taxpayer.
1) Power to Tax
2) Police Power
3) Power of Eminent Domain
Police Power
Police power is the inherent power of a sovereign state to legislate for the protection of the
health, general welfare, safety, and morals of the public. It involves the power to regulate
both liberty and property for the promotion of the public good.
Note: The police power of the State may be exercised through taxation because taxes may be
levied for the promotion of the welfare of the public.3
1 To say that “the power to tax is the power to destroy” is to describe not the purpose for which the taxing
power may be used but the degree of vigor with which the taxing power may be employed in order to
raise revenue (1 Cooley 179-181).
A) Purpose:
B) Amount of Exaction
Taxation No limit.
Police Power Limited to the cost of regulation, issuance of the license,
and/or surveillance.
Eminent Domain No exaction but private property is taken for public use.
C) Benefits Received
D) Non-Impairment of Contracts
(a) 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.5
(b) The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.6
Equality – the same means and methods be applied impartially to all the members of each
class
Equal protection of the law – means equality before the law. However, such equality
does not deny to the state the power to recognize factual
differences between individuals and classes. It
recognizes that inherent in the right to legislate is the
right to classify, provided that it is a valid and
reasonable classification. If the groupings are
characterized by substantial distinctions that make real
differences, one class may be treated and regulated
differently from another.7
3
Note: The exemption referred to here is exemption from the real property tax which
is a local tax levied by a province or city (not by the National Government).
(e) No law granting any tax exemption shall be passed without the concurrence of a
majority of all the members of Congress.5
i) When the tax exemption is bilaterally agreed upon between the government and
the taxpayer, the exemption cannot be withdrawn without violating the
nonimpairment clause.
ii) However, when the tax exemption is unilaterally granted by law, the same may be
withdrawn by virtue of another law without violating the non-impairment clause.
Ex. When the tax exemption is granted under a franchise embodied in a law, the
same may be withdrawn at any time.
(g) No law shall be made respecting an establishment of a religion or prohibiting the free
exercise thereof.12
(h) All appropriation, revenue or tariff bills xxxxxxx shall originate exclusively in the
House of Representatives, but the Senate may propose or concur with
amendments.14
(i) 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.15
(j) 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 xxxx all cases involving the legality of any tax, impost,
assessment, or toll, or any penalty imposed in relation thereto.16
(k) 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.17
(l) 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.18
Moreover, income of a non-stock, non-profit educational institution derived from any activity or property shall be
exempt from income taxation as long as such income is used actually, directly, and exclusively for educational
purposes (CIR vs. De La Salle, Inc., Supreme Court G.R. No. 196596, November 2, 2016).
18
Art. VI, Sec. 27 (2).
(m) All money collected or 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.6
(2) Inherent limitations. These are restrictions arising from the very nature of the power to
tax itself. They are:
(a) The levy must apply within territorial limits for the exercise of effective tax
jurisdiction.
(c) Exemption from taxation of the government, any political subdivision thereof, or
agencies performing purely governmental functions. Ex. City government of
Makati.
EXC: The Government Service Insurance System (GSIS), the Social Security System
(SSS), Home Development Mutual Fund (Pag-Ibig), the Philippine Health
Insurance Corporation (PHIC or Philhealth), and local water districts (LWDs);
are exempt from the income tax imposed under Section 27 of the National
Internal Revenue Code (“NIRC”).
(d) As a general rule, the taxing power of the legislature may not be delegated.
Exceptions to this non-delegability rule are:
i) The authority of the President to fix tariff rates, import and export quotas, tonnage
and wharfage dues, and other duties and imposts (Art. VI, Sec. 28 (2), 1987
Constitution).
ii) 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 (Art. X, Sec. 5, 1987 Constitution). Ex. Real property taxes.
This principle limits the authority of the government to effectively impose taxes on a
sovereign state and its instrumentalities, as well as on its property held and activities
undertaken in that capacity. As a rule, the Philippine government cannot tax foreign
ambassadors nor impose real property taxes upon foreign embassies.
(f) Double Taxation. Two types of double taxation are direct double and indirect double
taxation.
Indirect double taxation, which lacks one or more of the elements of direct double
taxation, is also permissible.
1. Fiscal Adequacy – which means that the sources of revenue should be sufficient to meet
the demands of public expenditures;
2. Equality or Theoretical Justice – which means that the tax imposed should be
proportionate to the taxpayer’s ability to pay; and
3. Administrative Feasibility – which means that the tax laws should be capable of
convenient, just, and effective administration
1) Life-blood Theory.
- Taxes are the lifeblood of the government. Without taxes, no government can
function.
2) Benefits Protection Theory (Symbiotic Relationship)
- Taxes are what we pay for a civilized or organized society. Without taxes, the
government would be paralyzed for lack of the motive power to activate and operate
it (Commissioner v. Algue, 158 SCRA 9).
Classification of Taxes
- Fixed amount imposed upon persons - Imposed on - Imposed upon the performance of an act;
of a certain class without regard to property the exercise of a right; or the engaging in
business or profession
property, trade, business, or
occupation
Ex. Community tax Ex. RPT Exs. VAT, Donor’s tax, Estate tax, Income tax,
Occupation tax, Excise tax
d) According to purpose
Specific Ad Valorem
Measured by number, or based on weight Based on the value of the property and may require the
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or physical measurement intervention of assessors and appraisers
Exs. Excise tax on lubricating oils, waxes, Exs. RPT; excise tax on liquors, cigarettes packed by
petroleum, etc. machine, and automobiles
1. Tax laws are prospective, generally, but can have retrospective application.
Tax laws are not penal in character. Being civil in nature, the constitutional
prohibition against ex post facto legislation does not apply to tax laws. 7 They can
therefore be given retrospective application if expressly declared by the tax law.
However, tax laws, like other statutes, are to be construed as having only a prospective
operation unless the purpose and intention of the legislature to give retrospective effect is
expressly declared or is necessarily implied from the language used.21
A tax creates a civil obligation or liability on the part of the taxpayer, although the
nonpayment thereof creates a criminal liability, which could be the subject of criminal
prosecution under existing laws. In short, in taxation, it is one’s civil liability to pay
taxes that gives rise to criminal liability.8
2. A statute will not be construed as imposing a tax unless it does so clearly, and
unambiguously.
A tax cannot be imposed without clear and express words for that purpose. Accordingly,
the provisions of a taxing act are not to be extended by implication.9
In case of doubt, statutes imposing a tax are construed most strongly against the
Government, and liberally in favor of the citizen because burdens are not to be imposed
beyond what the statutes expressly can clearly import.10
Legal provisions providing for tax exemptions are to be construed strictly against the
grant and liberally in favor of the taxing power.11
Exemption from taxation is construed strictissimi juris, i.e. strictly against exemption.
Hence, exemption must be anchored firmly on an express provision of law. He who
claims exemption must be able to justify his claims by the clearest grant of organic and
statute law.12
7 Law of Basic Taxation in the Philippines, Benjamin Aban; citing Republic v. Oasan Vda. de Fernandez,
et al., 99 Phil. 934; Ex Parte Garland, 18 Law Ed. 366. 21 Lorenzo v. Posadas, 64 Phil. 353.
8 Republic v. Patanao, L-22356, July 21, 1967.
9 Marinduque Mines Agents v. Municipal Council of Hinabangan, L-18924; Commissioner v. CA, GR
115349, April 18, 1997.
10 Manila Railroad v. Collector of Customs, GR 10214; CIR v. La Tondeña, Inc. et. al., L-10431.
11 Phil. Int’l. Fair, Inc. v. Collector, G.R. L-12928 and L-12932, 1962.
12 Collector v. Manila Jockey Club, Inc., 53 O.G. 3762.
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4. Revenue laws are not political in nature.
Our internal revenue laws are not political in nature and as such were continued in force
during the period of enemy occupation and in effect were actually enforced by the
occupation government.1314
6. Tax laws are special laws, and prevail over general laws.15
5. Judicial decisions;
6. Rules and regulations promulgated by the Department of Finance, the Bureau of Internal
Regulations (“BIR”), Bureau of Customs, etc.
7. Administrative interpretations and opinions of tax officials particularly those of the
Commissioner of Internal Revenue.
2. Capitalization. By not selling property which has increased in value, the owner avoids
the income tax to be paid on the gain if the same is sold. An increase in the value of an
asset is merely an unrealized increase (gain) in capital.
3. Transformation. The manufacturer or producer upon whom the tax has been imposed,
fearing the loss of his market if he should add the tax to the price, pays the tax. He then
endeavors to recoup the tax paid by making his production more efficient and lowering
his cost of production.
4. Tax exemption. Exemption from taxation is the freedom from the burden of paying tax.
5. Tax avoidance. Tax avoidance occurs when the means used to minimize taxes are legal
and not prohibited by law.
6. Tax evasion. Tax evasion connotes fraud through the use of pretenses and forbidden
devices to lessen or defeat taxes.16
16 Yutivo Sons Hardware v. CTA, L-13203, January 28, 1961, 1 SCRA 160. 31
1 Cooley on Taxation, 105.
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Tax and Licence Distinguished
Tax License
Purpose To raise revenue To regulate action, businesses,
industries, professions
Limitations on taxation Subject to constitutional and inherent Not subject to the limitations on
limitations on the power to tax taxation
Amount Unlimited Limited to the cost of regulation
(licensing, inspection, surveillance)
Effect of non-payment Does not make the business illegal Makes the business illegal
A special assessment is in the nature of a tax upon property levied according to benefits
conferred on the property. The whole theory of a special assessment is based on the doctrine
that the property against which it is levied derives some special benefit from the
improvement xxxxxxx their property being increased in value by the expenditure to an
amount at least equal to the sum they are required to pay.31
Tax Debt
Source of obligations Law Contract
Obligee Due to the government in Due to obligee under a contract; May be due to
its sovereign capacity the government in its corporate capacity
Form of payment Money Money, property, or services
Interest No interest except in cases If stipulated or if the payment is in delay
of delinquency
Assignability Not assignable Generally assignable
Compensation/Set-off No Yes
Incarceration for Yes, except for non- No person can be imprisoned for non-payment
nonpayment payment of poll tax of debts (Constitution).
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Tax and Toll Distinguished
Tax Toll
Demand for sovereignty Demand of ownership or proprietorship
Imposed by the government May be imposed by private persons or entities
May be based on income or on the value Largely based on the cost of the property used, or on
of the property the cost of the improvement used
Forced contribution Compensation charged by the owner for the
voluntary use of the property/improvements
Tax Administration
2. Power to decide disputed assessments, refunds of internal revenue taxes, fees and other
charges, penalties imposed in relation thereto, other matters arising under the National
Internal Revenue Code (“NIRC”) or other laws or portions thereof administered by the
Bureau of Internal Revenue (“BIR”), subject to the exclusive appellate jurisdiction of the
Court of Tax Appeals (“CTA”);
3. Power to examine any book, paper, record, or other data which may be relevant or
material to a tax inquiry;
4. Power to obtain information from any person other than the person whose internal
revenue tax liability is subject to audit or investigation or from any office or officer of the
national or local governments, government agencies and instrumentalities;
5. Power to summon the person liable for tax or required to file a return, or any officer or
employee of such person, or any person having possession, custody, or care of the books
of accounts and other accounting records;
6. Power to take such testimony of the person concerned, under oath, as may be relevant or
material to such inquiry;
8. Power to prescribe real property values by dividing the country into different zones and
determining the FMV of real properties located in each zone;
17 The BIR shall have a chief to be known as the Commissioner of Internal Revenue (CIR), and four (4) assistant
chiefs to be known as Deputy Commissioners (Sec. 4, NIRC).
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9. The Commissioner is authorized to inquire into the bank deposits and other related
information held by financial institutions of:
(a) A decedent to determine his gross estate;
(b) A taxpayer who has filed an application for compromise of his tax liability by
reason of financial incapacity to pay his tax liability; and
(c) A taxpayer who is subject of a request for the supply of tax information from a
foreign tax authority pursuant to an international agreement or treaty.
10. The Commissioner has the authority to accredit and register individuals and general
professional partnerships (GPPs) and their representatives who prepare and file tax
returns, statements, reports and other papers, or who appear before the BIR, for taxpayers.
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