INCOME TAXATION

OBJECTIVES:
• CONSTITUTIONAL LIMITATIONS
• Doctrine of Equitable Recoupment vs. Doctrine of Set-Off
• Double Taxation
• Exemption Real Estate Tax (Amilyar)
• Income Tax Payors (Individual, Corporation, & Estates and Trust)
• Kinds of Income Taxes in the Phippines
CONSTITUTIONAL LIMITATIONS
1. Due Process Clause (Section 1, Article 3, 1987) – “No person shall be
deprived of life, liberty and property without due process of law x x x “.
-guarantees the protection of personal and property rights.
-Enforced contribution (Tax, fees, charges, etc.) cannot be made
without a law authorizing the same.

2 aspects of Due process:

1. Substantive due process; and
2. Procedural due process.
Substantive Due Process
• Substantive due process requires that the tax statute must be within
the constitutional authority of Congress and that it must be fair, just
and reasonable.
PROCEDURAL DUE PROCESS
• Requires notice and hearing, or at least an opportunity to be heard.
2. EQUAL PROTECTION CLAUSE
• “ x x x Nor shall any person be denied the equal protection of the
laws. (Section 1, Article 3, 1987 Constitution)
• Taxpayers of the same footing should be treated alike, both as to
privileges as well as on obligations imposed.
TRAIN LAW 1
P250,000 and below – exempt from paying income tax.
Example:
Pedro – P175,000 – 2019
Juan –P250,000 - 2019
VALID CLASSIFICATION
• People vs. Cayat (68 Phil. 12)
Requirements of a valid classification:
1. There must be substantial distinctions, that make real
differences;
2. These must be germane and relevant to the purpose of the law;
3. The distinction or classification must not only be applicable to
present but also to future conditions; and
4. The distinctions must apply to persons, things, and transactions
belonging to the same class.
Tiu vs. Court of Appeals (301 SCRA 278)
• Congress passed a law RA 7227
• Those who will invest within the Subic Special Economic Zone (SSEZ)
will have to give larger capital
• Tax exemption both local and national.
• There is a substantial distinction.
• In this case no violation of equal protection clause.
Ormoc Sugar Central vs. Commissioner of
Internal Revenue (22 SCRA 603)
• The tax ordinance was in violation of the equal protection clause.
Requirement No. 3 (Valid Classification) was not met. The tax
ordinance was applicable only to Ormoc Sugar Central. The tax
ordinance will not apply to sugar centrals that will be established in
the future.
• At the time of the passage of the tax ordinance, only Ormoc Sugar
Central was operating.
3. FREEDOM OF RELIGION
• “ No law shall be passed respecting an establishment of religion, or
prohibiting the free exercise thereof (1. Non-establishment Clause)
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(2. Fee Exercise Clause).” (Section 5, Article 3, 1987
Constitution.)
4. NON-IMPAIRMENT CLAUSE
No law impairing the obligations of contracts shall be passed. (Section
10, Article 3, 1987 Constitution)
5. Non-imprisonment for Non-payment of
poll tax.
• “No person shall be imprisoned for debt or non-payment of a poll
tax.” (Section 20, Article 3, 1987 Constitution.)
DOCTRINE OF EQUITABLE
RECOUPMENT
• It does not apply in the Philippines.
Doctrine of Set-off
• As a general rule, it also does not apply if the obligation is tax
obligation.