BUSINESS AND

REAL ESTATE
TAXATION
LIMITATIONS ON THE POWER OF
TAXATION
 Inherent limitations
1. Purpose must be public in nature
•This is one of the inherent limitations of the power to tax and is synonymous to
“governmental purpose.” A tax must always be imposed for a public purpose, otherwise,
it will be declared as invalid.
• The term “public purpose” has no fixed connotation. The essential point
is that the purpose of the tax affects the inhabitants as a community and not merely as
inhabitants.
• It has been said that the best test of rightful taxation is that the proceeds of the tax
must be used:
a) for the support of the government; or
b) some of the recognized objects of government; or
c) to promote the welfare of the community
 Inherent limitations
2. Prohibition against delegation of the taxing
power

Exceptions to the non-delegation rule

1. Delegation to the President
2. Delegation to local government units
3. Delegation to administrative agencies
 Prohibition against delegation of the taxing power
Delegation to the President
· Congress may authorize, by law, the President to fix, within specified
                     

limits and subject to such limitations and restrictions as it may impose

 
1.  Tariff rates; 
2.  Import and export quotas; 
3.  Tonnage and wharfage dues; and 
4.  Other duties or imposts within the national development program of
the government. 
· This authorization is embodied in Section 401 of the Tariff and Customs
               

Code which is also called the flexible tariff clause.

 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.
 Delegation to local government units

 
· The power of local government units to impose taxes and fees is always
                     

subject to the limitations which Congress may provide, the former having
no inherent power to tax. [Basco v. PAGCOR]
 
· Municipal corporations are mere creatures of Congress which has the
                     

power to create and abolish municipal corporations. Congress therefore has

power of control over local government units. If Congress can grant to a
municipal corporation the power to tax certain matters, it can also provide
for exemptions or even to take back the power.
 Delegation to administrative agencies
· With the growing complexities of modern life and the many technical
                     

fields of governmental functions, as in matters pertaining to tax exemptions,

delegation of legislative powers has become the rule and non-delegation the
exception. The legislature may not have the competence, let alone the interest
and the time, to provide direct and efficacious solutions to many problems
attendant upon present day undertakings.
Certain aspects of the taxing process that are not really legislative in nature
are vested in administrative agencies. In these cases, there really is no
delegation, to wit: a) power to value property; b) power to assess and collect
taxes; c) power to perform details of computation, appraisement or
adjustment; among others.
 3. Exemption of government entities, agencies
and
instrumentalities

·  Government will be taxing

itself to raise money for itself.

·  Immunity is necessary in

order that governmental functions will

not be impeded.
 What government entities
are exempt from income
tax?
1.       Government Service Insurance System (GSIS)
 
2.       Social Security System (SSS)
 
3.       Philippine Health Insurance Corporation (PHIC)
 
4.       Philippine Charity Sweepstakes Office (PCSO)
 
5.       Philippine Amusement and Gaming Corporation (PAGCOR)
 4.  International comity

• Courteous, friendly agreement and interaction between nations.

• Under international law, property of a foreign State may not be taxed by
another State.
Reasons for exception
1. Sovereign equality of States
2. When one State enters the territory of another State, there is an implied
understanding that the former does not intend to denigrate its dignity by placing
itself under the jurisdiction of the other State
3. Immunity from suit of a State
 Limitation of a territorial jurisdiction
 
·   Tax laws cannot operate beyond a state’s
territorial limits.
 
·  Property outside one’s jurisdiction does not
receive any protection from the state.
 
 Constitutional limitations
1. Due process of law
2.  Equal protection of laws
3. Rule of uniformity and equity in taxation
4. Prohibition against imprisonment for non-
payment of poll tax
5.  Prohibition against impairment of obligation of
contracts
6. Prohibition against infringement of religious freedom
 
 Constitutional limitations

7. Prohibition against appropriation of proceeds of taxation

for the use, benefit, or support of any church

8. Prohibition against taxation of religious, charitable and

educational entities

9. Prohibition against taxation of non-stock, non-profit

educational institutions
Constitutional limitations
 Purpose of Taxation
Primary Purpose
The main purpose of taxation is to accumulate funds for the
functioning of the government machineries. All governments in the
world cannot run its administrative office without funds and it has
no such system incorporated to generate profit from its functioning.
 In other words, a government can run its administrative set up only
through public funding which is collected in the form of tax. one
purpose of taxation is to increase in effectiveness and productivity
of the nation as government can implement various socio-economic
development projects such as the construction of roads and bridges,
schools, health facilities and provision of social services.
 Purpose of Taxation
Secondary Purpose
Another reason is that taxation assists in reducing consumption of unwanted
goods. Taxes as such can be used as an effective tool to reduce the consumption of
unwanted goods like alcohol. Higher taxes on such goods reduce the consumption
as the price of the product will be very high for the consumers. Government also
uses taxes as a way to protect local industries and as such make them more
profitable. Increasing tariffs on imports and charging lower taxes to local products
may boost the demand for goods and services produced by domestic industry.
Taxes on imports, which are called tariffs, can be used by government to correct
an unfavorable balance of payment situation by increasing the tariffs. This will
result in imports becoming expensive and will cause a fall in demand for the
imported goods
 Nature of Tax Law/ Internal
Revenue Laws
Tax laws or Internal Revenue laws are not political in nature. They are
deemed civil and not penal in nature although there are penalties
provided for their violations. The national Internal Revenue Code being a
special law prevails over a general law.
Tax law in the Philippines covers national and local taxes.  National taxes
refer to national internal revenue taxes imposed and collected by the national
government through the Bureau of Internal Revenue (BIR) and local taxes
refer to those imposed and collected by the local government. The Tax Code
of 1997, Revenue Issuances and BIR Rulings pertaining to national taxes are
posted at the BIR website.
 Construction of Tax Laws
National Tax Law
 1.1987 Constitution
The 1987 Philippine Constitution sets limitations on the exercise of the
power to tax.
The rule of taxation shall be uniform and equitable.  The Congress shall
evolve a progressive system of taxation.  (Article VI, Section 28, paragraph 1)
II.  Laws
The basic source of Philippine tax law is the National Internal Revenue Law,
which codifies all tax provisions, the latest of which is embodied in Republic
Act No. 8424 (“The Tax Reform Act of 1997”).  It amended previous national
internal revenue codes, which was approved on December 11, 1997. A copy
of the Tax Reform Act of 1997, which took effect on January 1, 1998, 
 Construction of Tax Laws
III.  Treaties
The Philippines has entered into several tax treaties for the avoidance of
double taxation and prevention of fiscal evasion with respect to income
taxes.  At present, there are 31 Philippine Tax Treaties in force.
IV.     Administrative Material
The Secretary of Finance, upon the recommendation of the Commissioner,
promulgates needful rules and regulations for the effective enforcement of
the provisions of the Tax Code  (Section 244, Tax Code of 1997). The
Commissioner of Internal Revenue, however, has the exclusive and original
power to interpret the provisions of the Tax Code, but subject to review by
the Secretary of Finance
 Construction of Tax Laws
V.  Case Law
In the Philippines, Supreme Court decisions form part of the law of the
land.  As such, decisions by the Supreme Court (sc.judiciary.gov.ph) in the
exercise of its 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 cases involving the legality of any tax, impost,
assessment, or toll or any penalty imposed in relation thereto are adhered
to and recognized as binding interpretations of Philippine tax law.
 Construction of Tax Laws
VI.  Treatises and other books
There are no Philippine treatises exclusively devoted to Philippine Tax law but
various Philippine authors have come up with annotated versions of the Tax Code
VII.  Periodicals
Periodicals on Philippine tax law are the:
(1) Philippine Revenue Service (copies available in the BIR Library), published by
the BIR from 1969-1980;
(2) Philippine Revenue Journal  (copies available in the BIR Library) which was
both published by the Bureau of Internal Revenue from 1969 to 2000; and
(3) the Tax Monthly, published by the National Tax Research Center 
 Construction of Tax Laws
VIII.  Local Government Tax Law
Local government taxation in the Philippines is based on the constitutional
grant of the power to tax to the local governments.
Local taxes may be imposed, as the Constitution grants, to each local
government unit, the power to create its own sources of revenues and to levy
taxes, fees, and charges which shall accrue to the local governments (Article X,
Section 5)
IX.  National Tax Research Center (NTRC)
Constituted under Presidential Decree 74, the NTRC is mandated to conduct
continuing research in taxation to restructure the tax system and raise the level
of tax consciousness among the Filipinos, to achieve a faster rate of economic
growth and to bring about a more equitable distribution of wealth and income.
 Basic Principles of a Sound
Tax System
1.Fiscal Adequacy
the sources of revenue must be sufficient to meet
government expenditures and other public needs.
Administrative feasibility means tax laws and regulations must be
capable of being effectively enforced with the least inconvenience
to the taxpayer.
 example of fiscal adequacy is the increase of taxes imposed by
the government on its citizens to meet public expenditures
like implementation of government projects.
 Equality o Theoretical Justice
The tax burden should be in proportion to the taxpayer’s ability to pay. This
is the so-called ability to pay principle. Taxation should be uniform as well
as equitable.
Justice as an ethical approach in the leadership and business practices is
where individuals receive equal treatment in the society regardless of their
creed, racial background, professional rank, or even their social classes
 Administrative
feasibility
Tax laws should be capable of convenient, just and effective
administration. Each tax should be capable of uniform enforcement
by government officials, convenient as to the time, place, and
manner of payment, and not unduly burdensome upon, or
discouraging to business activity.
refers to the ability to obtain approvals from other offices and agencies,
the availability of treatment, storage, and disposal services and capacity,
and the requirements for, and availability of, specific equipment and
technical specialists.
Essential Characteristic of a Tax
ENFORCED CONTRIBUTION
LEGISLATIVE IN NATURE
IMPOSED IN ACCORDANCE WITH LAW
PROPORTIONATE IN CHARACTER
GENERALLY PAID IN MONEY
PAID AT REGULAR INTERVALS
IMPOSED UPON PERSONS,PROPERTIES OR RIGHTS
IMPOSED TO RAISE GOVERNMENT REVENUES
 Classification of Taxes
1.Classes of taxes as to subject matter
a. Personal Tax or Capitation Tax or Poll Tax
Refers to those fixed amount of taxes imposed upon certain class of persons or
upon persons residing within the territorial jurisdiction of the state regardless of
their property, professions, or occupation
Example : community tax
b. Property Tax
Refers to those taxes imposed upon the taxpayer’s property, real and personal,
situated within the territorial jurisdiction of the state in proportion to it’s value or
some other reasonable method of apportionment
Example : Real property tax
 Classification of Taxes
1.Classes of taxes as to subject matter
c. Excise Tax or Privilege Tax
Excise Tax otherwise known as Privilege Tax refers to those taxes imposed on the
taxpayer’s exercising their rights and privileges of performing an act or engaging in
an occupation. All taxes that do not fall under the personal, poll or capitation tax or
property tax shall be deemed as excise tax.
Examples tobacco, gasoline, beverages,
Donors tax
 Classification of Taxes
2.Classes of taxes as to Scope and Authority
A. National Tax
Refers to those taxes imposed by national government enforced by or
through the BIR or BOC
Examples: Corporate income tax ,CGT, DST, Estate Tax, Donors Tax
B. Local Tax
Refers to those taxes imposed by the local government such as
Brgy.,Municipalities, cities or provinces.
Examples community tax, business tax
 Classification of Taxes
3.Classes of taxes as to Purpose
a. General Tax
Refers to those taxes imposed for general purposes, the
proceeds of which go to the national/general funds
Example Estate tax
b. Special Tax
Refers to those taxes imposed for special purposes, the proceeds
of which got to certain special funds
Example Gasoline, Tobacco
 Classification of Taxes
4.Classes of taxes as to Liabilities
a. Direct Tax
Refers to those taxes imposed upon persons directly bound to pay the tax,
which cannot be passed on /shifted to other person for payment
Example individual income tax
b. Indirect Tax
Refers to those taxes imposed upon persons liable to pay said
taxes but which are permitted by law to be shifted or passed on to
other persons for payment
Example Value Added Tax ,EVAT or Sales Tax
 Classification of Taxes
5.Classes of taxes as to Liabilities
a. Specific Tax
Refers to those taxes imposed upon property/rights which amounts are
determined based on weight or volume capacity or physical unit of
measurements.
Example Excise tax
b. Ad-valorem Tax
Refers to those taxes imposed upon property /rights which amounts are
determined based on the sales price or ither specified values of the properties
Example Value added Tax
 Classification of Taxes
6.Classes of taxes as to Liabilities
a. Progressive/Graduated Tax
Refers to those taxes imposed upon/properties/rights which amount of tax increases
as the bracket/layer increases
b. Proportionate Tax
Refers to those taxes imposed upon persons/properties /rights which amount of tax
maybe higher or lower depending upon the bracket or classification
c. Regressive Tax
At present no regressive tax in the Philippines
 Tax Distinguished from License
Fee
1. A tax is imposed for the purpose of raising revenues, whereas ,a license fee is
imposed for the purpose of regulation
2. . A tax is imposed based on the power of taxation, whereas, a license fee is
imposed based on the police power
3. A direct authority from congress levies a tax, whereas, a license fee is imposed
under a delegated power to the local government.
4. The amount of tax is usually big ,whereas, a license fee is usually small, enough
only to cover the cost of services/regulation.
5. Failure to pay the tax does not render the business or occupation illegal,
whereas, failure to pay license fee renders a business or occupation illegal.
 Tax Distinguished from Toll
Toll- refers to the compensation charged by the owner for the use of his property
and or its improvement

1. A tax represents a demand of sovereignty, whereas a toll represents a

demand of proprietorship.
2. The government impose a tax , whereas, the government or private person
imposes a toll.
3. A tax is imposed to raise revenues for the support and use of the
government whereas, a toll is imposed mainly to recover the cost of property
and its improvement.
 Tax Distinguished from Special
Assessments
1. A tax is imposed upon persons, properties or rights, whereas, a special assessment
is imposed only on land and its improvements
2. The national or local government imposes a tax whereas, only the local government
can impose a special assessment.
3.A tax is an enforced contribution for the use and support of the government,
whereas, a special assessment is an enforced contribution to recover the cost of the
public improvement
4. A tax is ordinary and of general application whereas, special assessment is extra
ordinary and situational as to time and locality.
 Tax Distinguished from
Custom Duties
1. Tax is broader meaning than customs duties. All custom duties are taxes
whereas, not all taxes are custom duties.
2. A tax is imposed upon persons, properties, or rights ,whereas, custom duties
are imposed only upon articles imported to or exported from the country.
 Tax Distinguished from Debts
1. A tax is based on law whereas, a debt is based on contract.
2. A Tax is non assignable whereas, a debt is assignable.
3. A tax is generally payable in terms of money whereas, a debt is payable
in terms of money or in property.
4. In the case of non payment of tax(except poll tax) there is a possibility
of imprisonment whereas in the case of non payment of debt there is
no possibility of imprisonment.
5. A tax may not be subject to the right of offset whereas, a debt is
subject to the right of offset.