General Principles

of Taxation

Atty. Christopher de Guzman, CPA, CAT

State and Its Elements
 Fixed and
adequate Territory

 Aggregate of
 Procreation;
authorities to

State
 Sufficient in
People rule the society
number; Government
 Self-preservation

 Enforce rules within its

Sovereignty territory;
 Non-interference of other
states
National Territory of the Philippines
• It comprises of:

1. Philippine archipelago
2. All other territories over which the Philippines has
sovereignty or jurisdiction.
3. The waters around, between, and connecting the islands of
the archipelago.
Form of Government of the Philippines

• Philippines is a democratic, unitary, and presidential form of

government.
Sovereignty
• Sovereignty resides in the people and all government authority
emanates from them.
Doctrines:
Doctrine of Doctrine of
Concept of
State Separation of
Association
Continuity Powers

Doctrine of Doctrine of Salus Populi

Constitutional State Suprema Est
Supremacy Immunity Lex
Inherent Powers of the State
 Power to regulate Police Limitation:
for the welfare of Power  Lawful subject
the people  Lawful means

 Power to take
private
Powers Power to raise
property revenue
Eminent
Limitation: Taxation Limitation:
Domain
 Public use  For public
 Just purposes
compensation
What is Taxes?

1. Enforced
2. Proportional in character
contributions

Taxes
3. Levied by authority of the 4. Support of the government
law (legislative function) and all its public needs
Basis and Theories of Taxation Limitation of Lifeblood
(see next slide)

Life Blood Doctrine

• Taxes are the lifeblood of the government and their prompt and certain availability
is an imperious need.
• Taxes should be collected without unnecessary hindrance.

Necessity Theory
• Taxes are necessary burden to preserve the State’s sovereignty and a means…

Benefits-Protection Theory/Symbiotic Relationship

• The power of the State to demand and receive taxes on the reciprocal duties of
support and protection.
Limitation of Lifeblood Doctrine
• “…on the other hand, such collection should be made in accordance
with law as any arbitrariness will negate the very reason of the
government itself. It is, therefore, necessary to reconcile the
apparently conflicting interest of the authorities and the taxpayers so
that the real purpose of taxation, which is the promotion of the
common good, may be achieved (Commissioner vs. Algue, Inc.).”
Necessity Theory
• “… means to give the citizenry an army to resist aggression, a navy to
defend its shores from invasion, a corps of civil servants to serve,
public improvements 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.”
Liabilities in Taxation
Personal liability of the taxpayer:

• Persons civilly liable is also criminally liable;

• Doctrine of juridical personality;
• Doctrine of piercing the corporate veil.
Nature of Taxation
1. Inherent attribute of sovereignty;
• Constitution serves only as a limitation.

2. Legislative in character;
• Cannot be delegated unless provided by law
• Art. VI, Sec. 28 – power of the President to increase tariff rates;
• Art. X, Sec. 5 – power of the local government to tax;
• Tax administration;
• People at large.
Why Legislative Power?
• “This is based upon the principle that taxes are grant of the people
who are taxed, and the grant must be made by the immediate
representatives of the people. And where the people have laid the
power, there it must remain and be exercised.”
Aspects, Processes and Phases of
Taxation

N
EN

O
TI
SM

EC
ES
Y

LL
V

SS

CO
LE

A
1 2 3

15
Levy – Scope, Purpose and Object
• Inherent, comprehensive (object), unlimited (force),
Scope (ICUPS) plenary (complete with remedies), and supreme

Purpose • Revenue, Non – revenue (regulatory, compensatory)

Object (PPE) • Persons, property, excise

“Power to tax is the power to destroy”

Non-Revenue Purpose
• Reduction of social inequality (progressive system of taxation);

• Encourage the growth of local industries (e.g., tax exemptions);

• Protect local industry against unfair competition (e.g., countervailing

and dumping duties)

• Implement the police power of the state (regulatory measure, e.g.,

gambling)
“
…Therefore, it should be exercised with
caution to minimize injury to the propriety
rights of a taxpayer. It must be exercised
fairly, equally, and uniformly, lest the tax
collector kill the ‘hen that lays the golden
egg.’” (Roxas vs. CA)

“The power to tax is not the power to

destroy as long as the Supreme Court
sits.”

18
May the power of taxation be used as
an implement of the power of eminent
domain?
Case: CIR vs. Central Luzon Drug Corp.

19
Assessment and Collection
• Tax administration which can be delegated to the executive.

• Conditions:
• The tax law must designate which agency will collect the taxes.
• Circulars or regulations to be issued by the said agency is in
accordance with the law.
Tax Collection System
• Withholding system; (W)

• Assessment or enforcement system; (A)

• Self – assessment system; (S)

Withholding System
• Final Withholding tax

• Creditable withholding tax

• Withholding tax on compensation
• Expanded withholding tax (1 to 15%)

• Withholding system on business tax

Principles of Good Tax System (FAT)

Fiscal Adequacy

Administrative Feasibility

Theoretical Justice
Similarities of Three Powers (II-LINE)
• Inherent
• Independent of the Constitution
• Necessary
• Legislative
• Interference
• Equivalent compensation
Comparison of Powers –
Point of Difference Taxation Police Power Eminent Domain
Exercising authority Government Government Govt. and private entities
Purpose Support General welfare Public use
Persons affected Community or class of Community or class of Owner of the property
individuals individuals

Enforcement Unlimited Limited Just compensation

Importance Most Superior Important
Non – impairment Inferior Superior Superior
Limitation Inherent and constitutional Public interest and due Public purpose and just
process compensation
Terms to Compare
• Tax vs. license fee;

• Tax vs. toll fee;

• Tax vs. debt;

• Tax vs. Special Assessment ;

• Tax vs. penalty (tax is a civil liability; taxpayer is criminally

only when he fails to pay the taxes; penalty is a
punishment for the commission of an offense).

26
Inherent Limitation of the Power of Taxation
Government is exempt
It is the purpose which determines the from tax; Agencies
public character of the tax law, not the performing government
number of persons benefited. Public
purpose functions are exempt
unless expressly taxed;
agencies performing
proprietary functions are
subject to tax unless
Taxation is Exemption
Situs expressly exempted;
jurisdictional Exemptions under the law:
Inherent
Limitation SSS, PHIC, GSIS, LWD, and
HDMF

Except when the law provides;

Principle of Sovereign
International Non- delegated to the local government;
Equality Among States
Comity delegation Requisites of valid delegation:
(e.g., foreign embassies)
Completeness test and sufficient
standard test
 Constitutional
Limitations of Taxation

Christopher de Guzman, CPA, CAT

Constitutional Limitations

Uniformity,
Due Process and Non –
Equitability and Non – Impairment
Equal Protection Imprisonment
Progressive System of Contract
of Law Clause
of Taxation

Non – Taxable
Free Establishment
Non-diversification Entities and Local Autonomy
and Worship Rule
Activities

Appropriation,
Revenue or Tariff Non-delegation
Bills
Violation of Due Process of Law
• One maybe deprived of property as long as the requirement of due
process – notice and hearing – have been complied with.

• It may be invoked where a taxing statute is so arbitrary that it finds no

support in the Constitution, as where it can be shown to amount to a
confiscation of property.
Equal Protection of Law
1. It must be based on substantial distinction ;
2. It must apply both to present and future conditions;
3. It must be germane to the purpose of the law;
4. It must apply equally to all members of the same class.
 Uniformity, Equitability and Progressive
System of Taxation
• Equality and uniformity in taxation means that all taxable articles or
kinds of property of the same class shall be taxed at the same rate.

• Taxation is said to be equitable when it is burden falls on those better

able to pay; taxation is progressive when its rate goes up depending
on the resources of the person affected.
Non-impairment of Contract
• Any law which enlarges, or in any manner changes the intention of the
parties discoverable in it, necessarily impairs the contract itself.

• If the tax exemption constitutes a binding contract and for valuable

consideration, the government cannot unilaterally revoke the tax
exemption.

• Non-impairment clause does not apply to public utility franchises.

Non-imprisonment Clause
• No person shall be imprisoned for nonpayment of debt and basic
community tax.
Non-diversification
• 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 - Art. VI, Sec. 29(1).
Non-taxable Entities and Activities
• 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 (Art. VI, Sec. 28 (3)
Non-taxable Entities and Activities
• All revenues and assets of non-stock, nonprofit educational institutions
used actually, directly and exclusively for educational purposes shall
be exempt from duties and taxes. Upon the dissolution and cessation of
the corporate existence of such institutions, their assets shall be
disposed of in the manner provided by law (Art. XIV, Sec. 4(3)
Non-taxable Entities and Activities
• 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 reinvestments.

• Subject to the conditions prescribed by law, all grants, endowments,

donations or contributions used actually, directly, and exclusively for
educational purposes shall be exempt from tax.
Non-taxable Entities and
Activities
Art. XIV, Sec. 4(3) Art. VI, Sec. 28 (3)

Grantee: Non-stock, non Religious,

profit educational educational,
institution charitable purposes
Taxes Covered: Income tax, custom Property tax
duties, property tax

Subject to Estate tax, donors All Other Taxes

limitations: tax, VAT

39
Non-taxable Entities and Activities
• No law granting tax exemptions shall be passed without the
concurrence of a majority of all the members of Congress - Art. VI,
Sec. 28(4).
• Withdrawal – majority vote

• Exemptions are never presumed, the burden is upon the claimant to

establish his right of exemption beyond reasonable doubt (Strict
Construction Rule).
Exceptions to Strict Construction Rules
• Statute provides for liberal interpretation;
• Special taxes;
• Public property;
• In favor of religious and charitable institution;
• In favor of government, its political subdivisions or instrumentalities;
Tax Exemptions vs. Tax
Amnesty
✓ Tax Amnesty ✓ Tax Exemptions
- Immunity from - Immunity from
criminal and civil civil obligations
obligations; only.
- Given to all - Not given to all
taxpayers taxpayers.
- Retroactive - Prospective
application application.

42
Free Establishment and Worship Rule
• 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. (Art. III, Sec. 5,
Constitution)
Local Autonomy
• 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,
Constitution)
Appropriation/Revenue
• All appropriation, revenue, or tariff bills, bills authorizing increase of
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.
 Bill to file with the
Submission of bill by Secretary of the House
members of the Congress, concerned; calendar for the
or the people through first reading; title of the bill
indirect initiatve is read and refers to
approrpiate committe.
The concerned Committee
In the second reading, the
reports out the bill,
bill is read and is subjected
favorably or with
to floor discussion, debate,
amendment; or a substitute
and amendment or
bill; calendars for the
insertion.
second reading.

Final copy of the bill is

Approved printed and distributed to
In the third reading, the the Members 3 days before Approved
by the
bill is read again; no its calendar for third in the
House Y
amendment but a vote reading, except when the second
Concerned President certifies to the
thereon must be taken. reading?
? necessity of its immediate
enactment (see notes)

The enrolled bill is sent

The bill will be sent to to the President for
other house and will appropriate action.
Approved? Y
undergo the same
process See notes when the bill
becomes a law.
Certification of the President
• In the case of Tolentino vs. Secretary of Finance, it was held that the
certification of the President has the effect of dispensing with the
reading on separate days and the printing of the bill in its final form
before its approval.
When Does a Bill Become a Law?
1. When the President approves the bill presented to him and signs it;
2. When the presidential veto is reconsidered by 2/3 of all the
Members of both Houses voting separately;
3. When the President fails to communicate his veto of any bill to the
House where it is originated within 30 days after receipt (Pocket
Veto);
4. A bill calling for a special election for President and Vice President
under Sec. 10, Art. VII.
Doctrine of Inappropriate Provision (Rider)
• If the President disapproves the bill, he should veto it in its entirety.
He is not allowed to veto a separate item or items of a bill, except in
an appropriation, revenue or tariff bills.

• Likewise, a provision that is constitutionally inappropriate for an

appropriation bill may be a subject of a veto even if it is not an
appropriation or revenue item.
Classification of Taxes
✓ As to Purpose (Revenue, regulatory, compensatory
✓ As to Object (PPE)
✓ As to Determination of Amount (Specific tax and
Ad Valorem)
✓ As to Who Bears the Burden (Direct and Indirect)
✓ As to Scope or Authority Collecting the Tax (local
or national taxes)
✓ As to Rate or Graduation (progressive, regressive,
and mixed)
. 50
Doctrines in Taxation
✓ Prospective Application
✓ Imprescriptible
✓ Taxpayer’s Suit
✓ Set – Off Taxes
✓ Non – assignment of taxes
✓ Doctrine of estoppel
✓ Judicial non – interference
✓ Construction of tax laws
✓ Double Taxation
✓ Escape from taxation
51
Nature of Tax laws
✓ Tax laws are civil in nature;
✓ Art. 5 of the NCC:
○ Acts executed against the mandatory
provisions of law are void, except when the
law itself authorizes the validity of those acts.
✓ Sec. 228 of NIRC:
○ The taxpayer shall be informed in writing of
the laws and the facts on which the
assessment is made, otherwise the assessment
shall be void.

52
Prospective Application of Tax
Laws
✓ The general rule under the Civil Code
that laws shall have prospective
application applies to tax laws.

✓ Retroactive application of revenue

laws may be allowed if it will not
amount to denial of due process.

53
Doctrine of Imprescriptible
Gen. Rule: No prescription
Exception: Statute of Limitations
✓ NIRC – assessment within 3 years from the
last day prescribed by law for the filing of
the return or if filed after the last day,
within 3 years from the date of actual
filing.
○ No return, false or fraudulent, within
10 years from the discovery of
omission, fraud or falsity.
Doctrine of Imprescriptible
(Cont.)
✓ Collection – within 5 years following the
assessment of the tax.
✓ Local Government Code – within 5 years from
the date the local taxes, fees, or charges become
due.
○ In case of fraud – 10 years.
✓ Tariff and Custom Code – within 3 years after
the final payment of duties.

55
Taxpayer Suit

✓ A taxpayer is allowed to sue where there

is a claim that public funds are illegally
disbursed, or that public money is being
deflected to any improper purpose, or
that there is wastage of public funds
through the enforcement of an invalid or
unconstitutional law. (Abaye vs.
Ebdane)

56
Set – Off vs. Equitable Recoupment
• Set off is allowed in the Philippines while equitable recoupment is not.

• Set off as a rule is not allowed except when obligations of government

and taxpayer towards each other is both due, demandable and
liquidated.

• Equitable recoupment means the offsetting of the government’s right to

collect taxes though prescribed with the taxpayer’s action to refund
taxes though prescribed.
Double Taxation

1. Direct double taxation – constitutes double

taxation in objectionable or prohibited sense.
○ Violates the equal protection of law

2. Indirect double taxation – permissible

double taxation.
 Tax Treaty as a Mode of Eliminating
Double Taxation

1. Exemption Method – focus in the

income or capital itself;

2. Credit Method – focuses upon the tax.

59
Tax Evasion vs. Tax Avoidance

✓ Tax evasion – connotes fraud through

the use of pretenses and forbidden
devices to lessen or defeat taxes.

✓ Tax avoidance – legal means used to

reduce taxes.
(Benny vs. Commissioner)

60
Four (4) Ways of Eliminating
Double Taxation
1. Exempt Method (Sec. 32, B, 5)
2. Deduction Method (Sec. 34, C, 2)
3. Credit Method (Sec. 34, C, 2)
4. Tax Sparing Method (Sec. 28, B, 5,b)

61
Fraud

Xxx. Therefore, a man may perform an

act that he honestly believes to be
sufficient to exempt him from taxes. He
does not incur fraud thereby even if the
act is thereafter to be found to be
insufficient. (Court Holding Co., vs.
Commissioner)

62
Tax Evasion

Tax evasion connotes the integration of

three factors:
(1) The end to be achieved xxx;
(2) Xxx “bad faith” xxx “deliberate and
not accidental”;
(3) A course of action or failure of action
which is unlawful.

63
Tax Avoidance

✓ Tax option
✓ Tax exemption
✓ Shifting – Indirect tax (VAT)
✓ Capitalization
✓ Transformation
✓ Tax amnesty
✓ Tax condonation
64
Tax Amnesty vs. Tax Condonation

✓ Tax Amnesty ✓ Tax

- Covers both civil Condonation
and criminal - Covers civil
liability liability only
- Retrospective
- Requires payment - Prospective
- No payment

65
Sources of Tax Laws
✓ 1987 Philippine Constitution
✓ Statutes and Presidential Decrees
✓ Judicial Decisions or case laws
✓ Executive Orders or Batas Pambansa
✓ Tax Treaties
✓ Revenue Regulations (By Secretary of Finance upon
recommendation of BIR Commissioner)
✓ RMC/ RMO
✓ BIR Rulings
Other Sources of Tax
Laws
• Other statutes in relation to tax
The Tariff and Custom Code
The Local Tax Code
The Real Property Tax Code
• Tax exemptions law
The Minimum Wage Law
The Omnibus Investment Code of 1987
BMBE Law
Cooperative Development Act
Jurisdiction on Tax Cases
• Congress has the power to define, prescribe, and apportion the
jurisdiction of various courts but may not deprive the Supreme Court
of its jurisdiction as provided by the Constitution.

• The Supreme Court exercises exclusive appellate jurisdiction over

certain judgements or orders of the lower courts involving the legality
of a tax impost, assessment fee, or penalty imposed in relation thereto.
Jurisdiction on Tax Cases

BIR Court of Tax Supreme

Commissioner Appeals Court
“
Taxes are what we pay for a
civilized society.”

THANKS!

70
References:
✓ NIRC of the Philippines, As amended, 5th Edition, 2018;
✓ Tax Principles and remedies, Justice Japar Dimaampao;
✓ Income Taxation, by Banggawan, 2019 Edition;