tax
Content
I. CONCEPT
A. TAXATION AND TAX DEFINED
Taxation: the process by which the sovereign, through its law making body raises income to defray the
necessary expenses of governement. It is merely a way of apportioning the cost of government among those
who in some measure are privileged to enjoy its benefits and therefore must bear its burdens.
Purposes:
– to provide funds or property to promote the general welfare and protection of its citizens
– to raise revenues for governmental needs
– to attain various social and economic (non revenue) objectives
– taxation includes every imposition of charge or burden by the sovereign power upon persons,
property, or property rights for the use and support of the government and to enable it to discharge
appropriate functions
Taxes: the enforced proportional and pecuniary CONTRIBUTIONS from persons and property levied by the law
making body of the state having jurisdiction over the subject of the burden for the support of the government
and all public needs
Essential Characteristics:
– an enforced contribution
– it is proportionate in character
– generally payable in money
– levied on persons or personal property : a tax may also be imposed on acts , transactions, rights or
privileges. In each case however it is the person who pays the tax; the property is resorted to for the
purpose of ascertaining the amount of tax that must be paid and of enforcing payment in case of default
of tax payer.
– It is levied by the state which has jurisdiction over the person or property: the object of tax must be
subject to the jurisdiction of the taxing state.
– It is levied by the law making body of the state: the power to tax is a legislative power which under the
Constitution only the Congress can exercise through enactment of tax statutes. The power to tax is no
longer vested exclusively with the Congress; local legislative bodies are now given direct authority to
levy taxes, fees, other charges
– It is levied for public purpose or purposes → support of government, administration of the law, or for the
payment of public expenses.
– It is also an important characteristic of most taxes that they are commonly required to be paid at
regular intervals every year.
B. TAX AS DISTINGUISHED FROM OTHER FORMS OF EXACTIONS
TAX
TOLL
TAX
Toll: a sum of
money for the use
of something;
paid for the use of
a road, bridge, of
public nature
Tax is a
demand of
sovereignty
Demand of
proprietorship
Intended to
RAISE
REVENUE
Paid for the
Paid for the use of Only by
support of the anothers property government
government
Generally
there is no
limit on the
amount of tax
that may be
imposed
Amount depends
upon the cost of
construction or
maintenance of
the public
improvement
used
May be
imposed only
by the
government
May be imposed
by the
government or
private ind or
entities
Section 155. Toll Fees or Charges. - The
sanggunian concerned may prescribe
the terms and conditions and fix the
rates for the imposition of toll fees or
charges for the use of any public road,
pier, or wharf, waterway, bridge, ferry or
telecommunication system funded and
constructed by the local government unit
concerned: Provided, That no such toll
fees or charges shall be collected from
officers and enlisted men of the Armed
Forces of the Philippines and members of
the Philippine National Police on
mission, post office personnel delivering
mail, physically-handicapped, and
disabled citizens who are sixty-five (65)
years or older.
When public safety and welfare so
requires, the sanggunian concerned may
discontinue the collection of the tolls, and
thereafter the said facility shall be free
and open for public use.
PENALTY
TAX
SPECIAL
ASSESSMENT
Any sanction
imposed as a
punisment for
violation of law or
acts deemed
injurious
An enforced proportional
contribution from owners
of lands especially or
peculiarly benefited by
public improvements
Designed to
REGULATE
CONDUCT
Levied only ON LAND
Imposed by gov or
private entities
Not a personal liability –
limited only to the land
involved
Based wholly on benefits
(not necessity)
Has general Exceptional both as to
application time and place
Section 240. Special Levy by Local Government
Units. - A province, city or municipality may
impose a special levy on the lands comprised
within its territorial jurisdiction specially
benefited by public works projects or
improvements funded by the local government
unit concerned: Provided, however, That the
special levy shall not exceed sixty percent (60%)
of the actual cost of such projects and
improvements, including the costs of acquiring
land and such other real property in connection
therewith: Provided, further, That the special levy
shall not apply to lands exempt from basic real
property tax and the remainder of the land
portions of which have been donated to the local
government unit concerned for the construction
of such projects or improvements.
TAX VS SPECIAL ASSESSMENT:
REPUBLIC VS BACOLOD MURCIA
A charge imposed only on property owner benefited is a special assessment rather than a tax
nothwithstanding that the statute calls it tax.
The rule that an exemption from taxation does not include exemption from special assessment. But the power to
tax carries with it the power to levy a special assessment.
The terms special levy is used in the LGC and the RP tax code.
TAX
LICENSE OR PERMIT FEE
TAX
DEBT
A charge imposed under the
police power for purposes of
REGULATION
Based on law
Generally based on contract,
express or implied
Tax is an enforced
contribution
assessed by
sovereign authority
to defray public
expenses.
Legal compensation or reward
of an officer for specific
services
Cannot generally be
assigned
Assignable
Levied for revenue
Imposed for regulation
Generally payable in
money
May be paid in kind
Involves exercise of Involves exercise of police
taxing power
power
Generally NOT
May be the subject of set off or
compensation
There is generally
no limit to on the
amount of tax that
may be imposed
Imprisonment is a
sanction for non
payment of tax
(except poll tax)
Person cannot be imprisoned for
non payment of debt (except
when it arises from crime)
Amount should be limited to
the necessary expenses of
regulation and inspection
Tax is imposed also Imposed on the right to
on persons and
exercise a privilege
property
Governed by special Governed by ordinary periods of
prescriptive periods in prescription
the Tax Code
Failure to pay
Failure to pay license fee
doesnt necess.make makes act or business illegal
the act or business
illegal
Does not draw interest Draws interest when it is so
except only when
stipulated or when there is
delinquent
default
License is in the nature of a special privilege of a
permission or authority to do what is within its
terms. Always revocable.
An exaction may be considered both a tax and a
license fee. This is true in the case of car registration
fees which may be regarded as taxes even as they
also serve as instrument for regulatuion. If the
purpose is primarily revenue, or if revenue is atleast
one of the real and substantial purposes, then the
exaction is properly called a tax.
Both a liability or obligation
Taxes cannot be the subject of legal compensation or set
off for the reason that the govt and taxpayer are not
mutually creditors and debtors of each other.
Obligations are due to the government in its coporate
capacity, while taxes are due to the govenrment in its
sovereign capacity.
But a tax may have only a regulatory purpose. The
general rule however is that the imposition is a tax if
its PRIMARY PURPOSE is to generate revenue and
regulation is merely incidental; but it the purpose is
primarily to regulate then it is deemed a regulation
and an exercise of the police power of the state and
the fact that incidental revenue is also obtained does
not make the imposition a tax.
The exception to the rule regarding set off is where
BOTH THE CLAIMS OF THE GOVERNMENT AND
THE TAXPAYER AGAINST EACH OTHER have
already become due and demandable.
It is also the general rule not to allow the setting of of
excess taxes paid against other taxes payable to the
government. The CIR however is allowed by law to
grant a refund or credit of taxes erroneously or illegally
paid.
TAX VS LICENSE FEE
Pal vs Edu
Progressive vs QC
Osmena vs Orbos
Compania General vs City of Manila
TAX VS ORDINARY DEBT
Philex Mining vs CIR
Caltex vs Coa
TAX
SUBSIDY
REVENUE
INTERNAL
REVENUE
CUSTOMS
TARIFF
DUTIES (duties) (3 senses : )
Pecuniary aid
directly granted
by the
government to
an individual or
private
commercial
enterprise
deemed
beneficial to the
public.
Refers to all the
funds or income
derived by the
government,
whether from tax or
from whatever
source and whatever
manner.
Taxes imposed
by the
legislature
other than
duties on
imports and
exports
Taxes imposed
on goods
exported from or
imported into a
country. “Taxes”
is broader in
scope as it
includes
“customs duties”
Not a tax
although a tax
may have to be
imposed to pay it.
The term refers more
to income derived
from the regular
system of taxation
and as such accrues
more or less
regularly every eyar.
As a book of rates
drawn usually in
alphabetical order
containing the names
of several kinds of
merchandise with the
corresponding duties
to be paid for the same
As the duties payable
on goods imported or
exported or
Refers to
the
amount
imposed
Revenue refers to
amount collected
As the system or
principle of imposing
duties on the import or
export of goods
Examples of receipts
other than from taxes
are those derived
from grants (f.a. By
one govt to another),
donations (from a
non gov source),
loans, commercial
revenues (from gocc
enterprises like tolls
interest or funds
borrowed, water
rents etc) and
administrative
revenues (fines
penalties forfeitures)
“Tariff and customs
duties” are used
interchangeable in the
tariff and customs
code
II. THEORY AND BASIS OF TAXATION
De Leon:
(1) Existence of government: the power of taxation proceeds upon the theory that the existence of
government is A NECESSITY; that it cannot continue without means to pay its expenses; and that
for these means it has a right to compel all its citizens and property within its limits to contribute
The power to tax is an attribute of sovereignty emanating from necessity .
(2) Reciprocal duties of state and inhabitants: the basis of taxation is found in the reciprocal duties of
protection and support between the state and its inhabitants. IN return for his contribution, the
taxpayer receives general advantages and protection which the government affords the taxpayer and
his property. This is called the BENEFITS- RECEIVED PRINCIPLE. 1 One is compensation or
consideration for the other: protection for support and support for protection
(3) Public Purpose requirement for lawful taxation: from the contributions received, the government renders
no special or commensurate benefit to any particular property or person. A tax is compulsory payment
to the government in return for which the payer gets no definite specific commodity or service. The only
benefit to which the tax payer is entitled is that derived from his enjoyment of the privileges in
living in an organized society established and safeguarded by devoting taxes to public purposes.
Thus a person cannot object to or resist the payment of taxes solely because no personal benefit to him
can be pointed out as arising from the tax or he is benefited less than others who pay the same or smaller
amount of tax. What matter is taxation is that the tax imposition is for a public purpose.
A. Lifeblood theory
B. Necessity Theory
1 This is a standard of equity or fairness often advanced in evaluating tax laws. It calls for the tax burdens to be
apportioned in the same proportions as the benefits derived by taxpayers from government spending tax revenues. The
other standars is the ability to pay principle.
Ferdinand Marcos II vs CA
NPC vs City of Cabanatuan
C. Benefits protection theory (Symbiotic relationship)
Commissioner vs Algue
D. Jurisdiction over Subject and Objects
III. PURPOSE / OBJECTIVES OF TAXATION
1. revenue – raising
2. non-revenue / special or regulatory
Caltex vs COA:
IV. GENERAL PRNCIPLES OF A SOUND TAX SYSTEM
A. Fiscal Adequacy: it means that the sources of revenue, that is , receipts therefrom, taken as whole, should be
sufficient to meet the demands of public expenditure. It means also that revenues should be elastic or capable
of expanding or contracting annually in response to variations in public expenditures. The alternatives are:
(a) to incur the risk of a series of deficits or surpluses due to inelastic revenues; or
(b) to adjust the amount of public expenditures to fit the flow of funds probably by curtailing certain activites
so that the budget may be balanced. Elasticity may be obtained without creating annually any new taxes or any
new tax machinery but merely changes in the rates applicable to existing taxes.
B. Theoretical Justice (equality): it means that the tax burden should be distributed in proportion to the
taxpayer's ability to pay. This is the so-called ability to pay principle. It holds that similarly situated taxpayers
should pay equal taxes, while those who have more should pay more.
The principle also connotes that the contribution of each person towards the expense of the government
should be so apportioned such that he would feel neither more or less inconvenienced from his share of payment
than every other person experiences from his. In other words taxation should be uniform as well as equitable.
C. Administrative Feasibility: it means that the laws should be capable of convenient, just and effective
adminitration or enforcement at a reasonable cost. No tax however ideally just and fair, is better than its actual
operation. Each tax in the system should be clear and plain to the taxpayer, capable of uniform enforcement by
govt officials, convenient as to time place and manner of payment, and not unduly burdensome upon or
discouraging to business activity. Tax laws should close up loopholes for tax evasion and deter the unscrupulous
officials from committing frauds in assessment and collection of taxes.
V. SCOPE AND LIMITATIONS OF TAXATION
De Leon: Nature and Power of taxation:
(1) it is inherent in sovereignty - an incident or attribute thereof, being essential to the existence of every
government. It can be exercised by the Government even if the Constitution is entirely silent on the subject.
Constitutional provisions relating to the power of taxation do not operate as grants of the power to the
government. They merely constitute limitations upon a power which would otherwise be practically without
limit.
(2) it is legislative in character: the levy of tax howecer may also be held on a local legislatigve body subject to
such limitations as may be provided by law. The constitutions expressly grants the power to tax to LGU's.
(3) it is subject to constitutional and inherent limitations. The power of taxation is not absolute.
Individual equities or inequalities are however not considered in the exercise of power and therefore the mere
fact that taxation is unjust or oppressive with respect to a particular taxpayer does not itself render a tax law
invalid where NO constitutional provision has been violated.
Extent of the legislative power to tax:
(1) the subjects or objects: persons, natural or juridical, property, real personal tangible intangible,
business transactions etc. A state is free to select the subject of taxation; INEQUALITIES which result from
the SINGLING OUT of one particular class for taxation or exemption infringe no constitutional limitation so
long as such exemption is reasonable and not arbitrary. Power to tax carries power to exempt
(2) The purpose or object of the tax so long as it is a public purpose: courts can inquire into whether the
purpose is really public or private. Once settled that the purpose is public, the courts can make no other inquiry
into the objective of the legislature, or the wisdom advisiability or expediency to tax.
Judicial determination is limited to: validity of tax in relation to constitutional provsions; and determination of
the application of a tax law (like if tax has been illegally collected or where taxpayer is entitle to exemption or
liability extinguished by prescrption.
(3) amount or rate: if oppressive, the only remedy is the ballot box and election of new reps. Even if a tax should
destroy a business, such fact alone could not invalidate the tax. Our Constitution mandates that the rule of
taxation shall be uniform and equitable.
(4) manner, means and agencies of collection of the tax: refer to the administration of the tax or the
implementation of tax laws. Having the sole power to prescribe the mode of collection, + remedies.
Non-revenue objectives of taxation:
• can strengthen anemic enterprises or provide incentive to greater production through grant of tax
exemptions or the creation of conditions conducive to their growth
• taxes on imports may be increased to protect local industries against foreign competition or decreased
to encourage foreign trade
• taxes on imported goods may also be used as a bargaining tool by a country by setting tariff rates first at
a relatively high level before trade negotiations are entered into with another country to enhance its
bargaining power
• taxes may be increased in periods of prosperity to curb spending power and halt inflation or lowered in
periods of slump to expand business and ward off depression
• taxes may be levied to reduce inequalities in wealth and incomes like the estate donor and income
taxes, their payers being recipients of unearned wealth or mostly in higher income tax brackets
• may be levied to promote science and invention
• may be made as an implement of police power to promote general welfare
• tax provisions may be enacted so that low income indiv pay little or no income taxes thru exclusions,
•
deductions tax credits
tax provisions may provide incentives for certain desirable activities to encourage investments in
productive assets or facilities that will lead to increased employment
A. Inherent Limitations
Inherent limitations are those which restrict the power although they are not embodied in the Constitution.
CONSTITTIONAL LIMITIATIONS
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Due process
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all persons subject to legislation shall be
treated alike under the circumstances and
conditions both in the privileges conferred and
liabilities imposed
where the statute or ordinance in question
applies alike to all persons firms or corps
placed in a similar situation or differently to
persons etc belonging to diff classes, provided
all those belonging to one class are treated
alike
rule of uniformity and equity
◦ “the rule of taxation shall be uniform and
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equal protection
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Substantive – valid law
Procedural – fair & reasonable methods
tax imposed for private purpose offends due
process and is void
if tax paid under a law declared invalid, it
cannot be enforced, tax must be refunded
notice is needed for deprivation of property for
non payment of taxes
a tax law which denies the tax payer if a fair
opp to assert his rights before a tribunal is
invalid
procedure prescribed for paying or contesting
must be reaosnable and not unjust or
oppressive
INHERENT LIMITATIONS
equitable. The congress shall evolve a
progressive system of taxation (Sec 28(1)
Article VI 1987C)
all taxable articles or properties of the same
•
Requirement that levy must be for a public
purpose
non delegation of legislative power to tax
◦ limitation arises from separation of powers
◦ exceptions:
▪ delegations to the president →
Article 6 sec 28.2 on authorizing
President to fix within specified limits
tariff rate, import or export quotas,
tonnage and wharfage dues and other
duties or imposts;
Sec 401 Tariff and Customs Code2
▪ delegations to local governments →
under the Const each LGU is given the
power to create its own sources of
revenue and to levy taxes..A10.5
▪ delegation to administrative
agencies → for powers which are not
legislative (valuing property, assess
and collect taxes computation
appraisment adjustment =
ADMINISTRATIVE);
▪ what cant be delegated: subjects,
purpose, amount, means, rules
exemption from taxation of government
entities
◦ to levy tax upon public property would
make it necessary for new taxes on other
public property for the payment of tax laid
Sec. 401. Flexible Clause. — a. The President, upon investigation by the Commission and recommendation of the National Economic Council, is
hereby empowered to reduce by not more than fifty per cent or to increase by not more than five times the rates of import duty expressly fixed by
statute (including any necessary change in classification) when in his judgment such modification in the rates of import duty is necessary in the
interest of national economy, general welfare and/or national defense. chanrobles virtual law library
b. Before any recommendation is submitted to the President by the Council pursuant to the provisions of this section, the Commission shall conduct an
investigation in the course of which it shall hold public hearings wherein interested parties shall be afforded reasonable opportunity to be present, to
produce evidence and to be heard. The Commission may also request the views and recommendations of any government office, agency or
instrumentality, and such office, agency or instrumentality shall cooperate fully with the Commission.
c. The President shall have no authority to transfer articles from the duty-free list to the dutiable list nor from the dutiable list to the duty-free list of the
tariff.
d. The power of the President to increase or decrease rates of import duty within the limits fixed in subsection "a" shall include the authority to modify the
form of duty. In modifying the form of duty the corresponding ad valorem or specific equivalents of the duty with respect to imports from the principal
concerning foreign country for the most recent representation period shall be used as basis.
Code.
i. The authority herein granted to the President shall be exercised only when Congress is not in session.
class shall be taxed at the same rate
the concept of equity in taxation requires that
such apportionment be more or less just in the
light of the taxpayer's ability to shoulder the
tax burden (usually measured in terms of the
size of wealth or property and income, gross or
net)... Its cornerstone is the ability to pay.
◦ Taxation may be uniform but inequitable when
the amount of tax imposed is excessive or
unreasonable
◦ Where the tax differentiation is not based on
material and substantial grounds the guarantee
of equal protection and the uniformity rule will
be infringed.
◦ Progressive system of taxation: means that
tax laws shall place emphasis on direct rather
than indirect taxation with ability pay as
principal criterion.
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no imprisonment for non payment of poll tax
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it is the use of property not ownershiop
used actually directly and exclusively
extends to property which are incidental to or
reasonable necessary for the accomplishment
of purposes like hospitals, schools for training
nurses, nurses home
exemption of non stock, non profit educational
insitutions from taxation
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prohibition agains infringement of religious
freedom: article III sec 5; imposition of license
fees on the sale of Bibles and other religious
literature for the purpose of profit by a
nonstock non profit violates exercise of
religious prof/worship
Art VI sec 29 (2)
exemption of relgious, charitable, and
educational entities non proft cemeteries
churches, from property taxation
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Article III Sec 10
ex: when a tax exemption is based on a
contract is revoked by a later taxing statute
N/a franchises (subject to am, alt, repeal)
no appropriation for religious purposes
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Article III Sec 20
Under LGC 161, the only penalty for
delinquency is payment of surcharge in the
form of interest @ 24% per annum + unpaid
amount from due date until paid
non impairment of obligations of contracts
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Section 4, 3-4 Article XIV
to be exempt the revenue assets, property or
donations must be used actually directly and
excl for educ purposes
concurrence of a majority of all the members
of Congress for the passage of law granting
tax exemption
•
, thus govt would be taxing itself
◦ Gov corps (PNR, GSIS) performing
proprietary functions are subject to tax in
the absence of exemptions in their charters
or special laws = private corps
international comity
◦ here the property of a foregin state or
government may not be taxed by another
◦ Grounds:
▪ Sovereign equality among the states
under intl law by virtue of which one
state cannot exericse its sov powers
over another
▪ Usage among states that when one
enters the territory of another, there is
an implied understanding that the
former does not intend to degrade its
dignity by placing itself under the
jurisdiction of the latter
▪ rule that a foreign gov may not be
sued without its consent so that it is
useless to assess the tax since anyway
it cannot be collected
territorial jurisdiction
◦ reason: a state may not tax property lying
outside its borders or lay an excise
privilege tax upon the exercise of a
RIGHt or privilege derived from laws of
another state and therein exercised and
enjoyed
◦ tax laws do not operate beyond a country's
territorial jurisdiction
◦ a person maybe taxed where there is a
relationship between him and the taxing
state , justifying the levy
◦ thus the basis fo tax is not income nor
location of property nor residence, but
upon his relation as a citizen of the state.
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Sec 28.4 Article VI
½ plus one of all members
power of the President to veto any particular
item or items in a revenue or tariff bill
◦ Sec 27.2 Artivle VI
non impairment of jurisdiction of the Supreme
Court in tax cases (Sec2 Article 8)
1. Public Purpose - the term is synonymous with governmental purpose. It means a purpose affecting inhabitants
of the state as a community and not merely as individuals. Tax must be used:
• for the support of the government
• for any recognized objects of the government or
• to promote welfare of the community
The reason for the rule is that a tax levied for a private purpose constitutes a taking of propety without due
process. Public money can ony be spent for a public purpose.
Examples: financing of educ activities, science promotion, erection & maintenance of roads bridges, aids for
victims of calamity, relief for poor and unemployed and to provide for unemployment benefits, payment for
public officers or employees
The purposes to be accomplished by taxation need not be inherently public. Although private individuals are
directly benefited, the tax would still be valid provided such benefit is only incidental.
De Leon: as long as tax is for a public purpose, its validity is not affected by collateral purposes or motives of
the legislature in imposing the levy or by the fact that it has a regulatory effect or it discourages or even deters
the activities taxed. The principle applies even though the revenue obtained from the tax appears very negligible
or the revenue purpose is only secondary.
Tax payers have sufficient interest of preventing the illegal expenditures of money raised by taxation and
may question the constitutionality of statutes REQUIRING THE EXPENDITURES OF PUBLIC FUNDS
(but still he is not relieved from paying tax due to belief of misappropriation). A taxpayer has no legal
standing to question executive acts that do not involve the use of public funds.
Pascual vs Public Works
PPI vs Fertiphil Corp
Tio vs Videogram regulatory Board
2. Inherently Legislative
General rule: power to tax may not be delegated
Commissioner vs Santos and Guild of philippine jewelers:
Kapatiran vs Tan
Exceptions from prohibition against delegation of power to tax:
a) Delegation to local governments
LGC Book II
1987 CONSTITUTION ARTICLE 10 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.
LTO vs City of Butuan
Basco vs Pagcor
b) Delegation to the President
Garcia vs Executive Sec
ABAKADA vs Ermita
c) Delegation to admiin agencies
maceda vs macaraig
osmena vs orbos
commision vs ca and fortune tobacco
3. Territorial
Iloilo bottlers vs city of iloilo
Smith vs CIR
4. International Comity
Sec 2 Article 2 Phil Consti
Sec 32 (B) 7 (a) NIRC
Tanada vs Angara
5. Exemption of Govt entities , agencies and instrumentalitis
sec 32 B 7b NIRC
sec 27 C Nirc
MIAA vs CA
Philippine Fisheries vs CA
A. TAXATION AND TAX DEFINED
Taxation: the process by which the sovereign, through its law making body raises income to defray the
necessary expenses of governement. It is merely a way of apportioning the cost of government among those
who in some measure are privileged to enjoy its benefits and therefore must bear its burdens.
Purposes:
– to provide funds or property to promote the general welfare and protection of its citizens
– to raise revenues for governmental needs
– to attain various social and economic (non revenue) objectives
– taxation includes every imposition of charge or burden by the sovereign power upon persons,
property, or property rights for the use and support of the government and to enable it to discharge
appropriate functions
Taxes: the enforced proportional and pecuniary CONTRIBUTIONS from persons and property levied by the law
making body of the state having jurisdiction over the subject of the burden for the support of the government
and all public needs
Essential Characteristics:
– an enforced contribution
– it is proportionate in character
– generally payable in money
– levied on persons or personal property : a tax may also be imposed on acts , transactions, rights or
privileges. In each case however it is the person who pays the tax; the property is resorted to for the
purpose of ascertaining the amount of tax that must be paid and of enforcing payment in case of default
of tax payer.
– It is levied by the state which has jurisdiction over the person or property: the object of tax must be
subject to the jurisdiction of the taxing state.
– It is levied by the law making body of the state: the power to tax is a legislative power which under the
Constitution only the Congress can exercise through enactment of tax statutes. The power to tax is no
longer vested exclusively with the Congress; local legislative bodies are now given direct authority to
levy taxes, fees, other charges
– It is levied for public purpose or purposes → support of government, administration of the law, or for the
payment of public expenses.
– It is also an important characteristic of most taxes that they are commonly required to be paid at
regular intervals every year.
B. TAX AS DISTINGUISHED FROM OTHER FORMS OF EXACTIONS
TAX
TOLL
TAX
Toll: a sum of
money for the use
of something;
paid for the use of
a road, bridge, of
public nature
Tax is a
demand of
sovereignty
Demand of
proprietorship
Intended to
RAISE
REVENUE
Paid for the
Paid for the use of Only by
support of the anothers property government
government
Generally
there is no
limit on the
amount of tax
that may be
imposed
Amount depends
upon the cost of
construction or
maintenance of
the public
improvement
used
May be
imposed only
by the
government
May be imposed
by the
government or
private ind or
entities
Section 155. Toll Fees or Charges. - The
sanggunian concerned may prescribe
the terms and conditions and fix the
rates for the imposition of toll fees or
charges for the use of any public road,
pier, or wharf, waterway, bridge, ferry or
telecommunication system funded and
constructed by the local government unit
concerned: Provided, That no such toll
fees or charges shall be collected from
officers and enlisted men of the Armed
Forces of the Philippines and members of
the Philippine National Police on
mission, post office personnel delivering
mail, physically-handicapped, and
disabled citizens who are sixty-five (65)
years or older.
When public safety and welfare so
requires, the sanggunian concerned may
discontinue the collection of the tolls, and
thereafter the said facility shall be free
and open for public use.
PENALTY
TAX
SPECIAL
ASSESSMENT
Any sanction
imposed as a
punisment for
violation of law or
acts deemed
injurious
An enforced proportional
contribution from owners
of lands especially or
peculiarly benefited by
public improvements
Designed to
REGULATE
CONDUCT
Levied only ON LAND
Imposed by gov or
private entities
Not a personal liability –
limited only to the land
involved
Based wholly on benefits
(not necessity)
Has general Exceptional both as to
application time and place
Section 240. Special Levy by Local Government
Units. - A province, city or municipality may
impose a special levy on the lands comprised
within its territorial jurisdiction specially
benefited by public works projects or
improvements funded by the local government
unit concerned: Provided, however, That the
special levy shall not exceed sixty percent (60%)
of the actual cost of such projects and
improvements, including the costs of acquiring
land and such other real property in connection
therewith: Provided, further, That the special levy
shall not apply to lands exempt from basic real
property tax and the remainder of the land
portions of which have been donated to the local
government unit concerned for the construction
of such projects or improvements.
TAX VS SPECIAL ASSESSMENT:
REPUBLIC VS BACOLOD MURCIA
A charge imposed only on property owner benefited is a special assessment rather than a tax
nothwithstanding that the statute calls it tax.
The rule that an exemption from taxation does not include exemption from special assessment. But the power to
tax carries with it the power to levy a special assessment.
The terms special levy is used in the LGC and the RP tax code.
TAX
LICENSE OR PERMIT FEE
TAX
DEBT
A charge imposed under the
police power for purposes of
REGULATION
Based on law
Generally based on contract,
express or implied
Tax is an enforced
contribution
assessed by
sovereign authority
to defray public
expenses.
Legal compensation or reward
of an officer for specific
services
Cannot generally be
assigned
Assignable
Levied for revenue
Imposed for regulation
Generally payable in
money
May be paid in kind
Involves exercise of Involves exercise of police
taxing power
power
Generally NOT
May be the subject of set off or
compensation
There is generally
no limit to on the
amount of tax that
may be imposed
Imprisonment is a
sanction for non
payment of tax
(except poll tax)
Person cannot be imprisoned for
non payment of debt (except
when it arises from crime)
Amount should be limited to
the necessary expenses of
regulation and inspection
Tax is imposed also Imposed on the right to
on persons and
exercise a privilege
property
Governed by special Governed by ordinary periods of
prescriptive periods in prescription
the Tax Code
Failure to pay
Failure to pay license fee
doesnt necess.make makes act or business illegal
the act or business
illegal
Does not draw interest Draws interest when it is so
except only when
stipulated or when there is
delinquent
default
License is in the nature of a special privilege of a
permission or authority to do what is within its
terms. Always revocable.
An exaction may be considered both a tax and a
license fee. This is true in the case of car registration
fees which may be regarded as taxes even as they
also serve as instrument for regulatuion. If the
purpose is primarily revenue, or if revenue is atleast
one of the real and substantial purposes, then the
exaction is properly called a tax.
Both a liability or obligation
Taxes cannot be the subject of legal compensation or set
off for the reason that the govt and taxpayer are not
mutually creditors and debtors of each other.
Obligations are due to the government in its coporate
capacity, while taxes are due to the govenrment in its
sovereign capacity.
But a tax may have only a regulatory purpose. The
general rule however is that the imposition is a tax if
its PRIMARY PURPOSE is to generate revenue and
regulation is merely incidental; but it the purpose is
primarily to regulate then it is deemed a regulation
and an exercise of the police power of the state and
the fact that incidental revenue is also obtained does
not make the imposition a tax.
The exception to the rule regarding set off is where
BOTH THE CLAIMS OF THE GOVERNMENT AND
THE TAXPAYER AGAINST EACH OTHER have
already become due and demandable.
It is also the general rule not to allow the setting of of
excess taxes paid against other taxes payable to the
government. The CIR however is allowed by law to
grant a refund or credit of taxes erroneously or illegally
paid.
TAX VS LICENSE FEE
Pal vs Edu
Progressive vs QC
Osmena vs Orbos
Compania General vs City of Manila
TAX VS ORDINARY DEBT
Philex Mining vs CIR
Caltex vs Coa
TAX
SUBSIDY
REVENUE
INTERNAL
REVENUE
CUSTOMS
TARIFF
DUTIES (duties) (3 senses : )
Pecuniary aid
directly granted
by the
government to
an individual or
private
commercial
enterprise
deemed
beneficial to the
public.
Refers to all the
funds or income
derived by the
government,
whether from tax or
from whatever
source and whatever
manner.
Taxes imposed
by the
legislature
other than
duties on
imports and
exports
Taxes imposed
on goods
exported from or
imported into a
country. “Taxes”
is broader in
scope as it
includes
“customs duties”
Not a tax
although a tax
may have to be
imposed to pay it.
The term refers more
to income derived
from the regular
system of taxation
and as such accrues
more or less
regularly every eyar.
As a book of rates
drawn usually in
alphabetical order
containing the names
of several kinds of
merchandise with the
corresponding duties
to be paid for the same
As the duties payable
on goods imported or
exported or
Refers to
the
amount
imposed
Revenue refers to
amount collected
As the system or
principle of imposing
duties on the import or
export of goods
Examples of receipts
other than from taxes
are those derived
from grants (f.a. By
one govt to another),
donations (from a
non gov source),
loans, commercial
revenues (from gocc
enterprises like tolls
interest or funds
borrowed, water
rents etc) and
administrative
revenues (fines
penalties forfeitures)
“Tariff and customs
duties” are used
interchangeable in the
tariff and customs
code
II. THEORY AND BASIS OF TAXATION
De Leon:
(1) Existence of government: the power of taxation proceeds upon the theory that the existence of
government is A NECESSITY; that it cannot continue without means to pay its expenses; and that
for these means it has a right to compel all its citizens and property within its limits to contribute
The power to tax is an attribute of sovereignty emanating from necessity .
(2) Reciprocal duties of state and inhabitants: the basis of taxation is found in the reciprocal duties of
protection and support between the state and its inhabitants. IN return for his contribution, the
taxpayer receives general advantages and protection which the government affords the taxpayer and
his property. This is called the BENEFITS- RECEIVED PRINCIPLE. 1 One is compensation or
consideration for the other: protection for support and support for protection
(3) Public Purpose requirement for lawful taxation: from the contributions received, the government renders
no special or commensurate benefit to any particular property or person. A tax is compulsory payment
to the government in return for which the payer gets no definite specific commodity or service. The only
benefit to which the tax payer is entitled is that derived from his enjoyment of the privileges in
living in an organized society established and safeguarded by devoting taxes to public purposes.
Thus a person cannot object to or resist the payment of taxes solely because no personal benefit to him
can be pointed out as arising from the tax or he is benefited less than others who pay the same or smaller
amount of tax. What matter is taxation is that the tax imposition is for a public purpose.
A. Lifeblood theory
B. Necessity Theory
1 This is a standard of equity or fairness often advanced in evaluating tax laws. It calls for the tax burdens to be
apportioned in the same proportions as the benefits derived by taxpayers from government spending tax revenues. The
other standars is the ability to pay principle.
Ferdinand Marcos II vs CA
NPC vs City of Cabanatuan
C. Benefits protection theory (Symbiotic relationship)
Commissioner vs Algue
D. Jurisdiction over Subject and Objects
III. PURPOSE / OBJECTIVES OF TAXATION
1. revenue – raising
2. non-revenue / special or regulatory
Caltex vs COA:
IV. GENERAL PRNCIPLES OF A SOUND TAX SYSTEM
A. Fiscal Adequacy: it means that the sources of revenue, that is , receipts therefrom, taken as whole, should be
sufficient to meet the demands of public expenditure. It means also that revenues should be elastic or capable
of expanding or contracting annually in response to variations in public expenditures. The alternatives are:
(a) to incur the risk of a series of deficits or surpluses due to inelastic revenues; or
(b) to adjust the amount of public expenditures to fit the flow of funds probably by curtailing certain activites
so that the budget may be balanced. Elasticity may be obtained without creating annually any new taxes or any
new tax machinery but merely changes in the rates applicable to existing taxes.
B. Theoretical Justice (equality): it means that the tax burden should be distributed in proportion to the
taxpayer's ability to pay. This is the so-called ability to pay principle. It holds that similarly situated taxpayers
should pay equal taxes, while those who have more should pay more.
The principle also connotes that the contribution of each person towards the expense of the government
should be so apportioned such that he would feel neither more or less inconvenienced from his share of payment
than every other person experiences from his. In other words taxation should be uniform as well as equitable.
C. Administrative Feasibility: it means that the laws should be capable of convenient, just and effective
adminitration or enforcement at a reasonable cost. No tax however ideally just and fair, is better than its actual
operation. Each tax in the system should be clear and plain to the taxpayer, capable of uniform enforcement by
govt officials, convenient as to time place and manner of payment, and not unduly burdensome upon or
discouraging to business activity. Tax laws should close up loopholes for tax evasion and deter the unscrupulous
officials from committing frauds in assessment and collection of taxes.
V. SCOPE AND LIMITATIONS OF TAXATION
De Leon: Nature and Power of taxation:
(1) it is inherent in sovereignty - an incident or attribute thereof, being essential to the existence of every
government. It can be exercised by the Government even if the Constitution is entirely silent on the subject.
Constitutional provisions relating to the power of taxation do not operate as grants of the power to the
government. They merely constitute limitations upon a power which would otherwise be practically without
limit.
(2) it is legislative in character: the levy of tax howecer may also be held on a local legislatigve body subject to
such limitations as may be provided by law. The constitutions expressly grants the power to tax to LGU's.
(3) it is subject to constitutional and inherent limitations. The power of taxation is not absolute.
Individual equities or inequalities are however not considered in the exercise of power and therefore the mere
fact that taxation is unjust or oppressive with respect to a particular taxpayer does not itself render a tax law
invalid where NO constitutional provision has been violated.
Extent of the legislative power to tax:
(1) the subjects or objects: persons, natural or juridical, property, real personal tangible intangible,
business transactions etc. A state is free to select the subject of taxation; INEQUALITIES which result from
the SINGLING OUT of one particular class for taxation or exemption infringe no constitutional limitation so
long as such exemption is reasonable and not arbitrary. Power to tax carries power to exempt
(2) The purpose or object of the tax so long as it is a public purpose: courts can inquire into whether the
purpose is really public or private. Once settled that the purpose is public, the courts can make no other inquiry
into the objective of the legislature, or the wisdom advisiability or expediency to tax.
Judicial determination is limited to: validity of tax in relation to constitutional provsions; and determination of
the application of a tax law (like if tax has been illegally collected or where taxpayer is entitle to exemption or
liability extinguished by prescrption.
(3) amount or rate: if oppressive, the only remedy is the ballot box and election of new reps. Even if a tax should
destroy a business, such fact alone could not invalidate the tax. Our Constitution mandates that the rule of
taxation shall be uniform and equitable.
(4) manner, means and agencies of collection of the tax: refer to the administration of the tax or the
implementation of tax laws. Having the sole power to prescribe the mode of collection, + remedies.
Non-revenue objectives of taxation:
• can strengthen anemic enterprises or provide incentive to greater production through grant of tax
exemptions or the creation of conditions conducive to their growth
• taxes on imports may be increased to protect local industries against foreign competition or decreased
to encourage foreign trade
• taxes on imported goods may also be used as a bargaining tool by a country by setting tariff rates first at
a relatively high level before trade negotiations are entered into with another country to enhance its
bargaining power
• taxes may be increased in periods of prosperity to curb spending power and halt inflation or lowered in
periods of slump to expand business and ward off depression
• taxes may be levied to reduce inequalities in wealth and incomes like the estate donor and income
taxes, their payers being recipients of unearned wealth or mostly in higher income tax brackets
• may be levied to promote science and invention
• may be made as an implement of police power to promote general welfare
• tax provisions may be enacted so that low income indiv pay little or no income taxes thru exclusions,
•
deductions tax credits
tax provisions may provide incentives for certain desirable activities to encourage investments in
productive assets or facilities that will lead to increased employment
A. Inherent Limitations
Inherent limitations are those which restrict the power although they are not embodied in the Constitution.
CONSTITTIONAL LIMITIATIONS
•
Due process
◦
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•
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•
all persons subject to legislation shall be
treated alike under the circumstances and
conditions both in the privileges conferred and
liabilities imposed
where the statute or ordinance in question
applies alike to all persons firms or corps
placed in a similar situation or differently to
persons etc belonging to diff classes, provided
all those belonging to one class are treated
alike
rule of uniformity and equity
◦ “the rule of taxation shall be uniform and
◦
2
•
equal protection
◦
•
Substantive – valid law
Procedural – fair & reasonable methods
tax imposed for private purpose offends due
process and is void
if tax paid under a law declared invalid, it
cannot be enforced, tax must be refunded
notice is needed for deprivation of property for
non payment of taxes
a tax law which denies the tax payer if a fair
opp to assert his rights before a tribunal is
invalid
procedure prescribed for paying or contesting
must be reaosnable and not unjust or
oppressive
INHERENT LIMITATIONS
equitable. The congress shall evolve a
progressive system of taxation (Sec 28(1)
Article VI 1987C)
all taxable articles or properties of the same
•
Requirement that levy must be for a public
purpose
non delegation of legislative power to tax
◦ limitation arises from separation of powers
◦ exceptions:
▪ delegations to the president →
Article 6 sec 28.2 on authorizing
President to fix within specified limits
tariff rate, import or export quotas,
tonnage and wharfage dues and other
duties or imposts;
Sec 401 Tariff and Customs Code2
▪ delegations to local governments →
under the Const each LGU is given the
power to create its own sources of
revenue and to levy taxes..A10.5
▪ delegation to administrative
agencies → for powers which are not
legislative (valuing property, assess
and collect taxes computation
appraisment adjustment =
ADMINISTRATIVE);
▪ what cant be delegated: subjects,
purpose, amount, means, rules
exemption from taxation of government
entities
◦ to levy tax upon public property would
make it necessary for new taxes on other
public property for the payment of tax laid
Sec. 401. Flexible Clause. — a. The President, upon investigation by the Commission and recommendation of the National Economic Council, is
hereby empowered to reduce by not more than fifty per cent or to increase by not more than five times the rates of import duty expressly fixed by
statute (including any necessary change in classification) when in his judgment such modification in the rates of import duty is necessary in the
interest of national economy, general welfare and/or national defense. chanrobles virtual law library
b. Before any recommendation is submitted to the President by the Council pursuant to the provisions of this section, the Commission shall conduct an
investigation in the course of which it shall hold public hearings wherein interested parties shall be afforded reasonable opportunity to be present, to
produce evidence and to be heard. The Commission may also request the views and recommendations of any government office, agency or
instrumentality, and such office, agency or instrumentality shall cooperate fully with the Commission.
c. The President shall have no authority to transfer articles from the duty-free list to the dutiable list nor from the dutiable list to the duty-free list of the
tariff.
d. The power of the President to increase or decrease rates of import duty within the limits fixed in subsection "a" shall include the authority to modify the
form of duty. In modifying the form of duty the corresponding ad valorem or specific equivalents of the duty with respect to imports from the principal
concerning foreign country for the most recent representation period shall be used as basis.
Code.
i. The authority herein granted to the President shall be exercised only when Congress is not in session.
class shall be taxed at the same rate
the concept of equity in taxation requires that
such apportionment be more or less just in the
light of the taxpayer's ability to shoulder the
tax burden (usually measured in terms of the
size of wealth or property and income, gross or
net)... Its cornerstone is the ability to pay.
◦ Taxation may be uniform but inequitable when
the amount of tax imposed is excessive or
unreasonable
◦ Where the tax differentiation is not based on
material and substantial grounds the guarantee
of equal protection and the uniformity rule will
be infringed.
◦ Progressive system of taxation: means that
tax laws shall place emphasis on direct rather
than indirect taxation with ability pay as
principal criterion.
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•
no imprisonment for non payment of poll tax
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it is the use of property not ownershiop
used actually directly and exclusively
extends to property which are incidental to or
reasonable necessary for the accomplishment
of purposes like hospitals, schools for training
nurses, nurses home
exemption of non stock, non profit educational
insitutions from taxation
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prohibition agains infringement of religious
freedom: article III sec 5; imposition of license
fees on the sale of Bibles and other religious
literature for the purpose of profit by a
nonstock non profit violates exercise of
religious prof/worship
Art VI sec 29 (2)
exemption of relgious, charitable, and
educational entities non proft cemeteries
churches, from property taxation
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Article III Sec 10
ex: when a tax exemption is based on a
contract is revoked by a later taxing statute
N/a franchises (subject to am, alt, repeal)
no appropriation for religious purposes
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•
Article III Sec 20
Under LGC 161, the only penalty for
delinquency is payment of surcharge in the
form of interest @ 24% per annum + unpaid
amount from due date until paid
non impairment of obligations of contracts
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•
•
Section 4, 3-4 Article XIV
to be exempt the revenue assets, property or
donations must be used actually directly and
excl for educ purposes
concurrence of a majority of all the members
of Congress for the passage of law granting
tax exemption
•
, thus govt would be taxing itself
◦ Gov corps (PNR, GSIS) performing
proprietary functions are subject to tax in
the absence of exemptions in their charters
or special laws = private corps
international comity
◦ here the property of a foregin state or
government may not be taxed by another
◦ Grounds:
▪ Sovereign equality among the states
under intl law by virtue of which one
state cannot exericse its sov powers
over another
▪ Usage among states that when one
enters the territory of another, there is
an implied understanding that the
former does not intend to degrade its
dignity by placing itself under the
jurisdiction of the latter
▪ rule that a foreign gov may not be
sued without its consent so that it is
useless to assess the tax since anyway
it cannot be collected
territorial jurisdiction
◦ reason: a state may not tax property lying
outside its borders or lay an excise
privilege tax upon the exercise of a
RIGHt or privilege derived from laws of
another state and therein exercised and
enjoyed
◦ tax laws do not operate beyond a country's
territorial jurisdiction
◦ a person maybe taxed where there is a
relationship between him and the taxing
state , justifying the levy
◦ thus the basis fo tax is not income nor
location of property nor residence, but
upon his relation as a citizen of the state.
◦
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•
•
Sec 28.4 Article VI
½ plus one of all members
power of the President to veto any particular
item or items in a revenue or tariff bill
◦ Sec 27.2 Artivle VI
non impairment of jurisdiction of the Supreme
Court in tax cases (Sec2 Article 8)
1. Public Purpose - the term is synonymous with governmental purpose. It means a purpose affecting inhabitants
of the state as a community and not merely as individuals. Tax must be used:
• for the support of the government
• for any recognized objects of the government or
• to promote welfare of the community
The reason for the rule is that a tax levied for a private purpose constitutes a taking of propety without due
process. Public money can ony be spent for a public purpose.
Examples: financing of educ activities, science promotion, erection & maintenance of roads bridges, aids for
victims of calamity, relief for poor and unemployed and to provide for unemployment benefits, payment for
public officers or employees
The purposes to be accomplished by taxation need not be inherently public. Although private individuals are
directly benefited, the tax would still be valid provided such benefit is only incidental.
De Leon: as long as tax is for a public purpose, its validity is not affected by collateral purposes or motives of
the legislature in imposing the levy or by the fact that it has a regulatory effect or it discourages or even deters
the activities taxed. The principle applies even though the revenue obtained from the tax appears very negligible
or the revenue purpose is only secondary.
Tax payers have sufficient interest of preventing the illegal expenditures of money raised by taxation and
may question the constitutionality of statutes REQUIRING THE EXPENDITURES OF PUBLIC FUNDS
(but still he is not relieved from paying tax due to belief of misappropriation). A taxpayer has no legal
standing to question executive acts that do not involve the use of public funds.
Pascual vs Public Works
PPI vs Fertiphil Corp
Tio vs Videogram regulatory Board
2. Inherently Legislative
General rule: power to tax may not be delegated
Commissioner vs Santos and Guild of philippine jewelers:
Kapatiran vs Tan
Exceptions from prohibition against delegation of power to tax:
a) Delegation to local governments
LGC Book II
1987 CONSTITUTION ARTICLE 10 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.
LTO vs City of Butuan
Basco vs Pagcor
b) Delegation to the President
Garcia vs Executive Sec
ABAKADA vs Ermita
c) Delegation to admiin agencies
maceda vs macaraig
osmena vs orbos
commision vs ca and fortune tobacco
3. Territorial
Iloilo bottlers vs city of iloilo
Smith vs CIR
4. International Comity
Sec 2 Article 2 Phil Consti
Sec 32 (B) 7 (a) NIRC
Tanada vs Angara
5. Exemption of Govt entities , agencies and instrumentalitis
sec 32 B 7b NIRC
sec 27 C Nirc
MIAA vs CA
Philippine Fisheries vs CA
