TAXATION LAW REVIEWER

Based on the lectures of Atty. Gerald Yu

SRT Faelnar Notes
May be exercised only by the There is no transfer of rights.
government or its political At most, there is restraint on
I. June 27, 2018 subdivisions. the injurious use of property.

a. Regarding the 3 inherent powers of the 2) As to purpose: 5) As to Amount of Disposition

State enumerate:  Taxation  Taxation
The property (generally in the Generally there is no limit on
i. Similarities form of money) is taken for the amount of tax may be
the support of the imposed.
Ans: government.
 Eminent Domain
1) They are inherent in the state and maybe
 Eminent Domain No amount imposed but rather
exercise by it without need of express
The property taken for public the owner is paid the market
constitutional grant;
use; must be compensated. value of the property taken.
2) They are not only necessary but
indispensable, the state cannot continue or  Police Power  Police Power
The use of the property is Amount imposed should not
be effective unless it is able to exercise
regulated for the purpose of be more than sufficient to
them;
promoting the general cover the cost of the license
3) They are methods by which the state welfare; it is not and necessary expenses.
interferes with private rights; compensable.
6) As to Relationship to Constitution
4) They are presupposes an equivalent 3) As to persons affected:  Taxation
compensation for the private rights  Taxation Is subject to certain
interfered with; and Operates upon a (1) constitutional limitations.
Community; or (2) Class of Including the prohibition
5) They are exercise merely by the Individuals. against impairment of the
legislators. obligations of contracts.
 Eminent Domain
ii. Distinctions Operates on an individual as  Eminent Domain
(Source: Mamalateo) the owner of a particular Inferior to the impairment
property. prohibition; government
Ans:
cannot expropriate private
1) As to the Authority who exercise the  Police Power property which under a
power: Operates upon a (1) contract it had previously
 Taxation Community; or (2) Class of bound itself to purchase from
May be exercised only by the individuals. other contracting party.
government or its political
subdivisions 4) As to Effect:  Police Power
 Taxation Relatively free from
 Eminent Domain The money contributed constitutional limitations. Is
May be: (1) Exercised by the becomes part of the public superior to the impairment of
government or its political funds contract provisions.
subdivisions;
(2) Granted to public service  Eminent Domain b. What are the requisites for Municipal
companies or public utilities. There is a transfer of the right Ordinances to be Valid?
to property
 Police Power Ans: To test its validity, following requirements
 Police Power must be applied for a municipal ordinance to be
TAXATION LAW REVIEWER
Based on the lectures of Atty. Gerald Yu
SRT Faelnar Notes
government is a necessity and this power is an essential BAR Q 2005
valid as laid down by the accepted principles and inherent attribute of sovereignty, belonging as a
governing Municipal Corporations: matter of right to every independent state or Q: May legislative bodies enact laws to raise
government. No sovereign state can continue to exist revenues in the absence of constitutional
1) Must not contravene the Constitution or without the means to pay its expenses; and that for those provisions granting said body the power of tax?
any statute; means, it has the right to compel all citizens and property Explain. (2005 Bar)
2) Must not be unfair or oppressive; within its limits to contribute, hence, the emergence of
3) Must not be partial or discriminatory; the power to tax (51 Am. Jur., Taxation 40). A: YES. The constitutional provisions relating to the power
4) Must not prohibit but may regulate trade; of taxation do not operate as grants of the power of
5) Must be reasonable; 2) Legislative in Character – the power to tax is taxation to the government, but instead merely constitute
exclusively lodged in the Congress. a limitation upon a power which would otherwise be
6) Must be general and consistent with public practically without limit.
policy.
e. What does the power of tax include? Moreover, it is inherent in nature, being an attribute of
sovereignty. There is, thus, no need for a constitutional
c. Define Taxation as a:
Ans: The power to tax includes the authority to grant for the State to exercise this power.
i. Power
Refers to the inherent power of (1) determine the (a) nature; (b) object; (c)
extent; (d) coverage; (e) apportionment of the ----
the State, coextensive with
sovereignty to demand tax; (f) situs of the imposition; and (g) method
Q: Can police power and taxation co-exist in one act
contributions for public purposes of collection;
of the government?
to support the government. (2) grant tax exemptions or condonations; and
(3) specify or provide for the administrative as A: YES. Taxation is no longer envisioned as a measure
ii. Process well as judicial remedies that either the merely to raise revenue to support the existence of the
As a process or act of imposing a government or the taxpayers may avail government. Taxes may be levied with a regulatory
charge by governmental authority themselves in the proper implementation of the purpose to provide a means for the rehabilitation and
on property, individuals or tax measure. stabilization of a threatened industry which is affected
transactions to raise money for with public interest as to be within the police power of the
public purposes. f. When is delegation of the Power to Tax state (Caltex Philippines, Inc. v. Commission on Audit,
allowed? 208 SCRA 726). Thus, the power of taxation may be
iii. Means exercised to implement police power (Tiu v. Videogram
By which the sovereign state and Ans: Regulatory Board, 151 SCRA 208).
apportioning the costs of GN: The power to tax is purely legislative
government among those who are However, delegation of the power to tax is -----
privileged to enjoy its benefits. allowed in the following cases:

 To local governments in Q: Galaxia Telecommunications Company

d. Briefly explain the two fold nature of
respect of matters of local constructed a telecommunications tower for the
Taxation Power.
concern to be exercised by the purpose of receiving and transmitting cellular
Ans: local legislative bodies communications. Meanwhile, the municipal
1) Inherent in Character – that it co-exist with thereof; authorities passed an ordinance entitled “An
the State. It doesn’t need a law;  When allowed by the Ordinance Regulating the Establishment of Special
constitution; Projects” which imposed fees to regulate activities
BAR Q 2003  When the delegation relates particularly related to the construction and
merely to administrative maintenance of various structures, certain
Q: Why is the power to tax considered inherent in a implementation that may call construction activities of the identified special
sovereign State? (2003 Bar) for some degree of projects, which includes “cell sites” or
discretionary powers under a telecommunications towers. Is the imposition of
A: It is considered inherent in a sovereign State because set of sufficient standards the fee an exercise of the power of taxation?
it is a necessary attribute of sovereignty. Without this expressed by law.
power no sovereign State can exist or endure. The power
to tax proceeds upon the theory that the existence of a
TAXATION LAW REVIEWER
Based on the lectures of Atty. Gerald Yu
SRT Faelnar Notes
Taxes, being the lifeblood of the
government, that should be collected
A: NO. The designation given by the municipal authorities without unnecessary hindrance, every It is a destructive power which interferes with the
does not decide whether the imposition is properly a precaution must be taken not to unduly personal and property rights of the people and takes from
license tax or a license fee. The determining factors are suppress it (Republic v. Caguioa, 536 SCRA them a portion of their property for the support of the
the purpose and effect of the imposition as may be 193 (2007)). government (Paseo Realty & Development Corporation v.
apparent from the provisions of the ordinance. If the CA, G.R. No. 119286, October 13, 2004).
generating of revenue is the primary purpose an 4. Supreme – It is supreme insofar as the
regulation is merely incidental, the imposition is a tax; selection of the subject of taxation is Therefore, it should be exercised with caution to minimize
but if regulation is the primary purpose, the fact that concerned, but it does not mean that it is injury to the proprietary rights of the taxpayer. It must
incidentally revenue is also obtained does not make the superior to the other inherent powers of the be exercised fairly, equally and uniformly, lest the tax
imposition a tax (Gerochi v. Department of Energy, 527 State. collector kill the ‘hen that lays the golden egg’ (McCulloch
SCRA 696, 2007). v. Maryland, 4 Wheat, 316 4 L ed. 579, 607) (Roxas v.
CTA, 23 SCRA 276).
The fees in the ordinance are not impositions on the
building or structure itself; rather, they are impositions Question: Explain the concept of “wide spectrum of NOTE: It is more reasonable to say that the
on the activity subject of government regulation, such as taxation”. maxim “the power to tax is the power to destroy” is to
the installation and construction of the structures. It is describe degree of vigor with which the taxingpower may
primarily regulatory in nature, and not primarily revenue- A: It means that taxation is one that extends to every be employed in order to raise revenue, and not the
raising. While the fees may contribute to the revenues of business, trade or occupation; to every object of industry; purposes for which the taxing power may be used
the municipality, this effect is merely incidental. Thus, the use or enjoyment; and to every species of possession. It (Cooley, 1876).
fees imposed in the said ordinance are not taxes (Smart imposes a burden which, in case of failure to discharge
Communications, Inc., v. Municipality of Malvar, the same, may be followed by the seizure and confiscation 2. Justice Holmes dictum – “The power to tax is not
Batangas, G.R. No. 204429, February 18, 2014). of property after the observance of due process. the power to destroy while this Court sits.”

While taxation is said to be the power to destroy, it is by

no means unlimited. When a legislative body having the
h. CHARACTERISTICS of Taxation (10) power to tax a certain subject matter actually imposes
g. What are the SCOPE of Taxation? Briefly (based on the book of Domondon) such a burdensome tax as effectually to destroy the right
explain each. (CUPS) to perform the act or to use the property subject to the
1) Inherent in the State; tax, the validity of the enactment depends upon the
Ans: The following are the charateristics: 2) Subject to Constitutional and Inherent nature and character of the right destroyed. If so great
Limitations; an abuse is manifested as to destroy natural and
1. Comprehensive – It covers persons, 3) Essentially legislative function; fundamental rights which no free government
businesses, activities, professions, rights 4) For public purpose; consistently violate, it is the duty of the judiciary to hold
and privileges, it covers all (Ex. 5) Territorial in operation; such an act unconstitutional.
persons,activities,business) 6) Tax exemption by the government subject to
qualification;
2. Unlimited – It is so unlimited in force and 7) Generally imprescriptible;
searching in extent that courts scarcely 8) Applies proscriptively; In not more than 4 sentences, harmonize/
venture to declare that it is subject to any 9) Maybe exercised jointly by police power; reconcile Marshal Dictum with Holmes Doctrine.
restrictions, except those that such rests in 10) Strongest among inherent powers.
the discretion of the authority which
exercises it (Tio v. Videogram Regulatory
Ans: Marshall’s view refers to a valid tax while Holmes’
Board, G.R. No. 75697, June 18, 1987). i. Expound Marshall Dictum and Holmes view refers to an invalid tax.
Doctrine.
The power to tax involves the power to destroy since the
3. Phenary – it is complete. Under NIRC, the Ans: There are two views on this: power to tax includes the power to regulate even to the
BIR may avail of certain remedies to ensure extent of prohibition or destruction, when it is used validly
the collection of taxes. 1. US Chief Justice Marshall dictum - The power to tax
as an implement of police power in discouraging and
involves the power to destroy.
TAXATION LAW REVIEWER
Based on the lectures of Atty. Gerald Yu
SRT Faelnar Notes
(2) Regulatory – Taxes may be levied with a Taxes are what we pay for civilized society.
regulatory purpose to provide means for the Without taxes, the government would be
prohibiting certain things or enterprises inimical to the rehabilitation and stabilization of a threatened paralyzed for lack of the motive power to
public welfare. industry which is affected with public interest as activate and operate it. Hence, despite the
to be within the police power of the state natural reluctance to surrender part of one's
However, if it is employed solely to raise revenues, the hard-earned income to the taxing authorities,
modern view is that it cannot be allowed to confiscate or (The “lawful subjects” and “lawful means” test every person who is able to must contribute his
destroy. If this is to be done, the tax may be successfully are used to determine the validity of a law share in the running of the government. (CIR v.
attacked as an unconstitutional exercise of discretion, enacted under the police power.); Algue, Inc.)
which is usually vested in the legislature (Cruz, 2007).
(3) Promotion of general welfare - taxation may 2) Necessity Theory
While the power to tax is so unlimited in force and so
be used as an implement of police power to
searching in extent that the courts scarcely venture to The power to tax is an attribute of sovereignty
promote the general welfare of the people.
declare that it is subject to any restrictions whatever, it is emanating from necessity. It is a necessary
subject to the inherent and constitutional limitations burden to preserve the State's sovereignty and
In the case of Lutz v. Araneta (G.R. No. L-7859,
which are intended to prevent abuse on the exercise of a means to give the citizenry an army to resist
December 22, 1955), the Supreme Court upheld
the otherwise plenary and unlimited powers. It is the an aggression, a navy to defend its shores from
the validity of the Sugar Adjustment Act, which
court’s role to see to it that the exercise of the power does invasion, a corps of civil servants to serve,
imposed a tax on milled sugar since the purpose
not transgress these limitations (Tio v. Videogram public improvements designed for the
of the law was to strengthen an industry that is
Regulatory Board et al., 151 SCRA 213). enjoyment of the citizenry and those which
so undeniably vital to the economy – the sugar
industry (Aban, 2001).; come within the State's territory, and facilities
In order to maintain the general public’s trust and and protection which a government is supposed
confidence in the government, this power must be used to provide. (Phil. Guaranty Co., Inc. v. CIR)
justly and not treacherously (Roxas y Cia v. CTA, 23 SCRA (4) Reduction of social inequality - prevents the
undue concentration of wealth in the hands of a
3) Benefits-Protection / Reciprocity Theory
few individuals. Progressivity is based on the
principle that those who are able to pay more Taxation is described as a symbiotic relationship
276). It should be exercised with caution to minimize should shoulder the bigger portion of the tax whereby in exchange of the benefits and
injury to the proprietary rights of the taxpayer. It must burden. ; protection that the citizens get from the
be exercised fairly, equally and uniformly, lest the tax Government, taxes are paid. (CIR v. Algue,
collector kills the ‘hen that lays the golden egg’ (CIR v. (5) Encourage economic growth by granting Inc.)
SM Prime Holdings, Inc., 613 SCRA 774 (2010)). incentives and exemptions to encourage
investment thereby stimulating economic BAR Q 1991
Taxpayers may seek redress before the courts in case of activity. ;
illegal imposition of taxes and irregularities as the Q: Discuss the meaning and the implications of the
Constitution overrides any legislative or executive act that (6) Protectionism – to protect local industries statement: “Taxes are the lifeblood of the
runs counter to it (Sison Jr. v. Ancheta, G.R. No. L- from foreign competition. government and their prompt and certain
59431, July 25, 1984). availability is an imperious need” (1991 Bar).
(Under the “Filipino First Policy” of the
Constitution); A: It expresses the underlying basis of taxation which is
governmental necessity, for indeed, without taxation, a
j. Give at least 5 purposes of Taxation and government can neither exist nor endure.
explain each briefly. (7) Compensatory - to make up with the
benefits given.
Considering that taxes are the lifeblood of the
Ans: government and in Holmes’s memorable metaphor, the
(1) Revenue – To raise revenue to promote k. What are the 3 underlying basis of
price we pay for civilization, tax laws must be faithfully
general welfare and protection of its Taxation? Explain.
and strictly implemented (CIR v. Acosta, G.R. No.
citizens; 154068, August 3, 2007). Taxes should be collected
Ans:
promptly. No court shall have the authority to grant an
NON-REVENUE: (RPREP) injunction to restrain the collection of any internal
1) Lifeblood Theory
TAXATION LAW REVIEWER
Based on the lectures of Atty. Gerald Yu
SRT Faelnar Notes
P.D. 464 (Real Property Tax Code) is
unconstitutional because it accelerated the
revenue tax, fee or charge imposed by the NIRC (Angeles Q: A violation of the principle of a sound tax system application of the general revision of assessments
City v. Angeles Electric Cooperation, 622 SCRA 43, 2010). may or may not invalidate a tax law. to January 1, 1987 thereby increasing real property
taxes by 100% to 400% on improvements, and up
A tax law will retain its validity even if it is not in to 100% on land which would necessarily lead to
l. What are the different objects of taxation? consonance with the principles of fiscal adequacy and confiscation of property. Is the contention of the
Give at least 1 example each. administrative feasibility because the Constitution does Chavez and ROAP correct?
not expressly require so. These principles are only
Ans: Persons, Property and Excise designated to make our tax system sound. However, if a A: NO. Without E.O. 73, the basis for collection of real
tax law runs contrary to the principle of theoretical property taxes will still be the 1978 revision of property
1) Personal Tax – Ex. Community Tax justice, such violation will render the law unconstitutional values. Certainly, to continue collecting real property
2) Property Tax – Ex. Real Estate Tax, considering that under the Constitution, the rule of taxes based on valuations arrived at several years ago, in
3) Excise Tax – Transactions, privilege, right taxation should be uniform and equitable (J. Dimaampao, disregard of the increases in the value of real properties
and interest. (Ex. Income Tax) 2015). that have occurred since then, is not in consonance with
a sound tax system. Fiscal adequacy, which is one of the
m. What are the 3 basic principles of a sound ---- characteristics of a sound tax system, requires that
tax system? Explain each briefly. sources of revenues must be adequate to meet
Q: Is the VAT law violative of the administrative
government expenditures and their variations (Chavez v.
Ans: The following are the 3 basic principles of feasibility principle?
Ongpin, 186 SCRA 331, G.R. No. 76778, June 6, 1990).
a sound systems:
A: NO. The VAT law is principally aimed to rationalize the
system of taxes on goods and services. Thus, simplifying
1) Fiscal Adequacy – Revenue raised must be
tax administration and making the system more equitable n. What are the 4 stages of Taxation? Explain
sufficient to meet government/public
to enable the country to attain economic recovery each briefly. ( BAR 2006)
expenditures and other public needs
(Kapatiran ng Mga Naglilingkod sa Pamahalaan v. Tan,
(Chavez v. Ongpin, G.R. No. 76778, June
G.R. No. 81311, June 30, 1988). Ans: The following are the 4 satges of Taxation:
6, 1990). Neither an excess nor a
deficiency of revenue vis-à-vis the needs of (LAPR)
-----
government would be in keeping with the
1) Levy – This refers to the enactment of a law
principle (Vitug, 2006). Q: Is the imposition of VAT on tollway operations by Congress authorizing the imposition of
valid? tax. It further contemplates the
Sufficiency to meet government
determination of the subject of taxation,
expenditures and other public needs; A: YES. Administrative feasibility is one of the canons of
purpose for which the tax shall be levied,
a sound tax system. Non-observance of the canon,
fixing the rate of taxation and the rules of
2) Administrative Feasibility/ Convenience – however, will not render a tax imposition invalid “except
taxation in general.;
The tax system should be capable of being to the extent that specific constitutional or statutory
effectively administered and enforced with limitations are impaired.” Thus, even if the imposition of
------
the least inconvenience to the taxpayer VAT on tollway operations may seem burdensome to
(Diaz v. Secretary of Finance, G.R. No. implement, it is not necessarily invalid unless some Q: Taxes are assessed for the purpose of generating
193007, July 19, 2011).; aspect of it is shown to violate any law or the Constitution revenue to be used for public needs. Taxation itself
(Diaz v. Secretary of Finance, 654 SCRA 96, G.R. No. is the power by which the State raises revenue to
3) Theoretical Justice – 193007, July 19, 2011). defray the expenses of government. A jurist said
a. Must take into consideration the that a tax is what we pay for civilization. In our
taxpayer’s ability to pay (Ability to Pay -----
jurisdiction, which of the following statements may
Theory). be erroneous?
b. Art. VI, Sec. 28(1), 1987 Constitution
mandates that the rule on taxation must be Q: Frank Chavez, as taxpayer, and Realty Owners 1. Taxes are pecuniary in nature.
uniform and equitable and that the State Association of the Philippines, Inc. (ROAP), alleged 2. Taxes are enforced charges and contributions.
must evolve a progressive system of 3. Taxes are imposed on persons and property
that E.O. 73 providing for the collection of real
taxation. within the territorial jurisdiction of a State.
property taxes as provided for under Section 21 of
TAXATION LAW REVIEWER
Based on the lectures of Atty. Gerald Yu
SRT Faelnar Notes
tax has been paid is shown (Marcos II v. CA, G.R. XPN: If the law expressly provides for retroactive
4. Taxes are levied by the executive branch of the No.120880, June 5, 1997). application. Retroactive application of revenue laws may
government. be allowed if it will not amount to denial of due process.
5. Taxes are assessed according to a reasonable NOTE: Assessment and collection may be delegated but
rule of apportionment. (2004 Bar) not levy since it is exclusively conferred with the There is a violation of due process when the tax law
Congress. imposes harsh and oppressive tax (CIR v. Acosta, G.R.
No.154068 August 3, 2007).
----
A: (4) Taxes are levied by the executive branch of Ex post facto law as applied in taxation
government. This statement is erroneous because levy
refers to the act of imposition by the legislature which is The prohibition against ex post facto laws applies only to
done through the enactment of a tax law. Levy is an 3) Payment – The act of compliance by the criminal matters and not to laws which are civil in nature.
exercise of the power to tax which is exclusively taxpayer, including such options, schemes
legislative in nature and character. Clearly, taxes are not or remedies as may be legally available. NOTE: When it comes to civil penalties like fines and
levied by the executive branch of government (NPC v. forfeiture (except interest), tax laws may be applied
Albay, G.R. No. 87479, June 4, 1990). GR: Tax shall be paid by the person subject thereto at the retroactively unless it produces harsh and oppressive
time the return is filed (Sec. 56[A][1], NIRC). consequences which violate the taxpayer’s constitutional
----- rights regarding equity and due process. But criminal
XPN: When the tax due is in excess of P2,000, the penalties arising from tax violations may not be given
taxpayer other than a corporation may elect to pay the retroactive effect.
tax in 2 equal installments in which case, the first
2) Assessment and Collection – an act of the installment shall be paid at the time the return is filed and
administration and implementation of the the second installment, on or before July 15 following the
tax law by the executive department close of the calendar year (Sec. 56[A][2],NIRC).
through the administrative agencies. The b. Imprescriptibility of Taxation;
act of assessing and collecting taxes is NOTE: If any installment is not paid on or before the date
administrative in character, and therefore fixed for its payment, the whole amount of the tax unpaid - As a rule, the right of the government to
can be delegated (J. Dimaampao, 2015,).; becomes due and payable, together with delinquency collect taxes is imprescriptible because the
penalties. very existence of the state depends upon
the exercise of this power.
NOTE: The term “assessment” which here means notice
and demand for payment of a a tax liability, should not 4) Refund - The recovery of any alleged to GR: Taxes are imprescriptible by reason that it is the
be confused with “assessment” relative to a real property have been erroneously or illegaly assessed lifeblood of the government.
taxation, which refers to the listing and valuation of or collected, or of any penalty claimed to
taxable real property. have been collected without authority, or of XPN: Tax laws may provide for statute of limitations. In
any sum alleged to have been excessively, particular, the NIRC and LGC provide for the prescriptive
----- or in any manner wrongfully collected. periods for assessment and collection.

Q: Is the approval of the court, sitting as probate or Tax laws provide for statute of limitations in the collection
estate settlement court, required in the of taxes for the purpose of safeguarding taxpayers from
enforcement of the estate tax? (2005 Bar) II. July 4, 2018 any unreasonable examination, investigation or
assessment (CIR v. B.F. Goodrich Phils., G.R. No. 104171,
A: NO. The approval of the court, sitting in probate, is not 1. Commonly used doctrines/Principles in February 24, 1999).
a mandatory requirement in the collection of estate tax. Taxation:
NOTE: Although the NIRC provides for the limitation in
On the contrary, under Section 94 of the NIRC, it is the a. Prospectivity of Tax Laws; the assessment and collection of taxes imposed, such
probate or settlement court which is forbidden to prescriptive period will only be applicable to those taxes
authorize the executor or judicial administrator of the that were returnable. The prescriptive period shall start
decedent’s estate, to deliver any distributive share to any GR: Tax laws must only be imposed prospectively. from the time the taxpayer files the tax return and
party interested in the estate, unless a certification from declares his liability (Collector of Internal Revenue v.
the Commissioner of the Internal Revenue that the estate Bisaya Land Transportation Co., Inc., G.R. Nos. L-12100
& L-11812, May 29, 1959).
TAXATION LAW REVIEWER
Based on the lectures of Atty. Gerald Yu
SRT Faelnar Notes
All the elements must be present in order establishments selling liquor should pay an annual
c. Double Taxation; to apply double taxation in its strict sense. fee of P20,000. Subsequently, the municipal board
proposed an ordinance imposing a sales tax
- Means taxing for the same tax period the B. Indirect (Broad sense) - It is a permissible equivalent to 5% of the amount paid for the
same thing or activity twice, when it should double taxation. It is indirect when some purchase or consumption of liquor in stores,
be taxed but once, by the same taxing elements of direct double taxation are absent. restaurants and other establishments. The
authority for the same purpose and with municipal mayor, CC, refused to sign the ordinance
the same character of tax. (Villanueva vs. ----- on the ground that it would constitute double
City of Iloilo 26 SCRA 578) taxation. Is the refusal of the mayor justified?
Reason briefly. (2004 Bar)
BAR Q 2015
IS DOUBLE TAXATION PROHIBITED IN THE PHILIPPINES? A: NO. The impositions are of different nature and
Q: Differentiate between double taxation in the character. The fixed annual fee is in the nature of a license
No. There is no constitutional prohibition against double strict sense and in a broad sense and give an fee imposed through the exercise of police power, while
taxation in the Philippines. It is something not favored, example of each (2015 Bar). the 5% tax on purchase or consumption is a local tax
but is permissible, provided some other constitutional imposed through the exercise of taxing powers. Both
requirement is not thereby violated, such as the A: Double taxation in the strict sense pertains to the license fee and tax may be imposed on the same business
requirement that taxes must be uniform (Villanueva v. direct double taxation. This means that the taxpayer is or occupation, or for selling the same article and this is
City of Iloilo, 1968). taxed twice by the same taxing authority, within the same not in violation of the rule against double taxation
taxing jurisdiction, for the same property and same (Compania General de Tabacos de Filipinas v. City of
There is no constitutional prohibition against double purpose. On the other hand, double taxation in broad Manila, G.R. No. L-16619, June 29, 1963).
taxation. It is not favored but permissible. (Pepsi Cola sense pertains to indirect double taxation. This extends
Bottling Co. v. City of Butuan, 1968). to all cases in which there is a burden of two or more
impositions. It is the double taxation other than those
covered by direct double taxation. d. Different Modes of Eliminating Double
Taxation;
----
Two Types: Local legislation and tax treaties may provide for:
BAR Q 1996
1) As to validity – 1. Tax credit – an amount subtracted from taxpayer’s tax
Q: X, a lessor of a property, pays real estate tax on liability in order to arrive at the net tax due.
A. Direct (Strict sense) - Double taxation in the premises, a real estate dealer’s tax based on
the objectionable or prohibited sense since it violates the rental receipts and income tax on the rentals. He 2. Tax deduction – an amount subtracted from the gross
equal protection clause of the Constitution claims that this is double taxation. Decide. (1996 amount on which a tax is calculated.
Bar)
Elements of Direct Double Taxation: 3. Tax exemption – a grant of immunity to particular
A: There is no double taxation. The real estate tax is a persons or entities from the obligation to pay taxes.
1. The same property is taxed twice tax on property; the real estate dealer’s tax is a tax on
when it should be taxed only once; the privilege to engage in business; while the income tax 4. Imposition of a rate lower than the normal domestic
and is a tax on the privilege to earn an income. These taxes rate
2. Both taxes are imposed are imposed by different taxing authorities and are
a. on the same subject matter, essentially of different kind and character (Villanueva v. 5. Tax treaty - The purpose is to reconcile the national
b. for the same purpose, Iloilo, GR L-26521, Dec. 28, 1968). fiscal legislation of the contracting parties in order to help
c. by the same taxing authority, the taxpayer avoid simultaneous taxation in two different
d. within the same jurisdiction, ----- jurisdictions (international double taxation). This is to
e. during the same taxing period; and encourage the free flow of goods and services and the
f. the taxes must be of the same kind or movement of capital, technology and persons between
character (City of Manila v. Coca Cola countries, conditions deemed vital in creating robust and
Bottlers Philippines, G.R. No. 181845, BAR Q 2004 dynamic economies.
August 4, 2009).
Q: BB Municipality has an ordinance which requires
that all stores, restaurants, and other e. Ways to Escape from Taxation;
TAXATION LAW REVIEWER
Based on the lectures of Atty. Gerald Yu
SRT Faelnar Notes
NOTE: In indirect taxation, a distinction is made faith and at arm’s length (CIR v. The Estate of Benigno
Escape from Taxation – refers to the means between the liability for the tax and burden of Toda Jr., G.R. No. 30554, February 28, 2004).
employed by a taxpayer, whether legal or illegal the tax:
so as not to pay or absorb the burden of a tax
that is imposed. The seller who is liable for the VAT may shift or
pass on the amount of VAT it paid on goods, BAR Q 2000
properties or services to the buyer. In such a
case, what is transferred is not the seller's Q: Mr. Pascual’s income from leasing his property
1) Shifting of Tax burden - is the transfer of the burden liability but merely the burden of the VAT (Diaz reaches the maximum rate of tax under the law. He
of tax by the original payer or the one on whom the tax v. The Secretary of Finance, G.R. No. 193007, donated ½ of his said property to a non-stock, non-
was assessed or imposed to another or someone else July 19, 2011). Where the burden of the tax is profit educational institution whose income and
without violating the law. shifted to the purchaser, the amount passed on assets are actually, directly, and exclusively used
to it is no longer tax but becomes an added cost for educational purposes, and therefore qualified
Examples of taxes when shifting may apply are VAT, on the goods purchased, which constitutes a for tax exemption under Art. XIV, Sec. 4 (3) of the
percentage tax, excise tax on excisable articles, ad part of the purchase price. The proper party to Constitution and Sec. 3 (h) of the NIRC. Having thus
valorem tax that oil companies pay to BIR upon removal question or seek a refund of an indirect tax is transferred a portion of his said asset, Mr. Pascual
of petroleum products from its refinery. the statutory taxpayer, the person on whom the succeeded in paying a lesser tax on the rental
tax is imposed by law and who paid the same income derived from his property. Is there tax
Ways of shifting the tax burden even if he shifts the burden thereof to another avoidance or tax evasion? Explain. (2000 Bar).
(Silkair v. CIR, G.R. No. 166482, January 25,
i. Forward shifting – When the burden of tax is A: YES. Mr. Pascual has exploited a legally permissive
2012).
transferred from a factor of production through alternative method to reduce his income by transferring
the factors of distribution until it finally settles part of his rental income to a tax exempt entity through
on the ultimate purchaser or consumer. a donation of ½ of the income producing property. The
IMPACT VS INCIDENCE OF TAXATION donation is likewise exempt from donor’s tax. The
ii. Backward shifting – When the burden is donation is the legal means employed to transfer the
transferred from the consumer through the IMPACT OF TAXATION INCIDENCE OF incidence of income tax on the rental income.
factors of distribution to the factors of TAXATION
production. Taxes. Ex. Franchise Tax, It refers to the statutory It is the economic cost of -----
liability to pay the tax. It tax. It is also known as
falls on the person burden of taxation. 3. Tax Evasion / Tax Dodging
originally assessed with a
Contractors tax, value-added tax, excise tax particular tax. It is the payment of tax. Tax evasion is a scheme where the taxpayer uses illegal
and the percentage taxes. (Burden) or fraudulent means to defeat or lessen payment of a tax.
It is the imposition of tax. It is a scheme used outside of those lawful means and
iii. Onward shifting – When the tax is shifted two (Liability) when availed of, it usually subjects the taxpayer to further
or more times either forward or backward. It is on the seller upon It is on the final or additional civil or criminal liabilities (CIR v. The Estate
whom the tax has been consumer, the place at of Benigno Toda Jr. G.R. No. 30554, February 28, 2004).
NOTE: Only indirect taxes may be shifted. In imposed. which the tax comes to
case of direct taxes, the shifting of burden can rest. Elements to be considered in determining that there is tax
only be made via contractual provision. evasion [USE]

How to determine if a tax is direct or indirect 2. Tax Avoidance / Tax Minimization 1. Course of action is Unlawful;

It is direct taxes when the impact or liability for Tax avoidance is a scheme where the taxpayer uses 2. Accompanying State of mind which is described as
the payment of tax as well as incidence or legally permissible alternative method of assessing being evil, in bad faith, willful or deliberate and not
burden of tax of the tax falls on the same taxable property or income, in order to avoid or accidental; and
person. On the other hand, it is indirect taxes reduce tax liability.
when the impact or liability for the payment of 3. End to be achieved, i.e., payment of less than that
tax falls on one person but the incidence or It is a tax saving device within the means sanctioned by known by the taxpayer to be legally due, or non-payment
burden thereof can be shifted or passed to law. This method should be used by the taxpayer in good of tax when it is shown that the tax is due.
another.
TAXATION LAW REVIEWER
Based on the lectures of Atty. Gerald Yu
SRT Faelnar Notes
Based on the foregoing, the BIR sent Haeltown government itself or its agencies. The burden is
Corporation a Notice of Assessment for deficiency upon the claimant to establish right to
Distinguish tax avoidance from tax evasion income tax arising from an alleged simulated sale exemption beyond reasonable doubt.
of the aforesaid commercial building to escape the
TAX AVOIDANCE TAX EVASION higher corporate income tax rate of thirty percent Rationale/grounds for exemption
Validity Legal and not Illegal and (30%). What is the liability of Haeltown
subject to criminal subject to The inherent power of the State to impose taxes naturally
Corporation, if any? (2014 Bar)
penalty criminal penalty carries with it the power to grant tax exemptions.
Effect Minimization of Almost always A: The tax planning scheme adopted by Haeltown
taxes results in The rationale or grounds for tax exemption are the same
Corporation constitutes tax evasion. According to CIR v.
absence of tax as the non-revenue/special or regulatory purposes of
Estate of Benigno Toda (G.R. No. 147188, September 14,
payment. taxation:
2004), a transaction where a taxpayer made it appear
that there were two sales of the property was considered
a. Sumptuary or regulatory purpose. The sumptuary
Evidence that may be used to prove tax evasion “tainted with fraud.” The sole purpose of acquiring and
purpose of tax exemption is to promote the general
transferring title of the property on the same day was to
welfare and to protect the health, safety or morals of
1. Failure of taxpayer to declare for taxation purposes his create a tax shelter. The sale to Mr. Belly (which is subject
inhabitants.
true and actual income derived from business for two (2) to individual capital gains tax) was to mislead the BIR and
consecutive years (Republic v. Gonzales, G.R. No. L- avoid the higher corporate income tax. b. Tax exemptions made the implement of the state’s
17744, April 30, 1965); police power.
----
2. Substantial under declaration of income in the income c. Compensatory purpose. The compensatory purpose of
tax return for four (4) consecutive years coupled by Tax Avoidance Schemes;
tax exemption is to implement the social justice
intentional overstatement of deductions (Perez v. CTA, provisions of the Constitution through the progressive
f. Tax Exemption
G.R. No. L-10507, May 30, 1958). system of taxation, which would result to equal
- Is a grant of immunity, express or implied,
to a particular persons or corporations or to distribution of wealth etc.(Domondon, 2009).
persons or corporations of a particular
NOTE: There is no tax exemption based solely on the
BAR Q 2014 class, from a tax upon property or an
ground of equity (Davao Gulf v. CIR, 293 SCRA 76).
excise which persons and corporations
Q: On August 31, 2014, Haelton Corporation (HC), generally within the same taxing district
thru its authorized representative Ms. Pares, sold a are obliged to pay. It is a freedom from a
16-storey commercial building known as Haeltown charge or burden to which others are Revocation of tax exemption Since taxation is the rule and
Building to Mr. Belly for P100 million. Mr. Belly, in subject ( Greenfield vs. Meer 77 Phil 394) exemption is the exception, the exemption may thus be
turn, sold the same property on the same day to Bell withdrawn at the pleasure of the taxing authority (Mactan
Gates, Inc. (BGI) for P200 million. These two (2) Nature of tax exemption Cebu International Airport Authority v. Marcos et al., 261
transactions were evidenced by two (2) separate SCRA 667).
Deeds of Absolute Sale notarized on the same day 1. Personal in nature and covers only taxes for
by the same notary public. which the grantee is directly liable. By granting exemptions, the State does not forever waive
the exercise of its sovereign prerogative. Thus, in
Investigations by the Bureau of Internal Revenue NOTE: It cannot be transferred or assigned by
withdrawing the exemption of the press (media) from
(BIR) showed that: (1) the Deed of Absolute Sale the person to whom it is given without the
VAT, the law merely subjects the same to the same tax
between Mr. Belly and BGI was notarized ahead of consent of the State.
burden to which other businesses have long ago been
the sale between HC and Mr. Belly; (2) as early as subject. It is not discriminatory as the exemptions are
2. Strictly construed against the taxpayer.
May 17, 2014, HC received P40 million from BGI, granted for a purpose, in some cases, to encourage
and not from Mr. Belly; (3) the said payment of P40 agricultural production and, in other cases, for the
3. Implies a waiver on the part of the
million was recorded by BGI in its books as of June personal benefit of the end-user rather than for profit
government of its right to collect what otherwise
30, 2014 as investment in Haeltown Building; and (Tolentino v. Sec. of Finance, G.R. No. 115455, October
would be due.
(4) the substantial portion of P40 million was 30, 1995).
withdrawn by Ms. Pares through the declaration of 4. Exemptions are not presumed. But the strict
cash dividends to all its stockholders. interpretation does not apply in the case of
exemptions running to the benefit of the
TAXATION LAW REVIEWER
Based on the lectures of Atty. Gerald Yu
SRT Faelnar Notes
1) When set-off or compensation are allowed for Compromise is a contract whereby the parties, by
g. Compensation and Set-Off;(Gen. Rule: local taxes. reciprocal concessions, avoid litigation or put an end to
Taxes cannot be the subject of 2) Where both the claims of the government and one already commenced. It implies the mutual agreement
compensation or set-off) the taxpayer against each other have already by the parties in regard to the thing or subject matter
become due, demandable, and fully liquidated, which is to be compromised.
Reasons: compensation takes place by operation of law
and both obligations are extinguished to their Compromises are generally allowed and enforceable when
1) Lifeblood Doctrine; concurrent amounts. In the case of the the subject matter thereof is not prohibited from being
2) Taxes are not contractual obligation but arise taxpayer’s claim against the government, the compromised and the person entering such compromise
out of a duty to, and are the positive acts of government must have appropriated the is duly authorized to do so.
government, to the making and enforcing of amount thereto (Domingo v. Garlitos, G.R. No.
which the personal consent of the individual L-18994, June 29, 1963). Persons allowed to enter into compromise of tax
taxpayer is not required; obligations
3) The government and the tax payers are not BAR Q 2005
mutually creditors and debtors of each other The law allows the following persons to do compromise in
and a claim for taxes is not such as debt, Q: Can an assessment for a local tax be the subject behalf of the government:
demand, contract or judgment as is allowed to of set-off or compensation against a final judgment
be set-off. for a sum of money obtained by a taxpayer against 1. BIR Commissioner, as expressly authorized by the
the local government that made the assessment? NIRC, and subject to the following conditions:
Definition: (2005 Bar)
a. When a reasonable doubt as to validity of the claim
Compensation – a mode of extinguishing an obligation A: NO. Taxes and debts are of different nature and against the taxpayer exists; or
when two persons, in their own right, are creditors and character. Taxes cannot be subject to compensation for
debtors of each other. (by operation of law) b. The financial position of the taxpayer demonstrates a
the simple reason that the Government and the taxpayers
clear inability to pay the assessed tax (Sec. 204[A],
are not creditors and debtors of each other, debts are due
RQ’s: (necessary) NIRC).
to the Government in its corporate capacity, while taxes
are due to the Government in its sovereign capacity 2. Collector of Customs, with respect to customs duties
1) That each one of the obligations be bound
(South African Airways v. CIR, 612 SCRA 665, 2010). limited to cases where the legitimate authority is
principally and that he be at the same time a
The taxes assessed or the obligation of the taxpayer specifically granted such as in the remission of duties
principal creditor of the other;
arising from law, while the money judgment against the (Sec. 709, TCC).
2) That both debts consists in a sum of money, or
government is an obligation, arising from contract,
of the things due are consumable, they be of the
whether express or implied. 3. Customs Commissioner, subject to the approval of the
same kind, and also of the same quality if the
latter has been stated; Secretary of Finance, in cases involving the imposition of
Inasmuch as taxes are not debts, it follows that the two fines, surcharges, and forfeitures (Sec. 2316, TCC).
3) That the two debts be due; obligations are not susceptible to set-off or legal
4) That they be liquidated and demandable; compensation. Hence, no set-off or compensation
5) That over neither of them there be any retention between the two different classes of obligations is allowed
or controversy, commenced by third persons (Francia v. IAC, 162 SCRA 753, 1988). h. Tax Amnesty v. Tax Exemption;
and communicated in due time to the debtor.
---- Tax Amnesty
Set-Off – a counter demand which a defendant holds
Tax amnesty, being a general pardon or
against a plaintiff cause of action the object of which is to NOTE: It is only when the local tax assessment and the intentional overlooking by the State of its
liquidate the whole or part of plaintiffs demand, according final judgment are both overdue, demandable, as well authority to impose penalties on persons
to the amount of the set-off, and like the modern fully liquidated may set-off or compensation be allowed otherwise guilty of evasion or violation of a
recoupment is in the nature of a cross action. (Domingo v. Garlitos, 8 SCRA 443, 1963). revenue or tax law. It partakes of an absolute
GEN RULE: No offsetting of taxes against taxpayers waiver by the government of its right to collect
Compromise and Tax Amnesty
claims against government. what is due it and to give tax evaders who wish
Compromise to relent a chance to start with a clean slate
EXP: (Asia International Auctioneers, Inc. v. CIR,
G.R. No. 179115, September 26, 2012).
TAXATION LAW REVIEWER
Based on the lectures of Atty. Gerald Yu
SRT Faelnar Notes
TAX EXEMPTION – a grant of immunity to Q: The BIR assessed Garments Co deficiencies on
particular persons or corporations from the taxes for non-payment of VAT on its undeclared
A tax amnesty, much like a tax exemption, is never obligation to pay taxes. sales. While the case was pending before the SC,
favored or presumed in law. The grant of a tax amnesty, Garment Co filed a Manifestation and Motion that it
similar to a tax exemption, must be construed strictly LEGAL BASIS: had availed and was able to comply with the
against the taxpayer and liberally in favor of the taxing government’s tax amnesty program under the 2007
authority (Asia International Auctioneers, Inc. v. CIR, No law granting any tax exemption shall be Tax Amnesty Law. However, BIR contends that
G.R. No. 179115, September 26, 2012). passed without the concurrence of a majority of Garment Co is disqualified per “BIR RMC 19-2008”
all the members of Congress or “A Basic Guide on the Tax Amnesty Act of 2007”
(ART VI.SEC 28(4) OF THE 1987 which disqualifies taxpayers with issues and cases
CONSTITUTION) that were ruled by any court (even without finality)
NATURE OF TAX AMNESTY
in favor of the BIR prior to amnesty availment of
DIFFERENCES: the taxpayer. Did Garment Co qualify for the tax
1. General or intentional overlooking by the TAX AMNESTY TAX EXEMPTION amnesty program?
state of its authority to impose penalties on Immunity from all Immunity from civil
criminal, civil and liability only A: YES. While tax amnesty, similar to a tax exemption,
persons otherwise guilty of evasion or
administrative must be construed strictly against the taxpayer and
violation of a revenue or tax law.
liabilities arising liberally in favor of the taxing authority, it is also a
2. Partakes of an absolute forgiveness of
from non payment of wellsettled doctrine that the rule-making power of
waiver of the government of its right to
taxes administrative agencies cannot be extended to amend or
collect.
Applies only to past Prospective expand statutory requirements or to embrace matters not
3. To give tax evaders, who wish to relent and tax periods, hence application originally encompassed by the law. Administrative
are willing to reform a chance to do so. retroactive regulations should always be in accord with the provisions
application
of the statute they seek to carry into effect, and any
RULES ON TAX AMNESTY resulting inconsistency shall be resolved in favour of the
basic law. Thus, BIR RMC 19-2008 is invalid as the
Questions:
1. Tax amnesty a) like tax exemption, it is never exception goes beyond the scope of the provisions of the
favored nor presumed b) construed strictly Q: Does the mere filing of tax amnesty return shield 2007 Tax Amnesty Law (CS Garment, Inc. v. CIR, G.R.
against the taxpayer (must show complete the taxpayer from immunity against prosecution? No. 182399, March 12, 2014).
compliance with the law) -----
2. Government not estopped from questioning A: NO. The taxpayer must have voluntarily disclosed his
the tax liability even if amnesty tax payments previously untaxed income and must have paid the Tax Payer Suit
were already received. corresponding tax on such previously untaxed income
It is a case where the act complained of directly involves
(People v. Judge Castañeda, 165 SCRA 327[1988]).
the illegal disbursement of public funds collected through
Reason: Erroneous application and enforcement
----- taxation.
of the law by public officers do not block
subsequent correct application of the statute. In the case of Abaya v. Ebdane (515 SCRA 720), the
Q: Can a taxpayer claim tax amnesty if he is a
The government is never estopped by mistakes prevailing doctrine in the taxpayer’s suits is:
withholding tax agent?
or errors of its agents.
A: The claim of a taxpayer under a tax amnesty shall be 1. To allow the taxpayers to question contracts entered
Basis: Lifeblood Theory into by the National Government or government owned
allowed when the liability involves the deficiency in
payment of income tax. However, it must be disallowed and controlled corporations allegedly in contravention of
3.Defense of tax amnesty, like insanity, is a law;
when the taxpayer is assessed on his capacity as a
personal defense.
withholding tax agent because the person who earned the
Reason: Relates to the circumstances of a 2. To allow the taxpayer to sue when there is a claim that
taxable income was another person other than the
particular accused and not the character of the public funds are illegally disbursed or public money is
withholding agent (LG Electronics Philippines, Inc. v. CIR,
acts charged in the information. being deflected to any improper purpose, or that there is
G.R. No. 165451, December 3, 2014).
a wastage of public funds through the enforcement of an
---------------------------------------------------- ----- invalid or unconstitutional law;
TAXATION LAW REVIEWER
Based on the lectures of Atty. Gerald Yu
SRT Faelnar Notes
1. Public funds derived from taxation are disbursed by a A. GENERAL OR INDIRECT CONSTITUTIONAL
political subdivision or instrumentality and in doing so, a LIMITATIONS
3. Significantly, a taxpayer need not be a party to the law is violated or some irregularity is committed; and
contract to challenge its validity.
1. Due Process Clause (Art. III, Sec. 1,
NOTE: A taxpayer’s suit would fail if what are alleged to
A taxpayer is allowed to sue where there is a 1987 Constitution)
be illegally disposed of are object which were acquired
claim that public funds are illegally disbursed, or that from private sources (Joya, et al. v. PCGG, et al., G.R.
Requisites:
No. 96541, August 24, 1993).
a. The interests of the public as distinguished
2. The petitioner is directly affected by the alleged act.
public money is being deflected to any improper purpose, from those of a particular class require the
or that there is wastage of public funds through the intervention of the State. (Substantive
enforcement of an invalid or unconstitutional law (Land limitation)
Bank of the Philippines v. Cacayuran, 696 SCRA 861, G.R. i. Interpretation, Application (Construction) b. The means employed must be reasonably
No. 191667, April 17, 2013). of Tax Laws; necessary to the accomplishment of the
purpose and not unduly oppressive.
A taxpayer’s suit is proper only when there is an - In case of doubt, tax laws must be (Procedural limitation)
exercise by the Congress of its spending or taxing power.
construed strictly against the state and
liberally in favor of the taxpayer. The constitutionality of a legislative taxing act
In the case of a taxpayer’s suit, plaintiff is allowed to
sue where there is a claim that public funds are illegally questioned on the ground of denial of due process
GR: Tax statutes must be construed strictly against requires the existence of an actual case or
disbursed, or that public money is being deflected to any
improper purpose, or that there is a wastage of public
the government and liberally in favor of the taxpayer controversy.
funds through the enforcement of an invalid or (MCIAA v. Marcos, G.R. No. 120082 September 11,
unconstitutional law (Francisco, Jr. v. Nagmamalasakit na 1996). The imposition of a tax cannot be presumed. 2.Equal Protection Clause ( Art. III, Sec. 1,
mga Manananggol ng mga Manggagawang Pilipino, Inc., 1987 Constitution
415 SCRA 44, G.R. No. 160262, November 10, 2003).
Requisites of a Valid Classification:
In a citizen’s suit, the interest of the petitioner assailing XPN: Unless a statute imposes a tax clearly, expressly
the constitutionality of a statute must be direct and and unambiguously, what applies is the equally a. based upon substantial distinctions
personal. He must be able to show, not only that the law wellsettled rule that the imposition of a tax cannot be
presumed. Where there is doubt, tax laws must be b. germane to the purposes of the law
or any government act is invalid, but also that he
sustained or is in imminent danger of sustaining some construed strictly against the government and in
c. not limited to existing conditions only
direct injury as a result of its enforcement, and not merely favour of the taxpayer. This is because taxes are
that he suffers thereby in some indefinite way. It must burdens on the taxpayer, and should not be unduly d.apply equally to all members of the class
appear that the person complaining has been or is about imposed or presumed beyond what the statutes
expressly and clearly import (CIR v. The Philippine
American Accident Insurance, Inc., 453 SCRA 668,
G.R. No. 141658 March 18, 2005). 3. Freedom Of Speech And Of The Press (Art. III, Sec.
to be denied some right or privilege to which he is lawfully
4, 1987 Constitution)
entitled or that he is about to be subjected to some
burdens or penalties by reason of the statute or act
The rule that, in case of doubt of legislative intent, the
doubt must be liberally construed in favor of taxpayer There is curtailment of press freedom and freedom of
complained of (Francisco, Jr. v. Nagmamalasakit na mga
does not extend to cases involving the issue of the thought and expression if a tax is levied in order to
Manananggol ng mga Manggagawang Pilipino, Inc., 415
validity of the tax law itself which, in every case, is suppress this basic right and impose a prior restraint.
SCRA 44, G.R. No. 160262, November 10, 2003).
presumed valid. (Tolentino vs. Secretary of Finance, GR No. 115455,
August 25, 1994)

Two (2) requisites of a Taxpayer’s suit: 2. Constitutional and Inherent Limitations 4. Non-Infringement Of Religious Freedom And
on the Power of Tax. Worship (Art. III, Sec. 5, 1987 Constitution)
TAXATION LAW REVIEWER
Based on the lectures of Atty. Gerald Yu
SRT Faelnar Notes
A license tax or fee constitutes a curtailment of 2. Rule Requiring That Appropriations, Revenue And 8. Exemption From Taxes Of The Revenues And
religious freedom if imposed as a condition for its Tariff Bills Shall Originate Exclusively From The House Assets Of Educational Institutions, Including Grants,
exercise.(American Bible Society vs. City of Manila, Of Representatives (Art. VI, Sec. 24, 1987 Endowments, Donations And Contributions.
GR No. L-9637, April 30, 1957) Constitution)
(Art. XIV, Sec. 4(3) And (4), 1987 Constitution)
5. Non-Impairment Of Contracts (Art. III, Sec. 10, 3. Uniformity, Equitability And Progressivity Of
1987 Constitution) Taxation (Art. VI, Sec. 28(1), 1987 Constitution)

No law impairing the obligation of contract shall be Uniformity– all taxable articles or kinds of property of TAX
passed.(Sec. 10, Art. III, 1987 Constitution) the same class are taxed at the same rate.
Taxes are enforced proportional contributions from
The rule, however, does not apply to public utility Equitability– the burden falls to those who are more persons and properties, levied by the State by virtue
franchises or right since they are subject to capable to pay. of its sovereignty for the support of the government
amendment, alteration or repeal by the Congress and for all its public needs (1 Cooley 62).
when the public interest so requires. (Cagayan Electric Progressivity– rate increases as the tax base
& Light Co., Inc. v. Commissioner, GR No. 60216, increases. Characteristics of taxes (SLEP4)
September 25, 1985) 1. It is levied by the State which has jurisdiction over
Q: Is a tax law adopting a regressive system of
taxation valid? the person or property;
RULES: 2. It is levied by the State through its Law-making body;
A: Yes. The Constitution does not really prohibit the 3. It is an Enforced contribution not dependent on the
a.When the exemption is bilaterally agreed upon will of the person taxed;
between the government and the taxpayer – it cannot imposition of indirect taxes which, like the VAT, are
4. It is generally Payable in money;
be withdrawn without violating the non-impairment regressive. The Constitutional provision means simply 5. It is Proportionate in character;
clause. that indirect taxes shall be minimized. The mandate 6. It is levied on Persons and property;
to Congress is not to prescribe, but to evolve, a 7. It is levied for a Public purpose.
b. When it is unilaterally granted by law, and the same progressive tax system.(EVAT En Banc Resolution,
is withdrawn by virtue of another law – no violation. Tolentino, et al vs Secretary of Finance, October 30,
1995) Requisites of a valid tax
c. When the exemption is granted under a franchise –
it may be withdrawn at any time thus, not a violation 4. Limitations On The Congressional Power To 1. It should be for a public purpose;
2. It should be uniform;
of the non-impairment of contracts Delegate To The President The Authority To Fix Tariff
3. That either the person or property being taxed be
Rates, Import And Export Quotas, Etc. (Art. VI, Sec. within the jurisdiction of the taxing authority;
6. Presidential power to grant reprieves, 28(2), 1987 Constitution) 4. The tax must not impinge on the inherent and
commutations and pardons and remit fines and constitutional limitations on the power of taxation.
forfeitures after conviction (ART. VII, SEC. 19, 1987 5. Tax Exemption Of Properties Actually, Directly And
CONSTITUTION) Exclusively Used For Religious, Charitable And TAX as distinguish from other forms of exactions
Educational Purposes. (Art. VI, Sec. 28(3) 7, 1987
7. No taking of private property without payment of Constitution) TAX TARIFF/
just compensation. CUSTOMS
6. Voting Requirement In Connection With The DUTIES
Legislative Grant Of Tax Exemption (Art. VI, Sec. Coverage An all-embracing Only a kind of
term to include tax therefore
28(4), 1987 Constitution)
B. SPECIFIC OR DIRECT CONSTITUTIONAL various kinds of limited
LIMITATIONS enforced coverage
7. Non-Impairment Of The Jurisdiction Of The
contributions
Supreme Court In Tax Cases (Art. VIII, Sec. 2 And imposed upon
5(2)(B), 1987 Constitution) persons for the
1. Non-Imprisonment For Debt Or Non-Payment Of
attainment of public
Poll Tax (Art. III, Sec. 20, 1987 Constitution) purpose
Object Persons, property, Goods imported
Example of Poll tax – Community Tax
TAXATION LAW REVIEWER
Based on the lectures of Atty. Gerald Yu
SRT Faelnar Notes
etc. or exported after the start commencement of the taxpayer person
of of the business assessed
business Purpose For the support Contribution to
TAX TOLL of the
Definition An enforced A consideration BAR Q 2004 the government cost of public
proportional paid for the use improvement
contribution of Q: A municipality, BB, has an ordinance which Scope Regular Exceptional as
from a road, bridge requires that all stores, restaurants, and other exaction to
persons and or establishments selling liquor should pay a fixed time and
property for the like, of a annual fee of P20,000. Subsequently, the municipal locality
public public board proposed an ordinance imposing a sales tax
purpose/s nature equivalent to 5% of the amount paid for the TAX DEBT
Basis Demand of Demand of purchase or consumption of liquor in stores, Basis Obligation Obligation
sovereignty proprietorship restaurants and other establishments. The created by law based on
Amount Generally, the Amount is municipal mayor, CC, refused to sign the ordinance contract,
amount is limited on the ground that it would constitute double express or
unlimited to the cost and taxation. Is the refusal of the mayor justified? implied
maintenance of Reason briefly. (2004 Bar) Assignability Not assignable Assignable
public Mode of Payable in Payable in
improvement A: No. The refusal of the mayor is not justified. The Payment money or in money or in
Purpose For the support For the use of impositions are of different nature and character. The kind kind
of another’s fixed annual fee is in the nature of a license fee imposed Set-Off Not subject to subject to
the government property through the exercise of police power while the 5% tax on set-off set-off
Authority May be May be purchase or consumption is a local tax imposed through
Effect of Non- May result in No
imposed imposed by the exercise of taxing powers. Both a license fee and a
payment imprisonment imprisonment
by the State private tax may be imposed on the same business or occupation,
(except when
only individuals or for selling the same article and this is not in violation
debt
or entities of the rule against double taxation (Campania General de
arises from
Tabacos de Filipinos v. City of Manila, 8 SCRA 367
crime)
[1963]).
Interest Bears interest Interest
TAX LICENSE FEE only if depends
-----
Purpose Imposed to For regulation delinquent upon the
raise and control written
TAX SPECIAL
revenue stipulation of
ASSESSMENT
Basis Collected under Collected under the
Nature An enforced An enforced parties
the power of police power
proportional proportional
taxation Prescription Governed by Governed by
contribution contribution
Amount Generally, Limited to the the special the
from from
amount necessary prescriptive ordinary periods
persons and owners of lands
is unlimited expenses of periods of
property for especially those
regulation and provided for in prescription
public who are
control the NIRC
purpose/s peculiarly
Subject Imposed on Imposed on the
benefited by
persons, exercise of a
public
property, right or KINDS OF TAXES
improvements
rights or privilege
Subject Imposed on Levied only on
transaction As to object:
persons, land
Effect of Non- Non-payment Non-payment 1. Personal/Poll or Capitation tax – A fixed amount
property rights
Payment does makes the imposed upon all persons, or upon all persons
or
not make the business illegal of a certain class, residents within a specified
transactions
business illegal territory, without regard to their property or
Person liable A personal Not a personal occupation. E.g. Community tax
Time of Normally paid Normally paid
liability liability of the
Payment before the
TAXATION LAW REVIEWER
Based on the lectures of Atty. Gerald Yu
SRT Faelnar Notes
2. Property tax – Tax imposed on property, taxes for which the buyer is directly liable (CIR v. PLDT, 1. National tax – Tax levied by the National Government.
whether real or personal, in proportion either to 478 SCRA 61). E.g. Income tax, Estate tax, Donor’s tax, VAT, Other
its value, or in accordance with some other Percentage taxes and Documentary Stamp taxes
reasonable method of apportionment. E.g. Real Indirect taxes, like VAT and excise tax, are different from
Property tax withholding taxes (direct taxes). To distinguish, indirect 2. Local or Municipal – A tax levied by a local government.
taxes, the incidence of taxation falls on one person but E.g. Real Estate tax and Community tax
3. Privilege/Excise tax – a charge upon the the burden thereof can be shifted or passed on to another
performance of an act, the enjoyment of a person, such as when the tax is imposed upon goods As to graduation:
privilege, or the engaging in an occupation. An before reaching the consumer who ultimately pays for it. 1. Progressive – A tax rate which increases as the tax
excise tax is a tax that does not fall as property On the other hand, in case of withholding taxes, the base or bracket increases. E.g. Income tax, Estate tax
tax. E.g. Income tax, Estate tax, Donor’s tax, incidence and burden of taxation fall on the same entity, and Donor’s tax
VAT the statutory taxpayer. The burden of taxation is not
shifted to the withholding agent who merely collects, by 2. Regressive – The tax rate decreases as the tax base or
NOTE: This is different from the excise tax under the NIRC withholding, the tax due from income payments to bracket increases.
which is a business tax imposed on items such as cigars, entities arising from certain transactions and remits the
cigarettes, wines, liquors, frameworks, mineral products, same to the government. Due to this difference, the 3. Proportionate – A tax of a fixed percentage of amounts
etc. deficiency VAT and excise tax cannot be “deemed” as of the base (value of the property, or amount of gross
withholding taxes merely because they constitute indirect receipts etc.) E.g. VAT and Other Percentage taxes.
As to burden or incidence: taxes (Asia International Auctioneers, Inc. v. CIR, G.R.
1. Direct No. 179115, September 26, 2012). ----------------------------END OF COVERAGE--------------
2. Indirect
-----
------
As to tax rates:
BAR Q
Q: Distinguish a direct from an indirect tax. Give 1. Specific – tax of a fixed amount imposed by the head
examples (Bar 1994, 2000, 2001, 2006). or number, or by some standard of weight or
measurement. E.g. Excise tax on cigar, cigarettes and
A: liquors
(1) Direct taxes are demanded from the very person who,
as intended, should pay the tax which he cannot shift to 2. Ad valorem – tax based on the value of the property
another. with respect to which the tax is assessed. It requires the
intervention of assessors or appraisers to estimate the
(2) Indirect taxes are demanded in the first instance from value of such property before the amount due can be
one person with the expectation that he can shift the determined. E.g. Real estate tax, Income tax, Donor’s tax
burden to someone else, not as a tax but as a part of the and Estate tax
purchase price.
3. Mixed – a choice between ad valorem and/or specific
------ depending on the condition attached.

Income tax, estate and donor's tax are considered as

direct taxes. On the other hand, value-added tax, excise As to purposes:
tax, other percentage taxes, and documentary stamp tax
are indirect taxes. 1. General/Fiscal or Revenue – tax imposed solely for the
general purpose of the government. E.g. Income tax and
NOTE: The liability for payment of the indirect taxes lies Donor’s tax
only with the seller of the goods or services, not in the
buyer thereof. Thus, one cannot invoke one’s exemption 2. Special / Regulatory or Sumptuary – tax levied for
privilege to avoid the passing on or the shifting of the VAT specific purpose, i.e. to achieve some social or economic
to him by the manufacturers/suppliers of the goods. ends E.g. Tariff and certain duties on imports
Hence, it is important to determine if the tax exemption
granted specifically includes the indirect tax, otherwise, it As to scope or authority to impose:
is presumed that the tax exemption embraces only those