Sultan Ali Akbar G. Sinenggayan, Jr.

Taxation Law 1 2. Benefits Protection Theory- taxation is the power of

Atty. Kyndell Hilario the State to demand and receive taxes based on the
reciprocal duties of support a protection between the
Based on Tax Made Less Taxing by Atty. Ingles State and its citizens.
Golden Notes Reviewer 2015
3. Necessity Theory- the theory behind the State's
power to tax emanates from necessity for, without
taxes, a government cannot fulfil its mandate of
Part 1: Principles of Taxation promoting the general welfare and well- being of the
people. (Gerochi v. Department of Energy, 2007)
A. Taxation- it is the inherent power of the sovereign
exercised through its legislature to impose burdens upon
its subjects and objects within its jurisdiction for the
purpose of raising revenues to carry out the legitimate D. Characteristics of a Sound Tax System
objectives of the government.
1. Fiscal Adequacy- the sources of revenue must be
B. Purposes of Taxation- adequate to meet government expenditures and their
variations. (Chavez v. Ongpin,1990)
1. Revenue- to raise funds or property to enable the
State to promote the general welfare and protection of 2. Administrative Feasibility- the tax system should be
the people. capable of being effectively administered and enforced
with the least inconvenience to the taxpayer.
2. Non- revenue-
3. Theoretical justice- the tax system should be fair to
A. Promotion of the general welfare- taxation may be the average taxpayer and based upon the ability to pay.
used as an implement of police power to promote the
general welfare of the people. License fees can be
imposed on the business massage clinics in order to E. Nature of the Taxing Power-
forestall possible immorality which might grow out of the
construction of separate rooms for massage of 1. Inherent- the power to tax is an incident of the
customers. sovereign and is unlimited in its range, acknowledging
(Velasco v. Villegas, 1983) in its very nature no limits, so that security against
abuses is to be fund only on the responsibility of the
B. Regulation of activities/industries- royalty fees may be legislature which imposes the tax on the constituency
imposed on the deliveries of fuel products as it affects the who are to pay it. (MCIAA v. Marcos, 261 SCRA 667)
public interest in general and is a highly combustible
products which, if left unchecked, poses a serious threat 2. Legislative- it involves the promulgation of laws. The
to life and property. For regulatory purpose of imposed legislature determines the Coverage, Objects, Nature,
fees, it must relate to an occupation or activity that so Extent and Situs of tax to be imposed.
engages the public interest, morals, safety and
development as to require regulation for the protection
and promotion of such public interest; it must also be a F. Q: Is the power to tax a power to destroy?
reasonable relation to the probable expenses of A: Yes, it involves a power to destroy since the power
regulation, taking into account not only the cost of direct to tax includes the power to regulate even to the extent
regulation, but also its incidental consequences as well. of prohibition or destruction, when it is used validly as
(Chevron Philippines v. BCDA, 2010) an implement of police power.

C. Reduction of Social Inequality- a progressive system of However, if it is employed solely to raise revenues,
taxation prevents the undue concentration of wealth in it cannot be allowed to confiscate or destroy. (Cruz,
the hands of the few individuals. Progressivity are based 2007)
on the principle that those who are able to pay more
should shoulder the bigger portion of tax burden.

D. Encourage economic growth- the grant of exemption

or incentives encourage investment thereby simulating G. Comparison of Power of Taxation, Police Power and
economic activity. License taxation must not be so Eminent Domain
onerous to show a purpose to prohibit a business which is
not injurious to health or morals. (Terminal Facilities v. The three inherent powers of the state may be
PPA, 2002) distinguished in the following ways;

E. Protectionism- in case of foreign importations, In TX and PP, it is the government or its political
protective tariffs and customs are imposed to protect subdivisions who exercise it, while in ED, it is the
local industries. government as well as service companies and public
utilities.

C. Basis of Taxation The purpose of TX is to raise revenues while PP

aims to promote general welfare through regulations.
1. Lifeblood Doctrine- taxation is a governmental ED, on the other hand, aims to facilitate the taking of
necessity for indeed, without taxation, a government can private property for public purpose.
neither exist nor endure. It is a principal attribute of
sovereignty. The exercise of the taxing power derives its In TX, contracts are generally not impaired
source from the very existent of the State whose social UNLESS government is party to contract granting
contract with its citizens obliges it to promote public exemption for a consideration. In PP and ED, contracts
interest and the public good. (CIR v. BPI, 158 SCRA 9) may be impaired.

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 (c) Mixed- a choice between Ad Valorem and
H. Definition of Taxes Specific depending on the condition attached.

J. Difference of Tax from Other Exactions

Taxes- these are enforced proportional contributions from
persons and properties, levied by the State by virtue of Tax vs Debt
its sovereignty for the support of the government and for
all its public needs. A tax is an obligation created by law while a debt
is an obligation created by contract, expressed or
implied. Tax is not assignable while a debt is
I. Classification of Taxes assignable. Tax is not subject to set- off unlike debt.
Non- payment of tax may result to imprisonment unlike
i. As to OBJECT/ SUBJECT debt.

(a) Personal/ Poll or Capitation Tax- a fixed amount

imposed upon all persons, or upon all persons of Tax vs Toll
ascertain class, residents within a specified territory,
without regard to their property of occupation. A tax is an enforced proportional contribution from
persons and property for public purpose. A toll is a
consideration paid for the use of a road, bridge, or the
(b) Property Tax- tax imposed on property, whether like, of a public nature. Tax is demanded by sovereignty
real or personal, in proportion either to its value, or in while toll is demanded by proprietorship.
accordance with some other reasonable method of (See the note VAT on toll ways in page 40 of GN)
apportionment.

(c) Privilege or Excuse Tax- a charge upon the Tax vs Special Assessment
performance of an act, the enjoyment of a privilege, or
the engaging in an occupation. An excise tax is a tax that A tax is an enforced proportional contribution from
does not fall as property tax (VAT). persons and property for public purpose. A special
assessment is an enforced proportional contribution
from owners of lands specially those who are peculiarly
ii. As to BURDEN or INCIDENCE benefited from public improvements. A tax is imposed
on property, rights, persons and transactions while SA
(i) Direct- one that is demanded from the person is imposed on lands only. A tax is a regular exaction
who also shoulders the burden of tax. It is a tax for which While SA is exceptional as to time and locality.
the taxpayer is directly liable on the transaction or
business he engages.
Tax vs License Fee
(ii) Indirect- tax is primarily paid by persons who can
shift the burden to another. A tax is imposed to raise revenues while license fee
is for regulation and control. Tax is collected under
iii. As to Purpose Taxation power while License fee is collected under
Police power. In taxation, generally, the amount is
(a) General/ Fiscal or Revenue- tax imposed solely unlimited. In license fee, the exaction is limited to the
for the general purpose of the government. necessary expenses of regulation and control.
(ii) Special/ Regulatory or Sumptuary- tax is levied
for specific purpose i.e. to achieve some social or
economic ends. Tax vs Penalty

iv. As to Determination of Amount/ Graduation A tax is an enforced proportional contribution from

persons and property for public purpose. A penalty is a
(a) Progressive- a tax rate which increases as the sanction imposed as a punishment for violation of laws
tax base or bracket increases. or acts deemed injurious. Tax is imposed to generate
revenues while the other is imposed to regulate
(b) Regressive- the tax rate decreases as the tax conduct.
base or rate increases.

v. As to Authority to impose Tax vs Tariff

(a) National- tax levied by the national government. A tax is an all- embracing term to include various
kinds of enforced contributions imposed upon persons
(b) Local/ Municipal- a tax levied by the local for the attainment of public purpose. A tariff is only a
government. kind of tax, hence, limited. A tax is imposed on persons
and property while tariff is imposed on goods imported
vi. As to Tax Rate or exported.

(a) Specific- tax of a fixed amount imposed by the

head or number, or by some standard of weight or Compromise penalty
measurement. Subsidy
Revenue
(b) Ad Valorem- tax based on the value of the
property with respect to which the tax is assessed. It K. Set- off of Taxes
requires the intervention of assessors or appraisers to
estimate the value of such property before the amount GR: No set- off is admissible against the demands for
due can be determined. taxes levied for general or local governmental
purposes.

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 proceeds of the tax will directly promote the welfare of
Taxes are of a distinct kind, nature, essence and the community in equal measures.
these impositions cannot be so classified in merely the
same category as ordinary obligations. Also, the
governing principles and applicable laws in taxes are (The Congress determines when an enacted tax law is
unique and different. for public purpose. HOWEVER, this will not prevent the
court from questioning the propriety of some statute on
the ground that the law enacted is not for a public
XPN: Where both the claims of the government and the purpose; but once it is settled that the law is for public
taxpayer against each other have already become due, purpose, the Court may no longer inquire into its
demandable and fully liquidated, compensation takes wisdom, expediency or necessity of such tax measure.
place by operation of law and both obligations are (see notes on page 21, GN)
extinguished to their concurrent amounts. In the case
against taxpayer’s claim against the government, the
government must have appropriated the amount thereto. International Comity
(Domingo v Garlitos, 1963)
International Comity refers to the respect accorded by
L. Taxpayer’s suit nations to each other because they are sovereign
equals.
To constitute taxpayer’s suit, the following requisites
must be present: > The Philippine Constitution expressly adopted the
generally accepted principles of international law.
a. Public funds are disbursed by a political (Section 2, Article II, 1987 Constitution)
subdivision or instrumentality, and in doing so, a law is
violated or irregularity committed; and Thus, a State must recognize such generally
accepted tenets of international law that limit the
b. The petitioner is directly affected by the act. authority of the government to effectively impose taxes
upon a Sovereign State and its instrumentalities.
LIMITATIONS OF TAXATION

INHERENT (SPINE) Non- Delegability of Taxing Power

Situs GR: the power to tax is exclusively vested in the

legislative body, being inherent in nature; hence, it may
GR: The taxing power of the government is limited to not be delegated. (delegatapotestas non
persons and property within and subject to its potestdelegari)
jurisdiction.
The non- delegable legislative powers are:
XPN: Where tax laws operate outside territorial
jurisdiction- taxation of resident citizens on their incomes a. Selection of Subject to be taxed;
derived abroad. b. Determination of purpose for which taxes shall
be levied;
Also, where tax laws do not operate within the c. Fixing of the rate of taxation
territorial jurisdiction of the State. d. Situs of Taxation;
a. when exempted by treaty obligations. e. Kind of Tax
b. when exempted by international comity.
XPN: LCA

Public Purpose 1. Delegation to the LOCAL GOVERNMENT- refers to the

power of LGUs to create its own sources of revenue.
Tax is considered for public purpose if: (Article X, Section 5, 1987 Phil Con)

a. It is for the welfare of the nation and for greater 2. Delegation to the President- the authority of the
portion of the population; President to fix tariff rates, import or export quotas,
b. It affects the area as a community rather than as tonnage and wharfage dues or other duties or imposts.
individuals; (Art. VI, Sect. 28 (2))
c. It is designed to support the services of the
government for some of its recognized objects. 3. Delegation to Administrative Agencies- when the
delegation relates merely to administrative
Tests in Determining Public Purpose implementation that calls for some degree of
discretionary powers under sufficient standards
1. Duty Test- whether the thing to be furthered by the expressed by law or implied from the policy and
appropriation of public revenue is something which is the purposes of the Act.
duty of the State as a government to provide.
a. Authority of the Secretary of Finance to
The term public purpose is not defined. It is an elastic promulgate the necessary rules and regulations for the
concept that can be hammered to fit the modern effective enforcement of the provisions of the law. (Sec.
standards. Jurisprudence states that “public purpose” 244, RA 8424)
should be given a broad interpretation. It does not only b. The Secretary of Finance may, upon the
pertain to those purposes which are traditionally viewed recommendation of the Commissioner, require the
as essentially government functions, but also those withholding of a Tax on the items of Income Payable.
purposes designed to promote social justice. (Planters (Sec. 57, RA 8424)
products v Fertiphil, 2008)
Exemption from Taxation of government entities

2. Promotion of General Welfare Test- whether the

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Government may tax itself convents appurtenant thereto, mosques, non- profit
cemeteries, and all lands, buildings and improvements,
Since sovereignty is absolute and taxation is an act of actually, directly and exclusively used for religious,
high sovereignty, the State, if so minded, can tax itself, charitable or educational purposes shall be exempt from
including its political subdivisions. (Maceda v Macaraig, taxation.
1993)
See discussion; page 30 of GN
State the Rules on tax exemption of government agencies
or instrumentalities 5. Non- impairment Clause

GR: The government is exempt from tax. See discussion; Page 37 gn

XPN: When it chooses to tax itself. Nothing prevents 6. Uniformity of Taxation (Sec. 28 (1), Art. VI)
Congress from decreeing that even instrumentalities or
agencies of the government performing government *The rule of taxation shall be uniform and equitable.
functions may be subject to tax. Where it is done The Congress shall evolve a progressive system of
precisely to fulfil a constitutional mandate and national taxation.
policy, no one can doubt its wisdom. (MCIAA v Marcos, See page 28 of GN
1996)
7. Exemption Approval
Instrumentality v GOCC
*Art VI, Sec. 28 (4): No law granting any tax
Instrumentality refers to any agency of the national exemption shall be passed without the concurrence of a
government, not integrated within the department majority of all the members of Congress.
framework, vested with special functions or jurisdiction
by law, endowed with some if not all corporate powers, See discussion on Page 33, GN
administering special funds, and enjoying operational
autonomy, usually through a charter.
8. Special Fund Purpose (Sec. 29 (3), Art. VI)
GOCC refers to any agency organized as a stock or non-
stock corporation, vested with functions relating to public *It is treated as a special fund and paid out for such
needs whether governmental or proprietary in nature and purpose only. If the purpose for which the special fund
owned by the government directly or through its was created has been fulfilled or abandoned, the
instrumentalities, either wholly or where applicable as in balance, if any, shall be transferred to the general
the case of stock corporations, to the extent of at least funds of the government.
51 per cent of its capital stock.
(see discussions on page 26 and 27 of GN) See discussion, Page 34

9. Supreme Court’s Review Power (Sec. 5 (b), Art. VIII)

CONSTITUTIONAL
*The Supreme Court can review judgments or orders of
1. Religious Worship (Sec. 5, Article III) lower courts in all cases involving:

*No law shall be made respecting an establishment of a. The legality of any tax, impose, assessment, or
religion, or prohibiting the free exercise thereof. The free toll;
exercise and enjoyment of religious profession and b. The legality of any penalty imposed in relation
worship, without discrimination or preference, shall thereto. (Sec 5 (2) (b), Art. VIII)
forever be allowed.
Discussion; page 34
See discussion in GN page 37
10. Due process clause (Sec. 1, Article III)
2. Equal Protection (Sec. 1, Article III)
See discussion; page 35
*No person shall be deprived of life, liberty or property
without due process of law, nor shall any person be 11. ART- BBP Originate in Lower House (Sec. 24, Art.
denied equal protection of the laws. VI)

Equal protection means all persons subjected to such *All appropriation, revenue or tariff bills, bills
legislation shall be treated alike, under like authorizing the increase of public debt, bills of local
circumstances, both in the privileges conferred and application, and private bills shall originate exclusively
liabilities imposed. in the House of Representatives, but the senate may
propose or concur with amendments.
See discussion in GN page 36
See discussion; page 34
3. Veto Power of the President (Sec. 27 (2), Article VI)
12. No public money used for religious purpose (Sec. 28
The president shall have the power to veto any particular and 29, Art. VI)
item or items in an appropriation, revenue, or tariff bill,
but the veto shall not affect the item or items to which he
does not object. GR: No public money or property shall be used for a
See discussion on GN page 34 religious purpose.

4. Exemption from Real Property Tax (Section 28 (3), Art. XPN: If a priest is assigned to the armed forces, penal
VI) institutions, government orphanages or leprosarium.

*Charitable institutions, churches and parsonages or 13. Press Freedom ( Sec. 4, Art. III)

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See discussion, page 38

14. Tariff Powers of President (Sec. 28 (2), Art. VI)

*The Congress may, by law, authorize the President to fix

within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and
export quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of national
development program of the government.

See discussion; page 29

15. Non- payment of Poll Tax (Sec. 20, Art. III)

*No person shall be imprisoned for a debt or non-

payment of a poll tax.

Discussion; page 28