those which come within the State's

TAXATION REVIEWER
territory and facilities and protection
which a government is supposed to
provide.
WHAT IS TAXATION?  BENEFITS PROTECTION THEORY- The
power of the state to demand and
 Mode of raising revenue for public
receive taxes on the reciprocal duties of
purposes.
support and protection. - we pay and in
exchange the gov provides support and
WHAT ARE TAXES?
protection for us.
 Public needs, enforced proportional C. LIABILITIES INVOLVED
contributions.  Taxes are personal to the taxpayer.
 Civil liability, “kapag hindi ka nag
1. ENFORCED CONTRIBUTIONS bayad ng tax ibig sabihin may utang
 Taxes are obligations created by law ka sa gov.”
 Taxes are never founded on contract or  Criminal liability, refusal to pay tax
agreement and are not dependent on  NOTE: civilly liable on the part of the
our consent unpaid tax, criminally liable on the
2. PROPORTIONAL IN CHARACTER part that you do not want to pay tax.
 based on one’s ability to pay
3. TAXES ARE LEVIED BY AUTHORITY OF NATURE OF THE TAXING POWER
THE LAW
1. TAXATION AS AN INHERENT ATTRIBUTE
 the power to impose taxes is a legislative
TO SOVEREIGNTY
power; power only belongs to legislative
 The power of taxation is an incident
power. Cannot be imposed by the
of sovereignty as it is inherent in the
executive nor by courts.
State, belonging as a matter of right
to every independent government.
BASES OF TAXATION
 Constitutional provisions do not give
A. TAXATION AND THE LIFEBLOOD rise to the power to tax but merely
DOCTRINE impose limitations on what would
 the government cannot survive without otherwise be an invincible power.
taxation because how can the gov fulfill 2. TAXATION AS LEGISLATIVE IN
its projects without taxation? so without CHARACTER
taxation the gov cannot exist.  The power to tax is inherent in the
 the government can neither exist nor State, and the State is free to select
endure without taxation. the object of taxation, such power
B. THEORY OF TAXATION being exclusively vested in the
 NECESSITY THEORY- It is a necessary legislature.
burden to preserve the State's  CASE- This case involves a petition
sovereignty. public improvements for filed by Ferdinand R. Marcos II
the enjoyment of the citizenry, and questioning the actions of the
 Bureau of Internal Revenue (BIR) in such as building low-cost houses for the
assessing and collecting estate and less privileged.
income taxes on the estate of his In CIR v. Central Luzon Drug Corporation
late father, President Ferdinand E. (456 SCRA 414), the Supreme Court held
Marcos. The taxes were collected that in recent years, the power to tax has
through the summary remedy of indeed become a most effective tool to
levy on real properties, despite realize social justice, public welfare, and
ongoing probate proceedings. the equitable distribution of wealth.
 CIR v. Algue (G.R. No. L-28896  ENCOURAGE THE GROWTH OF LOCAL
February 17, 1988) INDUSTRIES- Tax exemptions and tax
reliefs
Ferdinand R. Marcos II vs. CA (G.R.  PROTECT OUR LOCAL INDUSTRY
No. 120880 June 5, 1997) AGAINST UNFAIR COMPETITION- allows
 Taxes are the lifeblood of the the imposition of certain taxes upon
government and so should be imported goods or articles to further
collected without unnecessary PROTECT OUR LOCAL INDUSTRY.
hindrance.  AS AN IMPLEMENT OF THE POLICE
POWER OF THE STATE (REGULATORY
PURPOSES OF TAXATION MEASURE)- The power of taxation may
be used as an implement of the police
A. PRIMARY PURPOSE OF TAXATION IS TO
power of the State through the
RAISE REVENUE
imposition of taxes with the end in view
 It has been widely believed that the
of regulating a particular activity.
primary purpose of taxation is to raise
funds or property to enable the State to
promote the general welfare and
CASES
protection of its citizens.
B. SECONDARY OR NON-REVENUE
PURPOSES  Tio v. Videogram Regulatory Board
 REDUCTION OF SOCIAL INEQUALITY-our (151SCRA 208)- In the case of Tio v.
present tax system has adopted the Videogram Regulatory Board, the
progressive system of taxation; the tax Supreme Court maintained the validity
rate increases as the tax base increases. of the challenged statute (P.D. No. 1987
This system aims at reducing the entitled "An Act Creating the Videogram
inequality in the distribution of wealth Regulatory Board', seeing the need to
by preventing its undue concentration in impose taxes upon the video industry as
the hands of a few individuals. a regulatory measure, considering "the
unfair competition posed by rampant
Example: An estate tax is imposed upon film piracy; the erosion of the moral fiber
the property left by the decedent. The of the viewing public brought about by
proceeds of that tax will be used to the availability of unclassified and
finance the projects of the government unreviewed video tapes containing
 pornographic films and films with distribution of wealth. While it is
brutally violent sequences; and losses in declared commitment under Section
government due to the drop in theatrical  1 of Republic Act No. 7432, social
attendance." justice "cannot be invoked to
 Manila Race Horse Trainers Association trample on the rights of property
v. De La Fuente (88 Phil.60)- Likewise, in owners who under our Constitution
the case of Manila Race Horse Trainers and laws are also entitled to
Association v. De La Fuente, the Court protection. The social justice
upheld the validity of an ordinance consecrated in our [Constitution [is]
taxing boarding stables of race horses not intended to take away rights
because "(R)ace horses are devoted to from a person and give them to
gambling, if legalized, their owners another who is not entitled thereto.
derive fat income and the public hardly For this reason, a just compensation
any profit from horse racing, and this for income that is taken away from
business demands relatively heavy respondent (Central Luzon Drug
police supervision." Corp.) becomes necessary. It is in the
 Antonio Roxas, et al. (Antonio Roxas v. tax credit that our legislators find
CTA, 23 SCRA 276- But it must be support to realize social justice, and
stressed that the power of taxation, no administrative body can alter the
sometimes also called the "power to fact." Incidentally, Republic Act Nos.
destroy," should be exercised with 9257 and 9994 treat the 20%
caution to minimize injury to the discount granted to senior citizens
proprietary rights of a taxpayer. It must as tax deduction.
be exercised fairly, equally and  Manila Memorial Park, Inc. V.
uniformly, lest the tax collector kill the Secretary of the DSWD, 711 SCRA
"hen that lays the golden egg." 302- Invariably, in the recent case of
Manila Memorial Park, Inc. V.
MAY THE POWER OF TAXATION BE USED AS AN
Secretary of the DSWD, 711 SCRA
IMPLEMENT OF THE POWER OF EMINENT
302, the Supreme Court ruled that
DOMAIN?
the 20% senior citizen discount is an
 *YES. The Supreme Court in the case exercise of police power. In holding
of CIR v. Central Luzon Drug so, the Court explained that the 20%
Corporation, 456 SCRA 414, held: discount. It is intended to improve
 Tax measures are but "enforced the welfare of senior citizens who, at
contributions exacted on pain of their age, are less likely to be
penal sanctions" and "clearly gainfully employed, more prone to
imposed for a public purpose," In illnesses and other disabilities, and,
recent years, the power to tax has thus, in need of subsidy in
indeed become a most effective tool purchasing basic commodities.
to realize social justice, public  The 20% discount may be properly
welfare, and the equitable viewed as belonging to the category
 of price regulatory measures which Taxation is said to be equitable when its
affect the profitability of burden falls on those better able to pay;
establishments subjected thereto. taxation is progressive when its rate
On this face, therefore, the subject goes up depending on the resources of
regulation is a police power the person affected.
measure. C. ADMINISTRATIVE FEASIBILITY- Tax laws
must be capable of effective and
EXTENT OF THE TAXING POWER efficient enforcement.

 COMPREHENSIVE- as it covers persons,

CASES
businesses, activities, professions,
rights, and privileges.
 UNLIMITED- The taxing power's reign is
 KAPATIRAN NG MGA NAGLINGKOD SA
illustrated in the case of Tio v.
PAMAHALAAN V. TAN (163 SCRA 371)-
Videogram Regulatory Board, where the
In Kapatiran ng mga Naglilingkod sa
Supreme Court upheld the
Pamahalaan v. Tan, the Supreme Court,
constitutionality of a law, ruling that a
in upholding the validity of the VAT law,
tax does not cease to be valid merely
held that the law "is principally aimed to
because it regulates, discourages, or
rationalize the system of taxes on goods
even definitely deters the activities
and services; simplify tax administration,
taxed.
and make the system more equitable to
 PLENARY- as it is complete. Under the
enable the country to attain economic
NIRC, the BIR may avail of certain
recovery." The principle requires that
remedies to ensure the collection of
each tax should be clear and plain to the
taxes
taxpayers, capable of enforcement by an
 SUPREME- Supreme insofar as the
adequate and well-trained staff of public
selection of the subj of taxation is
officials, convenient as to time and
concerned. Strongest of all the powers
manner of payment, and not duly
of the gov.
burdensome upon or discouraging to
business activity.
PRINCIPLES OF A SOUND TAX SYSTEM
 A tax law will retain its validity even if it
A. FISCAL ADEQUACY- Sources of revenues is not in consonance with the principles
must be adequate to meet government of fiscal adequacy and administrative
expenditures (Chavez v. Onspin, 186 feasibility because the Constitution does
SCRA 331), and other public needs. not expressly require so. These
B. THEORETICAL JUSTICE- progressive principles are only designed to make our
system of taxation; Under Article VI, tax system sound. However, if a tax law
Section 28(1) of the Constitution, the runs contrary to the principle of
rule of taxation must be uniform and theoretical justice, such violation will
equitable. The State must evolve a render the law unconstitutional
progressive system of taxation. considering that under the Constitution,
 the rule of taxation should be uniform within reasonable bounds what is
and equitable. (Sec. 28(1), Art. VI, 1987 necessary for its protection and
Constitution) expedient for its promotion.
 DIAZ V. SECRETARY OF FINANCE, 654 2. INTERNATIONAL COMMITTEE- If a tax
SCRA 96- In Diaz v. Secretary of Finance, law is passed imposing taxes on the
654 SCRA 96, the petitioners argued that income of foreign ambassadors or
the VAT on tollway operations is not imposing real property tax upon foreign
administratively feasible. However, the embassies, this is NOT a valid law
Supreme Court ruled that even if the because of the imposition is in violation
imposition of VAT on tollway operations of the universal principles of
may seem burdensome to implement, it international law. Under international
is not necessarily invalid unless some laws, foreign embassies are considered
aspect of it is shown to violate any law or extensions of the territoriality of the
the Constitution. foreign states; to impose taxes upon
them would be tantamount to an
INHERENT LIMITATIONS ON THE exercise of jurisdiction over these
POWER TO TAX foreign states.
3. TERRITORIALITY- Since laws cease to
1. PUBLIC PURPOSE- The power to tax
operate beyond a country’s
exists for the general welfare; hence
jurisdictional limits, the taxing power of
implicit in its power is the limitation that
a country is likewise limited to person
it should be used only for a public
and property within and subject to its
purpose.
jurisdiction. This same applies to the
WHO MAY DETERMINE PUBLIC PURPOSE? taxing power of a territory.
4. NON-DELEGATION OF THE POWER TO
 This is a legislative prerogative. The
TAX- The power to tax is exclusively
power to determine whether the
vested in the legislative body.
purpose of taxation is public or private
resides in Congress.
Exceptions:
A. Article VI, Section 28 (2) of the
CASES Constitution
 CIR v. Central Luzon Drug Corporation, The Congress may, by law,
456 SCRA 414- Upon this point, the 20% authorize the President to impose tariff
discount privilege (mandated by RA No. rates, import and export quotas, etc.
7432, as amended by RA No. 9257) to (custom duties), subject to the
which senior citizens are entitled is limitations and guidelines as the
actually a benefit enjoyed by the general Congress may impose, consistent with
public to which these citizens belong. the national development program of
 Walter Lutz v. J. Antonio Araneta 98 the government.
Phil. 148- The protection and promotion B. Article X, Section 5 of the Constitution
of the sugar industry is a matter of public Each local government unit shall have
concern the Legislature may determine the power to create its own sources of
 revenue, fees, charges, subject to such expressly conferred by the people.
guidelines and limitations as the (Cooley, The Law of Taxation, Vol. I, 4th
Congress may provide consistent with Ed.) It is a power that is purely legislative
the basic policy of local autonomy. Such and which the central legislative body
taxes, fees and other charges shall cannot delegate either to the executive
accrue exclusively to the local or judicial power of the government
government. (See Sec. 33, RA No. 7160) without infringing upon the theory of
separation of powers. The exception,
however, lies in the case of municipal
CASES corporations, to which said theory does
not apply. Legislative powers may be
 BOARD OF ASSESSMENT APPEALS OF
delegated to local governments in
LAGUNA v. CTA 8 SCRA 224- In the
respect of matters of local concern.
absence of constitutional provision, the
(Pepsi-Cola Bottling Co. of the Phils., Inc.
power to tax may be delegated to local
v. City of Butuan, 24 SCRA 793) This is
government units in accordance with
sanctioned by immemorial practice. By
the well-settled doctrine that the power
necessary implication, the legislative
to create local government units by
power to create political corporations
implication confers upon it the power to
for purposes of self-government carries
tax. So even if no constitutional
with it the power to confer on such local
provision exists, local government units
government agencies the power to tax.
still possess the power to tax.
Thus, municipalities may be permitted to
 PEPSI-COLA BOTTLING CO. OF THE
tax subjects which for reasons of public
PHILS. v. CITY OF BUTUAN 24 SCRA 789-
policy the State has not deemed wise to
The general principle against delegation
tax for more general purposes.
of legislative powers, in consequence of
5. Exemption from Taxation of
the theory of separation of powers (U.S.
Government Agencies/
v. Bull, 15 Phil. 7, 27; Kilbourn v.
Instrumentalities- Properties of the
Thompson, 103 U.S. 168, 26 L. ed. 377) is
national government as well as those of
subject to one well-established
the local government units are not
exception, namely: legislative powers
subject to tax, otherwise it will result in
may be delegated to local governments.
the absurd situation of the government
 PEPSI-COLA BOTTLING CO. OF THE
"taking money from one pocket and
PHILS., INC. v. MUNICIPALITY OF
putting it in another."
TANAUAN, LEYTE 69 SCRA 460- The
power of taxation granted to MAY THE GOVERNMENT TAX ITSELF?
municipalities under the Local
 The Constitution is silent on whether
Autonomy Act is constitutional. The
Congress is prohibited from taxing the
power of taxation is an essential and
properties of the agencies of the
inherent attribute of sovereignty,
government.
belonging as a matter of right to every
 Government-owned and -controlled
independent government, without being
corporations perform proprietary
 functions hence, they are subject to CASES
taxation. However, certain corporations
 STANDARD OIL COMPANY OF NEW
have been granted exemption under
YORK v. JUAN POSADAS, JR.
Section 27(C) of Republic Act No. 8424 as
55 Phil. 715- Sales made in the
amended by Republic Act No. 9337
Philippines to the US Army and the US
which took effect on 1 July 2005, to wit:
Navy are made to instrumentalities of
1. Government Service Insurance
the US Government, and therefore, are
System (GSIS)
not subject to tax by the Philippine
2. Social Security System (SSS)
Government.
3. Philippine Health Insurance
Corporation (PHIC) CONSTITUTIONAL LIMITATIONS ON
4. Philippine Charity Sweepstakes
THE POWER TO TAX
Office (PCSO)
1. DUE PROCESS OF LAW- Due process is
usually violated where the tax imposed
INSTRUMENTALITY OF THE NATIONAL is for a private purpose as distinguished
GOVERNMENT IS from a public purpose; a tax is imposed
EXEMPT FROM LOCAL TAXATION on property outside the State, i.e., extra-
 A government instrumentality like MIAA territorial taxation
falls under Section 133(o) of the Local  The following situations are illustrative
Government Code, which states -x x x, of violations of the due process clause:
the exercise of the taxing powers of a. If the tax amounts to a confiscation of
provinces, cities, municipalities, and property;
barangays shall not extend to the levy of b. If the subject of confiscation is
the following: xxx (0) Taxes, fees or outside the jurisdiction of the taxing
charges of any kind on the National authority;
Government, its agencies and с. If the law is imposed for a purpose
instrumentalities and local government other than a public purpose;
units. d. If the law which is applied
 This has been echoed in the recent case retroactively imposes unjust and
of Philippine Fisheries Development oppressive taxes;
Authority v. The Municipality of Navotas, e. Where the law is in violation of
534 SCRA 490, wherein the Supreme inherent limitations.
Court ruled that PFDA, being an
instrumentality of the national 2. EQUAL PROTECTION OF THE LAW- Our
government, is exempt from real Constitution requires uniformity, not
property tax but the exemption does not equality, in taxation.
extend to the portions of the Navotas  However, for classification to be valid,
Fishing Port Complex (NFPC) that were the following requisites must concur:
leased to taxable or private persons and a. it must be based on substantial
entities for their beneficial use. distinction;
 b. it must apply both to present and restrictions as it may impose, tariff rates,
future conditions; import and export quotas, tonnage and
c. it must be germane to the purposes wharfage dues and other duties or
of the law; imposts within the framework of the
d. it must apply equally to all members national development program of the
of the same class. (Ormoc Sugar Government.
Company, Inc. v. The Treasurer of 10. TAXATION AND THE FREEDOM OF THE
Ormoc City, et al., 22 SCRA 603) PRESS- No law shall be passed abridging
the freedom of speech, of expression, or
3. UNIFORMITY OF TAXATION- A tax is of the press.
uniform when it operates with the same 11. TAXATION AND FREEDOM OF
form and effect in every place where the RELIGION- No law shall be made
subject of it is found. respecting an establishment of religion
4. PROGRESSIVE TAXATION- Progressive or prohibiting the free exercise thereof.
taxation is built on the principle of the The free exercise and enjoyment of
taxpayer's ability to pay. religious profession and worship without
5. NON-IMPAIRMENT CLAUSE- No law discrimination or preference shall
shall be passed impairing the obligation forever be allowed.
of contracts 12. TAX EXEMPTION OF PROPERTIES ACTU-
6. NON-IMPRISONMENT FOR NON- ALLY, DIRECTLY AND EXCLUSIVELY USED
PAYMENT OF POLL TAX- No person shall FOR RELIGIOUS, CHARITABLE, AND
be imprisoned for nonpayment of a debt EDUCATIONAL PURPOSES- Charitable
or poll tax. institutions, churches and parsonages or
7. BILLS TO ORIGINATE FROM THE HOUSE convents appurtenant thereto,
OF REPRESENTATIVES- All mosques, non-profit cemeteries, and all
appropriation, revenue or tariff bills, bills lands, buildings and improvements
authorizing the increase of the public actually, directly, and exclusively used
debt, bills of local application and private for religious, charitable, or educational
bills, shall originate exclusively in the purposes shall be exempt from taxation.
House of Representatives, but the 13. TAX EXEMPTIONS GRANTED TO NON-
Senate may propose or concur with STOCK, NON-PROFIT EDUCATIONAL
amendments. INSTITUTIONS- Article XIV, Section 4. (3)
8. VETO POWER OF THE PRESIDENT- The All revenues and assets of non-stock,
President shall have the power to veto non-profit educational institutions used
any particular item or items in an actually, directly and exclusively for
appropriation, revenue or tariff bill but educational purposes shall be exempt
the veto shall not affect the item or from taxes and duties.
items to which he does not object. "ACTUALLY, DIRECTLY AND
9. PRESIDENT'S POWER TO TAX- The EXCLUSIVELY USED"
Congress may, by law, authorize the The use of the term "actually, directly
President to fix within specified limits and exclusively used" referring to
and subject to such limitations and religious institutions cannot be applied
 to this above article. The provision of it simply provides is that Congress shall
Article VI, Section 28(3) applies to three evolve a progressive system of taxation.
institutions — religious, charitable and
educational institutions — while Article IS A TAX EXEMPTION REVOCABLE?
XIV applies solely to non-stock, non-  If the grant of an exemption does not
profit educational institutions. constitute a contract, but is merely "a
spontaneous concession by the
DECS ORDER NO. 137-87
legislature, not connected with any
 The exemption is not only limited to service or duty imposed" it is
revenues and assets derived from REVOCABLE by the power which made
strictly school operations like income the grant.
from tuition and other miscellaneous  Similarly, if the basis of the tax
fees such as matriculation, library, ROTC, exemption is by virtue of a franchise
etc., but also extends to incidental granted by Congress, the exemption
income derived from canteen, may be revoked. (Art. XII, Sec. 11)
bookstore, and dormitory facilities.  On the other hand, if the tax exemption
 In the case, however, of incidental constitutes a binding contract and for
income, the facilities mentioned must valuable consideration, the government
not only be owned and operated by the cannot unilaterally revoke the tax
school itself but such facilities must be exemption.
located inside the school campus.
Canteens operated by mere
concessionaires are taxable. CASES
 The foregoing view has been accorded  SILVESTRE PUNSALAN v. THE MUN.
judicial imprimatur in the recent case of BOARD OF THE CITY OF MANILA 95 Phil.
CIR v. De La Salle University, Inc., 808 46- Plaintiffs sought the annulment of
SCRA 156, wherein the Supreme Court Ordinance No. 3398 of the City of Manila
declared the last paragraph of Section 30 which imposes a municipal occupation
of the Tax Code without force and effect tax on persons exercising various
for being contrary to the Constitution professions. There was a substantial
insofar as it subjects to tax the income distinction between them and other
and revenues of non-stock, nonprofit professionals as practitioners in Manila
educational institutions used actually, could expect a more lucrative income
directly and exclusively for educational than those in other parts of the country.
purpose. This is in the exercise of and  CITY OF BAGUIO v. FORTUNATO DE
consistent with the duty LEON 25 SCRA 938- Defendant-
appellant De Leon, a real estate dealer,
IS A TAX LAW ADOPTING A REGRESSIVE
assailed the validity of an ordinance of
SYSTEM OF TAXATION VALID?
the City of Baguio imposing a license fee
 The Constitution does not really prohibit on any person, firm, entity, or
the imposition of regressive taxes. What corporation doing business in the City of
 Baguio. A tax is considered uniform  REV. FR. CASIMIRO LLADOC v. The CIR
when it operates with the same force and The CTA 14 Phil. 292- The
and effect in every place where the exemption is only from the payment of
subject may be found. taxes assessed on such properties
 (De Villets v. Stanley, 32 Phil. 541- In enumerated, as property taxes, as
other words, equality in taxation simply contra-distinguished from excise taxes.
means that the tax shall be strictly In the present case, what the Collector
proportional to the relative value of the assessed was a donee's gift tax; the
property. (Cooley on Taxation, Vol. I, 4th assessment was not on the properties
Ed.) In contrast, uniformity in taxation themselves.
means that persons or things belonging  BISHOP OF NUEVA SEGOVIA v.
to the same class shall be taxed at the PROVINCIAL BOARD OF ILOCOS NORTE
same rate. 51 Phil. 352- The Supreme Court
 Eastern Theatrical Company v. Alfonso, included in the exemption a vegetable
83 Phil. 852- Equality and uniformity in garden in an adjacent lot and another lot
taxation means that all taxable articles formerly used as a cemetery. It was
or kinds of property of the same class clarified that the term "used exclusively"
shall be taxed at the same rate. considers incidental use also. Thus, the
 ARTURO M. TOLENTINO v. SECRETARY exemption from payment of land tax in
OF FINANCE, et al.- Petitioners' favor of the convent includes, not only
contention is that R.A. 7716 did not the land actually occupied by the
"originate exclusively" in the House of building but also the adjacent garden
Representatives as required by Art. VI, devoted to the incidental use of the
Sec. 24 of the Constitution, because it is parish priest.
in fact the result of the consolidation of 
two distinct bills, H. No. 11197 and S. No.
1630.
 ABRA VALLEY COLLEGE, INC.
represented by PEDRO V. BORGONIA v.
HON. JUAN P. AQUINO 162 SCRA 106-
Thus, while the use of the second floor
of the main building in the case at bar for
residential purposes of the Director and
his family, may find justification under
the concept of incidental use, which is
complimentary to the main or primary
purpose - educational, the lease of the
first floor thereof to the Northern
Marketing Corporation cannot by any
stretch of imagination be considered
incidental to the purpose of education.