Tax Midterm Reviewer

UNIVERSITY OF NEGROS OCCIDENTAL RECOLETOS - SCHOOL OF LAW
Midterm Reviewer
TAXATION
1st Semester, SY 2016-17
Professor: Atty. Lorebette Grandea
I. General Principles of Taxation
Taxes:
Enforced proportional contributions from properties and persons levied by the State by virtue its sovereignty for
the support of the government and for public needs.
Taxation:
Taxation is the inherent power of the sovereign, exercised through the legislature, to impose burdens upon the
subjects and objects within its jurisdiction, for the purpose of raising revenues to carry out the legitimate objects of the
government. The process or means by which a sovereign through its lawmaking boy raises income to defray the
expenses of the government. As a power, it is an inherent power of the state to demand enforced contribution for public
purpose.
A. Meaning, Nature, Basis, Characteristics and Purposes of Taxation
1. Meaning of tax, taxation, CIR v. Algue, 158 SCRA 9 (1988)
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the
other hand, such collection should be made in accordance with law as any arbitrariness will negate the very
reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good,
may be achieved.
a. Taxation as an inherent power of the state

Abakada Guro Party List v. Ermita, GR No. 168056, 1 Sept. 2005
o
Clearly, the legislature may delegate to executive officers or bodies the power to determine certain
facts or conditions, or the happening of contingencies, on which the operation of a statuteis , by its
terms, made to depend, but the legislature must prescribe sufficient standards, policies or limitations
on their authority. While the power to tax cannot be delegated to executive agencies, details as to the
enforcement and administration of an exercise of such power may be left to them, including the power
to determine the existence of facts on which its operation depends.
Inherent limitations on the power of taxation

a.
b.
c.
d.
The tax must be for public purpose

Either the person, property or interest taxed must be within the jurisdiction of the taxig authority
The rule of taxation must be uniform
The assessment and collection of certain kinds of taxes, certain guarantees against injustice to individuals,
especially by way of notice and opportunity of hearing, must be provided
e. Properties constitutionally exempt from taxation cannot be taxed
f. In proper cases, the impairment clause should not be violated.
b. Tax as a general term, as a legal term
Compania General de Tabacos v. City of Manila, 8 SCRA 367 (1963)
o
The term tax applies- generally speaking- to all kinds of exaction which become public funds.
Legally speaking, license fee is a legal concept quite distinct from tax; the former imposed in the
exercise of police power for purposes of regulation, while the latter is imposed under the taxing power
of raising revenues.
c. Tax v. license and regulatory Fee

Osmena v. Orbos, 220 SCRA 703 (1993)
o
Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in
the exercise of the police power of the State. Moreover, that the OPSF is a special fund is palin from
the special treatment given it by EO 137. It is segregated from the general fund; and while it is placed
in what the law refers to as trust liability account, the fund nonetheless remains subject to the scrutiny
and review of the COA. The Court is satisfied that these measures comply with the constitutional
description of a special fund.
PAL v. Edu, 164 SCRA 320 (1988)

o
If the purpose is primarily revenue, or if revenue is, at least, one of thereal and substantial purposes,
then the exaction is properly called a tax.
Fees may be properly regarded as taxes even though they also serve as an instrument of regulation.
As stated by a former presiding judge of the Court of Tax Appeals and writer on various aspects of
taxes: It is possible for an exaction to be both tax and regulation. License fees are often looked to as a
source of revenue as well as a means of regulation. This is true, for example, of automobile license
fees. In such case, the fees may be properly be regarded as taxes even though they also serve as an
instrument of regulation.
Progressive Development v. QC, 172 SCRA 629 (1989)

o
The term tax frequently applies to al kinds of exactions of mnies which be come public funds. It is
often loosely used to include levies for revenue as well as levies for regulatory purposes such that
license fees are frequently called taxes although license fee is a legal concept distinguishable from
tax: the former is imposed in the exercise of police power primarily for purposes of regulation, while
the latter is imposed under the taxing power primarily for purposes of raising revenues. Thus, if the
generating of revenue is the primary purpose and regulation is merely incidental, the imposition is
atax; but if regulation is the primary purpose the fact that incidentally revenue is also obtained does
not make the imposition a tax,
To be considered a license fee, the imposition questioned must relate to an occupation or activity that
so enagages the public interest in helath, morals, safetu and development as to require regulation for
the protection and promotion of such public interest; the imposition must also bear a reasonable
relation to the probable expenses of regulation, taking into account not only the cost of direct
regulation but also its incidental consequences as well. Accordingly, a charge of fixed sum which
bears no relation at all to the cost of inspection and regulation may be held to be atax rather than an
exercise of the police power.
Tolentino v. Sec. of Finance, 249 SCRA 628 (1995)

o
The VAT is not a license tax. It is not a tax on the exercise eof a privilege, much less a constitutional
right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or
exchange of services and the lease of properties purely for revenue purposes. To subject the press to
its payment is not to burden the exrcise of its right any more than to make the press pay income tax
or subject it to general regulation is not to violate its freedom under the Constitution.
Gerochi v. DOE, G.R. 159796, 17 July 2007

o
The power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very
nature no limits, so that security against its abuse is to be found only in the responsibility of the
legislature which imposes the tax on the constituency that is to pay it. It is based on the principle that
taxes are the lifeblood of the government, and their prompt and certain availability is an imperious
need.
On the other hand, police power is the power of the state to promote public welfare by restraining and
regulating the use of liberty and property. As an inherent attribute of sovereignty which virtually
extends to all public needs, police power grants a wide panoply of instruments through which the
State, as parens patriae, gives effect to a host of its regulatory powers. We have held that the power
to "regulate" means the power to protect, foster, promote, preserve, and control, with due regard for
the interests, first and foremost, of the public, then of the utility and of its patrons.
The conservative and pivotal distinction between these two powers rests in the purpose for which the
charge is made. If generation of revenue is the primary purpose and regulation is merely incidental,
the imposition is a tax; but if regulation is the primary purpose, the fact that revenue is incidentally
raised does not make the imposition a tax.
d. Tax v. special assessment

Distinction of Tax vs Special Assessment
1.
A special assessment tax is an enforced proportional contribution from owners of lands especially
benefited by public improvements
2.
A special assessment is levied only on land.
3.
A special assessment is not a personal liability of the person assessed; it is limited to the land.
4.
A special assessment is based wholly on benefits, not necessity.
5.
A special assessment is exceptional both as to time and place; a tax has general application.
Sec. 240, R.A. 7160

SECTION 240. Special Levy by Local Government Units. - A province, city or municipality may a special levy
on the lands comprised within its territorial jurisdiction specially benefited by public works projects or
improvements funded by the local government unit concerned: Provided, however, That the special levy shall not
exceed sixty percent (60%) of the actual cost of such projects and improvements, including the costs of acquiring
land and such other real property in connection therewith: Provided, further, That the special levy shall not apply
to lands exempt from basic real property tax and the remainder of the land portions of which have been donated
to the local government unit concerned for the construction of such projects or improvements.
Republic v. Bacolod-Murcia Milling Co., 17 SCRA 632 (1966)
o
Levy on sugar centrals for the purpose of constituting the Sugar Research and Satbilization Fund is
an exercise of the police power, not of the taxing power.
The special assessment at bar may be considered as similarly as the above, that is, that the levy for
the Philsugin Fund is not so much an exercise of the power of taxation, nor the imposition of a special
assessment, but, the exercise of the police power for the general welfare of the entire country. It is,
therefore, an exercise of a sovereign power which no private citizen may lawfully resist.
The tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of
the threatened sugar industry. In other words the act is primarily an exercise of police power.
e. Tax v. toll
Toll is a sum of money for the use of something. It is consideration which is paid for the use of a road, bridge, or
the like, of a public nature. Taxes, on the other hand, are enforced proportional contributions form persons and
property levied by the State by virtue of its sovereignty for the support of the government and all public needs.
Toll is a demand of proprietorship, while tax is a demand of sovereignty.
Toll is paid for the use of anothers property; tax is paid for the support of government.
The amount paid as toll depends on the cost of construction or maintenance of the public improvement used;
while there is no limit on the amount of tax that can be collected as long as it is not excessive, unreasonable, or
confiscatory.
Toll may be imposed by the government or by private individuals or entities; tax may be imposed only by the
government.
*Toll fee/charges are could be imposed by LGU through a local ordinance to impose such.
Sec. 155, R.A. 7160
SEC. 155. Toll Fees or Charges. The sanggunian concerned may prescribe the terms and conditions and fix the
rates for the imposition of toll fees or charges for the use of any public road, pier or wharf, waterway, bridge, ferry
or telecommunication system funded and constructed by the local government unit concerned: Provided, That no
such toll fees or charges shall be collected from officers and enlisted men of the Armed Forces of the Philippines
and members of the Philippine National Police on mission, post office personnel delivering mail, physicallyhandicapped, and disabled citizens who are sixty-five (65) years or older. When public safety and welfare so
requires, the sanggunian concerned may discontinue the collection of the tolls, and thereafter the said facility shall
be free and open for public use.
f.
Tax v. penalty
See Secs. 247-281, NIRC

Penalty is any sanction imposed as a punishment for violation of law or for acts deemed injurious; taxes are
enforced proportional contributions from persons and property levied by the State by virtue of its sovereignty for
the support of the government and all public needs.
Penalty is designed to regulate conduct; taxes are generally intended to generate revenue.
Penalty may be imposed by the government or by private individuals or entities; taxes only by the government.
g. Tax v. tariff and customs duties
Customs duties or simply duties, are taxes imposed on goods exported from or imported into a country.
Customs duties are really taxes but the latter term is broader in scope.
On the other hand, tariff may be used in any of the three senses:
1.
A book of rates drawn usually in alphabetical order containing the names of several kinds of
merchandise with the corresponding duties to be paid for the same; or
2.
The duties payable on goods imported or exported; or
3.
The system or principle of imposing duties on the importation or exportation of goods.
Garcia v. Executive Secretary, 211 SCRA 219 (1992)

o
Section 28(2) of Article VI of the Constitution provides as follows:

(2)
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, tonage and
wharfage dues, and other duties or imposts within the framework of the national development program of
the Government. (Emphasis supplied)
There is thus explicit constitutional permission 1 to Congress to authorize the President "subject to such
limitations and restrictions is [Congress] may impose" to fix "within specific limits" "tariff rates . . . and
other duties or imposts . . ."
Customs duties which are assessed at the prescribed tariff rates are very much like taxes which are
frequently imposed for both revenue-raising and for regulatory purposes. Thus, it has been held that
"customs duties" is "the name given to taxes on the importation and exportation of commodities, the tariff
or tax assessed upon merchandise imported from, or exported to, a foreign country." The levying of
customs duties on imported goods may have in some measure the effect of protecting local industries
where such local industries actually exist and are producing comparable goods. Simultaneously, however,
the very same customs duties inevitably have the effect of producing governmental revenues. Customs
duties like internal revenue taxes are rarely, if ever, designed to achieve one policy objective only. Most
commonly, customs duties, which constitute taxes in the sense of exactions the proceeds of which
become public funds have either or both the generation of revenue and the regulation of economic or
social activity as their moving purposes and frequently, it is very difficult to say which, in a particular
instance, is the dominant or principal objective. In the instant case, since the Philippines in fact produces
ten (10) to fifteen percent (15%) of the crude oil consumed here, the imposition of increased tariff rates
and a special duty on imported crude oil and imported oil products may be seen to have some "protective"
impact upon indigenous oil production. For the effective, price of imported crude oil and oil products is
increased. At the same time, it cannot be gainsaid that substantial revenues for the government are
raised by the imposition of such increased tariff rates or special duty.
And so customs duties may eb reduced or even removed precisely for the purpose of protecting
consumers from the high prices and shoddy quality and inefficient service that tariff-protected and
subsidized local manufatureres may otherwise impose upon the community.
h. Obligation to pay tax v. obligation to pay debt

Art. 1279, 1290 NCC
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the
other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be same kind, and also of
the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of thrm there be any retention or controversy, commenced by third persons and communicated
indue time to the debtor.
Art. 1290. When all the requisites mentioned in Art. 1279 are present, compensation takes effect by operation of
law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of
the compensation.
General rule: A tax delinquency cannot be extinguished by legal compensation. This is so because the
government and the person assessed with the tax are not mutually creditors and debtors. Neither is a tax obligation
an ordinary debt. Moreover, the collection of a tax cannot await the results of a lawsuit against the government.
Finally, taxes are not in the nature of contracts but grow out of the duty to, and are positive acts of the government to
the making and enforcing of which the personal consent of the taxpayer is not required [Francia v. IAC, 162 SCRA
622].
Obligation to Pay Debt vs. Obligation to Pay Tax

1.
2.
3.
4.
5.
6.
A debt is generally based on contract, express or implied, while a tax is based on laws.
A debt is assignable, while a tax cannot generally be assigned.
A debt may be paid in kind, while a tax is generally paid in money.
A debt may be the subject of set off or compensation, a tax cannot.
A person cannot be imprisoned for non-payment of tax, except poll tax.
A debt is governed by the ordinary periods of prescription, while a tax is governed by the special
prescriptive periods provided for in the NIRC.
7. A debt draws interest when it is so stipulated or where there is default, while a tax does not draw
interest except only when delinquent.
Requisites of compensation
1. That each one of the obligor be bound principally, and that he be at the same time a principal creditor of
the other.
2. That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind
and also of the same quality if the latter has been stated.
3. That the two (2) debts be due.
4. That they be liquidated and demandable.
5. That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtors.
Requisites of Compensation in taxation (Domingo v. Garlitos)
a. That the tax assessed and the claim against the government be fully liquidated.
b. That the tax assessed and the claim against the government is due and demandable, and
c. That the government had already appropriated funds for the payment of the claim.
ILLUSTRATIONS:
The amount of the fee or charge is properly considered in determining whether it is a tax or an exercise of the
police power. The amount may be so large as to itself show that the purpose was to raise revenue and not to
regulate, but in regard to this matter there is a marked distinction between license fees imposed upon useful and
beneficial occupations which the sovereign wishes to regulate but not restrict, and those which are inimical and
dangerous to public health, morals or safety. In the latter case the fee may be very large without necessarily being
a tax. (PHYSICAL THERAPY ORGANIZATION v. MUNICIPAL BOARD, 101 PHIL 114)
Claim for payment of unpaid services of a government employee vis--vis the estate taxes due from his estate.
The fact that the court having jurisdiction of the estate had found that the claim of the estate against the
government has been appropriated for the purpose by a corresponding law shows that both the claim of the
government for inheritance taxes and the claim of the intestate for services rendered have already become
overdue and demandable as well as fully liquidated. Compensation therefore takes place by operation of law.
(Domingo v. Garlitos 8 SCRA 443)
Republic v. Mambulao Lumber, 6 SCRA 858 (1962)
Appellant maintains that the principle of a compensation in Article 1278 of the new Civil Code is applicable, such
that the sum of P9,127.50 paid by it as reforestation charges may compensate its indebtedness to appellee in the
sum of P4,802.37 as forest charges. But in the view we take of this case, appellant and appellee are not mutually
creditors and debtors of each other. Consequently, the law on compensation is inapplicable.
And the weight of authority is to the effect that internal revenue taxes, such as the forest charges in question, can
be the subject of set-off or compensation.
A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of
set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any
indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they
a proper subject of recoupment since they do not arise out of the contract or transaction sued on. ... (80 C.J.S. 7374. ) .
The general rule, based on grounds of public policy is well-settled that no set-off is admissible against demands
for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that
taxes are not in the nature of contracts between the party and party but grow out of a duty to, and are the positive
acts of the government, to the making and enforcing of which, the personal consent of individual taxpayers is not
required. ... If the taxpayer can properly refuse to pay his tax when called upon by the Collector, because he has a
claim against the governmental body which is not included in the tax levy, it is plain that some legitimate and
necessary expenditure must be curtailed. If the taxpayer's claim is disputed, the collection of the tax must await
and abide the result of a lawsuit, and meanwhile the financial affairs of the government will be thrown into great
confusion. (47 Am. Jur. 766-767.)
Philex Mining v. CIR, 294 SCRA 687 (1998)
In several instances prior to the instant case, we have already made the pronouncement that taxes cannot be
subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors
of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its
corporate capacity, while taxes are due to the Government in its sovereign capacity. We find no cogent reason to
deviate from the aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate Court, we categorically held that taxes cannot
be subject to set-off or compensation, thus:
We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a tax on the ground that the government owes him an
amount equal to or greater than the tax being collected. The collection of tax cannot await the results of a lawsuit
against the government.
Caltex v. COA, 208 SCRA 726 (1992)
It is settled that a taxpayer may not offset taxes due from the claimsthat he may have against the government.
Taxes cannot be subject of compensation because the government and taxpayer are not mutuallycreditors and
debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be
set-off.
Francia v. IAC, 162 SCRA 753 (1988)
o
We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a tax on the ground that the government owes him an
amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a
lawsuit against the government.
We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim
against the governmental body not included in the tax levy.
A tax delinquency cannot be extinguished by legal compensation. This is so because the government and the
person assessed with the tax are not mutually creditors and debtors. Neither is a tax obligation an ordinary debt.
Moreover, the collection of a tax cannot await the results of a lawsuit against the government. Finally, taxes are
not in the nature of contracts but grow out of the duty to, and are positive acts of the government to the making
and enforcing of which the personal consent of the taxpayer is not required.
By legal compensation, obligations of persons, who in their own right are reciprocally debtors and creditors of
each other, are extinguished.
i.
Tax v. government revenue

2. Essential Characteristics of Tax
Caltex v. COA, id.

Characteristics: (ILS)
Attribute of sovereignty and emanates from necessity, relinquishment of which is never presumed and legislative
in character.
I.
II.
III.
Inherent in Sovereignty hence may be exercised although not expressly granted by the constitution.
Legislative in Character only the legislature can impose taxes (although may be delegated).
Subject to constitutional limitation and inherent limitations it is not an absolute power that can
be exercise by the legislature anyway it pleases.
3. Theory and Basis of Taxation
a.
Lifeblood Theory
This theory states that taxes is the lifeblood of the nation and must be collected without unnecessary hindrance. Taxes
are what we paid for civilized society. Without taxes, the state willll be paralyzed lacking power to activate or operate it.
The state in return must provide tangible and intangible benefit to improve the moral and material value of its citizen
b.
Necessity Theory
The power of taxation proceeds upon the theory that the existence of a government is a necessity and cannot continue
without any means to pay for expenses and the government has the right to compel all citizens and property within its
limits to contribute.
c.
Benefits-Protection Theory (Symbiotic)
Basis of taxation is found in the reciprocal duties of protection and support between State and inhabitants. In return for his
contribution, the taxpayer received benefits and protection from the government.
Lorenzo v. Posadas, 64 Phil 353 (1937)
o
The right of the state to an inheritance tax accrues at the moment of death, and hence is ordinarily measured as
to any beneficiary by the value at the time of such property as passes to him. Subsequent appreciation or
depreciation is immaterial.
Whatever may be the rule in other jurisdictions, we hold that a transmission by inheritance is taxable at the time of
the predecessors death, notwithstanding the postponement of the actual possession or enjoyment of the estate
by the beneficiary, and the tax measured by the value of the property transmitted at the time regardless of its
appreciation or depreciation.
CIR v. Algue, supra.

The Supreme Court said that taxes are the lifeblood of the government and should be collected without necessary
hindrance. They are what we pay for a civilized society. Without taxes, the government would be paralyzed for lack of
motive power to activate and operate it. The government, for its part, is expected to respond in the form of tangible
and intangible benefits intended to improve the lives of the people and enhance their moral and material values.
The power of taxation is essential because the government can neither exist nor endure without taxation. Taxes are
the lifeblood of the government and their prompt and certain availability is an imperious need, [Bull v. United States,
295 U.S. 247, 15 APTR 1069, 1073]. The collection of taxes must be made without any hindrance if the state is to
maintain its orderly existence.
4. Purposes, Objectives of Taxation
a. General, fiscal, revenue
CIR v. Algue, supra. (RATIONALE OF TAXATION)
o
It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for
lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of
ones hard-earned income to the taxing authorities, every person who is able to must contribute his share in the
running of the government. The government, for its part, is expected to respond in the form of tangible and
intangible benefits intended to improve the lives of the people and enhance their moral and material values. This
symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that is an arbitrary
method of exaction by those in the seat of power.
Osmena v. Orbos, supra.

o Article VI of the Constitution, reading as follows:
(3) All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such
purposes only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if
any, shall be transferred to the general funds of the Government.
Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in the exercise of
the police power of the State. Moreover, that the OPSF is a special fund is plain from the special treatment given it by
E.O. 137. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust liability
account," the fund nonetheless remains subject to the scrutiny and review of the COA. The Court is satisfied that
these measures comply with the constitutional description of a "special fund." Indeed, the practice is not without
precedent.
Xxxxxx
Although the provision authorizing the ERB to impose additional amounts could be construed to refer to the power of
taxation, it cannot be overlooked that the overriding consideration is to enable the delegates to act with expediency in
carrying out the objectives of the law which are embraced by the police power of the State.
PAL v. Edu, supra.

o
Taxes: The nature of an exaction is to be determined by the purpose for which it is being exacted e.g. if the
purpose is primarily revenue, or if revenue is at least one of the substantial purposes, then the exaction is properly
called a tax.
Fees may be properly regarded as taxes even though they also serve as a n instrument of regulation. As stated by a
former presiding judge of the Court of Tax Appeals and writer on various aspects of taxes: It is possible for an
exaction to be both tax and regulation. License fees are often looked to as a source of revenue as well as a means of
regulation. This is true, for example, of automobile license fees. In such case, the fees may properly be regarded as
taxes even though they also serve as an instrument of regulation. If the purpose is primarily revenue, or if revenue is
at least one of the real and substantial purposes, then the exaction is properly called a tax. These exactions are
sometimes called regulatory taxes.
Tolentino v. Secretary of Finance, 235 SCRA 630 (1994)
o
In this case, the fee in S107, although a fixed amount, is not imposed for the exercise of a privilege but only for
the purpose of defraying part of the cost of registration. The registration requirement is a central feature of the
VAT system. It is designed to provide a record of tax credits because any person who is subject to the payment of
the VAT pays an input tax, even as he collects an output tax on sales made or services rendered. The registration
fee is thus a mere administrative fee, one not imposed on the exercise of a privilege, much lessa constitutional
right.
b. Non-revenue, special or regulatory

o
Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in the exercise
of the police power of the State. Moreover, that the OPSF is a special fund is plain from the special treatment
given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the law refers to as a
"trust liability account," the fund nonetheless remains subject to the scrutiny and review of the COA. The Court is
satisfied that these measures comply with the constitutional description of a "special fund." Indeed, the practice is
not without precedent.
Republic v. Bacolod-Murcia Milling Co., supra.

o
The contribution, which is levied upon sugar centrals and sugar cane planters under RA no. 632 in order to
constitute the Sugar Research and Stabilization Fund or the capital of the Philippine Sugar Institute, is not an
exercise of the power of taxation nor the imposition of a special assessment but is an exercise of the police power
for the general welfare of the country. It is an exercise of the sovereign power which no private citizen may
lawfully resist.
Tio v. Videogram Regulatory Board, 151 SCRA 208 (1987)

o
The tax imposed by the decree is not only a regulatory but also a revenue mesure prompted by the realization
that earnings of videogram establishments of around P600m per annum have not been subjected to tax, thereby
depriving the Government of an additional source of revenue. It is a tax that is imposed uniformly on all videogram
operators
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the
video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights,
and the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to protect the
movie industry, the tax remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax
was to favor one industry over another.
It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly
held that inequities which result from a singling out of one particular class for taxation or exemption infringe no
constitutional limitation. Taxation has been made the implement of the states police power.
Lutz v. Araneta, 98 Phil 150 (1955)

o
Analysis of the Act, and particularly of section 6 (heretofore quoted in full), will show that the tax is levied with a
regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In
other words, the act is primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of the great industries of our nation,
sugar occupying a leading position among its export products; that it gives employment to thousands of laborers
in fields and factories; that it is a great source of the state's wealth, is one of the important sources of foreign
exchange needed by our government, and is thus pivotal in the plans of a regime committed to a policy of
currency stability. Its promotion, protection and advancement, therefore redounds greatly to the general welfare.
Hence it was competent for the legislature to find that the general welfare demanded that the sugar industry
should be stabilized in turn; and in the wide field of its police power, the lawmaking body could provide that the
distribution of benefits therefrom be readjusted among its components to enable it to resist the added strain of the
increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs. State ex rel.
Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121).
Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of public
concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its
protection and expedient for its promotion. Here, the legislative discretion must be allowed fully play, subject only
to the test of reasonableness; and it is not contended that the means provided in section 6 of the law (above
quoted) bear no relation to the objective pursued or are oppressive in character. If objective and methods are alike
constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and
attainment. Taxation may be made the implement of the state's police power (Great Atl. & Pac. Tea Co. vs.
Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4
Wheat. 316, 4 L. Ed. 579).
Caltex v. COA, supra.

Taxation is no longer a measure merely to raise revenue to support the existence of government. Taxes may be
levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry
which is affected with public interest as to be within the police power of the State. The oil industry is greatly
imbued with public interest as it vitally affects the general welfare.
Esso v. CIR, 175 SCRA 149 (1989)
There are at least two cases where we have held that a margin fee is not a tax but an exaction designed to curb
the excessive demands upon our international reserve.
In Caltex (Phil.) Inc. v. Acting Commissioner of Customs, 2 the Court stated through Justice Jose P. Bengzon:
A margin levy on foreign exchange is a form of exchange control or restriction designed to discourage imports and
encourage exports, and ultimately, 'curtail any excessive demand upon the international reserve' in order to
stabilize the currency. Originally adopted to cope with balance of payment pressures, exchange restrictions have
come to serve various purposes, such as limiting non-essential imports, protecting domestic industry and when
combined with the use of multiple currency rates providing a source of revenue to the government, and are in
many developing countries regarded as a more or less inevitable concomitant of their economic development
programs.
By its nature, the margin levy is part of the rate of exchange as fixed by the government. A tax is levied to provide
revenue for government operations, while the proceeds of the margin fee are applied to strengthen our country's
international reserves. We conclude then that the margin fee was imposed by the State in the exercise of its
police power and not the power of taxation.
5.
Classification of Taxes
a. As to scope of the tax
National taxes, local taxes
National Tax- Imposed by National Government (National Internal Revenue Tax, Customs Duties, Taxes under
Special Laws)
A national tax is that imposed by the state itself and is effective in the entire jurisdiction thereof.
Local or Municipal Tax- Tax imposed by municipal corporations or LGUs (Real Property, Professional Tax)
A local tax is that imposed by a political subdivision of the state and is effective only within the territorial
boundaries thereof.
Sec. 5, Art. X of the 1987 Constitution provides that: Each local government unit shall have the power to create
its own sources of revenue and levy taxes, fees and charges, subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall
accrue to the local governments. While the power of taxation is inherent in the National Legislature, the 1987
Constitution has expressly delegated that power to local government units, but subject to the :guidelines and
limitations that the Congress may provide.
Benguet v. CBAA, 210 SCRA 579 (1992)

Realty Taxes are national taxes collected by local government units.
o
It is thus clear from the foregoing that it is the national government, expressing itself through the
legislative branch, that levies the real property tax. Consequently, when local governments are required to
fix the rates, they are merely constituted as agents of the national government in the enforcement of the
Real Property Tax Code. The delegation of taxing power is not even involved here because the national
government has already imposed realty tax in Sec. 38, leaving only the enforcement to be done by local
government.
b. As to who shoulders the burden of the tax

Direct taxes, indirect taxes
o
Direct Tax- Demanded from the person who shoulders the burden of taxation, a tax which taxpayer is
directly or primarily liable which cant be shifted to another. (Corporate/Individual Income Tax, Estate Tax,
Donors Tax).
- one which is demanded from a person who it is intended or desired shall pay it.
Indirect Tax- Tax which demanded from one person in the expectation and intention that he shall
indemnify at the expense of another. Or it is a tax which the taxpayer can shift to another. (Excise Tax,
professional tax, Value Added Tax, amusement taxes, custom duties)
- a tax paid primarily by person who can shift the burden upon someone else, or who are under no legal
obligation to pay them.
Sec. 105 VAT
Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders
services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sec. 106 to
108 of this Code.
The VAT is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of
the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of goods,
properties or services at the time of the effectivity of RA 7716.
The phrase in the course of trade or business means the regular conduct or pursuit of a commercial or an
economic activity, including transactions incidental thereto, by any person regardless of whether or not the person
engaged therein is a nonstick, nonprofit private organization, or government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the Philippines
by nonresident foreign persons shall be considered as being rendered in the course of trade or business.
Tolentino v. Sec. of Finance, (1995) supra.
The VAT is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of
services and the lease of properties purely for revenue purposes.
The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or
exchange of services and the lease of properties purely for revenue purposes. To subject the press to its payment
is not to burden the exercise of its right any more than to make the press pay income tax or subject it to general
regulation is not to violate its freedom under the Constitution.
Philippine Acetylene v. CIR, 20 SCRA 1056 (1967)
o
The percentage tax on sales of merchandise, imposed in Section 186 of the Tax Code, is due from the
manufacturer and not from the buyer. Thus, the manufacturer or producer of oxygen and acetylene gases
10
sold to the NPC cannot claim exemption from the payment of sales tax simply because its buyer, the
NPC, is exempt from taxation.
Maceda v. Macaraig, 197 SCRA 771 (1991)
o
It may be useful to make a distinction, for thye purpose of this disposition, between a direct tax and
indirect tax. A direct tax is a tax for which a taxpayer is directly liable on the transaction or business it
engages in. Examples are the custom duties and ad valorem taxes paid by the oil companies to the
Bureau of Customs for their importation of crude oil, and the specific and ad valorem taxes they pay to the
BIR after converting the crude oil into petroleum products. On the other hand, indirect taxes are taxes
primarily paid by persons who can shift the burden upon someone else. For example, the excise and ad
valorem taxes that oil companies pay to the BIR upon removal of petroleum products fromits refinery can
be shifted to its buyer, like the NPC, by adiing them to the cash and/or selling price.
Maceda v. Macaraig, 223 SCRA 217 (1993)

o
PD no. 938 did not amend the same and so the tax exemption provision in Sec. 8 (b), RA 6395, as
amended by PD No. 380, still stands. Since the subject matter of this particular Section 8 (b) had to do
only with loans and machinery imported, paid for from the proceeds of those foreign loans, THERE WAS
NO OTHER SUBJECT MATTER TO LUMP IT UP WITH, and so, the tax exemption stood as is- with the
express mention of direct and indirect tax exemptions. And this direct and indirect tax exemption
privilege extended to taxes, fees, imposts, other charges xxx to be imposed in the future- surely, an
indication that the lawmakers wanted the NPC to be exempt from ALL FORMS of taxes- direct and
indirect.
CIR v. John Gotamco, 148 SCRA 36 (1987)

o
The 3% contractors tax which is payable by the contractor but in the last analysis, it is the owner of the
building that shoulders the burden of the tax, constitutes an indirect tax to which the WHO is exempt
under the Host Agreement entered into between the RP and the said organization- in context, direct
taxes are those that are demanded in the first instance from one person in the expectation and intention
that he can shift the burden to someone else. The contractors tax is of course payable by the contractor
but in the last analysis it is the owner of the building that shoulders the burden of the tax because the
same is shifted by the contractor to the owner as a matter of self-preservation. Thus, it is indirect tax. And
it is an indirect tax on WHO because, although it is payable by the petitioner, the latter can shift its burden
on the WHO. In the last analysis it is the WHO that will pay the tax indirectly through the contractor and it
certainly cannot be said that this tax ha sno bearing upon the WHO.
c. As to the object or subject matter of the tax

Property, personal, poll or capitation, excise
a. Property Tax- is one assessed on all property located within a certain territory on a specific date in proportion to
its value, or in accordance with some other reasonablemethod of apportionment, the obligation to pay which is
absolute and unavoidable and is not based upon any voluntary action of the person assessed.
b. Personal Tax, capitation or poll tax- tax of fixed amount upon all persons resident within a specified territory
without regard to their property or the occupations in which they may be engaged.
c.
Excise tax- any tax which does not fall within the classification of a poll tax or a property tax and embraces every
form of burden not laid directly upon person orproperty.
It is said thata n excise tax is a charge imposed upon the performance of an act, the enjoyment of a privilege, or
the engaging in an occupation. The term excise tax is synonymous with privilege tax.
Villanueva v. City of Iloilo, 26 SCRA 578 (1968)

o
A municipal license tax means an imposition or exaction on the right to use or dispose of property, to
pursue a business, occupation, or calling, or to exercise a privilege.
It is now settled that the provisons of Sec. 2 of RA No. 2264 confer on local governments broad taxing
authority which extends to lamost everything, excepting those which are mentioned therein, provided
that the tax so levied is for public purposes, just and uniform, and does not transgress any constitutional
provision or is not repugnant to a controlling statute.
Under the same proivisions of Sec. 2 of the Local Autonomy Act, local governments may now tax any
taxable subject matter or object not included in the enumeration of matters removed from thetaxing power
of local governments. Prior to the enactment of the Local Autonomy Act the taxes that could be legally
levied by local governments were only those specifically authorized by law, and their power to tax was
construed in strictissimi juris.
11
A real estate tax is a direct tax on the ownership of lands and buildings or other improvements thereon,
not especially exempted, and is payable regardless of whether the property is used or not, although the
value may vary in accordance with such factor. The tax is usually single or indivisible although the land
and building or improvements erected thereon are assessed separately, except when the land and
building or improvement belongs to separate owners. It is a fixed proportion of the assessed value of the
property taxed, and required, therefore, the intervention of assessors. It is collected orn payable at
appointed times, and it constitutes a superior lien on and is enforceable against the property subject to
such taxation, and not by imprisonment of the owner.
CIR v. CA, 242 SCRA 289 (1995)

o
Ad valorem tax- In computing the tax, the term gross output shall be the actual market value of minerlas
or mineral products, or of bullion from each mine or mineral lands operated as a separate entity, without
any deduction for mining, milling, refining transporting, handling, marketing or any other exepnses.
Assoc. of Customs Brokers v. Municipal Board, 93 Phil 107 (1953)

o
While as a rule an ad valorem tax is a property tax, and this rule is supported by some authorities, the rule
should not be taken in its absolute sense if the nature and purpose of the tax as gathered from the
context show that it is in effect an excise or a license tax. Thus, it has been held that "If a tax is in its
nature an excise, it does not become a property tax because it is proportioned in amount to the value of
the property used in connection with the occupation, privilege or act which is taxed. Every excise
necessarily must finally fall upon and be paid by property and so may be indirectly a tax upon property;
but if it is really imposed upon the performance of an act, enjoyment of a privilege, or the engaging in an
occupation, it will be considered an excise." (26 R. C. L., 35-36.) It has also been held that
The character of the tax as a property tax or a license or occupation tax must be determined by its
incidents, and from the natural and legal effect of the language employed in the act or ordinance, and not
by the name by which it is described, or by the mode adopted in fixing its amount. If it is clearly a property
tax, it will be so regarded, even though nominally and in form it is a license or occupation tax; and, on the
other hand, if the tax is levied upon persons on account of their business, it will be construed as a license
or occupation tax, even though it is graduated according to the property used in such business, or on the
gross receipts of the business. (37 C.J., 172)
d. As to the manner of computing the tax

Specific tax- A specific tax is a tax of fixed amount, imposed by the head or number or by some other standard of
weight or measurement. It requires no assessment other than the listing or classification of the objects to be
taxed.
Ad valorem tax- As ad valorem tax is a tax of fixed proportion of the value of the property with respect to which
the tax is assessed. It requires the intervention of assessors or appraisers to estimate the value of such property
before the amount due from each taxpayer can be determined.
e. As to graduation or rate
1. proportional, flat rate
Proportional tax-Tax based on a fixed percentage of the amount of the property receipts or other basis to be
taxed. e.g. Real estate tax.
Sec. 233, R.A. 7160
Rates of Levy. - A province or city or a municipality within the Metropolitan Manila Area shall fix a uniform
rate of basic real property tax applicable to their respective localities as follows:
a) In the case of a province, at the rate not exceeding one percent (1%) of the assessed value of real
property; and
b) In the case of a city or a municipality within the Metropolitan Manila Area, at the rate not exceeding two
percent (2%) of the assessed value of real property.
2.
progressive, digressive rate

Sec. 24 (A)
12
Progressive or graduated tax- The tax rate of which increases as the tax base or bracket increases. e.g.
Income tax
Digressive tax rate- progressive rate stops at a certain point. Progression halts at a particular stage.
*Not to be confused with Progressive system of taxation, wherein the number of indirect taxes outnumber the
direct taxes
3. regressive, Tolentino v. Sec. of Finance, (1995) supra.
Regressive tax-The rate of which decreases as the tax base or bracket increases. There is no such tax in the
Philippines.
o
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shal evolve a preogressive system of taxation. The
constitutional provision has been interpreted to mean simply that direct taxes are to be preferred and
as much as possible, indirect taxes should be minimized. Indeed, the mandate to Congress is not to
prescribe, but to revolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest
form of indirect taxes, would have been prohibited with the proclamation of Art. VIII, Sec. 17 of the 1973
CONST. from which the present Art. VI Sec 28 (1) was taken. Sales taxes are also regressive. Resort to
indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to
avoid them by imposing such taxes according to the taxpayers ability to pay. In the case of the VAT, the
law minimizes the regressive effects of this imposition by providing for zero rating of certain transactions,
while granting exemptions to other transaction.
6. Aspects of taxation
a. Levy or imposition by the legislative body
Levy (or imposition) of the tax by a legislative act (passage of tax laws and ordinances)
b. Collection or administration
Essentially administrative in character, it is the collection of taxes through the administrative agencies.
c.
Methods of collection:
withholding system
voluntary assessment and payment
assessment and payment
Manner of compliance by the taxpayers, including options and remedies available to them.
Assessment is the fixing the amount of tax due and demanding payment; not the assessment which
refers to the valuation of real properties to fix the bases of real property taxes under the RPTC.
7. Tax systems
a. Classification
Constitutional Mandate (Sec. 28 (1), Art. VI, 1987 Constitution)
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.
[Sec. 28, Art. VI, Constitution]
Tolentino v. Secretary of Finance.
o
Regressivity is not a negative standard for courts to enforce. What the Constitution requires the Congress
to do is to evolve a progressive system of taxation. This is a directive to Congress, just like the directive
given to it, to give priority to the enactment of laws for the enhancement of human dignity. The provisions
are put in the Constitution as moral incentives to legislation, not as judicially enforceable rights.
Progressive system of taxation and regressive system of taxation (Progressive system, regressive system)
A progressive system of taxation means that tax laws shall place emphasis on direct taxes rather than on
indirect taxes, with ability to pay as the principal criterion.
A regressive system of taxation exists when there are more indirect taxes imposed than direct taxes.
Regressive tax rates (Tolentino v. Sec. of Finance, supra., supra.)
Tax the rate of which decreases as the tax base or bracket increases. There are no regressive taxes in the
Philippine jurisdiction.
13
Regressive tax rates should be differentiated from a regressive system of taxation which exists when there are
more indirect taxes imposed than direct taxes.
Progressive system v. progressive rate of tax
Progressive System Of Taxation means that tax laws shall place emphasis on direct taxes rather than on
indirect taxes, with ability to pay as the principal criterion.
Progressive Rate of Tax- This focuses on the increase of rate of tax as the tax based/bracket increase as well.
c. Basic principles of a sound tax system
I. Fiscal adequacy
II. Theoretical justice
III. Administrative feasibility
Chavez v. Ongpin, 186 SCRA 331 (1990)
o
Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources
of revenues must be adequate to meet government expenditures and their variations.
I.
Fiscal Adequacy- means that the source of revenue, taken as a whole should be sufficient to
meet the expanding expenditures of the government regardless of business conditions, export
taxes, trade balances, and problems of economic adjustment. It means that the revenue should
be capable of expanding or contacting annually in response to variations of public expenditures.
The alternatives are to incur the risk of a series of deficits or surpluses due to inelastic revenues
or to adjust the amount of public expenditures and services to fit the flow of funds probably by
curtailing expenditures for defense, education, or other activities so that the budget may be
balanced and the public credit maintained.
II. Theoretical justice- means that the tax levied must be based upon the ability of the citizens to
pay. Justice and equality are vague trms. They are, moreover, relative to popular concepts of
justice which prevail at any time and place. But justice means at least that a tax system should
appeal to the average person as fair, and that it shouls represent public opinion at the time as to
what is fair. Justice, however, always refers primarily to the tax system as a whole rather than top
any particular tax.
III. Administrative feasibility- means that in a successful tax system, such tax should be clear and
plain to the taxpayers, capable of enforcement by an adequate and well-trained staff of public
officials, convenient as to time and manner of payment, and not unduly burdensome upon or
discouraging to business activity.
B. Nature and Limitations of the Power of Taxation
1. Nature of the power of taxation
a. Inherent in sovereignty
It may be exercised although not expressly granted by the Constitution
The power of taxation is an incident of sovereignty as it is inherent in the the State, belonging as a matter of right to every
independent government. It does need constitutional conferment. Constitutional provisions do not give rise to the power to
tax but merely impose limitations on what would otherwise be an invincible power. No attribute of sovereignty is more
pervading, and at no point does the power of government affect more constantly and intimately all the relations of life than
through the exactions made under it, [Churchill and Tait v. Concepcion, 34 Phil 969].
Roxas v. CTA, 23 SCRA 276 (1968)
o
The power of taxation is sometime called aslso as the power to destroy. Therefore it should be exercised
with caution to minimize injury to the propriety rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the hen that lays the golden egg. And, in order to maintain the general
publics trust and confidence in the government this power must be used justly and not reacherously. It
does not conform with our sense of justice in the instant case for the Government to persuade the
taxpayer to lend it a helping hand and later on to penalize him for duly answering the urgent call.
Tanada v. Angara, 272 SCRA 18 (1997)

o
Senates concurrence to GATT via a Senate Resolution No. 97 is a legitimate exercise of its sovereign
duty and power.
14
In the foregoing treaties, the Philippines has effectively agreed to limit the exercise of its sovereign
powers of taxation, eminent domain and police power. The underlying consideration in this partial
surrender of sovereignty is the reciprocal commitment of the other contracting states in granting the same
privilege and immunities to the Philippines, its officials and its citizens. The same reciprocity characterizes
the Philippine commitments under WTO-GATT.
b. Exclusively legislative in nature

- only the legislature can impose taxes although the power may be delegated
- Taxation is said to be an abso;ute power, which acknowledges no other limits than those expressly prescribed
in the constitution and sovereign power of any description, is entrusted to the men who use it. However, while taxation is
an incident of sovereignty absolutely necessary to maintain government, the authority to impose taxes depends upon
express legislative grant and not upon incidental power. There is no such thing as taxation by implication. Moreover, in
the execise of the power of taxation, the legislature is subject to inherent and constitutional limitations.
i. Extent of the legislative power to tax
Tan v. del Rosario, 237 SCRA 324 (1994)
o
On petitioners contention in GR 109446 that public respondents exceeded their rule-making authority in
applying SNITS to general professional partnerships by promulgating sec 6 rev reg 2-93, the court held
that said sec 6 did not alter but merely confirmed sec 23 of the tax code as amended by RA 7496 on the
extent of deductions applicable to all individual income taxpayers on their non-compensation income.
There is no evident intention in the law, either before or after the amendatory legislation to place on an
unequal footing or in significant variance the income tax treatment of professionals who practice their
respective professions individually and of those who do it through a general professional partnership.
CIR v. Santos, 277 SCRA 617 (1997)

o
It is within the power of the legislature whether to tax jewelry or not. With the legislature primarily lies the
discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects), and situs
(place) of taxation.
Sison v. Ancheta, 130 SCRA 654 (1984)

o
The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here,
does not suffice. There must be a factual foundation of such unconstitutional taint. Considering that
petitioner here would condemn such a provision as void on its face, he has not made out a case. This is
merely to adhere to the authoritative doctrine that where the due process and equal protection clauses
are invoked, considering that they are not fixed rules but rather broad standards, there is a need for proof
of such persuasive character as would lead to such a conclusion.
Kapatiran v. Tan, 163 SCRA 371 (1988)

o
It should be noted that under both the provisions of the Freedom Constitution and the 1987 Constitution,
the President is vested with legislative powers until a legislature under a new constitution is convened.
The 1st congress created and elected under the 1987 constitution was convened on July 27, 1987, hence
the enactment of EO 273 (VAT Law) on July 25, 1987, 2 days before the congress convened on July 27
was within the presidents constitutional power and authority to legislate.
Reyes v. Almanzor, 196 SCRA 322 (1991)

o
ii.
The taxing power has the authority to make a reasonable and natural classification for purposes of
taxation but the governments act must not be prompted by a spirit of hostility, at the very least,
discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly
on all persons under similar circumstances or that all persons must be treated in the same manner, the
conditions not being different both in the privileges conferred and the liabilities imposed.
Non-delegability of power to tax

the power of taxation, being purely legislative, Congress cannot delegate such power. This limitation arises from
the doctrine of separation of powers among the three branches of government.
Exceptions to the non-delegation rule
1.
Delegation to the president
2.
Delegation to local government units
3.
Delegation to administrative agencies
Except: devolved power to LGUs, express grant in legislative franchise
15
Maceda v. ERB, 192 SCRA 363 (1990)

o
Anent the unconstitutional use of the taxing power, the decision of the majority says that the Board
Order authorizing the proceeds generated by the increases is authorized by PD No. 1456, as amended
by EO No. 137. Assuming that such is authorized by law, still alaw, no matter how imperative, cannot
prevail over the Constitution which grants only to Congress the power to tax. And indeed, there can be no
denying the fact that when revenue is earned by the government from the consuming public (except when
only licenses are concerned) there is an exercise of the taxing power.
While under EO 172, ahearing is indispensable, the Board is not precluded from orederi g, ex parte, a
provisional increase in the price of petroleum products.
Maceda v. Macaraig, (1991) supra.

o
True it is that the then Secretary of Justice in Opinion No. 77 dated Aug. 6, 1977 was of the view that the
powers conferred upon the FIRB by sections 2 (a), (b), (c) and (d) of EO No. 93 constitute undue
delegation of legislative power and is therefore unconstitutional. However, he was overruled by the
respondent Executive Secretary in aletter to the Secretary of Finance dated march 30, 1989. The
executive Secretary, by authjority of the President, has the power to modify, alter or reverse the
construction of a statute given by a department secretary.
For a valid delegation of power, the standard required need not be spelled out specifically, it
vould be implied from the policy and purpose of the act considered whole. Non delegation of
legislative power, standard test implied under Section 3 of EO 93. The required standards need not
be expressed. In Edu v Ericta and De la Llana Alba, this court held: The standard may be either express
or implied. If the former, the non-delegated objection is easily met. The standard though does not have to
be spelled out specifically. It could be implied from the policy and purpose of the act considered as a
whole. In People v. Rosenthal the broad standard of public interest was deemed sufficient. In Calalang
vs. Williams, it was public welfare and in Cervantes vs. Auditor General, it was the purpose of promotion
of simplicity, economy and efiiciency.And implied from the purpose of the law as a whole, national
security was considered sufficient standard and so was protection of fish-fry or fish eggs.
Basco v. PAGCOR, 197 SCRA 52 (1991)

o
The City of Mnaila, being a mere Municipal corporation has no inherent right to impose taxes. Thus, the Charter
or sattute must plainly show an intent to confer that power or the municipality cannot assume it. Its power tro tax
therefore must always yield to a legislative act which is superior having been passed opon by the state itself which
has the inherent power to tax.
The Charter of the City of Manila is subject to control by Congress. It should be stressed that municipal
corporations are mere creatures of Congress which has the power to vreate and abolish municipal corporations
due to its general legislative powers. Congress, therefore, has the power of control over local governments. And
id Congress can grant the City of Manila the power to tax certain matters, it can also provide for exemptions or
even take back the power.
Pepsi-Cola v. City of Butuan, 24 SCRA 789 (1968)

o
Then again, the general principle against delegation of legislative powers, in consequence of the theory of
separation of powers is subject to one well-established exception, namely: legislative power may be delegated to
local governments- to which said theory does not apply.- in respet of matters of local concern.
PAL v. Edu, supra.

o
It is clear from the provisions of Section 73 of Commonwealth Act 123 and Section 61 of the Land Transportation
and Traffic Code that the legislative intent and purpose behind the law requiring owners of vehicles to pay for their
registration is mainly to raise funds for the construction and maintenance of highways and to a much lesser
degree, pay for the operating expenses of the administering agency.
There is a valid delegation to the LTO. Simply put, if the exaction under 4136 were merely a regulatory fee, the
imposition in RA 5448 need not be an additional tax.
c.
Who may question the validity of a tax measure or expenditure of taxes
Lozada v. Comelec, 120 SCRA 337 (1983)

o
As taxpayers, petitioners may not file the instant petition, for nowhere therein is it alleged that tax money is being
illegally spent. The act complained of is the inaction of the COMELEC to call a special election, as allegedly its
ministerial duty under the constitutional provision abovecited, and therefore, involves no expenditure of public
funds. It is only when an act complained of, which may include a legislative enactment or statute, involves the
illegal expenditure of public money that the so called taxpayer suit may be allowed. What the case at bar seeks is
16
one that entails expenditure of public funds which may be illegal because it would be spent for a purpose- that of
calling a special electuon- which, as will be shown, has no authority either in the constitution or a statute.
o
As voters, neither have petitioners the requisite interest or npersonality to qualify them to maintain and prosecute
the present petition. The unchallenged rule is that the person who impugns the validity of a statute must have a
personal and substantial interest in the case such that he has sustained, or will sustain, direct injury as a result of
its enforcement. In the case before US, the alleged inaction of the COMELEC to call a special election to fill-up
the existing vacancies in the Batasan Pambansa, standing alone, would adversely affect only the generalized
interest of all citizens. Petitioners standing to sue may not be predicated upon an interest of the kind alleged
here, which is held in common by all memebers of the public because of the necessarily abstract nature of the
injury supposedly shared by all citizens. Concrete injury, whether actual or threatened, is that indispensable
element of a dispute which serves in part to cast it in a form traditionally capable of judicial resolution. When the
asserted harm is a generalized grievance shared on substantially equal measure by all or a large class of
citizens, that harm alone noemally does not warrant exercise of jurisdiction.

o
In the petition it is alleged that petitioner is instituting this suit in his capacity as a taxpayer and a duly-elected
Senator of the Philippines. Public respondent argues that petitioner must show he has sustained direct injury as
a result of the action and that it is not sufficient for him to have a mere general interest common to all members of
the public. The Court however agrees with the petitioner that s taxpayer he may file the instant petition following
the ruling in Lozada when it involves illegal expenditure of public money. The petition questions the legality of the
tax refund to NPC by way of tax credit certificates and the use of said assigned tax credits by respondent oil
companies to pay for their tax and duty liabilities to the BIR and Bureau of Customs.
Gonzales v. Marcos, 65 SCRA 624 (1975)

o
It may not be amiss though to consider briely both the procedural and suctantive grounds that led to the lower
courts order of dismissal. It was therein pointed out as one more valid reason why such an outcome was
unavoidable that the funds administered by the President of the Phil. Came from donations and contributions not
by taxation. Accordingly, there was that absence of the requisite pecuniary or monetary interest.
Chavez v. PCGG, 299 SCRA 744 (1998)

o
The argumens cited by petitioner constitute the controlling decisional rule as reagrds his legal standing to institute
the instant petition. Access to public documents and records is a public right, and the real parties in interest are
the people themselves.
The instant petition is anchored on the right of the people to information and access to official records, documents
and papers- a right guaranteed under Sec. 7 ART. III of the 19876 Constitution. Petitioner, a former solicitor
general, is a Filipino citizen. Because of the satisfaction of the two basic requisites laid down by decisional law to
sustain petitioners legal standing, i.e., (1) the enforcement of a public right (2) espoused by a Filipino citizen, we
rule that the petition at bar should be allowed.
d. Subject to inherent and constitutional limitations
2. Inherent Limitations
a. Purpose must be public in nature

This is one of the inherent limitations of the power to tax and is synonymous to governmental purpose. A tax must
always be imposed for a public purpose, otherwise, it will be declared as invalid.
The term public purpose has not fixed connotation. The essential point is that the purpose of the tax affects the
inhabitants as a community and not merely as inhabitants.
It has been said that the best test of rightful taxation is that the proceeds of the tax must be used:
for the support of the government; or
some of the recognized objects of government; or
to promote the welfare of the community
Pascual v. Sec. of Public Works, 110 SCRA 331 (1960)

o
It is a general rule that the legislature is without power to appropriate public revenue for anything but a public
purpose. . . . It is the essential character of the direct object of the expenditure which must determine its validity as
justifying a tax, and not the magnitude of the interest to be affected nor the degree to which the general
advantage of the community, and thus the public welfare, may be ultimately benefited by their promotion.
Incidental to the public or to the state, which results from the promotion of private interest and the prosperity of
17
private enterprises or business, does not justify their aid by the use public money. (25 R.L.C. pp. 398-400;
Emphasis supplied.)
o
The rule is set forth in Corpus Juris Secundum in the following language:
In accordance with the rule that the taxing power must be exercised for public purposes only, discussed supra
sec. 14, money raised by taxation can be expended only for public purposes and not for the advantage of private
individuals. (85 C.J.S. pp. 645-646; emphasis supplied.)
Explaining the reason underlying said rule, Corpus Juris Secundum states:
Generally, under the express or implied provisions of the constitution, public funds may be used only for public
purpose. The right of the legislature to appropriate funds is correlative with its right to tax, and, under
constitutional provisions against taxation except for public purposes and prohibiting the collection of a tax for one
purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other than
for a public purpose.
xxx
xxx
xxx
The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to
promote the public interest, as opposed to the furtherance of the advantage of individuals, although each
advantage to individuals might incidentally serve the public. (81 C.J.S. pp. 1147; emphasis supplied.)
Tio v. Videogram Regulatory Board, supra.
o
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating
the video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual
property rights, and the proliferation of pornographic video tapes.
Gaston v. RPB, 158 SCRA 626 (1988)

To rule in petitioners favor wou;d contravene the general principle that revenues derived from taxes
cannot be used for purely private purposes or for the exclusive benefit of the entire sugar industry,and all
its componenets, stabilization of the domestic market including the foreign market, the industry being of
vital importance to the countrys economy and to national interest.
b. Prohibition against delegation of taxing power
o
i. exceptions
delegation to LGUS municipal corporations are mere creatures of Congress which has the power to create
and abolish municipal corporations. Congress therefore has power of control over LGUs. If congress can grant to
a municipal corporation the power to tax certain matters, it can also provide for exemptions or even to take back
the power.
Sec 5 Art X, 1987 Constitution
Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees,
and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic
policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments.
Book II RA 716- -- local taxation
Basco v. PAGCOR, supra.
o
Municipal corporations have no inherent power to tax; their power to tax must ways yield to a legislative
act.

o
An administrative body can apply tax exemptions under existing law but it cannot itself create such
exemptions. This is a prerogative of the Congress that cannot be usurped by or even delegated to a mere
administrative body.
ii. DELEGATION TO THE PRESIDENT

Congress may authorize, by law, the President to fix, within specified limits and subject to such limitations and
restrictions as it may impose:
1.
2.
3.
4.
Tariff rates;
Import and export quotas;
Tonnage and wharfage dues; and
Other duties or imposts within the national development program of the government
18
This authorization is embodied in section 401 of the Tariff and Customs Code which is also called the flexible tariff
clause
Sec 28 (2) Art VI, 1987 Constitution
The Congress may, by law, authorize the President to fix within the 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 the national development program of the Government.
Sec 401, Tariff and Customs Code (or the flexible tariff clause)
In the interest of national economy, general welfare and/or national security, the President, upon recommendation
of the National Economic and Development Authority, is empowered:
to increase , reduce, or remove existing protective rates of import duty, provided that the increase should
not be higher than 100% ad valorem:
to establish import quota or to ban imports of any commodity; and
to impose additional duty on all imports not exceeding 10% ad valorem.
Garcia v. Executive Sec., supra.
iii.
The president may increase tariff rates when authorized by Congress. Section 28 (2) of Article VI of the
Constitution provides as follows: The Congress may, by law, authorize the President to fix within the
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 the
national development program of the Government. There is thus explicit constitutional permission to
Congress to authorize the President subject tosuch limitatios and restrictions as Congress may
imposeto fix within specific limits tariff rates xxx and oher duties or impostsxxx
President may increase tariff rates as authorized by law even for revenue purposes solely.
delegation to administrative agencies
Certain aspects of the taxing process that are not really legislative in nature are vested in administrative agencies.
In these cases there really is no delegation, to wit: (a) power to value property; (b) power to assess and collect taxes; (c)
power to perform details of computation, appraisement or adjustment; among others.
o
With regard to the alleged undue delegation of legislative power, the Court finds that the provision conferring the
authority upon the ERB to impose additional amounts on petroleum products provides a sufficient standard by
which the authority must be exercised. In addition to the general policy of the law to protect the local consumer by
stabilizing and subsidizing domestic pump rates Sec. 8 (c) of PD 1956 expressly authorizes the ERB to impose
additional amounts to augment the resources of the Fund.

o
An administrative body can apply tax exemptions under existing law but it cannot itself crate such exemptions.
This is a prerogative of the Congress that cannot be usurped by or even delegated to a mere administrative body.
In fact, the decrees clearly provided that it was the President and/or the Minister of Finance who could restore the
exemption, subject only to the recommendation of the FIRB. The FIRB was not empowered to directly restore
exemption.
The executive Secretary, by authority of the President, has the power to modify, alter or reverse the construction
of a staute given by a department secretary.
Maceda v. ERB, supra.

o
The board of course is not prevented from conducting a hearing on the grant of provisional authority
which is of course, the better procedure however, it can not be stigmatized later if it failed to conduct
one.
c. Exemption of government entities, agencies and instrumentalities

Sec 27 (c) Government-owned or controlled corporations, agencies or instrumentalities. The provisions of
existing special or general laws to the contrary notwithstanding, all corporations, agencies, or instrumentalities owned or
controlled by the Government, except the GSIS, the SSS, the PHIC, the PCSO, and the PAGCOR, shall pay such rate of
tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in a similar
business, industry or activity.
19
Mactan Cebu Airport v. Marcos, supra.

o
As an incident of sovereignty, the power to tax has been described as unlimited in its range, acknowledging in its
very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature
which imposes the tax on the constituency who are to pay it.
Maceda v. Macaraig, supra., supra.
The rule of strict construction of statutes granting tax exemptions does not apply in the case of
exemptions in favor of a governmental political subdivision or instrumentality.- Moreover, it is a a
recognized principle that the rule on strict interpretation does not apply in the case of exemptions in favor of a
government political subdivision or instrumentality. The basis for applying the rule of strict construction to
statutory provisions granting tax exemptions or deductions, even more obviopus than with reference to the
affirmative or levying provisions of trax statutes, is to minimize differential treatment and foster impartiality,
fairness, and equality of treatment among tax payers. The reason for the rule does not apply in the case of
exemptions running to the benefit of the government itself or its agencies. In such case the practical effect of an
exemption is merely to reduce the amount of money that has to be handled by government in the course of its
operations. For these reasons, provisions granting exemptions to government agencies may be construed
liberally, in favor of non-tax-liability of such agencies.
EO 93
Withdrawing all tax and duty incentives subject to certain exceptions, expanding the powers of the fiscal
incentives review board and for other purposes
PD 1931
Directing the rationalization of duty and tax exemption privileges granted to government-owned or controlled
corporations and all other units of government
d. International comity
Sec. 2, Art. II, 1987 Constitution
The Philippines renounces war as an instrument of national policy, adopts the generally accepted principles of
international law as part of the law of the land and adheres to the policy of peace, equality, justice, freedom, cooperation,
and amity with all nations.
Tanada v. Angara, supra.
o
By the doctrine of incorporation, the country is bound by generally accepted principles of international law, which
are considered to be automatically part of our own laws. One of the oldest and most fundamental rules in
international law is pacta sunt servanda international agreements must be performed in good faith.
e. Limitation of territorial jurisdiction

Tax laws cannot operate beyond a states territorial limits.
Property outside ones jurisdiction does not receive any protection from the state.
territorial v. personal jurisdiction
CIR v. British Overseas Airway Corp., 149 SCRA 395 (1987)
o
In order that a foreign corporation may be regarded as doing business within a State, there must be continuity of
conduct and intention to establish a continuous business, such as the appointment of a local agent, and not one
of a temporary character.
An international airline, like BOAC, which has appointed a ticket sales agent in the Philippines and which allocates
fares received to various airlines on the basis of their participation in the services reentered, although BOAC does
not operate any airplane in the Philippines, is a resident foreign corporation subject to tax on income received in
the Philippines.
CIR v. Japan Airlines, 202 SCRA 450 (1991)

o
For the source of income to be considered as coming from the Philippines, it is sufficient that the income is
derived from activities within this country regardless of the absence of flight operations within Philippine territory.
In order that a foreign corporation may be regarded as doing business within a State, there must be continuity of
conduct and intention to establish a continuous business.
20
Air Canada v. CIR, (CA) Case No. 6572, 22 December 2004

o
Section 22 of the NIRC of 1997, which states:

SEC. 22. Definitions. - When used in this Title:
(H) the term 'resident foreign corporation' applies to a foreign corporation engaged in trade or business within the
Philippines.
(I) the term 'nonresident foreign corporation' applies to a foreign corporation not engaged in trade or business
within the Philippines."
There are no specific criteria as to what constitutes "doing" or "engaging in" or transacting" business. Each case
must be judged in the light of the prevailing environmental circumstances.
The test of taxability is the source; and the source of an income is that activity which produced the income.
Unquestionably, the ticket sales were sold here in the Philippines. Thus, the revenue received there from were
also generated in the Philippines, as the business activities were regularly pursued in the Philippines.
an enterprise carrying on a business or enterprise in the Philippines through a permanent establishment is

subject to tax in the Philippines. Petitioner, by the appointment of the local General Sales Agent, in which
petitioner uses its premises a s an outlet where sales of tickets are made, petitioner is deemed to have had
established a permanent establishment covered under the RP-Canada Tax Treaty.
Iloilo Bottlers v. City of Iloilo, 164 SCRA 607 (1988)
Excise Tax can be levied by the taxing authority only when the acts, privileges or business are performed within
the jurisdiction of said authority. Specifically, the situs of the act of distributing, bottling or manufacturing soft
drinks must be within city limits, before an entity engaged in any of the activities may be taxed in Iloilo City.
3. Constitutional Limitations
Due Process of Law

Equal Protection of the Laws
Rule of Uniformity and Equity in Taxation
Prohibition against imprisonment for non-payment of poll tax
Prohibition against impairment of obligations of contracts
Prohibition against appropriation of proceeds
Prohibition against taxation of religious, charitable and educational entities
Prohibition against taxation of non-stock, non-profit educational institutions
Others
Grant of tax exemption
Veto of appropriation, revenue or tariff bills
Non-impairment of the jurisdiction of the Supreme Court
Revenue bills shall orginate from the House of Representative
Infringement of Press Freedom
Grant of Franchise
a. Due process of law
a) There must be a valid law

b) Tax measure should not be unconscionable and unjust as to amount to confiscation of property
c) Tax statute must not be arbitrary as to find no support in the Constitution
Sec. 1, Art. III, 1987 Constitution
No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied equal
protection of the laws.
REQUIREMENTS OF DUE PROCESS IN TAXATION
1) Tax must be for a Public purpose
2) Imposed within the Territorial jurisdiction
3) No arbitrariness or oppression in
A) assessment, and
B) collection
DUE PROCESS IN TAXATION DOES NOT REQUIRE
21
1)
Determination through judicial inquiry of

A)
property subject to tax
B)
amount of tax to be imposed
2)
Notice of hearing as to:

A)
amount of the tax
B)
manner of apportionment
Tan v. del Rosario, supra.

o
The due process clause may correctly be invoked only when there is a clear contravention of inherent or
constitutional limitations in the exercise of tax power.
Of corse, where a tax measure becomes so unconscionable and unjust as to amount to confiscation of
property, courts will not hesitate to strike it down, for, despite all its plenitude, the power to taxc cannot
override constitutional proscriptions.
Sison v. Ancheta, supra.

o
It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no
support in the Constitution. An obvious example is where it can be shown to amount to the confiscation of
property. That would be a clear abuse of power. It then becomes the duty of this Court that such an arbitrary act
amounted to the exercise of an authority not conferred. That property calls for the application of the Holmes
dictum The power to tax is not the power to destroy while this Court sits.
It has been held that where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public
purpose, or in case a retroactive statute is so harsh an unreasonable , it is subject to attack on due process
grounds.
b. Equal protection of the laws

No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied equal
protection of the laws. Sec. 1, Art. III, 1987 Constitution
Sison v. Ancheta, supra.
o
The taxing power has the authority to make reasonable and natural classification for purposes of taxation, but the
governments act must not be prompted by spirit of hostility, or at the very least discrimination that finds no
support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar
circumstances or that all persons must be treated in the same manner, the conditions not being different both in
privileges conferred and liabilities imposed
Villegas v. Hiu Chiong Tsai Pao, 86 SCRA 270 (1978)

o
The P50 fee is unreasonable not only because it is excessive but because it fails to consider valid substantial
differences in situation among individual aliens who are required to pay it. Although the equal protection clause of
the Constitution does not forbid classification, it is imperative that the classification should be based on real and
substantial differences having a reasonable relation to the subject of the particular legislation. The same amount
to P50 is being collected from every employed alien, whether he is casual or permanent, apart time or full time or
whether he is lowly employee or a highly paid executive.
Tan v. del Rosario, supra.

o
The court cannot freely delve into those matters which, by constitutional fiat, rightly rest on legislative judgment.
Of course, where a tax measure becomes so unconscionable and unjust as to amount to confiscation of property,
courts will not hesitate to strike it down, for, despite all its plenitude, the power to tax cannot override constitutional
proscriptions.
The legislative intent to increasingly shift the income tax system towards the schedular approach in the income
taxation of individual taxpayers and to maintain, by and large, the present global treatment on taxable
corporations, we certainly do not view this classification to be arbitrary and inappropriate.
CIR v. CA & Alhambra Ind., 267 SCRA 557 (1997)

o
However, well-entrenched is the rule that rulings and circulars, rules and regulations promulgated by the
Commissioner of Internal Revenue would have no retroactive application if to so apply them would be prejudicial
to the taxpayers
22
Admittedly the government is not estopped from collecting taxes legally due because of mistakes or errors of its
agents. But like other principles of law, this admits of exceptions in the interest of justice and fair play, as where
injustice will result to the taxpayer
Tiu v. CA, 301 SCRA 278 (1999)

o
The fundamental right of equal protection of the laws is not absolute, but is subject to a reasonable classification.
If the groupings are characterized by substantial distinctions that make real differences, one class may be treated
and regulated differently from another. The classification must also be germane to the purpose of the law and
must apply to all those belonging to the same class.
Requisites for Valid Classification.
a)
b)
c)
d)
Rest on substantial distinctions

Be germane to the purpose of the law
Not be kimited to existing conditions only
Apply equally to all members of the same class.
c. Uniformity and equity in taxation
Sec. 28 c, Art. VI of the Constitution provides that the rule of taxation shall be uniform and equitable.
Uniformity in Taxation
The concept of uniformity in taxation implies that all taxable articles or properties of the same class shall be taxed at the
same rate. It requires the uniform application and operation, without discrimination, of the tax in every place where the
subject of the tax is found. It does not, however, require absolute identity or equality under all circumstances, but subject
to reasonable classification.
Equity in Taxation
The concept of equity in taxation requires that the apportionment of the tax burden be, more or less, just in the light of the
taxpayers ability to shoulder the tax burden and, if warranted, on the basis of the benefits received from the government.
Its cornerstone is the taxpayers ability to pay.
Classification of taxpayers, subject or items to be taxed
REQUISITES OF A VALID CLASSIFICATION (S A G E )
1.
2.
3.
4.
It must be based on substantial distinction.

Germane/relevant to the purpose of the law/ordinance.
Applies not only to the present condition, but also to future substantially identical conditions.
Equally applicable to all members of the same class.
Tolentino v. Sec. of Finance, supra., supra.

o
Nor is impermissible motive shown by the fact that print media and broadcast media are treated differently. The
press is taxed on ots transactions involving printing and publication, which are different from the transactions of
broadcast media. There is thus a reasonable basis for the classification.
Mla. Race Horse v. dela Fuente, 88 Phil 60 (1951)

o
Ordinance No. 3065-tax on license stables, license fees for boarding stable for race horses. Tax assessed on the
owners of the boarding stables for race horses is valid because there is equity and no arbitrary classification even
no such tax imposed on boarding stables for other types of horses.
The owners of the stables are class by themselves, and are appropriately taxed when other kinds are taxed less
or not at all, considering that equity in taxation is generally conceived in terms of liability In relation to the benefits
received by the tax payer. Race horses as devoted to gambling, their owners derive fat income, and such
demands heavy burden of resource from the government such as police supervision. Hence, taking into
everything into account, the differentiation against which the plaintiffs complain conform to the practical dictates of
justice and equity, and is not discriminatory within the meaning of the constitution.
Not valid or discriminatory when other boarding stables for race horses with the same number of horses were
made to pay less or not at all.
Eastern Theatrical v. Alfonso, 83 Phil 852 (1949)

o
An ordinance which imposes a fee on the price of every admission ticket sold by the cinema, theaters, and boxing
exhibitions is valid because same class, same rate.
23
Equality and uniformity in taxation means that all taxable articles or kinds or property of the same class shall be
taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for
purposes of taxation, and the appellant cant point out what places of amusement taxed by the ordinance do not
constitute a class by themselves and which can be confused with those not included in the ordinance.
Pepsi Cola v. City of Butuan, supra.
o
Valid classification of taxes are not full met by the city ordinance which imposes a tax upon the sale of
merchandise payable only by agent/consignee of any outside dealer of such merchandise while the sales of the
local dealers regardless of the amount would be exempt.
Shell v. Vano, Mun. Treas. of Cordova, Cebu, 94 Phil 389 (1954)

o
A municipal ordinance imposing an occupation tax on the profession or occupation of installation manager is
valid even there is only one person with such occupation in the municipality. A person cant challenge the validity
of an ordinance as being discriminatory since he is only one adversely effected because all other installation
managers who may come within the jurisdiction of the municipality would be subject to tax under the ordinance.
What the ordinance tax is the occupation itself regardless who or how many exercise it. It will be applicable to any
person/firm who may come to exercise such calling.
City of Baguio v. de Leon, 25 SCRA 938 (1968)

o
Equality and uniformity in taxation means that all taxable articles or kind or property of the same class shall be
taxed athe same rate. A tax is considered uniform when it operates with the same force and effect in every place
where the subject may be found. Where the statute or ordinance in question applies equally to all persons, firms
and corporations placed in similar situation there is no infringement of the rule on equality. Inequalities which
result from singling out of one particular class for taxation or exemption infringr no constitutional limitation.
Kapatiran v. Tan, supra.

o
VAT law does not discriminate unduly against custom brokers who are subject to said tax.
Villanueva v. City of Iloilo, supra.

o
An ordinance exacting tax on apartment owners/operators are violative of rule of uniformity of taxation because
(a) R.A. 2264 does not empower cities to impose apartment taxes, (b) it is oppressive and unreasonable for it
penalizes owners of tenement houses who fail to the pay tax, (c) it constitutes not only double taxation, but treble
at that, and (d) that it violates the rule of uniformity of taxation.
Taxes are uniform and equal when imposed upon all property of the same class or character within the taxing
authority. The fact that the owners of other classes of buildings in the City do not pay the taxes imposed by the
ordinance in question is no argument at all against uniformity and equality of the tax imposition.
Asso. of Customs Brokers v. Mun. Board, supra.

o
An ordinance which imposes tax upon owners of vehicles operating inside Manila is an infringement of rule of
uniformity of taxation as ordained by the constitution because it does not distinguish the vehicle for hire or for
private use, neither does it distinguish vehicle registered in the City of Manila or outside.
The owners of vehicles residing outside Manila who also use the streets are not made to share the corresponding
burden. In this case, those owners of the vehicles which use the streets of Manila, regardless whether they are
citizen or not fall within the same class.
4. Prohibition against imprisonment for non-payment of poll tax

No person shall be imposed for debt or non-payment of poll tax. [Sec. 20, Art. III, Constitution]
The non-imprisonment rule applies to non-payment of poll tax which is punishable only by a surcharge, but not to other
violations like falsification of community tax certificate and non-payment of other taxes.
Poll tax
Poll tax is a tax of fixed amount imposed on residents within a specific territory regardless of citizenship, business or
profession. e.g. community tax
community tax v. poll tax
Sec. 156-164, R. A. 7160
24
SECTION 156. Community Tax. - Cities or municipalities may levy a community tax in accordance with the provisions of
this Article.
SECTION 157. Individuals Liable to Community Tax. - Every inhabitant of the Philippines eighteen (18) years of age or
over who has been regularly employed on a wage or salary basis for at least thirty (30) consecutive working days during
any calendar year, or who is engaged in business or occupation, or who owns real property with an aggregate assessed
value of One thousand pesos (P1,000.00) or more, or who is required by law to file an income tax return shall pay an
annual community tax of Five pesos (P5.00) and an annual additional tax of One peso (P1.00_ for every One thousand
pesos (P1,000.00) of income regardless of whether from business, exercise of profession or from property which in no
case shall exceed Five thousand pesos (P5,000.00).
In the case of husband and wife, the additional tax herein imposed shall be based upon the total property owned by them
and the total gross receipts or earnings derived by them.
SECTION 158. Juridical Persons Liable to Community Tax. - Every corporation no matter how created or organized,
whether domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual community tax
of Five hundred pesos (P500.00) and an annual additional tax, which, on no case, shall exceed Ten thousand pesos
(P10,000.00) in accordance with the following schedule:
(1) For every Five thousand pesos (P5,000.00) worth of real property in the Philippines owned by it during the preceding
year based on the valuation used for the payment of the real property tax under existing laws, found in the assessment
rolls of the city or municipality where the real property is situated - Two pesos (P2.00); and
(2) For every Five thousand pesos (P5,000.00) of gross receipts or earnings derived by it from its business in the
Philippines during the preceding year - Two pesos (P2.00).
The dividends received by a corporation from another corporation however shall, for the purpose of the additional tax, be
considered as part of the gross receipts or earnings of said corporation.
SECTION 159. Exemption. - The following are exempt from the community tax:
(1) Diplomatic and consular representatives; and (2) Transient visitors when their stay in the Philippines does not exceed
three (3) months.
SECTION 160. Place of Payment. - The community tax shall be paid in the place of residence of the individual, or in the
place where the principal office of the juridical entity is located.
SECTION 161. Time for Payment; Penalties for Delinquency. - (a) The community tax shall accrue on the first (1st) day
of January of each year which shall be paid not later than the last day of February of each year. If a person reaches the
age of eighteen (18) years or otherwise loses the benefit of exemption on or before the last day of June, he shall be liable
for the community tax on the day he reaches such age or upon the day the exemption ends. However, if a person reaches
the age of eighteen (18) years or loses the benefit of exemption on or before the last day of June, he shall be liable for the
community tax on the day he reaches such age or upon the day the exemption ends. However, if a person reaches the
age of eighteen (18) years or loses the benefit of exemption on or before the last day of March, he shall have twenty (20)
days to pay the community tax without becoming delinquent.
Persons who come to reside in the Philippine or reach the age of eighteen (18) years on or after the first (1st) day of July
of any year, or who cease to belong to an exempt class on or after the same date, shall not be subject to the community
tax for that year.
(b) Corporation established and organized on or before the last day of June shall be liable for the community tax for that
year. But corporations established and organized on or before the last day of March shall have twenty (20) days within
which to pay the community tax without becoming delinquent. Corporations established and organized on or after the first
day of July shall not be subject to the community tax for that year.
If the tax is not paid within the time prescribed above, there shall be added to the unpaid amount an interest of twenty-four
percent (24%) per annum from the due date until it is paid.
SECTION 162. Community Tax Certificate. - A community tax certificate shall be issued to every person or corporation
upon payment of the community tax. A community tax certificate may also be issued to any person or corporation not
subject to the community tax upon payment of One peso (P1.00).
SECTION 163. Presentation of Community Tax Certificate On Certain Occasions. - (a) When an individual subject to
the community tax acknowledges any document before a notary public, takes the oath of office upon election or
appointment to any position in the government service; receives any license, certificate, or permit from any public
authority; pays any tax or fee; receives any money from any public fund; transacts other official business; or receives any
salary or wage from any person or corporation, it shall be the duty of any person, officer, or corporation with whom such
transaction is made or business done or from whom any salary or wage is received to require such individual to exhibit the
community tax certificate.
The presentation of community tax certificate shall not be required in connection with the registration of a voter.
(b) When, through its authorized officers, any corporation subject to the community tax receives any license, certificate, or
permit from any public authority, pays and tax or fee, receives money from public funds, or transacts other official
business, it shall be the duty of the public official with whom such transaction is made or business done, to require such
corporation to exhibit the community tax certificate.
(c) The community tax certificate required in the two preceding paragraphs shall be the one issued for the current year,
except for the period from January until the fifteenth (15th) of April each year, in which case, the certificate issued for the
preceding year shall suffice.
25
SECTION 164. Printing of Community Tax Certificates and Distribution of Proceeds. - (a) The Bureau of Internal
Revenue shall cause the printing of community tax certificates and distribute the same to the cities and municipalities
through the city and municipal treasurers in accordance with prescribed regulations.
The proceeds of the tax shall accrue to the general funds of the cities, municipalities and Barangays except a portion
thereof which shall accrue to the general fund of the national government to cover the actual cost of printing and
distribution of the forms and other related expenses. The city or municipal treasurer concerned shall remit to the national
treasurer the said share of the national government in the proceeds of the tax within ten (10) days after the end o each
quarter.
(b) The city or municipal treasurer shall deputize the Barangay treasurer to collect the community tax in their respective
jurisdictions: Provided, however, That said Barangay treasurer shall be bonded in accordance with existing laws.
(c) The proceeds of the community tax actually and directly collected by the city or municipal treasurer shall accrue
entirely to the general fund of the city or municipality concerned. However, proceeds of the community tax collected
through the Barangay treasurers shall be apportioned as follows:
(1) Fifty percent (50%) shall accrue to the general fund of the city or municipality concerned; and
(2) Fifty percent (50%) shall accrue to the Barangay where the tax is collected.
5. Prohibition against impairment of obligation of contracts
Sec. 10, Art. III
No law impairing the obligation of contracts shall be passed.
The obligation of a contract is impaired when its terms or conditions are changed by law or by party without the consent of
the other, thereby weakening the position or rights of the latter.
An example of impairment by law is when a later taxing statute revokes a tax exemption based on a contract. But this only
applies when the tax exemption has been granted for a valid consideration.
A later statute may revoke exemption from taxation provided for in a franchise because the Constitution provides that a
franchise is subject to amendment, alteration or repeal.
Sec. 11, Art. XII, 1987 Constitution
No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to
citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per
centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. Neither shall any such franchise or right be GRANTED except under the
condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires.
The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors
in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the
executive and managing officers of such corporation or association must be citizens of the Philippines.
o
Not only are existing laws read into contracts in order to fix obligations as between parties, but the reservation of
essential attributes of sovereign power is also read into contracts as a basic postulate of the legal oreder.
Contract Clause is not a limitation on the power of taxation save inly where a tax exemption was granted for a
valid consideration.
Oposa Vs. Factoran

o
Police power prevails over the non-impairment clause
La Insular Vs. Manchuca

o
A lawful tax on a new subject or an increased tax on an old one, does not interfere with a contract or impairs its
obligation.
The non-impairment clause applies only to contracts and not to a franchise.

The non-impairment clause applies to taxation but not to police power and eminent domain. Furthermore, it
applies only where one party is the government and the other, a private individual.
As a rule, the obligation to pay tax is based on law. But when, for instance, a taxpayer enters into a compromise with the
BIR, the obligation of the taxpayer becomes one based on contract
The rule does not apply to public utility franchises. According to Sec 11, Art XI of the constitution, no public utility franchise
or right shall be granted except under the condition that it shall be granted that it is subject to amendment, alteration or
repeal by the Congress when the common good so requires.
26
Congress could impair the companys legislative franchise by making it liable for income tax. The Constitution provides
that a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires.
When can a grant of tax-incentive be taken away by the government without violating the rule on non-impairment
of contracts?
It depends on whether the grant is unilaterally or bilaterally given by the government. If unilaterally given, there is no
impairment. It constitutes a mere revocation of a grant of privilege. If bilaterally given, there is impairment (Art. III, Sec.
10, Constitution). Exception: In case of grant of franchise to public utilities when common good so requires (Art. XII, Sec.
11, Constitution)
6. Prohibition against infringement of religious freedom
The free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever
be allowed. No religious test shall be required for the exercise of civil or political rights.
Am. Bible Society v. City of Manila, 101 Phil 386 (1957)
o
The payment of license fees for the distribution and sale of bibles by a non-stock, non-profit, missionary
organization at minimal profit suppresses the constitutional right of free exercise of religion which is guaranteed by
the Constitution.
But a tax on the sale of religious materials is not unconstitutional because it is imposed after the activity (sale)
taxed is done.

o
We have held that, as a general proposition, the press is not exempt from the taxing power of the State and that
what the constitutional guarantee of free press prohibits are laws which single out the press or target a group
belonging to the press for special treatment or which in any way discriminate against the press on the basis of the
content of the publication, and RA 7716 is none of these.
7. Prohibition against appropriation of proceeds of taxation
Sec. 29, Art. VI, 1987 Constitution

No public money or property shall be appropriated, applied, paid, or employed directly or indirectly, for the use, benefit, or
support of any church, denomination, sectarian institution or system of religion, or of any priest, preacher, minister or other
religious teacher, or dignitary as such except when such priest, preacher, minister or dignitary is assigned to the armed
forces, or to any penal institution, or government orphanage or leprosarium.
Use of tax levied for a special purpose
All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such
purpose only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any,
shall be transferred to the general funds of the government.
-Separation of the Church and State
If a President of the Philippines spent a special fund for a general purpose, he can be charged with culpable violation of
the Constitution.
o
OPSF as a special fund may be placed in a special trust.

8. Prohibition against taxation of religious, charitable and educational entities
Sec. 28 (3), Art. VI, 1987 Constitution

Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and
all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational
purposes shall be exempt from taxation.
This is an exemption from real property tax only.

Public Cemeteries are exempt from the payment of taxes.
Abra Valley College v. Aquino, 162 SCRA 106 (1988)
27
Exclusively used for educational purpose- Moreover, the exemption in favor of property used exclusively for
charitable or educational purposes is not limited to property actually indespensable therefor, but extends to
facilities which are incidental to and reasonably necessary for the accomplishment of said purposes.
The exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of
the main purpose the lease of the first floor to the Northern Marketing Corp. cannot be considered incidental to the
purposes of education.
Province of Abra v. Hernando 107 SCRA 104

o
To be exempt from realty taxation, there must be proof of actual, direct and exclusive use of lands, buildings and
improvements for religious or charitable purposes.
Lung Center of the Philippines v. Quezon City G.R. 144104, June 29, 2004
o
Petitioner failed to discharge its burden to prove that the entirety of its real property is actually, directly, and
exclusively used for charitable purposes. Thus the court ruled that portions of the land leased to private interties
as well as those parts of the hospital leased to private individuals are not exempt from taxes.
To determine whether an enterprise is a charitable institution/entity or not, the elements which should be
considered include the statute creating the enterprise, its corporate purposes, its constitution and by-laws, the
methods of administration, the nature of the actual work performed, the character of the services rendered, the
indefiniteness of the beneficiaries, and the use and occupation of the properties. a charitable institution does not
lose its character as such and its exemption from taxes simply because it derives income from paying patients,
whether out-patient, or confined in the hospital, or receives subsidies from the government, so long as the money
received is devoted or used altogether to the charitable object which it is intended to achieve; and no money
inures to the private benefit of the persons managing or operating the institution. (Lung Center of the Philippines v.
QC, GR 144104, 29 June 2004)
9. Prohibition against taxation of non-stock, non-profit educational institutions
Sec. 4 (3, 4), Art. XIV, 1987 Constitution

All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for
educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence
of such institutions, their assets shall be disposed of in the manner provided by law.
Requisites For Exemption:
1) It must be a private educational institution
2) It must be non-stock and non-profit
3) Its assets (property) and revenues (income) must be used actually, directly and exclusively for educational purposes
RULES:
1) If the first requisite is absent (meaning, its a government educational institution), it is nonetheless exempt from
income tax
2) If the second requirement is absent (meaning, it is stock and profit) as long as the third requirement is present, it
is nonetheless exempt from real estate tax
3) If the third requirement is absent, as long as it is non-stock and non-profit, it is nonetheless exempt from income
tax
4) If the third requirement is absent, but it is private and non-profit, it is subject to income tax, but at the preferential
rate of ten percent (10%)
> Under the present tax code, for a private educational institution to be exempt from the payment of income tax, all it has
to be is non-stock and non-profit. However, a governmental educational institution is exempt from income tax without any
condition
EXEMPTION DOES NOT EXTEND TO:
1) Income derived by these educational institutions from their property, real or personal, and
2) From activities conducted by them for profit regardless of the disposition made on such income
Sec. 28 (3), Art. VI, Constitution
Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and
all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational
purposes shall be exempt from taxation. (Property Tax Exemption)
28
The term exclusively used for religious purposes does not necessarily mean total or absolute use for religious, charitable
and educational purposes. Even is the property is incidentally used for said purposes, the tax exemption will apply.
Sec. 27 (B) and 30 (H)
(B) Proprietary Educational Institutions and Hospitals. - Proprietary educational institutions and hospitals which are
nonprofit shall pay a tax of ten percent (10%) on their taxable income except those covered by Subsection (D) hereof:
Provided, that if the gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of the total
gross income derived by such educational institutions or hospitals from all sources, the tax prescribed in Subsection (A)
hereof shall be imposed on the entire taxable income. For purposes of this Subsection, the term 'unrelated trade, business
or other activity' means any trade, business or other activity, the conduct of which is not substantially related to the
exercise or performance by such educational institution or hospital of its primary purpose or function. A 'Proprietary
educational institution' is any private school maintained and administered by private individuals or groups with an issued
permit to operate from the Department of Education, Culture and Sports (DECS), or the Commission on Higher Education
(CHED), or the Technical Education and Skills Development Authority (TESDA), as the case may be, in accordance with
existing laws and regulations.
SEC. 30. Exemptions from Tax on Corporations. - The following organizations shall not be taxed under this Title in respect
to income received by them as such:.
(H) A nonstock and nonprofit educational institution;
Note however the last paragraph of Sec. 30, which states: Notwithstanding the provisions in the preceding
paragraphs, the income of whatever kind and character of the foregoing organizations form any of their property, real or
personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, shall be
subject to tax imposed under this Code.
DOF Order No. 137-87 and 149-95

Department of Finance Order 145-85
Non-stock, non-profit educational institutions are exempt from taxes on all their revenues and assets used actually,
directly and exclusively for educational purposes.
However, they shall be subject to internal revenue tax on income from trade, business or other activity, the conduct of
which is not related to the exercise or performance by such educational institutions of its educational purposes or
functions.
Interest income shall be exempt only when used directly and exclusively for educational purposes. To substantiate this
claim, the institution must submit annual information return and duly audited financial statement. A certification of actual
utilization and the Board resolution or the proposed project to be funded out of the money deposited in banks shall also be
submitted.
Department of Finance Order 137-87
An educational institution means a non-stock, non-profit corporation or association duly registered under Philippine law,
and operated exclusively for educational purposes, maintained and administered by a private individual or group offering
formal education, and with an issued permit to operate by the DECS.
Revenues derived from and assets used in the operation of cafeteria/canteens, dormitories, and bookstores are exempt
from taxation provided they are owned and operated by the educational institution as ancillary activities and the same are
located within the school premises.
CIR v. CA, CTA and YMCA, 298 SCRA 83 (1998)
o
In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording of the last
paragraph of then Sec. 27 of the NIRC which mandates that the income of exempt organizations (such as YMCA)
from any of their properties, real or personal, be subject to the tax imposed by the same code. Because the last
paragraph of said section unequivocally subjects to tax the rent income of the YMCA from its real property, the
Court is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted attempt
at construction.
YMCA is exempt from the payment of property tax, but not income tax on the rentals from its property.
CIR v. CA, CTA and Ateneo, 271 SCRA 605 (1997)
29
Petitioner asserted that Ateneo de Manila University in conducting researches and studies of social organizations
and cultural values thru one of its unit, the Institute for Philippines Culture thus subject to 3% independent
contractors tax under Sec. 205 of NIRC to wit:
Sec. 25: Contractors, proprietors or operators of dockyards and othersA contractors tax of 3% of the gross
receipts is hereby imposed on the following.
(16) Business agents and other independent contractors, except persons, associations and corporations under
contract for embroidery and apparel for export, as well as their agents and contractors, and except gross receipts
of or from a pioneer industry registered with the Board of Investments under provision of R.A. 5168.
According to the CIR the contractor the term independent contractor is not specifically defined so as to de limit its
scope, so much that any person who renders physical and mental service for a fee, is now indubitably considered
as an independent contractor liable to 3% contractors tax. According to petitioner, Ateneo has the burden of proof
to show its exemption from the coverage of the law.
The court held that Ateneo is mandated by law to undertake research activities to maintain its university status. In
fact, the researches carried out by IPC is not on business or profit but on social sciences studies of Philippine
Society. Since the university can only finance limited number of IPC research projects, private respondents
occasionally accept sponsorships from international organizations, private foundations and governmental
agencies. These sponsorships are subject to the terms and conditions set by Ateneo such as no proprietary or
commercial purpose research is done, topic confined to university academic agenda, and the absolute right to
publish and ownership of the results conducted by IPC.
ARTICLE XIV AND ARTICLE VI COMPARED
Art. XIV, Sec. 4 (3)
Art. VI Sec. 28(3)
Non-stock, non-profit, educational

institution
Income tax
Custom Duties
Property Tax
Religious, educational, charitable,

institutions
TAX
Exempted Institution
Bases
Donors Tax
Non-stock,
Institution
Grantee
Taxes Covered
Property Tax
OTHER TAXES
non-profit
educational
Only transfers to social welfare,

cultural and charitable institution are
exempt from estate tax.
Estate Tax
All grants, endowments, donations,

contributions
used,
actually,
exclusively,
for
educational
purposes shall be exempt from tax.
Art. XIV, Sec. 4 (4)
Sec. 87 R.A. 8424
10. Others
i.
Grant of tax exemption (more on this under D4)

No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the
Congress.
RULES ON VOTE REQUIREMENT
1) Law granting any tax exemption = (absolute majority)
2) Law withdrawing any tax exemption= (Relative majority)
* Tax exemption, amnesties, refunds are considered in the nature of tax exemptions.
* A law granting such needs approval of the absolute majority of the Congress
Chavez v. PCGG, supra.
o
ii.
PCGG a body created by the executive department cannot enter into agreement with the Marcos to exempt the
properties of the latter considered as ill-gotten wealth because it is only congress which can do such.
Veto of appropriation, revenue or tariff bills
30
The President shall have the power to veto any particular 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, [Sec. 27(2), Art. VI, Constitution].
Gonzales v. Macaraig, 191 SCRA 452 (1990)
o
iii.
As specified, the President may not veto less than all of an item of an Appropriations Bill. In other words,
the power given the executive to disapprove any item or items in an Appropriations Bill does not grant the
authority to veto a part of an item and to approve the remaining portion of the same item.
Non-impairment of the jurisdiction of the Supreme Court
Sec. 2, 5 (b), Art. VIII, 1987 Constitution
Section 2. The Congress shall have the power to define, prescribe, and apportion the jurisdiction of the various
courts but may not deprive the SC of its jurisdiction over cases enumeratyed in Sec. 5 thereof.
Section 5 (b)
The Supreme Court shall have the power to review, revise, reverse, modify or affirm on appeal or certiorari, all
cases involving the legality of any tax imposed, assessment, or toll, or any penalty imposed in relation thereto.
Congress cannot take away from the Supreme Court the power given to it by the Constitution as the final arbiter
of the tax cases.
The decisions of BIR are appealable to CTA. Court of Tax Appeals may be appealed to the Court of Appeals.
Decision rendered by the CA may be elevated to the Supreme Court.
CIR v. Santos, 277 SCRA 617 (1997)

o
The authority of lower courts to decide questions of constitutionality of any treaty or law does not extend to
deciding questions which pertain to legislative policy.
RTC can only look into the validity of a provision, that is, whether or not it has been passed according to the
procedures laid down bylaw, and cannot inquire as to the reasons for its existence.
San Miguel Corp. v. Avelino, 89 SCRA 69 (1979)

o
A CFI judge has authority to pass upon the validity of a tax ordinance even afterits validity has been contested
before the Secretary of Justice and a decision rendered thereon by said officials.
The validity of a statute, an executive order or ordinance is a matter for the judiciary to decide and that whenever
in the disposition of a pending case such a question becomes unavoidable, then it is not only the power but the
duty of the Court to resolve such question.
iv.
Revenue bills shall originate from the House of Representatives

Sec. 24, Art. VI, 1987 Constitution
All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private
bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with
amendments.
It is not the revenue law but the revenue bill which is required by the constitution to originate exclusively in the House of
Representative.
Tolentino v. Sec. of Finance, supra., supra.
v.
The Constitution simply requires that there must be that initiative coming from the House of Representatives
relative to appropriation, revenue and tariff bills on the theory that, elected as they were from the districts, the
members of the House can be expected to be more sensitive to the local needs and problems.
It is not the law, but the revenue bill, which is required by the Constitution to originate exclusively in the HR,
because a bill originating in the House may undergo such extensive change in the Senate that result may be
rewriting of the whole, and a distinct bill may be produced. (amendment by substitution).
The Constitution does not also prohibit the filing in the Senate of a substitute bill in anticipation of its receipt of the
bill from the House, as long as action by the Senate is withheld until receipt of said bill.
Infringement of press freedom
31
No law shall be passed abridging the freedom of speech, of expression, or of the press, or the right of the people
peaceably to assemble and petition the government for redress of grievances.
The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of
services and the lease of properties purely for revenue purposes. To subject the press to its payment is not to burden the
exercise of its right any more than to make the press pay income tax or subject it to general regulation is not to violate its
freedom under the Constitution. (PPI v. de Ocampo GR 115931, 30 October 1995)
vi.
Grant of Franchise
Tax exemptions included in the grant of a franchise may be revoked by another law as it is specifically provided in the
Constitution that the grant of any franchise is always subject to amendment, alteration, or repeal by the Congress when
the common good so requires.
Sec. 11, Art. XII, 1987 Constitution
No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to
citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per
centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the
condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires.
The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors
in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the
executive and managing officers of such corporation or association must be citizens of the Philippines.
Congress may withdraw tax exemption granted to any corporations or GOCCs such as PAL. The law could take
back the privilege anytime without offense to the constitution. By granting exemptions, the State does not forever
waive the exercise of its sovereign prerogative.
32

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UNIVERSITY OF NEGROS OCCIDENTAL RECOLETOS - SCHOOL OF LAW

a. Taxation as an inherent power of the state

Inherent limitations on the power of taxation

The tax must be for public purpose

c. Tax v. license and regulatory Fee

PAL v. Edu, 164 SCRA 320 (1988)

Progressive Development v. QC, 172 SCRA 629 (1989)

Tolentino v. Sec. of Finance, 249 SCRA 628 (1995)

Gerochi v. DOE, G.R. 159796, 17 July 2007

d. Tax v. special assessment

Sec. 240, R.A. 7160

See Secs. 247-281, NIRC

The duties payable on goods imported or exported; or

The system or principle of imposing duties on the importation or exportation of goods.

Garcia v. Executive Secretary, 211 SCRA 219 (1992)

Section 28(2) of Article VI of the Constitution provides as follows:

h. Obligation to pay tax v. obligation to pay debt

Obligation to Pay Debt vs. Obligation to Pay Tax

Tax v. government revenue

Caltex v. COA, id.

Benefits-Protection Theory (Symbiotic)

CIR v. Algue, supra.

Osmena v. Orbos, supra.

PAL v. Edu, supra.

Osmena v. Orbos, supra.

Republic v. Bacolod-Murcia Milling Co., supra.

Tio v. Videogram Regulatory Board, 151 SCRA 208 (1987)

Lutz v. Araneta, 98 Phil 150 (1955)

Caltex v. COA, supra.

Benguet v. CBAA, 210 SCRA 579 (1992)

b. As to who shoulders the burden of the tax

Maceda v. Macaraig, 223 SCRA 217 (1993)

CIR v. John Gotamco, 148 SCRA 36 (1987)

c. As to the object or subject matter of the tax

Villanueva v. City of Iloilo, 26 SCRA 578 (1968)

CIR v. CA, 242 SCRA 289 (1995)

Assoc. of Customs Brokers v. Municipal Board, 93 Phil 107 (1953)

d. As to the manner of computing the tax

progressive, digressive rate

Tanada v. Angara, 272 SCRA 18 (1997)

b. Exclusively legislative in nature

CIR v. Santos, 277 SCRA 617 (1997)

Sison v. Ancheta, 130 SCRA 654 (1984)

Kapatiran v. Tan, 163 SCRA 371 (1988)

Reyes v. Almanzor, 196 SCRA 322 (1991)

Non-delegability of power to tax

Maceda v. ERB, 192 SCRA 363 (1990)

Maceda v. Macaraig, (1991) supra.

Basco v. PAGCOR, 197 SCRA 52 (1991)

Pepsi-Cola v. City of Butuan, 24 SCRA 789 (1968)

PAL v. Edu, supra.

Who may question the validity of a tax measure or expenditure of taxes

Lozada v. Comelec, 120 SCRA 337 (1983)

Maceda v. Macaraig, (1991) supra.

Gonzales v. Marcos, 65 SCRA 624 (1975)

Chavez v. PCGG, 299 SCRA 744 (1998)

a. Purpose must be public in nature

Pascual v. Sec. of Public Works, 110 SCRA 331 (1960)

Gaston v. RPB, 158 SCRA 626 (1988)

Maceda v. Macaraig, (1991) supra.

ii. DELEGATION TO THE PRESIDENT

Garcia v. Executive Sec., supra.

Maceda v. Macaraig, (1991) supra.