TAX REVIEWER

BOOK ONE
GENERAL PRINCIPLES
OF TAXATION
CHAPTER 1
BASIC CONCEPTS OF TAXATION AND TAXES

I. Definition and Concept of Taxation

1. What is the meaning of "taxation"?

"Taxation" is the exercise of the States inherent power to impose

a charge or burden upon persons, properties, rights, privileges, income
and receipts from employment or business transactions within its
jurisdiction for the purpose of raising revenue to defray the legitimate
expenses of the government.

It is the act of laying a tax for public purpose, i.e., the process or
means by which the taxing power of the State is exercised.

II. Nature and Characteristics of Taxation

2. Describe the nature and characteristics of the power of taxation. BQ

(1) The power to tax is an essential and inherent attribute of

sovereignty.1 - The power to tax proceeds upon the theory that the
existence of a government is a necessity and this power is an essential and
inherent attribute of sovereignty, belonging as a matter of right to every
independent state or government without being expressly conferred by
the people.2 No sovereign state can continue to exist without the means
to pay its expenses; and that for those means, it has the right to compel all
citizens and property within its limits to contribute; hence, the emergence
of the power to tax.
1
Chamber of Real Estate and Builders Assn., Inc. v. Romulo, 614 SCRA 605 (2010)
2
Phil. Guarantee Co. v. CIR, GR L-22074, April 30, 1965; MCIAA v. Marcos, 261 SCRA 667
(1996)
1
 Being an inherent power, the legislative body can enact laws to
raise revenues even without the grant of said power in the Constitution.
It must be noted that Constitutional provisions relating to the power of
taxation do not operate as grants of the power of taxation to the
Government, but instead merely constitute as limitations upon a power
which would otherwise be practically without limits.

(2) Taxation is the States strongest power; hence it is sometimes

called the power to destroy.- Taxation is described as a destructive
power which interferes with the personal and property rights of the
people and takes from them a portion of their property for the support of
the government.3 In the absence of constitutional restrictions and subject
to the will of the legislative bodies with whom it is entrusted and the
discretion of the authorities which exercise it, the power of taxation is
regarded as comprehensive, unlimited, plenary, and supreme, the
principal check upon its abuse resting in the responsibility of the
members of the legislature to their constituents.4 So potent indeed is the
power that it was once opined that the power to tax involves the power to
destroy.5 However, it should be exercised with caution to minimize
injury to the proprietary rights of a taxpayer. It must be exercised fairly,
equally and uniformly, lest the tax collectors kill the hen that lays the
golden egg.

Legitimate enterprises enjoy the constitutional protection not to

be taxed out of existence. Incurring losses because of a tax imposition
may be an acceptable consequence but killing the business of an entity
is another matter and should not be allowed. It is counter-productive
and ultimately subversive of the nation's thrust towards a better
economy which will ultimately benefit the majority of our people.6

(3) Taxation is subject to both inherent and constitutional

limitations. - The two limitations upon the power of taxation are the (1)
inherent, and (2) constitutional limitations, which are intended to prevent
abuse on the exercise of the otherwise plenary and unlimited power. It is
the courts role to see to it that the exercise of the power does not

3
Paseo Realty & Devt. Corp. v. CA, GR 119286, Oct. 13, 2004
4
MCIAA v. Marcos, 261 SCRA 667 (1996)
5
(Marshall Dictum) U.S. Chief Justice Marshall in McCulloch v. Maryland, 17 U.S. 316, 4
Wheat, 316, 4 L Ed. 579 (1819)
6
Roxas v. CTA, 23 SCRA 276 cited in CIR v. SM Prime Holdings, Inc., G.R. 183505, Feb. 26,
2010 (613 SCRA 774) and Tridharma Marketing Corp. v. CTA, G.R. 215950. June 20, 2016
2
transgress these limitations. The inherent limitations are those limitations
which spring from the nature of the taxing power despite the absence of
an express constitutional provision thereon; while the Constitutional
limitations are those provisions found in the fundamental law.

(4) The power to tax is essentially legislative in character. The

power to tax is inherently legislative based on the principle that taxes are
a grant of the people who are taxed, and the grant must be made by the
immediate representatives of the people; and where the people have laid
the power, there it must remain and be exercised.7 The power of taxation
can only be performed by the Legislature upon consideration of policy,
necessity and public welfare. It belongs to that department to determine
what measures shall be taken for the public welfare, and to provide the
revenues for the support and due administration of the government. The
legislature wields the power to define what tax shall be imposed, why it
should be imposed, how much tax shall be imposed, against whom (or
what) it shall be imposed and where it shall be imposed.8

III. Power of Taxation Compared with

Other Powers of the State

3. Compare the power of taxation with the other inherent powers of the
State.

Power of Taxation Police Power Power of Eminent

This is the inherent power
of the sovereign state to
levy taxes to be used as a
means of raising revenue
in order to defray the
necessary expenses of the
government for public
purpose.9
This is the inherent
power of the
sovereign state to
make, ordain, and
establish wholesome
and reasonable laws,
not repugnant to the
Constitution, to
promote public
health, public morals,
public safety and the
general welfare of the
people by restraining
and regulating the use
Domain
This is the inherent
power of the sovereign
state to appropriate
private property to
particular uses to
promote for public use
upon observance of due
process of law and
payment of just
compensation. It is
essentially legislative in
nature, but it may be
validly delegated to
LGUs.11

7
CIR v. Fortune Tobacco Corp., 559 SCRA 160 (2008)
8
Chamber of Real Estate and Builders Assn., Inc. v. Romulo, 614 SCRA 605 (2010)
9
Planters Products, Inc. v. Fertiphil Corp., 548 SCRA 485
3
 of liberty and
property.10

4. May a tax be validly imposed in the exercise of the police power and
not of the power to tax?

The power of taxation is primarily an exercise of the sovereign

power to be able to raise revenue to defray the expenses of the
government for public purpose. However, it can also be exercised to
carry out some other legitimate purposes of the government, such as
what the police power itself can cover. Thus, it was held by the Supreme
Court that taxation may be used to implement an object of police power.

The conservative and pivotal distinction between these two

inherent powers of the State rests in the purpose for which the tax 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.12 It is a well-established doctrine though that
the taxing power may be used as an implement of police power.13

It can be deduced from the foregoing though that police power

may NOT be exercised by itself alone for the purpose of raising taxes,
BUT it may be exercised jointly with the power of taxation for the
purpose of raising revenues.14

But since Congress has the power to exercise the States inherent
powers of police power and taxation, the distinction between police
power and the power to tax, which could be significant if the exercising
authority were mere political subdivisions (since delegation by it to such
political subdivisions of one power does not necessarily include the
other), would not be of any moment when Congress itself exercises the
power.15

11Mun. of Cordova v. Pathfinder Devt. Corp. and Topanga Devt. Corp., G.R. 205544. June
29, 2016
10
Gerochi v. Dept. of Energy, G.R. 159769, July 17, 2007 (527 SCRA 696)
12
Progressive Devt. Corp. v. Quezon City, G.R.36081, April 24, 1989 (172 SCRA 629) cited in
Smart Communications, Inc. v. Mun. of Malvar, Batangas, GR 204429, Feb. 18, 2014
13
Republic v. Caguioa, 536 SCRA 193 (2007)
14
Planters Products, Inc. v. Fertiphil Corp., 548 SCA 485 (2007)
15
NTC v. CA, 311 SCRA 508 (1999)
4
 The designation, however, given by the municipal authorities does
not decide whether the imposition is properly a license tax or a license fee.
The determining factors are the purpose and effect of the imposition as
may be apparent from the provisions of the ordinance. Thus, "[w]hen no
police inspection, supervision, or regulation is provided, nor any
standard set for the applicant to establish, or that he agrees to attain
or maintain, but any and all persons engaged in the business
designated, without qualification or hindrance, may come, and a
license on payment of the stipulated sum will issue, to do business,
subject to no prescribed rule of conduct and under no guardian eye,
but according to the unrestrained judgment or fancy of the applicant
and licensee, the presumption is strong that the power of taxation, and
not the police power, is being exercised."16

IV. Purposes of Taxation

5. What are the purposes of taxation?

(1) Revenue-raising purpose. - The primary and principal purpose

of taxation is to raise revenue to defray the necessary expenses of the
government. Revenue generation has undoubtedly been a major
consideration in the passage of the Tax Code.17

(2) Special or regulatory purposes (non-revenue purposes). -

Taxation is also used for special or regulatory purposes, such as
regulating a business. The imposition must bear a reasonable relation to
the probable expenses of regulations, taking into account not only the
costs of direct regulation but also its incidental consequences as well.18 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.19 It is a well-established doctrine that the taxing power
may be used as an implement of police power.20

V. Principles of Sound Tax System

6. What are principles of a sound tax system? BQ2015

16
Smart Communications, Inc. v. Mun. of Malvar, Batangas, GR 204429, Feb. 18, 2014
17
CIR v. Fortune Tobacco Corp., 559 SCRA 160 (2008)
18
Chevron Phils., Inc. v. BCDA, 630 SCRA 519 (2010)
19
Progressive Devt. Corp. v. Quezon City, G.R.36081, April 24, 1989 (172 SCRA 629)
20
Republic v. Caguioa, 536 SCRA 193 (2007)
5
 The three basic principles of a sound tax system are as follows:

(1) Fiscal adequacy. Originally stated by Adam Smith in his

Canons of Taxation, fiscal adequacy simply means that the sources of
revenue, taken as a whole, should be sufficient to meet the expanding
expenditures of the government. It means that the revenues should be
capable of expanding or contracting annually in response to variations of
public expenditures.21 This is in consonance with the theory that taxes
are the lifeblood of the government.

(2) Administrative feasibility. - Administrative feasibility simply

means that the tax system should be capable of being efficiently
administered by the government and enforced with the least
inconvenience to the taxpayer and to the tax administrators. Non-
observance of the canon, however, will not render a tax imposition
invalid except to the extent that specific constitutional or statutory
limitations are impaired.22 Thus, although there is no law which requires
the payment of taxes in cash only, a law allowing payment of taxes in
kind may be valid but it might create problems on the valuation of the
payment made in the form of property, therefore could be an
administrative nightmare on the part of the tax administrators.

(3) Theoretical justice. - Theoretical justice or equality means that

the tax system must be fair to the taxpaying public and the taxes levied
must be based upon the ability of the taxpayers to pay. Justice and
equality are abstract terms. But justice means at least that a tax system
should appeal to the average person as fair, and that it should represent
public opinion at the time as to what is fair. Justice, moreover, always
refers primarily to the tax system as a whole rather than to any particular
tax.23

VI. Theories and Bases of Taxation

7. What are the theories and bases of taxation? BQ2012

(1) Lifeblood-of-the government theory. - Taxes are the nations

lifeblood through which government agencies continue to operate and
with which the State discharges its functions for the welfare of its

21
Abakada Guro Party List v. Ermita, 469 SCRA 1 (2005)
22
Diaz v. Secretary of Finance and CIR, G.R. 193007, July 19, 2011
23
Thus, real property taxes should not disregard increase in the value of real property occurring over
a long period of time because to do otherwise would violate the canon of a sound tax system referred to as
theoretical justice. Reyes v. Almanzor, 196 SCRA 322 (1991)
6
constituents.24 The phrase taxes are the lifeblood of the government and
their prompt and certain availability is an imperious need connotes that
without taxes, the government would lack the motive power to activate
and operate it and it would be paralyzed resulting in its destruction. That
the enforcement of tax laws and the collection of taxes are of paramount
importance for the sustenance of government has been repeatedly
observed, for without taxation, a government can neither exist nor
endure.25 Since taxes are the lifeblood of the government that should be
collected without unnecessary hindrance,26 every precaution must be
taken not to unduly suppress it,27 and consequently, tax laws must be
faithfully and strictly implemented as they are not intended to be liberally
construed.28

(2) Necessity theory. The theory behind the exercise of the power
to tax emanates from necessity. It proceeds upon the theory that the
existence of government is a necessity for without taxes, the government
cannot fulfill its mandate of promoting the general welfare and well-
being of the people.29 It is a prerogative essential to the perpetuity of the
government.30 No sovereign state can continue to exist without the
means to pay its expenses; and that for those means, it has the right to
compel all citizens and property within its limits to contribute, hence, the
emergence of the power to tax.

(3) Benefits-protection theory (Symbiotic Relationship Theory). -

The basis of taxation is founded in the reciprocal duties of protection and
support between the state and its inhabitants. The state demands and
receives taxes from the subjects of taxation within its jurisdiction that it
may be enabled to carry its mandate into effect and perform the functions
of government; and the citizen pays from his property the portion
demanded in order that he may, by means thereof, be secured in the
enjoyment of the benefits of organized or civilized society. Hence, despite
the natural reluctance to surrender part of ones hard-earned income to
taxing authorities, every person who is able to pay 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

24
Chamber of Real Estate and Builders Assn., Inc. v. Romulo, 614 SCRA 605 (2010); CIR v.
Petron Corp., 668 SCRA 735 (2012); CIR v. Next Mobile, G.R. 212825, Dec. 7, 2015
25
Valley Trading Co. v. CFI, GR 49529, March 31, 1989: Vda. De San Agustin v. CIR, 364
SCRA 802 (2001)
26
Lascona Land Co., Inc. v. CIR, 667 SCRA 455 (2012)
27
Republic v. Caguioa, GR 168584, Oct. 15, 2007 (536 SCRA 193)
28
CIR v. Dash Engineering Phils., Inc., 712 SCRA 347 (2013)
29
Republic v. Caguioa, GR 168584, Oct. 15, 2007 (536 SCRA 193)
30
City of Ilolilo v. Smart Communications, Inc., GR No. 167260, Feb. 27, 2009
7
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 it is an arbitrary method of
exaction by those in the seat of power.31

(4) Jurisdiction over subject and objects theory. A tax may only
be imposed by the State on persons, property, or business within its
jurisdiction in accordance with the principle of territoriality. Thus, the
state has the right to compel only all persons, properties or objects within
the limits of its jurisdiction to contribute taxes.

VII. Situs of Taxation

8. What is meant by the term situs of taxation?

The term situs of taxation literally means place of taxation or the

place or country that has jurisdiction to levy a tax on persons, properties, rights
or business based on the theory that a State that gives protection to a
taxpayer has the right to demand support from the latter. This is the so-
called Symbiotic Relationship Theory. This actually falls under the inherent
limitation of taxation on territoriality.

9. What is the situs of income tax?

The situs of income taxation depends on the citizenship, and the

legal residence of the recipient of income, and the source or the place
where the income of the taxpayer is derived, viz:

(a) From sources within the Philippines - Interest income,

dividends, compensation for services performed within the Philippines,
income from rentals and royalties from property located within the
Philippines, income from sale of real property located in the Philippines,
income from the sale of personal property within the Philippines, and
sale of shares of stock of domestic corporations, shall all be treated as
income derived from sources within the Philippines and shall be
taxable within the Philippines.

(b) From sources without the Philippines - All items of gross

income which are not considered as income derived from sources within
the Philippines are considered as income from sources without the

31
CIR v. Algue, Inc., 241 Phil. 829 (1988); CIR v. Metro Star Superama, G.R. 185371, Dec. 8,
2010;CIR v. Basf + Inks Phils, Inc., G.R. 198677. Nov. 26, 2014
8
Philippines and shall not be subject to income tax except for resident
citizens and domestic corporations.

(c) Income partly within and partly without the Philippines- Items
of gross income, other than those derived from sources within and
without the Philippines as specified above, shall be allocated or
apportioned to sources within or without the Philippines.

10. What is the situs of property tax?

Situs of property tax depends on whether the tax is laid on real

property or personal property, viz:

(a) On taxes on real property Situs of real property tax is solely

in the place where the property is located or situated.

(b) On taxes on tangible personal property - The general rule is

that the situs of tangible personal property is the place where it is
located, or the physical location of the personal property.

(c) On taxes on intangible property - Situs of intangible property

is the domicile or residence of the owner and only there because taxation
follows the person or property who or which shall be subject to the tax,
or simply movable follows the person (principle of mobilia sequuntur
personam).

11. What is the situs of transfer tax?

The situs of tax on transactions involving transfer of property, i.e.,

transfer of property by death or by gift, shall be at the country of which
the owner is a resident or a citizen or by the country where the property
is actually located, irrespective of the kind of property or the place where
it may be found, without prejudice to the same property being taxed by
the country where the same may be found.

(a) On estate tax - Situs is the domicile or residence and the

citizenship of the decedent at the time of death.

(b) On donor's tax - Situs is the domicile or residence and the

citizenship of the donor at the time of donation.

9
 Thus, the properties of a citizen, whether a resident or nonresident,
and a resident alien, wherever situated, are subject to the estate and donors
taxes imposed under Philippine laws, while only the properties located in the
Philippines of a nonresident alien shall be subject to the estate and donors taxes
under our laws.

12. What is the situs of business tax?

The situs of business tax depends upon the place in which the
business is done or the occupation is engaged in, except in the case of sale
of real property, where the situs is still the place where the real property
is located.

(a) On the business of selling real property - Situs is the place

where the real property is located.

(b) On the business of selling personal property - Situs is the

place where the business is registered.

(c) On value-added tax and other percentage taxes - Situs is the

place where the business is registered, except in the case of sale of real
property where the situs is the place where the real property is located.

VIII. Stages or Aspects of Taxation

13. What are the stages or aspects of taxation? Explain each. BQ2006

There are four (4) stages or aspects of taxation, namely:

(1) Levying or imposition of the taxes. Levying or imposition of

taxes refers to the legislative act of enacting a tax law authorizing
Congress to impose a tax on persons, property or business to be taxed, the
rates of tax thereof, and the time and manner of collecting the taxes. Levy
is an exercise of the power to tax which is exclusively legislative in nature
and character. Clearly, taxes are not levied by the executive branch of the
government.32

(2) Assessment and collection of taxes. Assessment and

collection of taxes refers to the administrative act and implementation of
the tax law by the executive through its administering agencies.

32
NPC v. Albay, 186 SCRA 198 (1990)
10
 The term "assessment refers to the administrative act of
determining the correct amount of tax to be paid by the taxpayer, or to be
borne by each property, business, income, or transaction specifically
assessed, and creates a fixed and certain demand in favor of the State, and
a definite and positive obligation on the part of the taxpayer.

On the other hand, collection" refers to the actual effort exerted

by the implementing or collecting agencies under the Executive
Department of the Government, such as the Bureau of Internal Revenue
and the Bureau of Customs, in the case of national taxes and customs
duties, or the Local Government Units, in the case of local taxes and real
property taxes, to effect the exaction of what is due from the taxpayer.

(3) Payment of taxes. - This is the act of compliance by the

taxpayer, including such options, schemes or remedies as may be legally
available to him.

(4) Refund of taxes. - All taxes which had been erroneously,

illegally or excessively collected by the government should be returned to
the taxpayer based on the principle of solutio indebiti.

IX. Definition, Nature, and Characteristics of Taxes

14. What is the meaning of the term tax?

Tax is an enforced exaction which is generally pecuniary in

nature levied by the Legislature to persons, properties, rights, privileges,
income, receipts or revenues from certain transactions within the States
jurisdiction in order to defray the expenses of the government for public
purpose.

15. What is the nature of a tax?

Taxes are in the nature of enforced pecuniary exactions levied by

the Legislature on persons, property, rights or business within the
territorial jurisdiction of a State for the purpose of supporting the
Government to be able to render services and protection to the taxpayers.

16. What are the essential characteristics of taxes? BQ2013, 2009

11
 (1) Taxes are generally pecuniary33 in nature which must be in
legal tender.

(2) They are enforced charges and contributions the imposition of

which is in no way dependent upon the will or assent of the person being
taxed.

(3) They are levied by the legislative branch of the government

through the enactment of laws, and by the local government units
through the enactment of ordinances, subject to such guidelines and
limitations as the law may provide;34

(4) They are imposed on persons, properties, rights or business

within the territorial jurisdiction35 of a State for the purpose of raising
revenues.

(5) They are proportionate in character, or laid by some rules of

apportionment which are usually based on the ability to pay.

(6) They are compulsory rather than a matter of bargain.36

(7) They are levied for public purpose.37

17. What are the requisites of a valid tax?

The requisites of a valid tax are as follows:

(1) It must be levied by the legislative authority in the exercise of

its taxing power.38

(2) It should be imposed to persons, properties, business and

rights within the territorial jurisdiction of a country in accordance with
the principle of territoriality;

33
Although there is no law which requires the payment of taxes in cash only, a law allowing
payment of taxes in kind may pose problems of valuation, hence will violate the principle of administrative
feasibility.
34
Sec. 5, Art. X, 1987 Phil. Constitution
35
The principle of territoriality applies here.
36
Philex Mining Corp. v. CIR, 294 SCA 687 (1998)
37
Revenues derived from taxes cannot be used for purely private purposes. Gaston v. Republic
Planters Bank, 158 SCRA 626, March 15, 1988
38
Republic v. Phil. Rabbit Bus Lines, Inc. 32 SCRA 211 (1970)
12
 (3) It should be imposed in order to defray the expenses of the
government for a public purpose;

(4) It should comply with the requirements of due process, i.e.,

the assessment and collection of taxes must not be arbitrary, in that a
taxpayer should be given proper notice and the opportunity to be heard.

(5) It must be uniform and equitable, not unjust, excessive,

oppressive, confiscatory or discriminatory;

(6) It must not violate the inherent and Constitutional limitations

of the power of taxation;

(7) Tax, being a burden, should not to be presumed beyond what

the applicable statute expressly and clearly declares.39

X. Tax as Distinguished from

Other Forms of Exactions

18. Distinguish tax from other forms of exactions.

Tax may be distinguished from other forms of exactions as

follows:

(1) Tax vis-a-vis Tariff

Tax refers to imposition of the tax rates on income,

transactions, activities or privileges of all persons, properties, and
on all kinds of goods sold or services rendered within the country
having jurisdiction over the taxpayer, while Tariff refers to a
book of rates containing names of merchandise with the
corresponding duties to be paid for the goods imported or
exported.

(2) Tax vis-a-vis Customs Duties

Tax is broader in terms than customs duties, because tax

includes all kinds of impositions, including customs duties, while
the term Customs Duties indicates a particular kind of tax,
being commonly applied to levies made by a government on the

39
CIR v. Filinvest Devt. Corp., 654 SCRA 56 (2011)
13
importation or exportation of commodities in or out of the
country.40

(3) Tax vis-a-vis Toll

Tax is a levy imposed by the government for its support,

and the amount is regulated by its necessities, while Toll is
imposed by private individuals or entities or by the government
as a compensation or reimbursement for the costs and expenses
incurred in the construction, maintenance and operation of the
tollways, as well as to assure them a reasonable margin of income.
Ex. toll on expressways and skyways. 41

(4) Tax vis-a-vis License Fee

Taxes are levied by the State by virtue of its power of

taxation, while License Fees, by virtue of the police power.42

Taxes are exacted as contributions toward the cost of

maintaining governmental functions, while License Fees are
imposed primarily to restrain or regulate business or occupation.43

Taxes are imposed on persons, property, business,

occupation, or the exercise of any privilege, whether legal or
illegal, while License fees may be imposed only on the right to
exercise a privilege, hence, should be a legitimate business or
occupation.

Failure to pay a tax does not render the business or

occupation illegal, while non-payment of a license fee renders the
business or occupation illegal.44

Taxes are paid generally after income/revenue had been

earned/received, while License Fee is normally paid before the
commencement of a business.

(5) Tax vis-a-vis Special Assessment

40
PAL v. Commissioner of Customs, BTA No. 184, Sept. 10, 1954
41
Diaz v. Sec. of Finance, 654 SC RA 96 (2011)
42
PLDT v. Public Service Commission, GR L-267662, Aug. 29, 1975 (66 SCRA 341)
43
Cotabato Light & Power v. City of Cotabato, GR L-24942, 30 March 1970
44
Golden Ribbon Lumber v. City of Butuan, GR L-21516, 29 April 1964 (12 SCRA 611)
14
 Tax is an enforced contribution from persons,
properties, activities, transactions and income, while Special
Assessment is an enforced proportional contribution from
owners of lands especially or peculiarly benefited by public
improvements.

(6) Tax vis-a-vis Debt

(a) Taxes and debts are of different nature and character,

hence, no set-off or compensation between these two different
classes of obligations is allowed. 45

(b) A Tax is created by law, while a Debt arises from

contract, whether express or implied. 46

(c) No person shall be imprisoned for nonpayment of

debt, while imprisonment may be provided by law for
delinquency in the payment of a tax, except non-payment of a poll
tax.47

(d) The statute of limitation governing the right of

recovery of a debt is provided in the Civil Code, while the right to
assess and collect a tax is governed by the National Internal
Revenue Code, by the Tariff & Customs Code and by the Local
Government Code.

(e) A Tax is generally payable in money, while a Debt

can be paid in money, property or services.

XI. Kinds of Taxes

19. What are the kinds of taxes? BQ2007

(1) As to object -

(a) Personal, capitation, or poll tax. - Generally, personal,

capitation or poll taxes is a tax of a fixed amount imposed upon
persons, or upon all the persons of a certain class, residing within
a specified territory, without regard to their property, occupation

45
Domingo v. Garlitos, GR L-18994, June 29, 1963 (8 SCRA 443)
46
Villanueva v. City of Iloilo, 26 SCRA 578 (1968)
47
Art. III, Sec. 19(1), 1987 Phil. Constitution
15
or business in which they may be engaged.48 Example: The
current Community Tax Certificate which supplanted the
Residence Tax Certificate is purely a poll tax.

(b) Property tax. - In general, taxes on property are taxes

assessed on all properties, whether real or personal, or on all
property of a certain class located within a certain territory on a
specified date in proportion to its value, or in accordance with
some other reasonable methods of apportionment, the obligation
to pay of which is absolute and unavoidable and is not based
upon any voluntary action of the person assessed. Example: The
real property tax imposed by the local government units under
the authority of the Local Government Code of 1991, as amended.

(c) Privilege tax. - This is the tax imposed upon

performance of an act, the enjoyment of a privilege, or for
engaging in business or exercising a profession. Example: The
privilege tax imposed by the local government.

(2) As to burden or incidence. Based on the possibility of

shifting the incidence of taxation, or as to who shall directly bear
the burden of taxation, taxes may be classified into either direct
tax or indirect tax.

(a) Direct tax This is a tax wherein both the incidence of

or liability for the payment of the tax, as well as the impact or
burden of the tax falls on the same person. In other words, it is a
tax exacted from the very person who, it is intended or desired,
should pay it; an imposition for which a taxpayer is directly liable
on the transaction or business he is engaged in, hence, cannot be
shifted to another.49 Examples: Income tax, Estate Tax, Donors
Tax.

(b) Indirect tax This is a tax wherein the incidence of or

liability for the payment of the tax falls on one person but the
burden or impact thereof can be shifted or passed on to another.
In other words, it is a tax which is demanded, in the first instance,
from one person in the expectation and intention that he can shift
the burden to someone else, and the burden finally resting on the

48
Villanueva v. City of Iloilo, 26 SCRA 578 (1968)
49
Silkair(Singapore) Pte., Ltd. v. CIR, 613 SCRA 638 (2010)
16
ultimate buyer or consumer.50 Examples: VAT, Percentage Tax,
Excise Tax, Documentary Stamp Tax.

(3) As to tax rates -

(a) Specific tax - A specific tax is a fixed or determinate

sum imposed by the head or number or by some standard of weight or
measurement and which requires no assessment beyond a listing
and classification of the object to be taxed.51 Example, tax on
alcohol and tobacco products.

(b) Ad valorem tax - A tax of a fixed proportion of the

value of the property with respect to which the tax is assessed, and
requires the intervention of assessors or appraisers to estimate the
value of such property before the amount due from each taxpayer
can be determined. Example, excise tax on cars and non-essential
goods, real property tax.

(c) Mixed - A tax based on both specific tax and ad

valorem tax.

(4) As to purposes. -

(a) General or fiscal tax - It is a tax which is levied for the

general purpose of supporting the government. Examples:
Income tax, VAT

(b) Special, regulatory or sumptuary tax - It is a tax which

is levied for a special purpose to achieve some social or economic
objectives. Example: Safeguard Duty - a special duty imposed for
the purpose of protecting domestic industries and producers from
increased imports which could inflict serious injury on them.

(5) As to scope or authority to impose. -

(a) National taxes52 - These are the taxes imposed by the

national government. Examples: Income tax, Estate and Donor's
taxes, VAT, Other percentage taxes, Excise taxes, and
Documentary stamp taxes, and Customs duties.

50
PAL v. CIR, 700 SCRA 322 (2013); Maceda v. Macaraig, Jr., 274 Phil. 1060 (1991)
51
Tan v. Municipality of Pagbilao, L-14264. April 30, 1963 (7 SCRA 887)
52
Sec. 21, NIRC
17
 (b) Local taxes53 These are the taxes imposed by the local
government units. Examples: Real property tax, Amusement tax,
etc.

(6) As to graduation of tax rates. -

(a) Progressive or graduated - The rate of the tax increases

as the base of the tax increases. Examples: Income tax of
individuals, Estate tax and Donor's tax.

(b) Regressive This is the opposite of progressive tax, in

that instead of the gradual increase in the rates of tax, the rates
gradually decreases as the tax base increases. This is the opposite
of our income taxation system for individuals.

(c) Proportionate - The tax is based on a fixed percentage

of the amount of income derived by the taxpayer or other basis of
the taxes being paid. Example: Value-added Tax, percentage tax.

53
RA 7160
18