T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
June 21 (Part 1)
Transcribed by: Olamit, Ara Princess O.
INTRODUCTION
Now let’s begin with taxation.
For the entire semester, we will discuss two things:
First, the General Principles of Taxation and the
second is the Income Taxation Proper.
For your first exam, the coverage will be the entire
General Principles of Taxation.
The first question that I always ask to my class is “Why
do we have to study taxation?”
Aside from being a bar subject and aside from the
fact that you are all students, you are required to
take the subject, why do we need to study
taxation to begin with? Why is it important? Why
is it important to learn how tax works here in the
Philippines?
There are several reasons.
We will encounter taxation daily.
Even if we don’t know it, we are actually
encountering taxation, right from the time that
we were born until the time we die. For example,
you were born, what about the money that your
parents would spend in the hospital? That money
is worth subject to taxation. The money that will
be given to the doctor will form part to the
doctor’s PF (professional fee). Again we are
subjected to the VAT or the percentage tax or
probably it will be subjected to the income tax if
the doctor will declare it as an income to begin
with. Okay.
Let’s go to more contemporary context. When you
buy gas to your cars. What do you see in your
receipts? Diba, there is a VAT component. Who pays
for the VAT? It’s not you guys but it is actually the
seller (ex. Shell). But you as the consumers are being
made to shoulder the payment of VAT. So you are
being affected with taxes. If you buy new car right
now, in 2018, there is an increase in the excise tax law
or the pens from the national bookstore, those are
subjected to tax.
What if you are filthy rich and you would like to give
out a house and lot to your boylet or girlet. Or to your
husband and wife. You would like to give it for free. So
what kind of contract is that? That is donation. If you
donate something, you give something for free, you
will be subjected to donor’s tax. And who will pay the
donor’s tax? It is not the person who will receive the
gift but it is actually the person who gives the gift.
Maghatag na lang gani ka, pabayaron pa jud kag tax.
Diba that’s how crazy our tax is.
Even if we die, we will still be subjected to taxation.
May Succession na kayo? What do you call the
properties that are left behind by the decedent? The
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estate. Those properties will be subjected to taxation.
On top of that, it’s not enough that you die because
there is a certain limit for which the heirs, or your
estae, must have to pay the estate tax. At least one
year, or within one year you pay your taxes under
normal circumstances. So you see? You’re already
dead but you are still being made to pay the tax.
That’s why, probably, some people would say that
there are three permanent things in the world.
1. Death - Mamatay man kayo lahat. Whether you
like it or not, we will all die. Each and everyday
we are dying slowly.
2. God - Regardless of your religion, we all know
that God will be permanent in our lives.
3. Taxes - We cannot escape taxes. Even if we die,
we will always be subjected to taxation.
So more or less, since we encounter it daily, we
should know at least a little bit of how our Tax works
here in the Philippines. Because, probably, if you are
in the real world right now, you are an employee or
employer, you have you own businesses, you will be
subjected to taxation. How would you know that you
are paying the correct taxes? Or how would you know
that the taxes collected from you by the BIR are the
correct amount of taxes that you should pay?
Or let’s make it simpler. What about the compliance?
Okay for you who are business people here, lagi
kayong na-pepenalty. Bakit yan? Diba. So magbabayad
na lang kayo ng penalty so that there would be no
trouble. But just think of how much. You just don’t
know
when and where to find. Diba, you can avoid that.
And lastly, you have to study tax because this is a bar
subject. You need to pass taxation in order for you to
graduate in Ateneo and for you all to become a
lawyer. So I think more or less, this taxation is one of
the important subjects that you should know or
understand a bit.
DEFINITIONS OF TAXATION
If you look at a lot of books, there are different
definitions of taxation.
Aban: Taxation is the power by which the sovereign
raises revenue to defray the necessary expenses of
the government.
Black’s Law Dictionary: Taxation is a process or an act
imposing a charge by governmental authority on
property, individuals, or transactions to raise money
for public purposes.
De Leon: Taxation is a means by which the State,
through its law-making body, raises income to defray
the necessary expenses of the government”.
From these definitions, we find that there are
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
THREE BASIC CONCEPTS OF TAXATION
1. Taxation is a power. It is a power wielded by the
State, to collect money, so that they have to
spend something for public purposes.
2. Taxation is a process. It’s basically a process.
From the time the Tax law is being made, is being
enforced, form the time it is collected, it is a
whole process that all of us encounter.
3. Taxation is a means. It is a means of survival.
Taxation is not only a way for the State to collect
money but also for the State to survive. It is a way
for the State to endure and survive.
I would like to impart to you this definition of taxation
by Domondon. I like this definition because it more or
less encompasses the nature and characteristics of
taxation. From this definition, andami nating
masagot., andami nating discussion. So let’s begin.
Taxation is the inherent power of the State,
exercised through the legislature, to impose
burdens upon subjects and objects within its
jurisdiction, for the purpose of raising revenues to
carry out the legitimate objects of the government.
NATURE OF TAXATION
Most books would say that Taxation has a two-fold
nature.
(1) It is an inherent power and
(2) It is a legislative power in itself.
Some books would like to add one nature of
taxation.
(3) It is subject to inherent and constitutional
limitations.
So let’s go back to the definition.
I. TAXATION IS THE INHERENT POWER OF THE
SOVEREIGN.
The power to tax is one of powers of the
government. This is basic in Constitutional Law.
What are the 3 inherent powers of the state?
Police power, Power of eminent domain, and
power of taxation.
It is inherent because the moment that the
state comes into being, the power to tax, along
with the other inherent powers will automatically
come out with it. ‘Pag merong state, meron ng
power to tax.
Thus:
(1) We do not need the Constitution in
order for the government to exercise
the power of taxation; and
(2) We don’t need any laws so that the
government may enact tax measures in
order for it to survive.
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This is actually affirmed in the case of Pepsi
Cola vs. Municipality of Tanauan.
“The power of taxation is an essential
and inherent attribute of sovereignty
belonging as a matter of right to every
independent government, without being
expressly conferred by the people.”
The power to tax is tend to be the most powerful
among the inherent powers of the state.
Why is it powerful? Because the POWER TO TAX is
plenary, all encompassing, and unlimited.
What do you mean by that?
How is it being manifested?
What are the THREE OBJECTS OF TAXATION to
begin with?
1. Persons - (ex. Community tax)
2. Property - (ex. Real property tax)
3. Rights - (ex. Excise tax, income tax) When
you say income tax, the government does not
tax the money that you receive because you
are working or you are engaged in business,
what the government actually taxes is your
privilege of earning income.
What is your conclusion then? The power to tax
practically covers everything right?
Taxation practically covers everything. The
government can practically tax everything under
the sun. If you have certain property, possible
that the government can enact taxes. For
example, right now, grabe na ang traffic sa
Davao.
June 21, 2018 (2nd half)
Transcribed by: Campaner, Marrie Allexa F.
The government would like to curve down the
purchase of vehicles, what can it do? One, it may raise
the excise tax. Or probably it may enforce taxes based
on ownership of cars (it’s a property tax). The
government can do this and you cannot do anything
about it. It encompasses all the spectrum involved in
taxation, one of which is the rate of taxes – if the
government will say that all the properties will be
liable for 80% tax rate, can it do that? Theoretically,
yes! This is because the power to tax is all-
encompassing, plenary, and unlimited.
Later you will know that Taxes are burdens, this is a
natural effect of this principle – it is the most powerful
of all the inherent powers of the government. It is not
the most pervasive, but it is the most powerful.
Tio v. Videogram Regulatory Board
There is a certain law enacted by the government
back then regulating the videotapes. If the videotapes
are not locally made, it will be subjected to a tax, but
if it is locally made – tax free.
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
Valentin Tio is a videogram operator. His contention is
that the tax is very oppressive and harsh. If the
government should tax the videotapes, what will be
left to our business (Tio)?
Thus the constitutionality of the tax law was
challenged in that it is oppressive and harsh, and it is
in restrict of trade.
SC: Yes, it is actually very harsh, what is being
collected is big. But the mere fact that the tax
measure is oppressive in itself does not make it
unconstitutional.
“However, it is beyond serious question that a tax does
not cease to be valid merely because it regulates,
discourages, or even definitely deters the activities
taxed. 8 The power to impose taxes is one so unlimited
in force and so searching in extent, that the courts
scarcely venture to declare that it is subject to any
restrictions whatever, except such as rest in the
discretion of the authority which exercises it. “
The SC is saying “the law is harsh but it is the law”. We
cannot do anything about it. That is how powerful the
power to tax of the government is.
The power to tax is the power to destroy
This is the opinion of Justice Marshall in one
US case. The power to tax is a destructive power
which can pirece through personal, property and
property rights of the people. If the state should wield
it, it can destroy a particular business; all in the name
of taxation.
The power to tax is NOT the power to destroy
This is according to Justice Holmes – “the
power to tax is not the power to destroy while this
court sits.”
Contradicting right? Because you cannot really deny
that power to tax is so powerful and it can destroy a
particular industry. But then, Justice Holmes says that
it is not a power to destroy.
How do we reconcile the two principles?
When we say that the power to tax is the power
to destroy, it refers to a valid tax law.
When we say that the power to tax is NOT the
power to destroy, it refers to an invalid tax law;
meaning it violated some inherent limitations or
constitutional limitations.
What is the implication of “Power to Tax is Not the
Power to Destroy”?
1. The courts may strike down an invalid tax
law;
2. The power to tax is still subject to limitations
– (a) inherent limitations; and (b)
Constitutional limitations;
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3. The power to tax involves the power to
destroy so it must be exercised with great
caution (Phil Health Care v. Commission)
Phil Health Care v. Commission
One of the issues here is the imposition of
Documentary Stamp Taxes (DST).
When the SC 1st decided the case, it said that
the PhilHealth should pay the tax imposed.
The PhilHealth filed a Motion for
Reconsideration.
The SC granted the MR. Naawa sya sa
PhilHealth, why? The deficiency assessment
is around 300M, it assets is only 259M.
“As a general rule, 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 who is to pay it. So potent
indeed is the power that it was once opined
that "the power to tax involves the power to
destroy."
But: “Given the realities on the ground,
imposing the DST on petitioner would be
highly oppressive. It is not the purpose of the
government to throttle private business. On
the contrary, the government ought to
encourage private enterprise. Petitioner, just
like any concern organized for a lawful
economic activity, has a right to maintain a
legitimate business.”
“The power of taxation is sometimes called
also the power to destroy. Therefore 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 collector kill the "hen
that lays the golden egg."
CIR v. SM Prime Holdings
SM, et al. are cinematographic operators.
This involves VAT deficiency assessment –
kulang daw ang binayaran na VAT. The SM
did not want to pay, so it filed a protest.
BIR – SM lost
CTA – SM won
Republic went to SC to ask for the reversal of
the CTA decision.
SC: There is no need for SM to pay the VAT
for two reasons:
2. There is no law that says that
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
cinema operators are liable for VAT
3. If the cinema operators are made
liable to pay the VAT, it is already
so oppressive and unjust. Because
under the LGC they are already
being made to pay the 30%
amusement tax. And on top of that
is the 10% VAT should the court
adjudge it liable. And mind you,
these taxes are based on the gross
sales, walang deductions pa yan. So
ano nalang kikitain? Again, apply
the golden egg principle.
LIFEBLOOD THEORY
Taxes are the lifeblood of the state, without
which the government cannot endure or survive. This
is the Article 19 of taxation. Ano ba Article 19 sa Civil
Code? “Everyone must in the exercise …” (abuse of
rights principle). So this phrase is very important, if
you don’t know if taxable or not, this is what you will
answer; but don’t do this in our exam!
Manifestations of the lifeblood doctrine:
1. NO INJUNCTION PRINCIPLE
GR: The collection of national taxes cannot
be enjoined. You should read the case
of Republic v. Caguioa, just focus on
the propriety of the judge in issuing
the writ of preliminary injunction.
E: The exception is the CTA Law. Upon
compliance with certain
requirements, the CTA may enjoin the
collection of taxes.
2. STRICT CONSTRUCTION OF TAX EXEMPTION
LAWS.
June 26, 2018 – Castro, SS
II. THE POWER OF TAXATION IS A LEGISLATIVE
FUNCTION.
It is legislative in character. It is the Congress,
the Senate and House of Representatives, they
are the one task creating our tax laws.
How are tax laws passed? First it is in the House
of Representative and then second it is submitted
to the Congress and the latter will make
amendments and propose its amendments and
then Senate and then that’s it the rest is history.
Pepsi Cola vs. Municipality of Tanauan -- SC said
that this is a power purely legislative. And which
the central legislative body cannot delegate
either to the executive or judicial department.
So basically when we say that the power of
taxation is legislative in character we still follow
the rule in your Constitution Law that the power
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of taxation cannot be delegated. That is our
GENERAL RULE.
What is the scope the legislative power of the
Congress in the taxation aspect? Basically, it
covers the entire spectrum of taxation. Like
what?
1. The object of taxation;
2. The nature and kind;
3. The extent or the rate of that particular
subject or object;
4. The coverage of taxation.
Right like now the Philippine law
already covers sugar (e.g coke); cosmetic
surgery (before subject lang yan ng 3%, but
right now there is an added tax as long as the
cosmetic procedure is invasive in nature.
Kung haplas-haplas lang okay lang yan. I am
wondering in manicure and pedicure.
Cosmetic man din yan. Sir is wondering.)
5. Place or Situs of Taxation.
The Government or the Congress
may have a particular subject or object that
will be subjected to tax. As you can see later
on, even if you are a Filipino residing in the
Philippines but you have income abroad it
will still be taxed as part of your gross
income. So diba even if your income is
outside in the Philippines it will still be
covered by our Philippine taxation. And why
is that? Because the law says so. There is no
other reason to it.
PRINCIPLE OF NON-DELEGATION
GR: The power of taxation cannot be delegated.
It is basically because, what the Congress has
right now is just a delegated power. If we
take out Congress it is actually the people
who has the power to negotiate. Because we
inform the State. But because of our
Constitution, we delegate it to certain group
of people sometimes they are idiots and they
are divided into Senate and House of
Representatives.
XPNS: Those provided in Abakada vs. Ermita (please
read this case kasi madami matamaan na general
principles sa Taxation):
1. Delegation to the LGU
2. Delegation to the President
3. Delegation to the administrative agencies
4. Delegation to the people at large
5. Emergency powers of the President
1. DELEGATION TO THE LGU
What is our legal basis for the delegation to
the LGUs? It is under Article X, Section 5 of
the 1987 Constitution:
Each LGU shall have the power to create
its own sources of revenues and to levy
taxes, fees and charges subject to such
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
guidelines and limitations as Congress
may provide consistent with the basic
policy of local autonomy. Such taxes,
fees and charges shall accrue exclusively
to the local governments.
The first question will always be: what is the
nature of the LGU’s power to tax? Is it
delegated or direct grant? Delegated by who
or by what? Or is it a direct grant from where?
That is always the controversy going on for
quite some time. Even the SC cannot agree. If
you have shifted to the cases I gave you- may
iba sinasabi na delegated power meron din
naman na direct power tapos after na naman
delegated power na naman siya. But in the
Ferrer, Jr. vs. Bautista:
- It is against Herbert Bautista yung boyfriend
daw ni Kris Aquino. In this case, it is purely
delegated power. But how do we properly
interpret that? The first principle you have to
remember is that the LGU has no inherent
power to tax. That’s the very principle you
have to remember in the first place. And why
is that? Because the power to tax is lodge in
the National Government. But what is LGU? Is
it a government in itself? Is it a State in itself?
The LGU is a municipal corporation. They are
corporations created by law with special
functions, with special purpose, etc. And they
have been given the power to tax by virtue of
this Constitutional provision.
So it is merely DELEGATED POWER. Because if
there is no Constitution basically this LGU has
no authority to tax at all. It can tax only
because of that particular provision. This
keeps us thinking that the Constitution is
supposed to be there to limit the power of
taxation. But right now in our current set up it
would seem that the 1987 Constitution would
expand the power tax. It would not be limited
to the national government only. But the
national government may delegate the same
to the LGU or municipal corporations. So that
is one way to argue.
Second, it is a DIRECT GRANT. It is a direct
grant from the Constitution. But what does
that mean? Once it is in the Constitution, we
do not need any enabling law for that to
happen. Automatically, the LGU has the power
to tax already because of that Constitutional
provision. The Congress may then set forth the
limits of the LGU’s power to tax and right now
it is in the Local Government Code.
Whatever side you choose or argue on, you
always think of one thing- still the LGU do not
have the inherent power to tax.
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Part 2
Inah del Rosario
How do you reconcile the two principles of the
delegation of taxation powers?
It is a mere delegated power. Without the
Constitution, the LGU’s will not have the power
to tax. It is not an inherent power. Nonetheless,
it is a direct grant by the Constitution. The
express provision of the Constitution, the LGU’s
have the power to tax without having to wait for
an executing law. The purpose of the Local
Government Code is merely to limit the powers
to tax.
The power of the LGU to tax is limited, not
plenary.
National Government: Power to tax is plenary.
Local Government: Power to tax is not plenary
because it is limited by the Local Government
Code.
2. DELEGATION TO THE PRESIDENT
ART. VI, SEC 28
(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, tonnage and wharfage dues,
and other duties or imposts within the
framework of the national development
program of the Government.
The powers of the President to tax is merely
delegated. The President has no inherent power
to tax. Remember that the power to tax is
inherently legislative in nature while the nature
of the function of the President is executive. His
power is necessarily related to the enforcement
of the laws.
But then, by this Constitutional fiat, he is
somehow given this limited power of taxation.
What is the SCOPE? It is limited to tariffs and
customs duties. This is related to importation or
exportation. (These terms are interchangeable
under Customs laws)
GARCIA VS. EXECUTIVE SECRETARY (1992)
EO 438 was issued by the President imposing
import duties. The rate was increased; then
decreased by EO 475 with the exception of
crude oil and other oil products. Here comes
Cong. Garcia challenged constitutionality of
the EO on the ground that in issuing those
EOs the President is in effect exercising the
power to tax which is vested exclusively in
the Congress.
Do you see the flaw in his argument?
SC upheld the constitutionality of the EOs
based on Art. VI, Sec. 28(2).
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
There are 2 REQUIREMENTS FOR THE VALID
EXERCISE OF THE PRESIDENT OF THE POWER
TO TAX:
(1) There must be a law promulgated by
Congress authorizing the President to do
such thing.
(2) The exercise must be within the limits
set forth in the law.
What is the law that authorizes the
President to adjust/remove the rates?
Formerly it was the Tariff and Customs Code.
Now, it is the Customs Modernization and
Tariff Act.
SOUTHERN CROSS VS. CEMENT
MANUFACTURERS
This is about the Safeguard Measures Act. If
you read the facts, you won’t understand a
thing. But, the principles laid down in the
case is actually easy to understand. There are
BASIC POSTULATES INGRAINED IN ART. VI,
SECTION 28(2):
(1) It is the Congress which authorizes the
President to 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.
Meaning this is a pure delegation
to the President
(2) It’s not enough for the Congress to allow
the President to exercise such power.
That delegation must be embodied in a
law.
(3) The authorization of the President may
only be exercised within the specified
limits in the law and is further subject to
limitations and restrictions which
Congress may impose.
Once there is a law allowing the
President, he may never have a
vested right over such power.
Because it may be adjusted later on
or taken away. We go back to the
basic principle that the Congress as
the legislative body has the
inherent power to tax.
3. DELEGATION TO THE ADMINISTRATIVE
AGENCIES
This is also known as subordinate legislation.
2 TESTS FOR A VALID DELEGATION:
(1) Completeness Test
(2) Sufficient Standards Test
• Without passing these tests, there is no valid
delegation.
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What is basic principle when we talk about
delegation to administrative bodies? The rules
and regulations issued by administrative bodies
must conform to the law. It can neither expand
nor constrict what is written in the red letter of
the law.
If there is discrepancy between the law and the
revenue regulation, it is the law which will
prevail.
ABAKADA VS. ERMITA
This involves RA 9337 (amended the NIRC )
particularly the stand-by powers of the
President. The stand-by powers of the
President if exercised will raise the VAT
percentage. RA 9337 contains a proviso
authorizing the President, upon
recommendation of the Secretary of Finance
to raise the VAT rate to 12% effective Jan 1,
2006 after the ff. conditions are met:
1) VAT collection as a percentage of
GDP of the previous year exceeds 2
4/5%; or
2) National Government deficit as a
percentage of GDP of the previous
year exceeds 1 1/2%
SC said that there was no delegation of
legislative power to the President. This is
because the President is mandated to
increase VAT percentage upon the happening
or existence of any of the conditions.
June 26, 2018, Part 3
Transcribed by: Dianne Marie Isidor
Based on the happening of the two facts, the
President is authorize to, what, increase the
VAT percentage.
Does the President have the option to not
exercise the standby power?
A: Wala daw discretion kasi once na the
conditions will happen, the President has
no authority to not follow the increase of
the VAT rate.
So isipin nyo, sometimes its delegation, this is
one case that I found it difficult to
understand. The law says na, the President
may increase the VAT rate upon the
happening of the conditions.
Dissenting opinion of the case(as
summarized by sir):
The argument there is that it is still
discretionary on the part of the President
whether or not he or she will apply or
exercise his or her standby powers.
CIR VS FORTUNE TOBACCO
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
RA 8240 increased the tax rates on cigarettes
from 10% to 11%. By virtue of that law, the
BIR issued a Revenue Regulation No.17-99
which provided (t)hat the new specific tax
rate for any existing brand of cigars,
cigarettes packed by machine, distilled
spirits, wines and fermented liquor shall not
be lower than the excise tax that is actually
being paid prior to January 1, 2000.
The effect of this is the BIR made a floor. . So,
essentially, what the BIR is saying that by
virtue of that revenue regulation, hanggang
dito lang yan. You cannot go below these
even if there is an increase in the excise tax
rates. Your taxes that you should pay will not
go below a certain threshold.
Q: So what’s the issue in this case?
A: The issue in this case is W/N the BIR
exceed in exercising its delegated power?
Ruling: The SC ruled in the affirmative. By
setting the floor for excise tax on cigarettes
you have already exceeded what was
provided by law. What was provided for by
law is that you just adjust the rates.
Principle:
The Rule is that administrative regulations
must be in harmony with the provisions of the
law. The revenue regulations must not
expand, modify, alter or amend thebasic law
which it seeks to implement.
4. DELEGATION TO THE PEOPLE AT LARGE
This is through Initiative and Referendum. We
will not delve deeper into that. Because it is
actually impossible for people to exercise Tax
powers through Initiative and Referendum.
Who would want to make a law imposing new
taxes, diba? Probably siguro tax exemption.
But this is a very difficult thing to do as you
already know in your Constitutional law and
Elections law.
III. TAX IS A BURDEN
Tax power involves the imposition of Burdens.
What are the subjects of taxation? Persons, Property
and Rights, right? It is all encompassing.
The state can tax anything under the sun. There is
almost no exception.
On top of that, it is a Forced Contribution. Pugson
ka nga mubayad. You pay your taxes otherwise
there will be sanctions. You may even go to
prison. You pay your taxes and you will not
immediately feel the benefits given by the
government. Bayad ka ngayon, yung taxes mo
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para sa mga roads na iconstruct sa Ilocos, pano
yan? Can you avail of that? NO.
What about let’s put it in the context of, you
know,senior citizen discounts and vat exemption?
Alam nyo ba kung gano kalaki yan? 20% discount plus
12% vat exemption.
So sa 200 pesos, ang babayaran mo lang ay nasa
around 150 or 160. So, malaki di ba? So order lang
kayo ng order(HAHAHA).But you cannot say that you
know because you are paying your taxes and you can
now avail of the senior citizen discount. Because you
are not yet a Senior Citizen. Basically what the
government offers, is really a chance for all of us to
avail of the government services later on. Hindi na pag
may binigay ka, kailangan meron din ibigay.
Can one refuse to pay the tax because he doesn’t
derive any benefits from it? The person cannot
actually refuse that. You can refuse, kung ayaw na
nya,ayaw na nyang magbayad, but there will be
sanctions later on.
As one SC decision would say: Tax is the price we pay
for a civilized society. There is no need that one must
seen an actual or direct consideration. Because
remember that it is enough that the money made for
taxation is for profit, for cost and for the benefit of the
public in general. Tax is a burden to be used as a
power to destroy and at the same time it can also be
used as a power to build.
July 3, 2018 0:00-13:00
Lexi Singanon
JURISDICTION
Let’s begin with Jurisdiction. When you talk about
Jurisdiction in the concept of taxation, you talk about
territory.
1. TERRITORIALITY
When you say that taxation is jurisdictional in nature,
it means the power of taxation operates only within
the territorial limits of the taxing authority.
As a GENERAL RULE, once the object or subject is
already outside the Philippines, it is no longer subject
to Philippine taxation.
EXCEPTION: If there is a privity of relationship
between the taxing authority and the tax subject
or object.
How do you determine if there is a privity of
relationship between the taxing authority and the
tax subject or object?
There is a privity of relationship between the
taxing authority and the tax subject or object if
the taxing authority can afford protection to the
tax subject or object.
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So everything boils down to protection.
Now, how do you specifically determine if the
government can afford protection to the tax subject
or object?
Generally, it devolves upon THREE FACTORS:
1. CITIZENSHIP of the tax subject or object;
2. RESIDENCE or LOCATION of the tax subject or
object; and
3. SOURCE of the tax subject or object.
When you talk about jurisdiction, you are also talking
about the territorial limits of the power to tax
pursuant to its territorial in nature. This also has
something to do with the SITUS of taxation.
2. SITUS OF TAXATION
What do you mean by situs of taxation?
It means place of taxation.
It doesn’t mean that if a particular tax subject or
object is here in the Philippines, it is already
covered. No. Because you also have to look at the
situs of taxation, the rules on situs of taxation.
The rules on situs of taxation are the general rules
that states or taxing authorities follow when it comes
to taxation schemes and most of them, if not all, are
applicable to the Philippine taxation setting.
FACTORS CONSIDERED IN DETERMINING WHETHER
OR NOT A TAX SUBJECT OR OBJECT IS SUBJECT TO
PHILIPPINE TAXATION:
1. Kind of tax being imposed or levied;
2. The place where the thing or property is
located;
3. Residence of the person being taxed;
4. Citizenship of the person being taxed;
5. Source of the tax subject or object; and
6. Place where the excise or privilege or
business or occupation is being performed
(the place of exercise of these rights)
Must all these factors go together?
No need. It is enough that one or some of the
factors exist in order that the tax subject or object
may be covered by Philippine taxation.
DIFFERENT TYPES OF TAX SUBJECTS
Please take note that we’re still in the general
principles. Pag mag-exam na tayo sa general principles
I don’t want people to answer in the context of the
NIRC provisions. I want you to answer in the context
of the general principles.
a) INCOME TAX
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What are the considerations that must be looked
into in order to determine the situs of taxation of
income tax?
There are three considerations:
1. CITIZENSHIP of the taxpayer;
2. RESIDENCE or LOCATION of the taxpayer; and
3. SOURCE of the income.
So those are the three factors. So parang “mix-and-
match” siya.
Examples:
1) Resident of the Davao and earning income in the
Davao. Taxable here.
You don’t have any problem with me when it
comes to Philippine taxation because I am
residing here in Davao, and I am earning
income here. What type of income? It’s
compensation income, coming from an
employer-employee relationship.
2) Resident of Davao but earning income abroad.
Income abroad taxable in the Philippines.
Now, suppose I own a restaurant in Hong
Kong, and I am living here in Davao City. I am
a Filipino citizen operating a Filipino
restaurant in Hong Kong.
Because of the fact that I am a Filipino citizen
who is residing here in the Philippines, even
my income from abroad are taxable under
Philippine laws. Why? Because the
government can afford protection on my
part.
3) Non-resident Foreigner earning income in the
Philippines. Her income made in the Philippines
is taxable in the Philippines.
Let’s twist the problem a little bit further.
What if si Maria Ozawa, a Japanese citizen
working as a model here in the Philippines.
She’s not even residing here, but she earns
income here in the Philippines.
Does it mean that if she is not a resident here
in the Philippines, her income here are not
subject to Philippine income tax?
No, because there is still the source of
income. Where is the source of her income
from her modelling? Here in the Philippines.
That’s why even if she is not a resident and a
citizen of the Philippines, the government
can still afford her protection because she
earns here and she is contributing to the
community.
4) Filipino residing abroad; has properties in the
Philippines
What about if I am a Filipino and I am residing
abroad, and I own a number of properties in
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the Philippines? So even if I am not physically
here but the mere fact that I am a Filipino and
the source of my income is here in the
Philippines, then it will be subjected to
Philippine taxation.
So those are the three considerations that you have to
look into to determine the situs of taxation of income
tax.
July 3, 2018
Emille Dane S. Viola
b) PROPERTY TAX
It’s easier to understand property tax because we can
see it. What is the situs of taxation when it comes to
property? The first thing you have to consider is to
determine what type of property is subject to tax?
We have 2 KINDS OF PROPERTY UNDER PROPERTY
LAW:
1. Real Properties
2. Personal Properties
A. Real properties - the situs is where the property is
located. Here in the Philippines our real property tax is
governed by the Local Government Code, it is the
Local Government Unit that imposes real property tax.
For example, you have a land here in Davao City, it will
be subject to the real property taxes imposed or
levied by the local government of Davao. Properties
outside the jurisdiction of the city cannot be levied by
them, so we still apply the territoriality principle.
B. Personal property- distinguish first what kind of
personal property:
1. Tangible
2. Intangible
a) Tangible personal property –
GR : the situs is where the property is
located.
However some authors would say that the
thing follows the owner, but Dean Quibod
follows the general rule where the property
is found. But usually when it comes to
personal properties the thing follows the
owner.
b) Intangible personal property –
GR: mobilia sequntur personam –the thing
follows it’s owner.
This is because these properties have
to form and they are essentially rights which
follows the owner.
XPN: When the law specifically provides for
the situs of the personal property.
Example is the shares of stocks in a
corporation. Under the NIRC we have to first
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determine whether or not the stocks is here
in the Philippines or outside to determine if
they are subject to Philippine income
taxation.
There’s this old case mentioned in the De
Leon book, here the decedent died outside
the Philippines but he owned a stock from a
Philippine corporation. The question there is
whether or not the stocks from the
Philippine corporation is subject to estate
tax, the SC said yes. Normally we follow
mobilia sequntur personam, but the
exception is when the rights to intangible
property is exercisable in the Philippines, so
because it is a stock from a Philippine
Corporation, the owner will exercise his
rights here in the Philippine jurisdiction.
TAX ON PERSONS
A state may impose taxes on a person subject to its
sovereignty. In the Philippines we have community tax
or the Cedula, if you are a resident in a particular
locality you should pay your community tax for that.
EXCISE OR PRIVILEGE TAXES
This is the tax on the enjoyment of a privilege.
GR: the situs is where the act is performed, where the
occupation is engaged in or where the business is
done.
A. Donor’s tax - In case of donation we have to
consider the following:
a. the residency of the donor
b. the citizenship of the donor
c. and sometimes, the location of the property
B. Sales tax- the situs is the place where the sales
contract is consummated.
July 5, 2018
Patricia Balgoa
Read the case of CIA v. Collector.
CIA V. COLLECTOR
GR NO. L-5896 (Not in case list)
Facts:
1. Petitioner was engaged in the business of
selling surplus goods acquired from the Foreign
Liquidation Commission pursuant to an agreement
with the United States Government whereby
petitioner undertook to rehabilitate the Veterans
Administration Building (formerly Heacock Building)
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for and in consideration of over a million pesos worth
of surplus goods.
2. Petitioner had yards where some of the
goods were stored and those that were defective
were reconditioned.
3. United Africa Co., Ltd. sent its representative,
Hugh Watson Gibson, to the Philippines to look into
the availability of tractors for sale in the Philippines.
Gibson learned of the petitioner's business and
contracted to buy tractors from the latter, to be
delivered f.a.s. (free alongside ship), Manila, in good
working condition and capable of running off lighters
under their own power. A tractor expert, Mr. Tex
Taylor, was employed by the foreign company to
select, inspect and test the tractors before delivery.
4. Tex Taylor gave a list of tractors to petitioner,
to which the latter acquired and reconditioned.
Petitioner then presented such before the Philippine
Refining Co., affiliate of the foreign buyer. The latter
would then notify banks to which UAC had dollar
deposit to pay for the acquisition of the tractors.
Petitioner sold a total of 57 tractors.
Issue:
Whether or not petitioner is liable for the payment of
percentage or sales tax on its gross sales of the 57
tractors in question to the United Africa Co., Ltd.
under the provisions of Sec. 186 of the National
Internal Revenue Code
Ruling:
1. Petitioner argues that the goods in question did not
acquire a taxable situs in the Philippines because they
merely passed Philippine territory in transit and that
they were not intended for local use but for
exportation to a foreign country.
2. The sale of the tractors was consummated in the
Philippines, for title was transferred to the foreign
buyer at the pier in Manila; hence, the situs of the sale
is Philippines and it is taxable in this country.
3. As for the legislative policy to exempt consignments
abroad from tax in order to encourage exports, the
Solicitor General has pointed out that it is only the
exportation of locally produced or manufactured
products, and not every kind of exportation, that
Congress wanted to encourage and promote
ILOILO BOTTLERS V. CITY OF ILOILO
Facts:
Iloilo Bottlers Inc. filed a complaint with the CFI
of Iloilo for the recovery of the sum of
P3,329.20,which allegedly constituted payments
of municipal license taxes under Iloilo City Tax
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Ordinance No. 5 series of 1960 that the company paid
under protest. Among the arguments of Iloilo Bottlers
Inc. were as follows:
• -That it already closed its bottling plant at Muelle
Loney, Iloilo City, and transferred its bottling
operations to its new plant in Barrio Ungca,
Municipality of Pavia, Province of Iloilo, which is
outside the jurisdiction of the City of Iloilo
• That it could not anymore be liable to pay the
municipal license fee because its bottling plant
(was) not anymore inside the City of Iloilo,
and that moreover, since it itself (sold) its own
products to its(customers) directly, it could not be
considered as a distributor
• That the plaintiff does not maintain any store or
commercial establishment in the City of Iloilo
from which it distributes its products, but by
means of a fleet of delivery trucks, plaintiff
distributes its products from its bottling plant at
Barrio Ungca Municipality of Pavia, Iloilo,
directly to its customers in the different towns
of the Province of Iloilo as well as the City
of Iloilo;
• That the plaintiff is already paying the National
Government a percentage Tax on all the softdrinks it
manufactures.
The CFI rendered on January 26, 1973 a decision in
favor of Iloilo Bottlers, Inc. declaring the Corporation
not liable under the ordinance. The City of Iloilo
appealed to the Court of Appeals which certified the
case to this Court.
Issue:
WON Iloilo Bottlers Inc. is liable is liable under Iloilo
City tax Ordinance No. 5, series of 1960, as amended,
which imposes a municipal license tax on distributors
of soft-drinks.
Ruling: YES.
Iloilo Bottlers, Inc. disclaims liability on two grounds:
1) Since it is not engaged in the independent business
of distributing soft-drinks, but that its activity of
selling is merely an incident to, or is a necessary consequence
of its main or principal business of bottling, then it is
NOT liable under the city tax ordinance.
2) Only manufacturers or bottlers having their plants
inside the territorial jurisdiction of the city are
covered by the ordinance.
The second ground is manifestly devoid of merit. It is
clear from the ordinance that three types of activities
are covered: (1) distribution, (2) manufacture and
(3) bottling of softdrinks.
A person engaged in any or all of these activities is
subject to the tax. The first ground, however, merits
serious consideration. To determine whether an entity
engaged in the principal business of manufacturing, is likewise
 T A X A T ION 1
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engaged in the separate business of selling, its marketing
system or sales operations must be looked into.
There are two marketing systems: Under the first
system, the manufacturer enters into sales transactions
and invoices the sales at its main office where purchase orders are
received and approved before delivery orders are sent
to the company's warehouses, where in turn actual deliveries
are made. No warehouse sales are made; nor are separate
stores maintained where products may be sold
independently from the main office. The warehouses
only serve as storage sites and delivery points of the
productsearlier sold at the main office. Under the
second system, sales transactions are entered into
and perfected at stores or warehouses maintained by
the company. Any one who desires to purchase the
product may go to the store or warehouse and there
purchase the merchandise. The stores and warehouses
serve as selling centers.
Entities operating under the first system are NOT
considered engaged in the separate business of selling
or dealing in their products, independent of
their manufacturing business. Entities operating under
the second system are considered engaged in the
separate business of selling.
In the case at bar, the company distributed its
softdrinks by means of a fleet of delivery trucks which
went directly to customers in the different places in
lloilo province. Sales transactions with customers
were entered into and sales were perfected and
consummated by route salesmen. Truck sales were
made independently of transactions in the main
office. The delivery trucks were not used solely for the
purpose of delivering softdrinks previously sold at
Pavia. They served as selling units. They were what
were called, until recently, "rolling stores". The
delivery trucks were therefore much the same as the
stores and warehouses under the second marketing
system. Iloilo Bottlers, Inc. thus falls under the second
category above. That is, the corporation was engaged
in the separate business of selling or distributing soft-
drinks, independently of its business of bottling them.
The tax imposed under Ordinance No. 5 is an excise
tax. It is a tax on the privilege of distributing,
manufacturing or bottling softdrinks. Being an excise
tax, it can be levied by the taxing authority only when
the acts, privileges or businesses are done or
performed within the jurisdiction of said authority
[Commissioner of Internal Revenue v. British Overseas
Airways Corp. and Court of Appeals, G.R. Nos. 65773-
74, April 30, 1987, 149 SCRA 395, 410.] Specifically,
the situs of the act of distributing, bottling or
manufacturing softdrinks must be within city limits,
before an entity engaged in any of the activities may
be taxed in Iloilo City.
Where is it based?
Initially the business was based in Iloilo, but later on it
transferred to Fabia.
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What is the nature of the tax involved here, license
or business tax?
Excise tax. Being an excise tax, it can be levied by the
taxing authority only when the acts, privileges or
businesses are done or performed within the
jurisdiction of said authority.
How did Iloilo Bottlers conduct its business
pertaining to its distribution?
They have their own salesmen and these salesmen sell
the softdrinks in the city of Iloilo.
In the case at bar, the company distributed its
softdrinks by means of a fleet of delivery trucks which
went directly to customers in the different places in
lloilo province. Sales transactions with customers
were entered into and sales were perfected and
consummated by route salesmen. Truck sales were
made independently of transactions in the main
office. The delivery trucks were not used solely for the
purpose of delivering softdrinks previously sold at
Pavia. They served as selling units. They were what
were called, until recently, "rolling stores". The
delivery trucks were therefore much the same as the
stores and warehouses under the second marketing
system. Iloilo Bottlers, Inc. thus falls under the second
category above. That is, the corporation was engaged
in the separate business of selling or distributing soft-
drinks, independently of its business of bottling them.
How does the company distribute the softdrinks?
The Court distinguished 2 marketing systems:
(1) The manufacturer enters into sales
transactions and invoices the sales at its main
office where purchase orders are received
and approved before delivery orders are sent
to the company's warehouses, where in turn
actual deliveries are made. No warehouse
sales are made; nor are separate stores
maintained where products may be sold
independently from the main office. The
warehouses only serve as storage sites and
delivery points of the products earlier sold at
the main office.
(2) The sales transactions are entered into and
perfected at stores or warehouses
maintained by the company. Any one who
desires to purchase the product may go to
the store or warehouse and there purchase
the merchandise. The stores and warehouses
serve as selling centers.
What is the main difference between these 2
schemes?
Entities operating under the first system are NOT
considered engaged in the separate business of selling
or dealing in their products, independent of their
manufacturing business. Entities operating under the
second system are considered engaged in the
separate business of selling.
In the first, the transaction occurs in the MAIN
WAREHOUSE. In the second, however, the transaction
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FROM THE LECTURES OF ATTY. DONAL VO 2018
does not only occur in the main warehouse, but it also
occurs inside the city.
What is the taxable transaction based on the
ordinance?
The tax imposed under Ordinance No. 5 is an excise
tax. It is a tax on the privilege of distributing,
manufacturing or bottling softdrinks.
Where is the situs of taxation when it comes to
excise tax?
The situs of taxation here is the place where the
activity is performed. In this case, it is the place of
distribution.
Where does the sale transaction occur?
It occurs inside the City of Iloilo.
July 5, 2018
Transcribed by: Dianne Marie Isidor
14:00-28:00
CIR vs Baier Nickle
Baier-Nickle is a President of the company and at the
same time a commission agent of JUBANITEX, Inc.
JUBANITEX is engaged in the business of manufacture,
marketing and wholesale of textiles.
Q: As President of that company and commission
agent, what does she receive, how much dose she
receive?
A: She receives arounds 1.7 million based on her 10%
commission.
Q:What did JUBANITEX do with respect to the
commission that she receives?
A: There is a withholding tax.
Q: What do you understand of that withholding
tax?Essentially what happens?
A: Withholding tax- before the person receives his
compensation there is already, a company will
withheld a part of his income.
In other words, there’s already a cut. Kuhaan dayon
ug tax.
A: So in this case, there was a withholding tax that
was, with regard to her income.
Q: What did Baier-Nickle do?Because a part of her
income was withheld. What was the action of Baier-
Nickle?
A: She claimed for a refund.
Q: What is the ground of her refund?
A: Because according to her, the taxable activity here,
did not happen in the Philippines.Since, she
performed her activity in Germany and she was a non-
resident here in the Philippines, hence, such activity
should not be taxable here.
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Q: What did the BIR do to her claim for refund?
A: The BIR did not respond. It did not do anything. So,
she raised the matter here to the Court of Tax
Appeals(CTA).
Q: What did the Court of Tax Appeals do with respect
to her claim for refund?
A:The CTA first denied her claim. That’s why she went
to the Court of Appeals.
Q: What happened to the Court of Appeals?
A: It reversed the decision of the CTA. Meaning, the
CA granted her refund.
Q: What’s the issue here?
A: The issue here: W/N Baier-Nickle’s income is
taxable here?
Q: What’s the nature of this sales commission?
A: It’s in the nature of labor and service. Meaning, it’s
an income.
Q: What are the factors that were considered to
determine the taxability of the income?
A: a. Citizenship, b. Residency, c. Source of Income
Q; In this case, what matters most?
A: It is where she performed the taxable acticity.
Q: In this case, what is the situs of income?
A: The situs of income here, since this is a labor and
service income, it is the place where the labor and
service were performed.
Q: Where was the labor or service performed here by
Baier-Nickle?
A: According to her version, she performed it in
Germany.
Q: What did the SC say about this?
A: According to the SC ruling, there were no evidences
or documents that would support the contention of
Baier-Nickle that she indeed performed such taxable
activity in Germany.
Q: Because of lack of evidence, what happens now?
A: Since there was lack of evidence, hence, upheld the
taxability of the income.
So, please take note of this case.
The point here is the source or situs of income.
The source of income of personal services. The place
where the services were actually rendered.
PURPOSES OF TAXATION
The PRIMARY PURPOSE OF TAXATION is for Raising
Income.
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Is it the sole purpose? NO.
SECONDARY PURPOSES OF TAXATION:
1. Social Justice/Compensatory
An example of which is the discount given to
the Senior Citizens.
2. Regulatory/Sumptuary
Ex. The taxes imposed on liquors. The regulatory
purpose for these taxes is for the general welfare
of the people, like their health, and also for peace
and order. Basically, the Power of Taxation can be
used to implement Police Power.
3. To implement the Eminent Domain powers of
government.
What is the HEART OF TAXATION? PUBLIC PURPOSE.
July 5 (28:00 - 42:03)
Ara Olamit
Q: Can you give an example where the power of
taxation is used for police power?
The power of taxation is also used for police power.
A: An example would be raising the taxes on alcohol.
Q: Okay alcohol. So why? What is the regulatory
purpose there?
A: For the general welfare of the people, for health
purposes.
Q: Okay. So basically what you’re saying is that power
of taxation can be used as an implement of police
power. Right? So let’s go now to the social justice.
How is it also made manifest? The power of taxation
as a tool for promoting social justice.
A: A good example of social justice in power of
taxation would be the discount given to the senior
citizens.
Q: Yes. That is also one way of looking at it. Is the
social justice provision under the Constitution
applicable only to the people in general? Does it also
affect the government?
A: Yes sir.
Q: Yes. It also applies to the government. How?
A: When they delegated the power to tax to the
municipal corporation or the local government unit.
Q: Okay. Case in point is what?
A: Batangas Power.
Q: What’s that case all about? How did the SC discuss
the social provision there? The power to tax. Can you
give a brief explanation why is it the power to tax
given to the LGU’s is actually a way to implement the
social justice provision?
A: For the need to provide to the poor.
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Q: But why is it, based on that case, that the LGU is
granted the power to taxation?
A: The LGU is granted the power of taxation so that
they may, by themselves, also raise revenues.
Q: Okay. For purposes of decentralization. So that it
can have its own source of revenues. Let’s go now to
public purpose. How do you define public purpose?
A: Public purpose is when the general welfare of the
people are taken into consideration.
Q: Okay now. What happens if that particular
community does not derive any benefit from
government? Does that circumstance take it out from
the term public purpose?
A: It does not sir.
Q: Okay. Let’s just go to the case of Planters Products
vs. Fertiphil. Planters Products is what? What type of
person?
A: Juridical person. Private corporation.
Q: How about Fertiphil?
A: It is also a private corporation.
Q: What did Fertiphil do against Planters Products?
What is the respective business of Fertiphil and
Planters Products?
A: They are engaged in agricultural products.
Q: Then what happened during the time of Marcos?
A: There was an LOI issued by Marcos.
Q: Based on the LOI, what did Planters Products do
against Fertiphil?
A: Contribution was collected to make PPI viable.
Q: After Marcos was toppled, what happened next?
A: Fertiphil asked for a refund of all the contributions
it made.
Q: Moving on, what are the issues tackled in this case?
Was the LOI valid in this case? Is it valid to begin with?
The LOI somehow imposes a 10 peso per bag for the
viability of Planters. What is the nature of that 10
peso payment? What is the nature of that collection?
A: It was in the nature of a tax.
Q: Why is it in the nature of a tax? Why did the SC say
that this is a tax?
Diba the purpose of that exaction was to make
Planters viable? Was it supposed to be for regulation?
A: No sir.
Q: Then if it is not for regulation, why do you say that
it is for tax purposes? Why is it considered a tax?
What is the primary purpose of taxation?
A: The primary purpose of taxation is to raise
revenues.
Q: Yes, to raise revenue. Meaning, to raise income.
Going back here, why did the SC say that this is an
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
exercise of the power to tax? By the way, dati kasi, si
President Marcos, he has legislative powers. Ang LOI,
parang batas yan dati. That’s way back then. Going
back, why did the SC say that this is an exercise of the
power to tax?
Okay. It’s supposed to raise income, right? Raise
income. For what purpose? What is the ultimate end
goal of getting that 10 peso per bag?
A: For the viability of the PPI.
Q: In other words, for capitalization of PPI. There’s no
end point except to raise money so that we can
capitalize this particular corporation. Okay. Now, the
SC also said that this is for police power. How did the
SC argue on this? This is supposed to be for _____
because this is regulatory. That 10 peso per bag is
supposed to be for regulatory purpose so that this
(PPI) will become viable. How did the SC argue on
that?
Anyway, it can be argued that that exaction was
supposed to be for police power. Because anyway
these two powers (power to tax and police power)
may go together.
Let’s go now to the legality of the LOI. Why is it
considered as not legal? Why is it considered an illegal
power to tax?
A: Because there was already a declaration in the LOI
that the purpose of such would be for the private
company (PPI).
Q: What is the ultimate effect in giving the 10 pesos
per bag to a private corporation?
A: Such exaction would favor only that private
corporation.
Q: Meaning it gives an undue advantage and benefit
on the part of a private corporation. And what is our
basic principle with respect to the power of taxation?
What is the end goal there aside from raising
revenues?
A: It is for public purpose
Q: For public purpose only. Again, what is the heart of
taxation?
A: The heart of taxation is public purpose.
Okay. Eto yung kaso na yun. So basically that’s it. You
read the cases.
July 17, 2018 Part 1
Johaina Madum
TAXATION VS. POLICE POWER
Can tax be used to implement police power? Can the
police power go together with power of taxation?
The answer is yes of course! In fact the reason
behind for making our tax laws is to promote
police power, like for example the sin tax we have,
its to regulate the people from buying the yosi or
cigars, it’s for public health. What about tax
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exemption or tax leeway’s given to, ung bago
ngayon sa TRAIN law ung electric vehicles. There is
some sort of incentives given to car manufacturer
if they sell hybrid or totally electric vehicle. In fact
if it’s totally electric vehicle its walang excise tax
yan.
We say that police power can go together with power
of taxation, what thing about the police power is it is
not merely in money form, as you can see, it involves,
one is for confiscation of money and confiscation of
property, and under the police power you can
confiscate a property without giving something in
return and even without the consent of the owner of
such property, that is in the name of regulation. Like
for example example contrabands or drugs or
marijuana. I have client earlier he wants to file before
that FDA to legalized the cannabis oil, kasi maraming
benefits. According to him he has seen the effect of
cannabis oil to his dying grandma. According to him
it’s a good substitute daw for morphine. What about
drugs? Not only the police officer will confiscate that
drugs, they are going to take away your right and offer
it to satan.
What is the guise of police power, it is the power to
regulate. If you have read the cases in your outline,
some would say that the exaction is for the power to
regulate and some would say that it’s the power to
tax.
What is our main guiding principle?
The cases would say, that you LOOK AT THE PRIMARY
REASON OR PRIMARY GOAL.
If the principal purpose of exaction is raising
income or raising revenue, even if there is a
regulation that will have an effect of it, it would
still be considered as the power to tax.
So, all of the tax related principles that we have
learned so far, will apply it to that kind of
exaction.
However, if the principal purpose is to regulate,
even if there is an income generation as an
incidental to that law, that is actually an exercise
of police power.
Kung isipin mo parang madali lang, you just look at the
principle but if you read the cases, you would look at
the ruling first, pano ba kayo magbasa ng case,
pabaliktad? start with the wherefore, look for that tax
portion then, you go to the facts? But if you just read
it, like a normal human being would read it, una ka
from facts, issues to ruling, you could say that oh its to
regulate pero pag abot sa ruling the SC would say that
this is actually an exercise of power to tax.
Like for example yong sa motor vehicle licensing fee,
ung case ng PAL v. EDU.
You’re paying the LTO for the registration para sa
motor vehicles natin, its to regulate diba? But the
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
SC says that its actually an exercise of the power
to tax. How does the supreme court justify under
the EDU case? You look at the primary purpose of
the exaction taken from, you know the registration
of the motor vehicle, the main purpose is to be
used for the constructions and maintenance of
public road and highways. But anyways aside from
that, according to the SC, the main purpose of the
motor vehicle registration fees is supposed to be
for raising income.
So anong effect, meron tayong mga rules diba?
Lets start from the random of cases. Lets start
with Republic v. Murcia.
Republic vs. Bacolod-Murcia Milling Co.
GR L-19824-26, 9 July 1999
FACTS: This is a joint appeal by three sugar centrals,
Bacolod Murcia Milling Co., Inc., Ma-ao Sugar Central
Co., Inc., and Talisay-Silay Milling Co., sister
companies under one controlling ownership and
management, from a decision of the Court of First
Instance of Manila finding them liable for special
assessments under Section 15 of Republic Act No.
632.
Sec. 15. Capitalization. — To raise the necessary
funds to carry out the provisions of this Act and the
purposes of the corporation, there shall be levied on
the annual sugar production a tax of TEN CENTAVOS
[P0.10] per picul of sugar to be collected for a period
of five (5) years beginning the crop year 1951-1952.
The amount shall be borne by the sugar cane
planters and the sugar centrals in the proportion of
their corresponding milling share, and said levy shall
constitute a lien on their sugar quedans and/or
warehouse receipts.
RA 632 created the Philippine Sugar Institute, a semi-
public corporation. In 1951, the Institute acquired
the Insular Sugar Refinery for P3.07 million payable
in installments from the proceeds of the sugar tax to
be collected under RA 632. The operation of the
refinery for 1954 to 1957 was disastrous as the
Institute suffered tremendous losses. Contending
that the purchase of the refinery with money from
the Institute’s fund was not authorized under RA
632, and that the continued operation of the refinery
is inimical to their interest, Bacolod-Murcia Milling
Co., Ma-ao Sugar Central, Talisay-Silay Milling Co.
and the Central Azucarera del Danao refused to
continue with their contribution to said fund. The
trial court found them liable under RA 632.
ISSUE: Whether the defendants-appellants may
refuse to pay the special assessment. No
RULING: The nature of a “special assessment” similar
to the case has been discussed and explained in Lutz
vs. Araneta. The special assessment or levy for the
Philippine Sugar Institute (Philsugin) Fund is not so
much an exercise of the power of taxation, nor the
imposition of a special assessment, but the exercise
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of police power for the general welfare of the entire
country.
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 to 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.
As stated in Johnson vs. State ex rel. Marcy — "The
protection of a large industry constituting one of the
great source of the state's wealth and therefore
directly or indirectly affecting the welfare of so great
a portion of the population of the State is affected to
such an extent by public interests as to be within the
police power of the sovereign." (128 So. 857).
It is, therefore, an exercise of a sovereign power
which no private citizen may lawfully resist. Section
2a of the Charter authorizing Philsugin to “conduct
research work for the sugar industry in all its phases,
either agricultural or industrial, for the purpose of
introducing into the sugar industry such practices or
processes that will reduce the cost of production and
achieve greater efficiency in the industry, justifies the
acquisition of the refinery in question. The financial
loss resulting from the operation thereof is no means
an index that the industry did not profit therefrom,
as other gains of a different nature (such as
experience) may have been realized.
*This is a 1966 case. Ito yong usually na sinasabi nila,
if you read your text books, as your Sugar Central
case.
There is this Republic Act 632 which created the
Philippine Sugar Institute (PhilSugIn) . This was
created to conduct research work on sugar industry
here in the Philippines, mainly to improve existing
methods of raising sugar cane and manufacturing of
sugar by product etc.. Anyway, they came also for the
capitalization of Philsugin, anong sabi nya? There
shall be levied on the annual sugar production tax of
TEN CENTAVOS [P0.10] per picul of sugar to be
collected. Ano yang picul? Maimagine nyo nyang
picul? Pwede ba yan sa rice, diba sa rice kay ‘sack”,
bakit sa sugar picul? But anyway, 10 cents per picul of
sugar, and then using the once acquired from this
scheme, yang 10 cents na yan, Philsugin bought a
factory, or refinery. But what happened, it was a
disaster in the sense that PHILSUGIN incurred
tremendous losses. So eventually sugar centrals
(Bacolod et.al) stop paying exaction of the 10 cents.
What are their reasons why they stop paying these 10
cents. Ang sabi nila its not supposed to be a tax,
because its not for revenue purpose, ano ito? It’s not
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018

for income, it’s a special assessment. Ok what is a

special assessment? The SC had a long discussion regarding the distinctions
between powers of taxation and police power. Let me
Basically, a special assessment is levied on land. It is
focus on that.
levied on land because of the benefits that a land
receives because of some public construction for
example if the government make a road then POWER TO TAX POLICE POWER
tatamaan yong propert. Aano bang levy sa property The power to tax is an On the other hand,
nayan? So as an effect the local or local government incident of sovereignty police power is the
can make a special assessment so that they could and is unlimited in its power of the state to
make an “amot” to the improvement that happens
range, acknowledging in promote public welfare
because after all they will be benefited and its only up
its very nature no limits, by restraining and
to the extent of that benefit. Kung na recover na ang
custom construction, the special assessment will stop. so that security against its regulating the use of
This is what sugar central was saying. Sabi nila, they’ll abuse is to be found only liberty and property. It is
stop paying because they don’t get any benefit from in the responsibility of the the most pervasive, the
it, in fact tremendous losses has been incurred. So legislature which imposes least limitable, and the
anyway what is the nature of that exaction, is it a tax the tax on the most demanding of the
or a special assessment? Anong sabi ng Supreme
constituency that is to pay three fundamental
Court?
it. powers of the State.
It is based on the principle The justification is found
July 17 (11:00-21:00) that taxes are the in the Latin maxims salus
Nikki Tan lifeblood of the populi est suprema lex
government, and their (the welfare of the
The Supreme Court said that the 10 centavos is not a prompt and certain people is the supreme
tax, not even a special assessment, but it’s a just an availability is an imperious law) and sic utere tuo ut
exaction for regulation an exercise of police power for need. alienum non laedas (so
the general welfare of the entire country it will aid the use your property as not
entire sugar industry in the Philippines if the exaction Thus, the theory behind to injure the property of
is made for the protection welfare and improvement the exercise of the power others).
of the entire sugar industry of the Philippines. to tax emanates from
necessity; without taxes, As an inherent attribute
Then we have ROMEO P. GEROCHI, KATULONG NG government cannot fulfill of sovereignty which
BAYAN (KB) and ENVIRONMENTALIST CONSUMERS its mandate of promoting virtually extends to all
NETWORK, INC. (ECN), v DOE G.R. No. 159796 July the general welfare and public needs, police
17, 2007 the universal charge, what was challenged well-being of the people. power grants a wide
here was Republic Act (RA) 9136, otherwise known as
panoply of instruments
the Electric Power Industry Reform Act of 2001 (EPIRA
law) and Rule 18 of the Rules and Regulations (IRR) of through which the State,
that law. Because this IRR and the law itself imposes a as parens patriae, gives
universal charge to all entities and end users for effect to a host of its
particular purposes the amount of the universal regulatory powers.
charges are determined, fixed, and approved by the
ERC. And then then ERC issued an order that it was
approved there of course this is an additional money
that the end users will have to pay so suko ang mga The SC now said that the universal charge is not a tax,
tao. but an exaction in the exercise of the State's police
power.
This was challenged by the petitioners on the grounds Just look at the primary purpose if it is for raising
that the universal charge is an illegal exercise of the a revenue it is a tax but if the main purpose its
power of taxation because you are authorizing and merely to regulate even if there is money
administrative body to exact something from the end involved then it is police power. The SC said you
user this cannot be done. This is a tax this is not a look at the declaration of policy of the law you
regulation. Of course sabi ng respondents this is not a can discern that this universal charge is allowed
tax this is for a specific regulatory purpose: to ensure for it is an exercise of police powers.
the viability of the country's electric power industry.
So the issue here is, is it a tax or not? This is important SECTION 2. Declaration of Policy. It is hereby declared
because this will ultimately determine whether or not the policy of the State:
the universal charge imposed is valid.

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 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
(a) To ensure and accelerate the total electrification of
the country;
(b) To ensure the quality, reliability, security and
affordability of the supply of electric power;
(c) To ensure transparent and reasonable prices of
electricity in a regime of free and fair competition and
full public accountability to achieve greater
operational and economic efficiency and enhance the
competitiveness of Philippine products in the global
market;
(d) To enhance the inflow of private capital and
broaden the ownership base of the power generation,
transmission and distribution sectors;
(e) To ensure fair and non-discriminatory treatment of
public and private sector entities in the process of
restructuring the electric power industry;
(f) To protect the public interest as it is affected by the
rates and services of electric utilities and other
providers of electric power;
(g) To assure socially and environmentally compatible
energy sources and infrastructure;
(h) To promote the utilization of indigenous and new
and renewable energy resources in power generation
in order to reduce dependence on imported energy;
(i) To provide for an orderly and transparent
privatization of the assets and liabilities of the
National Power Corporation (NPC);
(j) To establish a strong and purely independent
regulatory body and system to ensure consumer
protection and enhance the competitive operation of
the electricity market; and
(k) To encourage the efficient use of energy and other
modalities of demand side management.
So in the end if you look at the policies it’s not much
on money making but it’s more of ensuring the total
electrification of the country in general. So this is in
pursuit to the state’s police power objective.
And then what if the exaction is too big? What if I will
collect money from you ranging from 1,000,000-
24,000,000?
That is the case of CHEVRON PHILIPPINES, INC.
(Formerly CALTEX PHILIPPINES, INC.), Petitioner, vs.
BASES CONVERSION DEVELOPMENT AUTHORITY and
CLARK DEVELOPMENT CORPORATION, G.R. No.
173863, September 15, 2010 the Board of Directors of
respondent Clark Development Corporation (CDC)
issued and approved Policy Guidelines on the
Movement of Petroleum Fuel to and from the Clark
Special Economic Zone (CSEZ). Now Chevron is a
supplier of Nanox Philippines which is inside the CSEZ
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and then CDC charged and demanded to Chevron the
payment of royalty fees because there was this
regulation approved imposing royalty fees and then
Chevron did not ought to pay because the royalty fees
were excessive. What was the argument of Chevron
here? Chevron said that the royalty fees imposed had
no reasonable relation to the probable expenses of
regulation and that the imposition on a per unit
measurement of fuel sales was for a revenue
generating purpose, thus, akin to a "tax".
The SC said that the royalty fee is an exercise of police
power. The subject royalty fee was imposed primarily
for regulatory purposes, and not for the generation of
income or profits as petitioner claims. Again we look
at the purpose and that is in the Policy Guidelines on
the Movement of Petroleum Fuel to and from the
Clark Special Economic Zone which provides:
DECLARATION OF POLICY
It is hereby declared the policy of CDC to develop and
maintain the Clark Special Economic Zone (CSEZ) as a
highly secured zone free from threats of any kind,
which could possibly endanger the lives and
properties of locators, would-be investors, visitors,
and employees.
It is also declared the policy of CDC to operate and
manage the CSEZ as a separate customs territory
ensuring free flow or movement of goods and capital
within, into and exported out of the CSEZ.26
(Emphasis supplied.)
From the foregoing, it can be gleaned that the Policy
Guidelines was issued, first and foremost, to ensure
the safety, security, and good condition of the
petroleum fuel industry within the CSEZ. The
questioned royalty fees form part of the regulatory
framework to ensure "free flow or movement" of
petroleum fuel to and from the CSEZ. The fact that
respondents have the exclusive right to distribute and
market petroleum products within CSEZ pursuant to
its JVA with SBMA and CSBTI does not diminish the
regulatory purpose of the royalty fee for fuel products
supplied by petitioner to its client at the CSEZ. In the
case at bar, there can be no doubt that the oil industry
is greatly imbued with public interest as it vitally
affects the general welfare.30 In addition, fuel is a
highly combustible product which, if left unchecked,
poses a serious threat to life and property. Also, the
reasonable relation between the royalty fees imposed
on a "per liter" basis and the regulation sought to be
attained is that the higher the volume of fuel entering
CSEZ, the greater the extent and frequency of
supervision and inspection required to ensure safety,
security, and order within the Zone. As to the issue of
reasonableness of the amount of the fees, we hold
that no evidence was adduced by the petitioner to
show that the fees imposed are unreasonable.
July 17, 2018 21:00-32:00
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
Jessa Puerin
The fuel is highly combustible and it can cause severe
damage if left unchecked. The more fuel ,the greater
the extent and frequency of supervision and
inspection required to ensure safety, security, and
order within the Zone. (Mas marami ang tao daw mas
malaki ang tao).
REPUBLIC VS INTERNATIONAL COMMUNICATIONS
Sir: The law in point here is the Public Service Act.
FACTS: On April 4, 1995, respondent ICC, holder of a
legislative franchise under Republic Act (RA) No.
7633 to operate domestic telecommunications, filed
with the NTC an application for a Certificate of
Public Convenience and Necessity to install,
operate, and maintain an international
telecommunications leased circuit service between
the Philippines and other countries, and to charge
rates therefor, with provisional authority for the
purpose. Respondent ICC filed a motion for partial
reconsideration of the Order insofar as the same
required the payment of a permit fee. In a
subsequent Order dated June 25, 1997, the NTC
denied the motion. Therefrom, ICC went to the CA
on a petition for certiorari with prayer for a
temporary restraining order and/or writ of
preliminary injunction, questioning the NTC's
imposition against it of a permit fee of
P1,190,750.50 as a condition for the grant of the
provisional authority applied for. In its original
decision, dated January 29, 1999, the CA ruled in
favor of the NTC whose challenged orders were
sustained, and accordingly denied ICC's certiorari
petition. In time, ICC moved for a reconsideration.
This time, the CA, in its Amended Decision dated
September 30, 1999, reversed itself, granting ICC its
motion for reconsideration. Petitioner NTC filed a
motion for reconsideration, but its motion was
denied by the CA.
ISSUES: 1. Whether the fee in question is in the
nature of a tax, or is merely a regulatory measure.
RULING: 1. Section 40(g) of the Public Service Act is
not a tax measure but a simple regulatory provision
for the collection of fees imposed pursuant to the
exercise of the State‘s police power. A tax is
imposed under the taxing power of government
principally for the purpose of raising revenues. The
law in question, however, merely authorizes and
requires the collection of fees for the
reimbursement of the Commission's expenses in
the authorization, supervision and/or regulation of
public services. There can be no doubt then that
petitioner NTC is authorized to collect such fees.
However, the amount thereof must be reasonably
related to the cost of such supervision and/or
regulation.
So let us recap.
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How do you differentiate police power from power
to tax?
1. As to concept: Tax is the power that imposed
burdens to raise money for public use;
whereas, police power is a power to make
laws for general welfare.
2. As to purpose: Tax is for revenue; police
power is for regulation.
3. As to amount: In tax, the amount is generally
unlimited, plenary and all-encompassing; in
police power, the amount should not exceed
the cost of regulation.
4. As to compensation: In tax, the compensation
is continuous protection and organized
society; in police power, the compensation is
the healthy economic standard of economy.
5. As to property taken: Tax is generally payable
in money (then later on you will realize that
the BIR can get the property and sell it in
public auction); in police power, it involves
not only money but other properties which
may the source of danger, safety and morals
that means to be regulated.
6. In relation to non-impairment clause: tax is
inferior to non-impairment clause of the
Constitution; police power is superior to non-
impairment clause.
POWER TO TAX VS. POWER OF EMINENT DOMAIN
What is the Power of Eminent Domain?
Eminent Domain - is the inherent power of the State
to take private property for public use after payment
of just compensation.
3 MAJOR REQUIREMENTS FOR THE VALID EXERCISE
OF POWER OF EMINENT DOMAIN:
1. The taking of private property
2. The taking is for public purpose
3. Just compensation must be paid to the
property owner.
Take note of the meaning of Just Compensation.
There is one requirement when it comes to LGUs:
There must a previous offer that must be made by the
local government unit to which the property owner
has rejected.
The power to tax can be used to implement Eminent
Domain. That is additional because if you browse
jurisprudence, as in the case of CIR VS CENTRAL
LUZON, the Supreme Court said that the power of
taxation can be used in conjunction of the power of
eminent domain.
CIR VS. CENTRAL LUZON
This is about the 20% senior citizen discount. The tax
benefit for taking up the 20% senior citizen discount.
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
Way back then, when business establishments will
provide for 20% discount, the discount can be claimed
as tax credit.
A tax credit is a peso for peso deduction for tax
liabilities. Babayaran kung tax is P100K, what if
nagbigay ako ng P20k as senior citizen discount
under the Senior Citizen’s Law, P100k less 20k,
ang bayronon sa government na lang is 80k. So, it
is peso for peso deduction.
The Supreme Court said here na this is actually an
exercise of eminent domain because these
establishments giving 20% senior citizen discount
is partaking with own property. They are forced
to give discounts to senior citizens and sabi ng
Supreme Court dito na “okay, that is not allowed
because we are going to take their money, their
income and give it for public purpose.” So, how
are we compensate those business
establishments? This is through giving of tax
credits. Kaya sabi ng Supreme Court dito na tax
credit benefits granted to these establishments
can be deemed as their just compensation for the
private property taken for public use.
As a result of the 20% discount as imposes by the
Republic Act, the respondents are entitled for just
compensation. That is way back then.
But here comes the amendment. What happened now
is this: the establishments or several establishments
are still required to give out the senior citizen discount
to senior citizen, and yet what are the benefits
received by these persons, is just a tax deduction.
Ang tax deduction kasi minus lang yan sa income,
hindi sa tax- but a deduction of your income. So
what is the effect? If the tax credit is a direct
deduction of your tax liability, the tax deduction
reduces your net income or reduces your net
taxable income- the effect of the tax liability of
the taxpayer is only indirect. Tax deduction is an
indirect deduction; it is no longer a peso for peso
deduction, but only a fraction of the total
discount gave out to the senior citizens.
CARLOS SUPERDRUG VS. VELASCO
Ang ground dito sa Superdrug, there is improper
exercise of the power of eminent domain. It
constitutes taking of private property without just
compensation and violates the equal protection
clause. Why? Because the tax deductions scheme for
giving out of 20% discount does not fully reimbursed
the petitioners or the establishments in general in
giving out senior citizen discounts. This is an exercise
of eminent domain, but another, this is an exercise of
police power for the public welfare. Siguro moengon
ko yes but this an unnecessary evil so that they could
help the senior citizens.
The Supreme Court held that “the law is a legitimate
exercise of police power which, similar to the power
of eminent domain, has general welfare for its
object.
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Police power is not capable of an exact definition,
but has been purposely veiled in general terms to
underscore its comprehensiveness to meet all
exigencies and provide enough room for an
efficient and flexible response to conditions and
circumstances, thus assuring the greatest
benefits. For this reason, when the conditions so
demand as determined by the legislature,
property rights must bow to the primacy of police
power because property rights, though sheltered
by due process, must yield to general welfare.”
MANILA MEMORIAL VS. DSWD
In this case of Manila Memorial vs. DSWD, if you have
read this case, this essentially has the same principles
laid down in the Superdrug case. This is a tax
deduction, not a tax credit, but is still legal because
in the end it is the exercise of the police power and
not the power of eminent domain.
So if you are ask in your exam, is the senior citizen
discount is considered an exercise of power of
eminent domain? I think you have to answer this as an
exercise of police power citing first the Superdrug
case and second, the Manila Memorial case.
But if you are ask: can the power of taxation go
together with power of eminent domain since both
are for public purpose, then you cite the case of
Central Luzon.
Case Digests from the internet:
CIR v. CENTRAL LUZON DRUG CORPORATION, GR NO.
148512, 2006-06-26
Facts:
Central Luzon Drug Corporation has been a retailer of
medicines and other pharmaceutical products since
December 19, 1994. In 1995, it opened three (3)
drugstores as a franchisee under the business name
and style of "Mercury Drug."
For the period January 1995 to December 1995, in
conformity to the mandate of Sec. 4(a) of R.
Subsequently, on December 27, 1996, claiming that
according to Sec. 4(a) of R.A. No. 7432, the amount of
P219,778 should be applied as a tax credit,
respondent filed a claim for refund in the amount of
P150,193... he amount of P150,193 claimed as a
refund represents the tax credit allegedly due to
respondent under R.A. No. 7432.
the CTA dismissed the petition, declaring that even if
the law treats the 20% sales discounts granted to
senior citizens as a tax credit, the same cannot apply
when there is no tax liability or the amount of the tax
credit is greater than the tax due
. In... the latter case, the tax credit will only be to the
extent of the tax liability.
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
Also, no refund can be granted as no tax was
erroneously, illegally and actually collected based on
the provisions of Section 230, now Section 229, of the
Tax Code.
Furthermore, the law does not state that a refund can
be claimed by the private establishment concerned as
an alternative to the tax credit.
Thus, respondent filed with the CA a Petition for
Review
On May 31, 2001, the CA rendered a Decision stating
that Section 229 of the Tax Code does not apply in this
case. It concluded that the 20% discount given to
senior citizens which is treated as a tax credit
pursuant to Sec. 4(a) of R.A. No. 7432 is considered
just compensation... and, as such, may be carried over
to the next taxable period if there is no current tax
liability
Issues:
whether the 20% sales discount granted by
respondent to qualified senior citizens pursuant to
Sec. 4(a) of R.A. No. 7432 may be claimed as a tax
credit or as a deduction from gross sales in
accordance with Sec. 2(1) of Revenue
Regulations No. 2-94.
Ruling:
The CA and the CTA correctly ruled that based on the
plain wording of the law discounts given under R.A.
No. 7432 should be treated as tax credits, not
deductions from income.
The above provision explicitly employed the word "tax
credit." Nothing in the provision suggests for it to
mean a "deduction" from gross sales. To construe it
otherwise would be a departure from the clear
mandate of the law.
Thus, the 20% discount required by the Act to be
given to senior citizens is a tax credit, not a deduction
from the gross sales of the establishment concerned.
As a corollary to this, the definition of "tax credit"
found in Section 2(1) of Revenue Regulations No. 2-94
is... erroneous as it refers to tax credit as the amount
representing the 20% discount that "shall be
deducted by the said establishment from their gross
sales for value added tax and other percentage tax
purposes." This definition is contrary to what our
lawmakers... had envisioned with regard to the
treatment of the discount granted to senior citizens.
Finally, for purposes of clarity, Sec. 229[11] of the Tax
Code does not apply to cases that fall under Sec. 4 of
R.A. No. 7432 because the former provision governs
exclusively all kinds of refund or credit of internal
revenue taxes that were erroneously or... illegally
BALGOA, CAMPANER, CASTRO, DEL ROSARIO, ISIDOR, MADUM, OLAMIT, PUERIN, SINGANON, TAN, VIOLA
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imposed and collected pursuant to the Tax Code while
the latter extends the tax credit benefit to the private
establishments concerned even before tax payments
have been made.
The tax credit that is contemplated under the Act is a
form of just compensation, not a... remedy for taxes
that were erroneously or illegally assessed and
collected. In the same vein, prior payment of any tax
liability is not a precondition before a taxable entity
can benefit from the tax credit. The credit may be
availed of upon payment of the tax due, if any.
Where... there is no tax liability or where a private
establishment reports a net loss for the period, the tax
credit can be availed of and carried over to the next
taxable year.
It must also be stressed that unlike in Sec. 229 of the
Tax Code wherein the remedy of refund is available to
the taxpayer, Sec. 4 of the law speaks only of a tax
credit, not a refund.
As earlier mentioned, the tax credit benefit granted to
the establishments can be deemed as their just
compensation for private property taken by the State
for public use. The privilege enjoyed by the senior
citizens does not come directly from the State, but
rather from the... private establishments concerned.
CARLOS SUPERDRUG CORP., ET. AL. vs. DSWD
G.R. No. 166494 June 29, 2007
FACTS
Petitioners are domestic corporations and proprietors
operating drugstores in the Philippines. Meanwhile,
AO 171 or the
Policies and Guidelines to Implement the Relevant
Provisions of Republic Act 9257, otherwise known as
the “Expanded Senior Citizens Act of 2003”was issued
by the DOH, providing the grant of twenty percent
(20%) discount in the purchase of unbranded generic
medicines from all establishments dispensing
medicines for the exclusive use of the senior citizens.
DOH issued Administrative Order No 177 amending
A.O. No. 171. Under A.O. No. 177, the twenty percent
discount shall not be limited to the purchase of
unbranded generic medicines only, but shall extend to
both prescription and non-prescription medicines
whether branded or generic. Thus, it stated that “[t]he
grant of twenty percent(20%) discount shall be
provided in the purchase of medicines from all
establishments dispensing medicines for the exclusive
use of the senior citizens.” Petitioners assert that
Section 4(a) of the law is unconstitutional because
itconstitutes deprivation of private property.
Compelling drugstore owners andestablishments to
grant the discount will result in a loss of profit and
capital because 1)drugstores impose a mark-up of
only 5% to 10% on branded medicines; and 2) the
lawfailed to provide a scheme whereby drugstores will
be justly compensated for thediscount.
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
ISSUE: WON Section 4(a) of the Expanded Senior
Citizens Act is unconstitutional or not violative of
Article 3 Section 9 of the Constitution which provides
that private property shall not be taken for public use
without just compensation and the equal protection
clause of Article 3 Section 1?
RULING:
The permanent reduction in their total revenues is a
forced subsidy corresponding to the taking of private
property for public use or benefit. This constitutes
compensabletaking for which petitioners would
ordinarily become entitled to a just compensation.
Just compensation is defined as the full and fair
equivalent of the property takenfrom its owner by the
expropriator. The measure is not the taker’s gain but
the owner’sloss. The word Just is used to intensify the
meaning of the word compensation , and to convey
the idea that the equivalent to be rendered for the
property to be taken shall bereal, substantial, full and
ample. A tax deduction does not offer full
reimbursement of the senior citizen discount.As such,
it would not meet the definition of just compensation.
Having said that, this raises the question of whether
the State, in promoting thehealth and welfare of a
special group of citizens, can impose upon private
establishmentsthe burden of partly subsidizing a
government program.The Court believes so. The law
grants a twenty percent discount to senior citizens for
medical and dentalservices, and diagnostic and
laboratory fees; admission fees charged by theaters,
concerthalls, circuses, carnivals, and other similar
places of culture, leisure and amusement; faresfor
domestic land, air and sea travel; utilization of
services in hotels and similar lodgingestablishments,
restaurants and recreation centers; and purchases of
medicines for theexclusive use or enjoyment of senior
citizens. As a form of reimbursement, the law provides
that business establishments extending the twenty
percent discount to senior citizens may claim the
discount as a tax deduction.The law is a legitimate
exercise of police power which, similar to the power
of eminent domain, has general welfare for its object.
Police power is not capable of anexact definition, but
has been purposely veiled in general terms to
underscore its comprehensiveness to meet all
exigencies and provide enough room for an efficient
and flexible response to conditions and
circumstances, thus assuring the greatest benefits.
Accordingly, it has been described as “the most
essential, insistent and the least limitable of powers,
extending as it does to all the great public needs.” It is
“[t]he power vested inthe legislature by the
constitution to make, ordain, and establish all manner
of wholesomeand reasonable laws, statutes, and
ordinances, either with penalties or without,
notrepugnant to the constitution, as they shall judge
to be for the good and welfare of thecommonwealth,
and of the subjects of the same.” For this reason,
when the conditions so demand as determined by the
legislature, property rights must bow to the primacy
of police power because property rights,
BALGOA, CAMPANER, CASTRO, DEL ROSARIO, ISIDOR, MADUM, OLAMIT, PUERIN, SINGANON, TAN, VIOLA
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thoughsheltered by due process, must yield to general
welfare.
Police power as an attribute to promote the common
good would be dilutedconsiderably if on the mere
plea of petitioners that they will suffer loss of earnings
andcapital, the questioned provision is invalidated.
Moreover, in the absence of evidencedemonstrating
the alleged confiscatory effect of the provision in
question, there is no basis for its nullification in view
of the presumption of validity which every law has in
itsfavor. Given these, it is incorrect for petitioners to
insist that the grant of the senior citizen discount is
unduly oppressive to their business, because
petitioners have not takentime to calculate correctly
and come up with a financial report, so that they have
not beenable to show properly whether or not the tax
deduction scheme really works greatly totheir
disadvantage. The Court is not oblivious of the retail
side of the pharmaceutical industry and
thecompetitive pricing component of the business.
While the Constitution protects propertyrights,
petitioners must accept the realities of business and
the State, in the exercise of police power, can
intervene in the operations of a business which may
result in animpairment of property rights in the
process. Moreover, the right to property has a social
dimension. While Article XIII of theConstitution
provides the precept for the protection of property,
various laws and jurisprudence, particularly on
agrarian reform and the regulation of contracts and
publicutilities, continuously serve as a reminder that
the right to property can be relinquishedupon the
command of the State for the promotion of public
good.
MANILA MEMORIAL PARK v. SECRETARY OF
DEPARTMENT OF SOCIAL WELFARE,
GR No. 175356, 2013-12-03
Facts:
Petitioners emphasize that they are not questioning
the 20% discount granted to senior citizens but are
only assailing the constitutionality of the tax
deduction scheme prescribed under RA 9257 and the
implementing rules and regulations issued by the
DSWD and the DOF
Petitioners posit that the tax deduction scheme
contravenes Article III, Section 9 of the Constitution,
which provides that: "[p]rivate property shall not be
taken for public use without just compensation."...
petitioners cite
Central Luzon Drug Corporation, where it was ruled
that the 20% discount privilege constitutes taking of
private property for public use which requires the
payment of just compensation
Issues:
WHETHER SECTION 4 OF REPUBLIC ACT NO. 9257 AND
ITS IMPLEMENTING RULES AND REGULATIONS,
INSOFAR AS THEY PROVIDE THAT THE TWENTY
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
PERCENT (20%) DISCOUNT TO SENIOR CITIZENS MAY
BE CLAIMED AS A TAX DEDUCTION BY THE PRIVATE
ESTABLISHMENTS, ARE INVALID AND
UNCONSTITUTIONAL.
Ruling:
The Petition lacks merit.
The validity of the 20% senior citizen discount and tax
deduction scheme under RA 9257, as an exercise of
police power of the State, has already been settled in
Carlos Superdrug Corporation.
The permanent reduction in their total revenues is a
forced subsidy corresponding to the taking of private
property for public use or benefit. This constitutes
compensable taking for which petitioners would
ordinarily become entitled to a just compensation.
A tax deduction does not offer full reimbursement of
the senior citizen discount. As such, it would not meet
the definition of just compensation.
Having said that, this raises the question of whether
the State, in promoting the health and welfare of a
special group of citizens, can impose upon private
establishments the burden of partly subsidizing a
government program.
The Court believes so.
As a form of reimbursement, the... law provides that
business establishments extending the twenty percent
discount to senior citizens may claim the discount as a
tax deduction.
The law is a legitimate exercise of police power which,
similar to the power of eminent domain, has general
welfare for its object.
For this reason, when the conditions so demand as
determined by the legislature, property rights must
bow to the primacy of police power because property
rights, though sheltered by due process, must yield to
general welfare.
Police power as an attribute to promote the common
good would be diluted considerably if on the mere
plea of petitioners that they will suffer loss of earnings
and capital, the questioned provision is invalidated.
Given these, it is incorrect for petitioners to insist that
the grant of the senior citizen discount is unduly
oppressive to their business, because petitioners have
not taken time to calculate correctly and come up
with a financial report, so that they have not been
able to... show properly whether or not the tax
deduction scheme really works greatly to their
disadvantage.
We, thus, found that the 20% discount as well as the
tax deduction scheme is a valid exercise of the police
power of the State.
BALGOA, CAMPANER, CASTRO, DEL ROSARIO, ISIDOR, MADUM, OLAMIT, PUERIN, SINGANON, TAN, VIOLA
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The 20% discount is intended to improve the welfare
of senior citizens who, at their age, are less likely to be
gainfully employed, more prone to illnesses and other
disabilities, and, thus, in need of subsidy in purchasing
basic commodities.
the 20% discount is a regulation affecting the ability of
private establishments to price their products and
services relative to a special class of individuals, senior
citizens, for which the Constitution affords
preferential concern... it does... not purport to
appropriate or burden specific properties, used in the
operation or conduct of the business of private
establishments, for the use or benefit of the public, or
senior citizens for that matter
The subject regulation may be said to be similar to,
but with substantial distinctions from, price control or
rate of return on investment control laws which are
traditionally regarded as police power measures.[77]
These laws generally regulate public... utilities or
industries/enterprises imbued with public interest in
order to protect consumers from exorbitant or
unreasonable pricing as well as temper corporate
greed by controlling the rate of return on investment
of these corporations... considering that they have a
monopoly... over the goods or services that they
provide to the general public.
On its face, therefore, the subject regulation is a
police power measure.
The obiter in Central Luzon Drug Corporation,[78]
however, describes the 20% discount as an exercise of
the power of eminent domain and the tax credit,
under the previous law, equivalent to the amount of
discount given as the just compensation... therefor.
It presupposes that the subject regulation, which
impacts the pricing and, hence, the profitability of a
private establishment, automatically amounts to a
deprivation of property without due process of law.
If this were so,... then all price and rate of return on
investment control laws would have to be invalidated
because they impact, at some level, the regulated
establishment's profits or income/gross sales, yet
there is no provision for payment of just
compensation
The obiter is, thus, at odds with the settled doctrine...
that the State can employ police power measures to
regulate the pricing of goods and services, and, hence,
the profitability of business establishments in order to
pursue legitimate State objectives for the common
good, provided that the regulation does not go too far
as to... amount to "taking."
Principles:
Police power versus eminent domain.
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
Police power is the inherent power of the State to
regulate or to restrain the use of liberty and property
for public welfare.[58] The only limitation is that the
restriction imposed should be reasonable, not
oppressive.
"property rights of individuals may be subjected to
restraints and burdens in... order to fulfill the
objectives of the government.
The State "may interfere with personal liberty,
property, lawful businesses and occupations to
promote the general welfare [as long as] the
interference [is] reasonable and not arbitrary.
Eminent domain, on the other hand, is the inherent
power of the State to take or appropriate private
property for public use.
private property shall not be taken without due
process of law and the... payment of just
compensation
In the exercise of police power, a property right is
impaired by regulation,[65] or the use of property is
merely prohibited, regulated or restricted[66] to
promote public welfare.
payment of just compensation is not required.
in the exercise of the power of eminent domain,
property interests are appropriated and applied to
some public purpose which necessitates the payment
of just compensation therefor.
Normally, the title to and possession of the property
are transferred to the... expropriating authority.
June 24 Part 1
SS Castro
PRINCIPLES OF SOUND TAX SYSTEM
Synonymous with the Canons of Sound Tax System or
Characteristics of Sound Tax System.
Keyword is F-A-T
1. Fiscal Adequacy
2. Administrative Feasibility
3. Theoretical Justice
FISCAL ADEQUACY
From the word itself adequate.
Fiscal Adequacy means the TAX SYSTEM must be able
to provide submission revenues in order to meet the
legitimate needs of the government, adequate or
sufficient.
The sources of income taken as a whole must
be sufficient to meet the ever expanding needs
or expenditures of the government regardless
of conditions, export taxes, and problems of
economic adjustments.
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The taxes being collected by the government must be
enough to answer the government expenditures –
even in cases where there will be a deficit despite a
100% collection on the internal revenue taxes. 1
CHAVEZ VS. ONGPIN
There was an Executive Order issued by the
government increasing the values of the real
properties for real property taxation purposes.
The increase was more than 100%. This was
challenged by Francisco Chavez (former SolGen)
on the ground that it was oppressive for being
tantamount to confiscation of property without
due process of law.
SC here ruled against Chavez. Without the
Executive Order which raised the real property
values the real properties would not mirror the
current value of the real properties considering
the changes brought about by the passage time.
And we also have to accept the fact of the
increasing expenses of the government, the
government will give value.
According to the SC, fiscal adequacy 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.
ABAKADA vs. ERMITA
Lagi natin balik-balikan ang case na ito. There
are a lot of general principles of Taxation here,
so you should read this.
ABAKADA challenged the standby powers given
to the President to increase the VAT
percentage given certain conditions.
SC said here first condition is decided by the
President. But the second is that in case there is
any increase in the deficit, fiscal adequacy
dictates the need to raise the VAT rate. That’s
1
Dead Quibod (2016 TSN): Salaries of EEs, medical services,
and other governmental expenditures should be able to
meet the economic provisions of the country as well as
problems on economic adjustment. The sources of revenue
should be sufficient to meet the varied levels of
expenditure, regardless of business condition and problems
on economic adjustment.
The tax system or the prevailing tax measures that
the state have should be able to expand in response to
variations in public expenditures.
Ex. If there is only 20% collection for revenue this year,
should the Congress increase the tax rate? NO. This is what
fiscal adequacy means: Problems with the collection and
enforcement of the law should not be resolved through
legislating or enacting more taxes. The state, through the
executive branch in charge of tax administration, should be
able to enforce the tax laws.
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
why when those 2 conditions will happen, the
President already has the authority to increase
VAT rate in order to make up for all those
deficiencies.
ADMINISTRATIVE FEASIBILTY
From the word itself feasible.
Feasible meaning doable. A tax measure should be
easily implemented in order to assure the smooth
flow into the treasury the fiscally adequate amounts.
To put it simply, this means that the tax system
should be capable of being effectively
administered and enforced with the least
inconvenience to the taxpayer.
Administrative feasibility requires easy tax collection
on the part of the government and easy tax payment
of the tax. But what happens in reality is that this
requirement is already fulfilled by merely following
the NIRC. What happens to the ease that should be
felt by the taxpayers? The process of paying the BIR Is
so stupid.
So it must be easy for the government to collect and
also taxes must be easy for the people to pay.
We have Saudia Arabia. There, it is very easy for
the people to pay their taxes because they are only
required to pay taxes 3 times a year.
Whereas right now, especially if you are not
registered taxpayer, you have to fill up the form
and submit it monthly and at the same time pay it
monthly.
Right now, there is a cute move by the government
under the TRAIN LAW, if are covered in the
percentage tax system, you are only required to
submit quarterly. Hindi na per month na grabe ka
hassle especially if small business ka lang. It takes a
day for one to pay his taxes.
July 24, 2018 Part 2
Inah del Rosario
THEORETICAL JUSTICE
This is the ability-to-pay theory.
The tax system must be based on the taxpayer’s
ability to pay.
It must not be so burdensome. Those who have more
shall pay more and those who have less shall pay less.
Even if we have these kinds of principles of a sound
tax system, even if a certain tax law will violate these,
it does not necessarily mean that the tax law will
automatically be unconstitutional.
DIAZ VS. SECRETARY OF FINANCE
BALGOA, CAMPANER, CASTRO, DEL ROSARIO, ISIDOR, MADUM, OLAMIT, PUERIN, SINGANON, TAN, VIOLA
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This case involves the imposition of VAT by the
BIR on the collections of tollway operators. The
SC said that all cars must be subject to VAT. Diaz
argued that it this is very difficult to implement,
specifically the issuance of receipts to persons.
SC said:
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. Thus, even if the
imposition of VAT on tollway operations may
seem burdensome to implement, it is not
necessarily invalid unless some aspect of it is
shown to violate any law or the Constitution.
So in the end, these are just principles or simple
guidelines for the lawmakers in making tax laws. But
with respect to the legality of a tax law, the violation
of these canons by themselves does not necessarily
constitute a violation of the statutory or constitutional
limitations of that tax law.
THEORY AND BASIS OF TAXATION
Please remember that the theory and basis of taxation
are two different things.
THEORY OF TAXATION: Necessity Theory
The power to tax emanates from a necessity in
order for the government to make for us an
organized society.
The existence of the government is a necessity.
This is also where the lifeblood theory comes in.
What are the concepts that float in the lifeblood
theory?
(1) The collection of taxes may not be enjoined
by an injunction, as a general rule. (No-
injunction Rule)
(2) The taxes cannot be subject of a
compensation or set-off
(3) The power to tax is unlimited and plenary
(4) The power to tax may also involve the power
to destroy.
NO INJUNCTION RULE
GR: The collection of taxes cannot be enjoined
by the courts.
XPNS:
(1) Local Taxes can be enjoined by the courts.
The no-injunction rule only applies to national
taxes.
ANGELES CITY VS. ANGELES
In the collection of local taxes, there is no
express prohibition in the LGC that
prohibits courts from issuing an injunction
to restrain local governments from
collecting taxes.
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
(2) Under the CTA Law, RA 1125 as amended by
RA 9282
SEC. 11. Who May Appeal; Mode of Appeal;
Effect of Appeal. – x x x That when in the
opinion of the Court the collection by the
aforementioned government agencies may
jeopardize the interest of the Government
and/or the taxpayer the Court any stage of
the proceeding may suspend the said
collection and require the taxpayer either to
deposit the amount claimed or to file a surety
bond for not more than double the amount
with the Court.
BASIS OF TAXATION: Benefits- Protection Theory
This is characterized by the relationship between
the taxpayer and the government.
There is a reciprocal duty between the taxpayer
and the government to support each other.
OTHER DOCTRINES
(1) PROSPECTIVITY OF TAX LAWS
GR: Tax laws do not have retroactive
application.
To give retroactive effect to tax laws will
violate the right of the tax payer to due
process. A taxpayer should always know
when to pay his obligations. How should a
taxpayer pay his dues when he doesn’t know
of it?
E: Tax laws have retroactive application only
when the law explicitly says so.
What if before the repeal of a tax law there was
an assessment made by the government? You
did not pay the assessment not even after there
was a repeal. This is the case of
COMMISSIONER VS. ACOSTA
This concerns the manner in which the action for
tax refund was filed. Acosta applied the new NIRC
where it was not required to file a written claim
for the refund. However, the SC said that the old
law should be applied.
Tax laws are prospective in operation, unless the
language of the statute clearly provides
otherwise. Revenue statutes are substantive laws
and in no sense must their application be equated
with that of remedial laws. As well said in a prior
case, revenue laws are not intended to be
liberally construed. Considering that taxes are the
lifeblood of the government and in Holmes’s
memorable metaphor, the price we pay for
civilization, tax laws must be faithfully and strictly
implemented.
BALGOA, CAMPANER, CASTRO, DEL ROSARIO, ISIDOR, MADUM, OLAMIT, PUERIN, SINGANON, TAN, VIOLA
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(2) IMPRESCRIPTIBILITY OF TAXES
GR: The right of the government to collect taxes is
imprescriptible.
Without any law which provides for a prescriptive
period for the collection of taxes, the government
will have an unlimited time to collect the taxes
from the taxpayer.
Hence the law itself can provide for rules on
prescription.
For internal revenue taxes, normally, the
prescriptive period is 3 years from either the filing
of it or the filing of the income tax return or the
return required by the NIRC or date or the time of
payment of the tax, whichever comes later.
July 24,2018
Transcribed by: Dianne Marie Isidor
Is the imprescriptibility of tax laws still
applicable right now?
Sabi nga ng batas natin, NIRC, db meron tayong
prescriptive period. Even the law says, even if in
cases of non-filing of tax returns, even in cases of
fraud employed by the taxpayer to defeat or
refute taxes, the government may have a 10 year
prescriptive period.
But the question is again, is the principle of
imprescriptibility of taxes still applicable, even with
this law?
The way I see the provision, I think the principle of
imprescriptibility of tax is still applicable.
1. When there is fraud involved.
2. If there is a failure to file the income tax
return or the income tax return filed is false.
You know why? Even if the prescriptive period is 10
years, when will you reckon the 10 year period?
From the time of discovery db? So kung dili sya
madiscvoer kunohay sa government, then the
government will have unlimited time to make an
assessment and demand for the payment of the taxes.
So, I think, more or less, the doctrine of
Imprescriptibility is still applicable up until this pont.
DOUBLE TAXATION
Okay, let us go now to the PRINCIPLE OF DOUBLE
TAXATION.
Some books would say that double taxation is one of
the inherent limitations, some books would also say
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
that double taxation is actually part of constitutional
limitaions. So, which is which?
For me, I would say, that double taxation is just a
constitutional limitation. It’s not an inherent
limitation. Why? Because of our basic premise that
the power to tax is plenary, all-encompassing and
unlimited.
So, technically speaking, the government can tax a
subject twice kasi kailangan nila ng pera.
But what makes Double Taxation illegal? Because not
all forms of double taxation is actually illegal. Double
taxation is not illegal per se. It’s not prohibited
because it always happens. Like what? What if you’re
doing business? You’re paying income taxes and at the
same time weekly percentage tax or VAT. It’s the
same money and yet there are two types of tax being
imposed by the government.
So, when will the Double taxation become illegal?
So, basically, there are two forms of Double
Taxation:
1. Direct Double Taxation/Direct Double Taxation
2. Indirect Double Taxation/Indirect Double Taxation
When is there a Direct Double Taxation?
Ito yung ILLEGAL. Another term for it is Obnoxious
Double Taxation this is taken from dean and I guess he
took it from Aban book. Direct Double Taxation
happens when the same subject or property is taxed
twice, by the same taxing authority, for the same
taxing purpose, the same period and taxing all objects
or property within the same territory for the first time
without taxing them for the second time.
Another definition given is that:
The same property is taxed twice, where it should
be taxed only once, and that both taxes are
imposed to the same property or subject matter
for the same purpose, same taxing authority,
within the same jurisdiction, covering the same
taxing period, for the same kind or character of
tax.
Make no mistake about this. YOU HAVE TO
MEMORIZE THIS DEFINITION because absent one of
these elements, there is only what you call as
INDIRECT DOUBLE TAXATION which is allowable by
law.
Let’s run through the definition again: The taxpayer
is taxed twice, when he should be only taxed once
and the TAX IS:
1. For the same subject matter;
2. For the same purpose;
3. For the same taxing authority;
4. Within the sae jurisdiction;
5. During the same taxing period;
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6. And the taxes are of the same kind and
character.
CITY OF MANILA VS COCA-COLA
Case in point: City of Manila vs Coca-Cola, reiterated
in the case of Swedish Match vs City of Manila
So, this City of Manila, there is this old ordinance, let’s
say Ordinance A. Oridnance A exempted the Coca-
Cola from paying the manufacturing taxes. Because
the Coca-Cola is already subjected to another kind of
business tax. And then there was this another
ordinance, Ordinance B that was enacted which took
out the tax exemption of Coca-Cola. So, basically, the
City of Manila, is already imposing two types of taxes.
But then, Orinance B was subsequently declared as
unconstitutional. So nagrevert sya to Ordinance A ulit.
Meanwhile, prior to the repeal or the nullity of
Ordinance B, the City of Manila attempted to collect
taxes from Coca-Cola. Magbayad ka. Probably the City
was thinking, during that time that this ordinance was
still effective, all legal effects thereto are also
effective.
Ang sabi ng Coca-Cola dito, we don’t want to pay
because, one of their arguments is that, this is double
taxation.
SC: Yes, this is actually a DOUBLE TAXATION. Kasi sabi
ng City dito, this is not Double Taxation, because the
purposes are different or the kind of tax is different.
The SC said, it’s still double taxation because even if
that is for manufacturer and the other one is for
distribution, it’s still in the same nature. This is a form
of business tax. And then the SC here made a
wrapped down of the requirements.
(FROM THE FULL TEXT OF THE CASE)
“Using the aforementioned test, the Court finds that
there is indeed double taxation if respondent is
subjected to the taxes under both Sections 14 and 21
of Tax Ordinance No. 7794, since these are being
imposed: (1) on the same subject matter – the
privilege of doing business in the City of Manila; (2)
for the same purpose – to make persons conducting
business within the City of Manila contribute tocity
revenues; (3) by the same taxing authority –
petitioner Cityof Manila; (4) within the same taxing
jurisdiction – within the territorial jurisdiction of the
City of Manila; (5) for the same taxing periods – per
calendar year; and (6) of the same kind or character
– a local business tax imposed on gross sales or
receipts of the business.”
So, probably nagkaproblema lang sa wordings sa
batas.
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FROM THE LECTURES OF ATTY. DONAL VO 2018
ERICSSON VS CITY OF PASIG
Another peculiar case that I found, that had led me to
DOUBLE TAXATION is the Ericsson vs City of Pasig.
Eto naman, there is a City Ordinance, there’s no
question about it. There’s a City Ordinance imposing
business taxes again which included Ericsson but the
problem is the City of Pasig wanted to collect these
business taxes on the basis of Gross Revenues. And
sabi naman ng Ericsson, hindi yan pwede. You cannot
collect taxes on the basis of gross revenues because
the law says it must be based on gross receipts. Sabi
naman ng City, gross revenues and gross receiots are
actually the same. So babayad ka na lang para walang
gulo. Essentially ganyan ang sinasabi ng City of Pasig.
Now, the issue here is will the tax based on the gross
revenues instead of gross receipts constitute Double
Taxation?
We’re talking about the same law and yet in this case,
this is with respect to the collection already. This is
why which I found this weird. Kasi we’re talking about
the collection here. But the argument here is based on
double taxation. Will there be a Double Taxation if
the tax is based on gross revenue instead of gross
receipts?
What is the difference between the two terms?
(FROM THE FULL TEXT OF THE CASE)
(n) Gross Sales or Receipts include
the total amount of money or its
equivalent representing the
contract price, compensation or
service fee, including the amount
charged or materials supplied with
the services and the deposits or
advance payments actually or
constructively received during the
taxable quarter for the services
performed or to be performed for
another person excluding discounts
if determinable at the time of sales,
sales return, excise tax, and value-
added tax (VAT);
xxxx
The law is clear. Gross receipts include money or its
equivalent actually or constructively received in
consideration of services rendered or articles sold,
exchanged or leased, whether actual or constructive.
Gross revenue covers money or its equivalent
actually or constructively received, including the
value of services rendered or articles sold, exchanged
or leased, the payment of which is yet to be
received.
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July 24, 2018 Part 4
By: M.A. CAMPANER
GROSS RECEIPTS vs GROSS REVENUES
GROSS RECEIPTS – whatever you have received. It is
not only limited to ACTUAL receipts but also includes
those that are CONSTRUCTIVELY received by the
taxpayer – those which are placed in your control.
Because what if the other party pays through the
bank, is it actually received? NO. But in effect, the
payor loses control of the money upon the deposit
and the recipient of the money has total control of
that money and may do anything he wants to do with
it.
GROSS REVENUES – is a broader term because it
includes money which you will still receive in the
future.
So where is double taxation if the tax will be based on
gross revenues?
SC: “The imposition of local business tax
based on petitioners gross revenue will
inevitably result in the constitutionally
proscribed double taxation taxing of the
same person twice by the same jurisdiction
for the same thing inasmuch as petitioners
revenue or income for a taxable year will
definitely include its gross receipts already
reported during the previous year and for
which local business tax has already been
paid.” (Ericsson vs. City of Pasig)
In other words, if the tax base is on the
gross revenue, on the next year some items
which have already been taxed in the prior
year might also be included in the present
year’s tax. That is the main reason why the
SC ruled that the tax should be based on
the gross receipts.
Read also the case of CIR vs BPI, it’s in the outline.
And also the case of Nursery Care vs Acevedo.
As we have discussed, take out one of the
requirements of double taxation, then it becomes an
INDIRECT DOUBLE TAXATION.
WAYS OF ELIMINATING DOUBLE TAXATION:
1. TAX TREATIES
2. TAX CREDITS
3. TAX DEDUCTION
4. TAX REDUCTION
1. TAX TREATIES
are mainly there to avoid international double
taxation. The prime example I can give you is Pacquiao
– he earns income from boxing matches. Because the
match is done abroad, the host country will impose
income taxes on him. When he arrives in the
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FROM THE LECTURES OF ATTY. DONAL VO 2018
Philippines, because of the fact that he is a resident
citizen, he will also be liable for taxes for the income
he earned abroad. It’s practically the same – same
money, same purpose, same earning, same type of
tax, but then, the territory and the taxing authority
are different.
So tax treaties usually provides for tax exemption.
International Double Taxation takes place when a
person who is a resident of a contracting state and
derives income from, or own capital in another
contracting state and both states impose tax on the
income or capital.
What is the purpose of international tax treaties? (CIR
vs SC JOHNSON)
1. The elimination of international juridical
double taxation;
2. To encourage the free-flow of goods and
services movement of capital and technology
between the two countries.
2. TAX CREDITS
Are provided for by law. What is its nature? This is a
peso-for-peso deduction of the tax liability of a
taxpayer. The amount of the tax credit is also the very
amount which will be deducted from the tax due.
Where do you get these tax credits? In NIRC, there is
what we call Tax Credits for Foreign Income Taxes
Paid. Like for instance what happen to Pacquiao
before, he was pursued by Kim Henares. Henares
claims that he is requesting for the IRS (Internal
Revenue Service) documents of Pacquiao so that we
can apply the tax credit. The tax liabilities of Pacquiao
will be reduced by the foreign income taxes he has
paid abroad. But what Pacquiao and his team did was
they did not provide any document. So according to
Henares he has no other choice but to enforce the
collection.
This is also found in Estate Taxation. There are some
decedents who died with a will and they have
properties all over the world. What about the estate
taxes paid abroad? That can be used as deduction to
the estate tax to be paid here. It is also found in
Donor’s Tax.
Another form of tax credit is VAT. The component of
VAT is actually two – (1) Output tax. It comes from the
sales of a certain period and there is a corresponding
12% VAT on it, (2) Input Taxes is a form of tax credit.
Why? Because the buyer is the one who shoulders the
burden of VAT. Now the VAT component of your
payment can be used as a direct deduction of your
total VAT liabilities.
July 24 Part 5
Ara Olamit
Let’s say you have tax deductions. How is it different
from tax credits?
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3. TAX DEDUCTIONS
is pretty much similar in intent with tax credits
because it will reduce the tax liability of the
taxpayer. But when you say tax deductions these
items will only indirectly reduce the taxes.
Like for example, in the computation of income
taxes, right now, if you provide for senior citizens’
discounts, you can avail of a deduction. Deduction
which will form part of your business expenses. If
you have a lot of expenses, your income will
reduce, and smaller income would mean smaller
taxes that you have to pay.
4. TAX REDUCTIONS.
This is more of a legislative side. This would just
mean that Congress would enact a new law that
would reduce the tax liabilities of a taxpayer or
the tax rate or the tax base of a particular tax
measure. Like what happened now in Train Law.
There was an increase in a lot of excise taxes.
There were new items which were already
excisable but the income tax rates and tax base
were only adjusted. But according to Dean, even
with the reduction of the tax rates and the tax
base, these actually has no bearing at all.
Kumbaga parang palami lang sa mata.
LIMITATIONS
You have two kinds of limitations of taxing powers.
1. Inherent Limitations; and
2. Constitutional Limitations
So what are the inherent limitations of the power to
tax? You have five (5).
1. Public Purpose
2. Inherently Legislative
3. Territorial
4. International Comity
5. Exception of Government Entities
Now, most of these items, we have already discussed.
Like for example, public purpose. Diba sabi natin
“Public purpose is the heart of tax law”. The power of
taxation may be exercised only for a public purpose.
Second. Inherently Legislative. You know the drill
here. Generally, it is solely lodged in the Congress.
What are the exceptions? We have at least 5 diba?
Cannot be delegated is the General Rule, diba? What
are the 5 exceptions?
1. Delegation to the President
2. Delegation to the LGUs
3. Delegation to the Administrative Bodies
4. Delegation to the people at large
5. Emergency Powers
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
(Abakada vs. Ermita)
What are the SOURCES OF TAX LAWS?
1. Constitution
2. Existing Statutes
3. NIRC and other related laws
4. Previously the TCCP now amended into
CPMA
5. Local tax laws or ordinance
6. Local Government Code
7. Miscellaneous tax laws
Some books look also into the revenue regulations
like the memorandum orders and other issuances of
the BIR and other tax agencies. But I think these are
just mere interpretation of the law. BIR rulings, by the
way, and the revenue regulations are not laws
themselves but they have the force and effect of laws.
And also you have jurisprudence. It’s by reason of the
Civil Code. Supreme Court decisions will form part of
the laws of the land.
What is the nature of a tax law by the way? It’s civil in
nature because this is a public matter, collection,
although this can be said as a unilateral obligation of
the taxpayer to the government. It’s not penal
because the main purpose of these is for the
collection or raising income and not to penalize
someone, although the Congress is not precluded to
put penal laws in the tax laws in case of violation. It's
also not political in nature.
And lastly you have Territorial. The rule is, generally,
territorial in nature. What is the exception? There is a
privity and relationship between the tax authority and
the tax subject or object. Please also take note on the
rules on Situs.
And then you have International Comity.
International Comity has something to do with the
respect accorded by one nation to another. These are
declarations or agreement or interaction between
nations. Under International Comity, the property of
the state or government may not be taxed by another
state. The principle is actually based on public
grounds:
1. Concept of Sovereign Equality
2. There is also the concept when one enters
the territory of another. There is already an
implied understanding between these states
that the entering state does not subject itself
to the jurisdiction of the other state or the
host state.
3. There is also this rule in international law
that foreign government may not be sued
without its consent.
Then we also have the exception of taxes of
government agencies, entities and instrumentalities.
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When it comes to the government, exemption from
taxation is the general rule. Taxation is the exception.
Baliktad siya.
What is the reason behind this? Why is it the
government cannot tax itself? Why is it the
government is exempt from taxation?
The only logical reason I can think of is because it’s
stupid. By sheer stupidity. It’s like transferring money
from one pocket to another. Gobyerno gud yan. But it
does not preclude the government from promulgating
a law which taxes a government instrumentality or
agency especially when this government agency is
propriety in nature. Like for instance PAGCOR. While
it is true that PAGCOR is exempt from income taxes,
regular corporate income tax on its gambling
operations, it is liable for franchise taxes.
Oh diba, PAGCOR, gobyerno man yan? And yet the
government imposes taxes. And in the same way, this
PAGCOR is also liable for the regular corporate tax
under the NIRC for its non-gambling operations.
Alright? So i think that’s it. Let’s proceed with the
Constitutional Limitations next meeting.
28 July 2018 || Part 1 of 6 (00:00:01-00:20:00)
By: Patricia Nicole M. Balgoa
CONSTITUTIONAL LIMITATION
I. DUE PROCESS
Art. III, Sec. 1, 1987 Phil. Const. No person shall be
deprived of life, liberty, or property without due
process of law, nor shall any person be denied the
equal protection of the laws.
How do you define ‘due process’?
My former Consti law professor, Atty. dela Banda,
gave us a stupid-sounding definition of due process,
but it actually works. According to him, due process is
when the process is due. Sounds stupid, right? But
basically, that’s it. All it is saying is that if the law
affords you a process, then the government must be
able to give you that process before the government
will take away the life, liberty, and property of an
individual or a person.
Normally, when you say due process, this refers to the
PROCEDURAL DUE PROCESS of laws. It refers to
procedural fairness.
However, procedural due process is not enough
because we also have this concept of SUBSTANTIVE
DUE PROCESS.
Thus, due process presupposes that:
(1) There is a valid law; and
(2) A valid procedure.
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
Due process is also essential in taxation, not only in
the collection aspect and not only in the payment
aspect. It is also essential in the making of tax laws.
Take note that taxation is a burden in itself. It involves
the taking of property against persons.
Sometimes we just say that it is a unilateral obligation,
but once you did not pay your taxes, the government
can enforce its strong arm in order for it to collect the
money due it.
PEPSI V. MUNICIPALITY OF TANAUAN
SC Said: “This is not to say though that the
constitutional injunction against deprivation of
property without due process of law may be passed
over under the guise of the taxing power, except
when the taking of the property is in the lawful
exercise of the taxing power, as when:
(1) the tax is for a public purpose;
(2) the rule on uniformity of taxation is observed;
(3) either the person or property taxed is within the
jurisdiction of the government levying the tax; and
(4) in the assessment and collection of certain kinds of
taxes notice and opportunity for hearing are provided.
Due process is usually violated where the tax imposed
is for a private as distinguished from a public purpose;
a tax is imposed on property outside the State, i.e.,
extraterritorial taxation; and arbitrary or oppressive
methods are used in assessing and collecting taxes.
But, a tax does not violate the due process clause, as
applied to a particular taxpayer, although the purpose
of the tax will result in an injury rather than a benefit
to such taxpayer.
Due process does not require that the property
subject to the tax or the amount of tax to be raised
should be determined by judicial inquiry, and a notice
and hearing as to the amount of the tax and the
manner in which it shall be apportioned are generally
not necessary to due process of law.”
What the SC is saying here is that:
There must be a valid law imposing such tax. You also
have to consider the inherent limitation of taxation. If
the inherent limitation of taxation is violated in
making such tax laws, in levying taxes against persons
or property, then that law may be struck down as an
invalid law. It is a violation of the substantive due
process. In the same way, when there is a mandatory
procedure provided by law, then the government
must follow it before collecting money from the
person or property from whom the tax is levied.
Most of the cases in your outline involving taxation
pertains to procedural due process.
CIR V. METRO STAR
Facts:
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In January 2001, a revenue officer was
authorized to examine the books of accounts of Metro
Star Superama, Inc. In April 2002, after the audit
review, the revenue district officer issued a formal
assessment notice against Metro Star advising the
latter that it is liable to pay P292,874.16 in deficiency
taxes. Metro Star assailed the issuance of the formal
assessment notice as it averred that due process was
not observed when it was not issued a pre-assessment
notice. Nevertheless, the Commissioner of Internal
Revenue authorized the issuance of a Warrant of
Distraint and/or Levy against the properties of Metro
Star.
Metro Star then appealed to the Court of Tax
Appeals (CTA Case No. 7169). The CTA ruled in favor
of Metro Star.
Issue:
Whether or not due process was observed in
the issuance of the formal assessment notice against
Metro Star.
Ruling: NO.
It is true that there is a presumption that the
tax assessment was duly issued. However, this
presumption is disregarded if the taxpayer denies ever
having received a tax assessment from the Bureau of
Internal Revenue. In such cases, it is incumbent upon
the BIR to prove by competent evidence that such
notice was indeed received by the addressee-
taxpayer. The onus probandi was shifted to the BIR to
prove by contrary evidence that the Metro Star
received the assessment in the due course of mail. In
the case at bar, the CIR merely alleged that Metro Star
received the pre-assessment notice in January 2002.
The CIR could have simply presented the registry
receipt or the certification from the postmaster that it
mailed the pre-assessment notice, but failed. Neither
did it offer any explanation on why it failed to comply
with the requirement of service of the pre-assessment
notice. The Supreme Court emphasized that the
sending of a pre-assessment notice is part of the due
process requirement in the issuance of a deficiency
tax assessment,” the absence of which renders
nugatory any assessment made by the tax authorities.
Taxes are the lifeblood of the government
and so should be collected without unnecessary
hindrance. But even so, it is a requirement in all
democratic regimes that it be exercised reasonably
and in accordance with the prescribed procedure.
Here, BIR forgot to send the preliminary assessment
notice (PAN) against the bus station. In the entire
process of collecting the taxes, especially if there are
tax deficiencies, the BIR will first call an informal
conference. During the conference, the BIR will
explain that there are deficiencies or discrepancies.
After the informal conference, if the BIR is not
satisfied with the explanation of the taxpayer, it will
then issue a PAN. The PAN is basically a document
which states the facts, law, and jurisprudence and the
tax deficiency of a taxpayer. I is just a piece of letter
informing the taxpayer to explain. It is not yet a
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
demand letter. The taxpayer then will need to explain.
Then, when the BIR is still not satisfied with the
explanation of the taxpayer, it will then issue a final
assessment notice. This final assessment notice differs
from the PAN in the sense that the final assessment
notice is actually a demand letter from the
government. This is the time that the taxpayer will file
its protest.
In this case, however, BIR forgot to issue a PAN. What
Metro Star is saying here is that its procedural right to
due process is violated because a PAN was not issued
before the final demand letter was sent to collect the
alleged deficiencies.
BIR is saying that they (PAN and final assessment
nnotice) are basically the same thing because both
state the facts, issues, ruling, and kung magkano ang
dapat bayaran. Thus, even if there is no PAN, it
already sent a final assessment notice, which is in
writing and therefore, Metro Star’s right to due
process was not violated.
According to the SC: BIR violated the right to due
process of this bus station because the law provides
for a mandatory procedure in making a tax
assessment.
In sum, if there is a process that is due, then the state
must afford that process, lest there will be a violation
of the due process clause.
II. EQUAL PROTECTION
Art. III, Sec. 1, 1987 Phil. Const. No person shall be
deprived of life, liberty, or property without due
process of law, nor shall any person be denied the
equal protection of the laws.
Read this provision together with the uniformity and
equitability of taxation under Art. VI, Sec. 28 (1), 1987
Phil. Const. because these are related provisions.
Art. VI, Sec. 28 (1), 1987 Phil. Const. The rule of
taxation shall be uniform and equitable. The Congress
shall develop a progressive system of taxation.
As you will notice, the equal protection clause is
essentially the same with the uniformity and
equitability clause of the Constitution.
As of now, it would seem that there is no longer any
difference between equity of taxation and uniformity
of taxation. However, if you want to be technical
about it:
• Equity of taxation: Taxes must be based on
the taxpayer’s ability to pay
• Uniformity of taxation: When the SC
discusses uniformity, this concept always
includes the concept of equitability of
taxation.
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Criterion that must be had to follow the equal
protection and uniformity rule:
The tax laws operate uniformly in all persons under
similar circumstance and all persons are treated the
same manner in both the privileges conferred and the
liabilities imposed.
So there is some sort of a discrimination, ie: one class
will be taxed, and the other class will not be taxed. So
there will always be a discrimination. Hat is a fact of
life. But then, while there is this discrimination, what
the law allows is that there will be a reasonable
classification between the taxable object. The State
can make a classification as to the taxability of
persons or property, as long as the classification is
reasonable and based on real and substantial
differences.
TAKE NOTE, there are four requirements for a valid
classification:
(1) There must be a substantial distinction;
(2) The classification must be germane to the
purpose of law;
(3) It must apply to future and existing
conditions; and
(4) It must be applicable to all members of the
same class.
FERRER V. BAUTISTA
Facts:
• The City of Quezon passed two ordinances.
• The first one was the Socialized Housing Tax of
QC allowing the imposition of special assessment
(1/2 of the assessed valued of land in excess of
P100k)
• The second one was Ordinance No. SP-2235, S-
2013 on Garbage Collection Fees imposing fees
depending on the amount of the land or floor
area).
• Jose Ferrer, as a property in Quezon City
questioned the validity of the city ordinances.
• According to Ferrer:
-The city has no power to impose the tax.
-The SHT violates the rule on equality because it
burdens real property owners with expenses to
provide funds for the housing of informal settlers.
-The SHT is confiscatory or oppressive.
Issue:
Whether or not the Socialized Housing Tax
violates the equal protection clause.
Ruling: NO.
There is no violation of the rule on equality
There is a substantial distinction between:
real property owner and an informal settler. In fact,
the Supreme Court said that the disparity is so
obvious. It is inherent in the power to tax that a State
is free to select the subjects of taxation. Inequities
which result from a singling out of one particular class
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FROM THE LECTURES OF ATTY. DONAL VO 2018
for taxation or exemption infringe no constitutional
limitation.
All these requisites are complied with: An
ordinance based on reasonable classification does not
violate the constitutional guaranty of the equal
protection of the law. The requirements for a valid
and reasonable classification are: (1) it must rest on
substantial distinctions; (2) it must be germane to the
purpose of the law; (3) it must not be limited to
existing conditions only; and (4) it must apply equally
to all members of the same class.
One of the issues raised in this case is the violation of
the equal protection clause. According to Ferrer, the
ordinance is actually a violation of the equal
protection clause because you are giving preference
to squatters or informal settlers and you are charging
the landowners to provide homes for the settlers.
The Supreme Court said that the equal protection
clause is not violated. Equal protection clause requires
that all persons and things similarly situated must be
treated alike both as to rights conferred and
responsibilities imposed. In this case, for the purpose
of undertaking and continuing urban development,
disparities between a real property owner and an
informal settler, as two distinct classes are too
obvious, need not be discussed at length.
SISON V. ANCHETA
Facts:
This pertains to the modified gross income tax
wherein the individuals who are purely compensation
income earner were subject to a set of graduated and
progressive rates. Individuals who are self-employed,
professionals are engaged in business were also taxed
on graduated rates. But the rates for these individuals
were higher compared to the rates of individuals who
are purely compensation earners. So the tax law was
questioned claiming there was discrimination or
violation of equality, that it was not based on
substantial distinction which makes real differences
because they are the same tax payers, earning
income.
Issue:
WON the tax law is arbitrary and violates
equality.
Ruling:
NO. The SC ruled that the law is valid. There was
no violation of equality or uniformity in taxation.
The due process clause of the Constitution may
be invoked only when a tax instance 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 to
say that such an arbitrary act amounted to the
exercise of an authority not conferred. That properly
calls for the application of the Holmes dictum. It has
also been held that where the assailed tax measure is
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beyond the jurisdiction of the state, or is not for a
public purpose, or, in case of a retroactive statute is
so harsh and unreasonable, it is subject to attack on
due process grounds.
AS TO THE EQUAL PROTECTION CLAUSE, The
Constitution does not require things which are
different in fact or opinion to be treated in law as
though they were the same." Hence the constant
reiteration of the view that classification if rational in
character is allowable. As a matter of fact, in a leading
case of Lutz V. Araneta, this Court, through Justice
J.B.L. Reyes, went so far as to hold "at any rate, 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 'inequalities which result from a
singling out of one particular class for taxation, or
exemption infringe no constitutional limitation.'"
"Equality and uniformity in taxation means that
all taxable articles or kinds of 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, ... As clarified
by Justice Tuason, where "the differentiation"
complained of "conforms to the practical dictates of
justice and equity" it "is not discriminatory within the
meaning of this clause and is therefore uniform."
There is quite a similarity then to the standard of
equal protection for all that is required is that the tax
"applies equally to all persons, firms and corporations
placed in similar situation."
July 28 Part 2
Johaina Madum
Discrimination is allowed as long as the discrimination
is reasonable. And then the SC also here made a
discussion about the uniformity and equity clause, the
SC defines the uniformity equity clause, when the tax
operates with the same force and effect in every place
where the subject maybe found. I think this is the case
which states that uniformity of taxation pertains to
geographical uniformity.
TIU VS. CA
This is a 1999 case. What is being challenged here is
the EO promulgated by the president, which
segregated the area of a special economic zone and
enjoyed tax-and-duty free privileges. The SC said here
that the EO is constitutional and there is no violation
of the equal protection clause.
Again, the supreme court run down the elements of a
valid classification, that there is substantial distinction
between an ordinary place or area compared to the
secured area. Mainly because of the investment
involved. When you’re inside the secured area
basically the investors here are big time already, there
is so much money involved, that is why there is need
for a delineation.
Tiu v Ca
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
G.R. No. 127410. January 20, 1999
Facts:
On March 13, 1992, Congress, with the approval of
the President, passed into law RA 7227. This was for
the conversion of former military bases into industrial
and commercial uses. Subic was one of these areas. It
was made into a special economic zone.
In the zone, there were no exchange controls. Such
were liberalized. There was also tax incentives and
duty free importation policies under this law.
On June 10, 1993, then President Fidel V. Ramos
issued Executive Order No. 97 (EO 97), clarifying
the application of the tax and duty incentives. It said
that On Import Taxes and Duties. — Tax and duty-
free importations shall apply only to raw
materials, capital goods and equipment brought in
by business enterprises into the SSEZ
On All Other Taxes. — In lieu of all local and national
taxes (except import taxes and duties), all business
enterprises in the SSEZ shall be required to pay the tax
specified in Section 12(c) of R.A. No. 7227.
Nine days after, on June 19, 1993, the President
issued Executive Order No. 97-A (EO 97-A), specifying
the area within which the tax-and-duty-free privilege
was operative.
Section 1.1. The Secured Area consisting of the
presently fenced-in former Subic Naval Base shall be
the only completely tax and duty-free area in the
SSEFPZ. Business enterprises and individuals (Filipinos
and foreigners) residing within the Secured Area are
free to import raw materials, capital goods,
equipment, and consumer items tax and duty-free.
Petitioners challenged the constitutionality of EO 97-A
for allegedly being violative of their right to equal
protection of the laws. This was due to the limitation
of tax incentives to Subic and not to the entire area of
Olongapo. The case was referred to the Court of
Appeals.
The appellate court concluded that such being the
case, petitioners could not claim that EO 97-A is
unconstitutional, while at the same time maintaining
the validity of RA 7227.
The court a quo also explained that the intention
of Congress was to confine the coverage of the SSEZ
to the "secured area" and not to include the "entire
Olongapo City and other areas mentioned in Section
12 of the law.
Hence, this was a petition for review under Rule 45 of
the Rules of Court.
Issue:
Whether the provisions of Executive Order No. 97-A
confining the application of R.A. 7227 within the
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secured area and excluding the residents of the zone
outside of the secured area is discriminatory or not
owing to a violation of the equal protection clause
Held: No. Petition dismissed.
The fundamental right of equal protection of the laws
is not absolute, but is subject to
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.
Inchong v Hernandez- Equal protection does not
demand absolute equality among residents; it merely
requires that all persons shall be treated alike, under
like circumstances and conditions both as to privileges
conferred and liabilities enforced.
Classification, to be valid, must (1) rest on substantial
distinctions, (2) be germane to the purpose of the law,
(3) not be limited to existing conditions only, and (4)
apply equally to all members of the same class.
RA 7227 aims primarily to accelerate the conversion
of military reservations into productive uses. This was
really limited to the military bases as the law's intent
provides. Moreover, the law tasked the BCDA to
specifically develop the areas the bases occupied.
Among such enticements are: (1) a separate customs
territory within the zone, (2) tax-and-duty-free
importations, (3) restructured income tax rates
on business enterprises within the zone, (4) no foreign
exchange control, (5) liberalized regulations
on banking and finance, and (6) the grant of resident
status to certain investors and of working visas to
certain foreign executives and workers. The target of
the law was the big investor who can pour in capital.
Even more important, at this time the business
activities outside the "secured area" are not likely to
have any impact in achieving the purpose of the law,
which is to turn the former military base to productive
use for the benefit of the Philippine economy. Hence,
there was no reasonable basis to extend the tax
incentives in RA 7227.
It is well-settled that the equal-protection guarantee
does not require territorial uniformity of laws. As long
as there are actual and material differences between
territories, there is no violation of the constitutional
clause.
Besides, the businessmen outside the zone can always
channel their capital into it.
RA 7227, the objective is to establish a "self-
sustaining, industrial, commercial, financial and
investment center”. There will really be differences
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
between it and the outside zone of Olongapo.
The classification of the law also applies equally to the
residents and businesses in the zone. They are
similarly treated to contribute to the end goal of the
law
ABAKADA VS. ERMITA
This case is kinda weird because one of the arguments
of the petitioner here is about the equal protection
clause. It has something to do with the input taxes, na
explain ko na sa inyo yan before diba? There are two
taxes involved, the output tax which comes from sales
and the input tax which is in a form of tax credit,
which will reduce your VAT liabilities. Now there is a
certain limit on the input taxes that can be credited to
your output tax, its like 70%. And they are saying that
this 70% rule from maximum amount that we can
claim as a tax credit violates the equal protection
clause. It is because this only benefit those big
businesses and not those people, or those on a level
of a small business enterprises. The SC said here that
there is no violation of equal protection clause.
The interpretation given by the petitioners here is
actually fallacy because the maximum amount
claimable is only 70% and it doesn’t end there,
because even if the tax payers cannot fully utilize the
70 percent, for example nagsobra sila beyond the 70
percent, like somobra sila sa 80%, its ok, this tax
payers can still claim it on the subsequent taxable
quarter. So magamit gihapon nila either way. In fact
there is no classification involved here to begin with,
di ka nman nila gina classify as a tax payer, the law
does not classify the taxpayers. The law only set-up a
ceiling on how much tax credit that a tax payer can
claim during that time.
On the other hand, it cannot be said also that even if
there is classification between businessman, it cannot
be said that there is a reasonable classification,
because the law itself provides a revenue on what
accounts the smaller business enterprises. If these
enterprises do not reach a certain amount on there
gross income, they will not be subjected to VAT. So on
small businesses, they are either VAT exempted or
required to pay a percentage of only 3% compared to
12%.
Excerpt from the ABAKADA V. ERMITA:
“The equal protection clause under the Constitution
means that no person or class of persons shall be
deprived of the same protection of laws which is
enjoyed by other persons or other classes in the same
place and in like circumstances.[83]
Petitioners point out that the limitation on the
creditable input tax if the entity has a high ratio of
input tax, or invests in capital equipment, or has
several transactions with the government, is not
based on real and substantial differences to meet a
valid classification.
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The argument is pedantic, if not outright baseless. The
law does not make any classification in the subject of
taxation, the kind of property, the rates to be levied or
the amounts to be raised, the methods of assessment,
valuation and collection. Petitioners alleged
distinctions are based on variables that bear different
consequences. While the implementation of the law
may yield varying end results depending on ones
profit margin and value-added, the Court cannot go
beyond what the legislature has laid down and
interfere with the affairs of business.
The equal protection clause does not require the
universal application of the laws on all persons or
things without distinction. This might in fact
sometimes result in unequal protection. What the
clause requires is equality among equals as
determined according to a valid classification. By
classification is meant the grouping of persons or
things similar to each other in certain particulars and
different from all others in these same particulars.”
BRITISH AMERICAN TOBACCO VS. CAMACHO ET AL
The allegation is that there is discrimination between
the new and old brand and also involves the
classification tax fees provision.
American Tobacco v. Camacho
FACTS:
On June 2001, petitioner British American Tobacco
introduced and sold Lucky Strike, Lucky Strike Lights
and Lucky Strike Menthol Lights cigarettes w/ SRP P
9.90/pack - Initial assessed excise tax: P 8.96/pack
(Sec. 145 [c])
On August 8, 2003, Sec. 145 of the NIRC RR 22-2003
was implemented which revised tax classification of
certain new brands introduced in the market after
January 1, 1997 based on the survey of their current
net retail prices. This increased the excise tax to
P13.44 since the average net retail price is above P
10/pack.
This cause petitioner to file before the RTC of Makati a
petition for injunction with prayer for issuance of a
Temporary Restraining Order and/or Writ of
Preliminary Injunction sought to enjoin the
implementation of Sec. 145 of the NIRC, RR No. 22-
2003 on the ground that they discriminate against
new brands of cigarettes in violation of the equal
protection and uniformity provisions of the
Constitution
Issue: W/N RA 9334 of the classification freeze
provision is unconstitutional for violating the equal
protection and uniformity provisions of the
Constitution
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
Held:
No. In Sison Jr. v. Ancheta, the court held that "xxx 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. If
the law be looked upon in tems of burden on charges,
those that fall within a class should be treated in the
same fashion, whatever restrictions cast on some in
the group equally binding on the rest. xxx" Thus,
classification if rational in character is allowable. In
Lutz v. Araneta: "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 'inequalities which
result from a singling out of one particular class for
taxation, or exemption infringe no constitutional
limitation" SC previously held: "Equality and
uniformity in taxation means that all taxable articles
or kinds of 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"
Under the rational basis test, a legislative
classification, to survive an equal protection
challenge, must be shown to rationally further a
legitimate state interest. The classifications must be
reasonable and rest upon some ground of difference
having a fair and substantial relation to the object of
the legislation
A legislative classification that is reasonable does not
offend the constitutional guaranty of the equal
protection of the laws. The classification is considered
valid and reasonable provided that: (1) it rests on
substantial distinctions; (2) it is germane to the
purpose of the law; (3) it applies, all things being
equal, to both present and future conditions; and (4)
it applies equally to all those belonging to the same
class.
Moreover, petitioner failed to clearly demonstrate the
exact extent of such impact as the price is not the only
factor that affects competition
ABAKADA VS. PURISIMA
Sa Abakada v. Purisima, this is different from the
Abakada v. Ermita which involves the old VAT law.
Pag sinabing Abakada v. Purisima, this involves
government employees especially those employees
connected with BIR and BOC. This is about the tax
incentives given to BIR and BOC officials, kung mag
exceed sila sa target sila meron silang mga
incentives. This is the reason why pataka silag
kuhag ug taxes, because if they will exceed their
target they will receive incentives.
Petitioner challenged this provision of RA 9335
because it merely limited the scope of incentives to
BIR and BOC employees. The SC said that the
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classification has a reasonable foundation or
rational basis. There is a reasonable distinction
between employees of this institutions and to other
government institutions. These people, the BIR and
BOC employees have the common distinct primary
function of generating revenues for the national
government through the collection of taxes, custom
duties, fees and charges.
ABAKADA V. PURISIMA
Facts:
Petitioners seeks to prevent respondents from
implementing and enforcing Republic Act (RA) 9335.
R.A. 9335 was enacted to optimize the revenue-
generation capability and collection of the Bureau of
Internal Revenue (BIR) and the Bureau of Customs
(BOC). The law intends to encourage BIR and BOC
officials and employees to exceed their revenue
targets by providing a system of rewards and
sanctions through the creation of a Rewards and
Incentives Fund (Fund) and a Revenue Performance
Evaluation Board (Board). It covers all officials and
employees of the BIR and the BOC with at least six
months of service, regardless of employment status.
Petitioners, invoking their right as taxpayers filed this
petition challenging the constitutionality of RA 9335, a
tax reform legislation. They contend that, by
establishing a system of rewards and incentives, the
law “transforms the officials and employees of the BIR
and the BOC into mercenaries and bounty hunters” as
they will do their best only in consideration of such
rewards. Thus, the system of rewards and incentives
invites corruption and undermines the constitutionally
mandated duty of these officials and employees to
serve the people with utmost responsibility, integrity,
loyalty and efficiency.
Petitioners also claim that limiting the scope of the
system of rewards and incentives only to officials and
employees of the BIR and the BOC violates the
constitutional guarantee of equal protection. There is
no valid basis for classification or distinction as to why
such a system should not apply to officials and
employees of all other government agencies.
Issue:
Whether or not the scope of the system of rewards
and incentives limitation to officials and employees of
the BIR and the BOC violates the constitutional
guarantee of equal protection. - YES.
Ruling:
The equal protection clause recognizes a valid
classification, that is, a classification that has a
reasonable foundation or rational basis and not
arbitrary. With respect to RA 9335, its expressed
public policy is the optimization of the revenue-
generation capability and collection of the BIR and the
BOC Since the subject of the law is the revenue-
generation capability and collection of the BIR and the
BOC, the incentives and/or sanctions provided in the
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
law should logically pertain to the said agencies.
Moreover, the law concerns only the BIR and the BOC
because they have the common distinct primary
function of generating revenues for the national
government through the collection of taxes, customs
duties, fees and charges.
Both the BIR and the BOC principally perform the
special function of being the instrumentalities through
which the State exercises one of its great inherent
functions – taxation. Indubitably, such substantial
distinction is germane and intimately related to the
purpose of the law. Hence, the classification and
treatment accorded to the BIR and the BOC under R.A.
9335 fully satisfy the demands of equal protection.
III. PROGRESSIVE SYSTEM OF TAXATION
ARTICLE VI, SECTION 28(1), the provision involves
Progressive system of taxation.
ARTICLE VI, SECTION 28(1),
(1) The rule of taxation shall be uniform and
equitable. The Congress shall evolve a
progressive system of taxation.
Please do not confuse it with progressive tax.
Progressive system of taxation is different from a
progressive tax or a progressive rate.
A progressive system is one where the system of
taxation of a country is more inclined with direct
taxes. It has more direct taxes than indirect taxes.
While a progressive tax rate means that a tax rates go
higher as the tax base goes higher.
Kung mudako imong income, mudako pud
imong tax. But in several cases like for example
in Tolenino v. Secretary and Abakada v. Ermita.
What is the nature of this constitutional provision? Is
this mandatory? Because the VAT laws here in these
cases are challenged, accordingly it violates
constitutional provisions of progressive system of
taxation.
But the SC interpreted, that these are merely
policy guidelines in making tax laws. This is
directory in nature. As much as possible, the
congress must avoid indirect taxes and put into
premium direct taxes. But it’s not mandatory.
Nothing in the constitution prevents the
government from enacting a law which provides
for indirect taxes.
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IV. DELEGATION TO THE PRESIDENT TO FIX TARIFF
RATES
We already discussed this. In connection with this we
have Article VI, Section 24.
V. ORIGIN OF APPROPRIATION, REVENUE AND
TARIFF BILLS
ARTICLE VI, SECTION 24. 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
VI. VOTING REQUIREMENT IN GRANTING TAX
EXEMPTION
ARTICLE VI SECTION 28(4). No law granting any tax
exemption shall be passed without the concurrence of
a majority of all the Members of the Congress
The case on point here is the case of CAMP JOHN HAY
V. LIM, this is about RA 7227, the Bases Conversion
and Development Act of 1992. This law gives authority
to the President to create through an executive
proclamation, a special economic zone. But the
problem here is, President Ramos created an
economic zone through an EO which carries with it a
tax incentives. The issue in this case is whether or the
EO is unconstitutional. The SC said YES. There are
actually 3 reasons here why the presidential
proclamation is void:
1. The implementing authority cannot exceed,
modify or supplant what was stated in the
law. The law itself says the only the Subic SEZ
enjoys those exemptions.
2. The nature of the assailed privileges is in the
nature of a tax exemption. Only the
legislative branch can grant exemptions. The
president’s power to grant exemptions is
only limited to tariff, custom duties, etc.
3. The grant of tax exemption is a
circumvention of the constitutional provision
which requires a concurrence of the majority
of all the members of congress.
CAMP JOHN HAY VS LIM
FACTS: R.A. 7227 was enacted granting to Subic SEZ
tax privileges and tax exemptions. President Ramos
issued Proclamation No. 420, the title of which was
earlier indicated, which established a SEZ on a portion
of Camp John Hay which granted the John Hay SEZ the
same tax exemption enjoyed by Subic SEZ under R.A.
7227.
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
ISSUE: Whether the tax exemptions and other
financial incentives granted to the Subic SEZ under
R.A. No. 7227 (Bases Conversion and Development Act
of 1992), are applicable to the John Hay SEZ.
RULING: The argument that the President's "power to
create Special Economic Zones carries with it the
power to provide for tax and financial incentives,"
does not lie. It is the legislative branch which has the
inherent power not only to select the subjects of
taxation but to grant exemptions. Paragraph 4,
Section 28 of Article VI of the Constitution is crystal
clear: "[n]o law granting any tax exemption shall be
passed without the concurrence of a majority of all
the Members of the Congress." Hence, it is only the
legislature, as limited by the provisions of the
Constitution, which has full power to exempt any
person or corporation or class of property from
taxation. The Constitution itself may provide for
specific tax exemptions or local governments may
pass ordinances providing for exemption from local
taxes, but, otherwise, it is only the legislative branch
which has the power to grant tax exemptions, its
power to exempt being as broad as its power to tax.
There is absolutely nothing in R.A. No. 7227 which can
be considered a grant of tax exemption in favor of
public respondent BCDA. Rather, the beneficiaries of
the tax exemptions and other incentives in Section 12
(the only provision in R.A. No. 7227 which expressly
grants tax exemptions) are clearly the business
enterprises located within the Subic SEZ. Contrary to
public respondents' interpretation, the Decision of
October 24, 2003 does not "tie the hands" of
executive or administrative agencies from
implementing any present or future legislation which
affords tax or other financial incentives to qualified
persons doing business in the John Hay SEZ or
elsewhere. The second sentence of Section 3 of
Proclamation No. 420 was declared null and void only
insofar as it purported to grant tax exemptions and
other financial incentives to business enterprises
located in John Hay SEZ. However, where there is
statutory basis for exemptions or incentives, there is
nothing to prevent qualified persons from applying for
and availing thereof.
VII. PRESIDENT’S VETO POWER ON APPROPRIATION,
REVENUE AND TARIFF BILLS
ARTICLE VII, SECTION 27. (2) 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.
What is an item? What is the general rule on veto?
GR: Veto all or veto none.
EXP: With respect to tax laws, the president can
veto an item.
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The Congress passed a law and then the President has
power to veto it. Just like what happened in the TRAIN
law, inaprobahan nya but there are certain provisions
which were vetoed. We will discuss more bout this
when we reach income taxation.
What do you understand by the term “ITEM”? Ano
yang item nayan? Uyy item sila, iba yong item nayan
ha… Item veto is allowed when it comes to revenue
bill etc. only, but when it comes to other laws, it
should be in a line item only.
So what do you mean by “item”?
In the case of CIR V. TAX APPEALS AND MANILA
GOLF defines “item” is in a revenue bill does not refer
to an entire section imposing a particular kind of tax,
but rather to the subject of the tax and the tax rate. In
the portion of a revenue bill which actually imposes a
tax, a section identifies the tax and enumerates the
persons liable therefore with the corresponding tax
rate
So again dalawa ang item na yan, dalawa ang covered
sa item, number one, it maybe the subject of the tax,
ano yan sya ,hotel, bar, restaurants, golf courses and
other places for entertainment. Second, tax rate,
when you talk about the tax rate, this is a particular
item . So, it’s just either of these two, that president
can veto. For example there is new tax law passed by
congress, imposing taxes to hotels, motels, inn, bar,
resthouses, lodges, golf course and other places of
entertainment for tax of 20% , lets say if their gross
income reaches 3 millions.
Can the president remove now the motels, lodges,
golf course? The answer is YES of course. It is because
it involves the subject of taxation. Now, can the
president say that I don’t want the 20%, because it is
too burdensome. Can the president do that? YES,
because it refers to the tax rate. How about if the
president would say that I don’t want the
qualification, if the gross sale or receipt of this
establishment would exceed 3 million. Does it refer to
a tax rate or tax subject? Is the president allowed to
do that? You read the case if CIR v. Tax Appeals and
Manila Golf.
CIR v Court of Tax Appeals and Manila Golf
FACTS: Manila Golf & Country Club, Inc., a non-stock
corporation who maintains a golf course and operates
a clubhouse with a lounge, bar & dining room
exclusively for its members & guests claims that they
should have been exempt from payment of privilege
taxes were it not for the last paragraph of Section
191-A of RA No. 6110, otherwise known as "Omnibus
Tax Law".
By virtue of RA No. 6110, the CIR assessed the Manila
Golf and Country Club fixed taxes as operators of golf
links and restaurant, and also percentage tax
(caterer's tax) for its sale of foods and fermented
liquors/wines for the period covering September 1969
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
to December 1970 in the amount of P32,504.96 in
which the club protested claiming the assessment to
be without basis because Section 42 was vetoed by
then President Marcos.
CIR denied the protestation of the club, who maintain
that Section 42 was not entirely vetoed but merely
the words "hotel, motels, resthouses" on the ground
that it might restrain the development of hotels which
is essential to the tourism industry.
ISSUE: Whether or not the presidential veto referred
to the entire section or merely to the imposition of
20% tax on gross receipt of operators or proprietors of
restaurants, refreshment parlors, bars and other
eating places which are maintained within the
premises or compound of a hotel, motel or
resthouses.
DECISION: The presidential veto referred merely to
the inclusion of hotels, motels, and rest houses in the
20% caterer's tax bracket but not to the whole
section. It was then agreed by the SC with then
Solicitor General Estelito Mendoza and his associates
that inclusion of hotels, motels, and rest houses in the
20% caterer's tax bracket are "items" in themselves
within the meaning of Sec. 20(3), Article VI of the
1935 Constitution.
An "item" in a revenue bill does not refer to an entire
section imposing a particular kind of tax, but rather to
the subject of the tax and the tax rate. In the portion
of a revenue bill which actually imposes a tax, a
section identifies the tax and enumerates the persons
liable therefore with the corresponding tax rate. To
construe the word "item" as referring to the whole
section would tie the President's hand in choosing
either to approve the whole section at the expense of
also approving a provision therein which he deems
unacceptable or veto the entire section at the
expense of foregoing the collection of the kind of tax
altogether. The evil which was sought to be prevented
in giving the President the power to disapprove items
in a revenue bill would be perpetrated rendering that
power inutile
VIII. TAXES LEVIED FOR SPECIAL PURPOSE
ARTICLE VI, SECTION 29(3). 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.
Example for this is the Coco Levy fund and yong motor
vehicle registration fees the purpose is to raise money
in order to build and maintain public roads and
highways etc.. That’s a specific purpose.
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IX. GRANT TO LGU’S TO CREATE ITS OWN SOURCE
OF REVENUE.
We already discussed this.
X. FLEXIBLE TARIFF CLAUSE
ARTICLE VI, SECTION 28(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, tonnage and wharfage dues, and other duties
or imposts within the framework of the national
development program of the Government.
We also discussed this in detail.
XI. EXEMPTION FROM REAL PROPERTY TAXES
ARTICLE VI, SECTION 28(3). 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
Now let’s go to the more important provision. I said
this is important because from time to time, like for
example from last bar examination lumabas to. Let’s
just summarize this constitutional provision.
The first question is, what kind of tax is covered
under this provision?
- It covers REAL PROPERTY TAXES ONLY. It
does not refer to income, it does not refer to
any receipt, any donation. It just refers to
real property taxes.
Second, what are the institutions covered here?
- Institutions are exclusive, first you charitable
institutions, churches and personages or
convents, and mosque, meaning religious
buildings. Second non profit cemeteries, and
lastly all lands, buildings, and improvements,
actually, directly, and exclusively used for
religious, charitable, or educational purposes.
What are the requirements so that these institutions
will be able to avail of real property tax exemption?
- The requirement is this, that all lands,
buildings, and improvements, ACTUALLY,
DIRECTLY, AND EXCLUSIVELY USED for
religious, charitable, or educational purposes.
*Sir talking about his recit with Father Gus.
July 28, 2018 Part 3
Lexi Singanon
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
What do you mean by “actually, directly, and
exclusively used”? Does it mean that such property in
order to be exempt from real property tax, should be
actually and strictly used for educational purposes
only? What if majority of the entire property of the
educational institution is used for school or
educational purposes, and a portion thereof, example,
the “Arrneo”, di ba? Ano ba ginagawa ng mga bangko
diyan? Nagarenta man yan sila di ba? But the income
derived from the rental payments are used to
supplement school needs.
So, the SC actually has two interpretations for this
“actually, directly, and exclusively used”
requirement.
1. Most old cases would use the liberal
meaning – even if the property is not directly
used for religious, charitable, or educational
purposes, but these facilities are incidental to
or are reasonably necessary for the
accomplishment of the main purpose
(religious, charitable, or educational), they
are covered in the exemption.
2. Some newer cases would also say, that the
“actually, directly, and exclusively used”
requirement is actually restrictive – if you are
not actually using them for religious,
charitable, or educational purposes, then
they are not tax exempt.
Cases:
Roman Catholic Bishop v. Ilocos Norte
GR No. 27588, December 31, 1927
Ilocos Norte wanted to collect real property taxes
against the church. According to them, yes, there
may be a church, but there is also a dormitory and
a vegetable garden. What should only be covered
by the tax exemption is the portion where the
church is situated because it is the only portion
actually used for religious purposes, and not the
the dormitory and vegetable garden.
What did the SC say here?
“The exemption in favor of the convent in the
payment of the land tax (sec. 344 [c]
Administrative Code) refers to the home of the
parties who presides over the church and who has
to take care of himself in order to discharge his
duties. It therefore must, in the sense, include
not only the land actually occupied by the
church, but also the adjacent ground destined to
the ordinary incidental uses of man. Except in
large cities where the density of the population
and the development of commerce require the
use of larger tracts of land for buildings, a
vegetable garden belongs to a house and, in the
case of a convent, it use is limited to the
necessities of the priest, which comes under the
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exemption.lawphi1.net
In regard to the lot which formerly was the
cemetery, while it is no longer used as such,
neither is it used for commercial purposes and,
according to the evidence, is now being used as a
lodging house by the people who participate in
religious festivities, which constitutes an
incidental use in religious functions, which also
comes within the exemption.”
Abra Valley College v. Aquino
162 SCRA 106
This case involves a school, which has several
portions in the college building that are rented
out to commercial establishments. Meron siyang
canteen concessionaires, book supplies, etc. And
then the 2nd floor was being used by the principal
and his family as residence.
“The college lot and building in question which
were subjected to seizure and sale to answer for
the unpaid tax are used: (1) for the educational
purposes of the college; (2) as the permanent
residence of the President and Director thereof,
Mr. Pedro V. Borgonia, and his family including
the in-laws and grandchildren; and (3) for
commercial purposes because the ground floor of
the college building is being used and rented by a
commercial establishment, the Northern
Marketing Corporation.”
Issue: What is the tax liability of Abra Valley
College?
To be more specific, what is the tax liability of the
real property of Abra Valley College?
Held: To determine the taxability of the property,
you must first distinguish how is that portion of
the property being used. There seems to be no
problem with the building which is being used by
the school because this actually, directly, and
exclusively used for educational purposes.
What about the portion of the lot which is being
used by the President and his family? As well as
that portion that is being rented out to
commercial establishments?
The SC said:
“It must be stressed however, that while this
Court allows a more liberal and non-restrictive
interpretation of the phrase "exclusively used for
educational purposes" as provided for in Article
VI, Section 22, paragraph 3 of the 1935 Philippine
Constitution, reasonable emphasis has always
been made that exemption extends to facilities
which are incidental to and reasonably necessary
for the accomplishment of the main purposes.
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
Otherwise stated, the use of the school building
or lot for commercial purposes is neither
contemplated by law, nor by jurisprudence. Thus,
while the use of the second floor of the main
building in the case at bar for residential
purposes of the Director and his family, may find
justification under the concept of incidental use,
which is complimentary to the main or primary
purpose—educational, the lease of the first floor
thereof to the Northern Marketing Corporation
cannot by any stretch of the imagination be
considered incidental to the purpose of
education.”
Lung Center v. Quezon City
GR No. 144104, June 29, 2004
There are 2 main issues here:
1. What is the definition of a charitable
institution?
2. What is the extent of the real property
tax exemption afforded to charitable
institutions?
Lung Center of the Philippines is a hospital that is
situated in the middle of a big vast tract of land. A
big space at the ground floor is being leased to
private parties, for canteen and small store
spaces, and to medical or professional
practitioners who use the same as their private
clinics for their patients whom they charge for
their professional services. Almost one-half of the
entire area on the left side of the building along
Quezon Avenue is vacant and idle, while a big
portion on the right side, at the corner of Quezon
Avenue and Elliptical Road, is being leased for
commercial purposes to a private enterprise
known as the Elliptical Orchids and Garden
Center.
So what happened is, Quezon City assessed both
the land and the hospital building for real
property taxes, and then the Lung Center applied
for real property tax exemptions but it was
eventually denied.
According to Lung Center, a minimum of 60% of
its hospital beds are exclusively used for charity
patients and that the major thrust of its hospital
operation is to serve charity patients. As such, it is
a charitable institution and therefore, it should be
exempt from real property taxes.
Issues:
1. Is Lung Center a charitable institution?
YES.
The argument of Quezon City is that Lung Center
cannot be a charitable institution because it
receives income from paying clients. For a
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charitable institution to be exempt from real
property taxes, it must not be earning profits.
But what is the test in determining whether an
entity is a charitable institution?
The test whether an enterprise is charitable or not
is whether it exists to carry out a purpose
reorganized in law as charitable or whether it is
maintained for gain, profit, or private advantage.
So where do you look in order to know whether
an institution is indeed charitable or not?
The SC said that you look into its corporate
documents and its by-laws. That’s why the SC
found that Lung Center is indeed a charitable
institution.
“We hold that the petitioner is a charitable
institution within the context of the 1973 and
1987 Constitutions. 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.”
Now here comes the contention of the
government that since it is gaining profit, it is no
longer a charitable institution, to which the SC
held that:
“As a general principle, 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.”
So even if it’s receiving income pero saan papunt
ang pera? It’s still for the purpose of giving out
free services for the benefit of those who cannot
afford medical services.
And there’s this another contention of the
government: It’s still not a pure charitable
institution because it derives subsidies from the
government. The SC held that it still doesn’t
matter because it does not destroy the charitable
character of the institution as long as it uses the
subsidies granted by the government for the
furtherance of its charitable purposes.
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
“Under P.D. No. 1823, the petitioner is entitled to
receive donations. The petitioner does not lose its
character as a charitable institution simply
because the gift or donation is in the form of
subsidies granted by the government.”
2. Is the entirety of Lung Center’s real
property exempted from real property
taxes? NO.
Now, according to the Lung Center, the entire
property is dominantly and primarily used for
charitable purposes. Because in the end the SC
held that not all of the properties owned by Lung
Center is exempt from real property tax.
“Under the 1973 and 1987 Constitutions and Rep.
Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove,
by clear and unequivocal proof, that (a) it is a
charitable institution; and (b) its real properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used
for charitable purposes. "Exclusive" is defined as
possessed and enjoyed to the exclusion of others;
debarred from participation or enjoyment; and
"exclusively" is defined, "in a manner to exclude;
as enjoying a privilege exclusively." If real
property is used for one or more commercial
purposes, it is not exclusively used for the
exempted purposes but is subject to taxation.
The words "dominant use" or "principal use"
cannot be substituted for the words "used
exclusively" without doing violence to the
Constitutions and the law. Solely is synonymous
with exclusively.
What is meant by actual, direct and exclusive use
of the property for charitable purposes is the
direct and immediate and actual application of
the property itself to the purposes for which the
charitable institution is organized. It is not the
use of the income from the real property that is
determinative of whether the property is used for
tax-exempt purposes.
The petitioner failed to discharge its burden to
prove that the entirety of its real property is
actually, directly and exclusively used for
charitable purposes. While portions of the
hospital are used for the treatment of patients
and the dispensation of medical services to them,
whether paying or non-paying, other portions
thereof are being leased to private individuals for
their clinics and a canteen. Further, a portion of
the land is being leased to a private individual for
her business enterprise under the business name
"Elliptical Orchids and Garden Center."
It's pretty much the same here in Ateneo. It’s a non-
stock non-profit educational institution “daw” but
that portion being rented out to and used by Mercury
Drug is not exempt from real property tax.
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XII. TAX EXEMPTION OF REVENUES, ASSETS,
INCLUDING DONATIONS TO EDUCATIONAL
INSTITUTIONS (Art. XIV, Sec. 4 (3) and (4))
ART. XIV, SEC. 4 (3) AND (4)
1. 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.
Proprietary educational institutions,
including those cooperatively owned, may
likewise be entitled to such exemptions,
subject to the limitations provided by law,
including restrictions on dividends and
provisions for reinvestment.
2. Subject to conditions prescribed by law, all
grants, endowments, donations, or
contributions used actually, directly, and
exclusively for educational purposes shall be
exempt from tax.
Let us outline this provision. This is quite similar to the
previous constitutional limitation that we discussed.
It’s pretty much almost the same but there are
substantial differences.
What are the type of schools mentioned here? Take
note that this constitutional provision we are talking
about right now pertains to educational institutions.
July 28,2018
1:00-1:20
Nikki Tan
TYPES OF EDUCATIONAL INSTITUTIONS
There are two types of educational institution
mentioned:
1. Non Stock, Non-Profit Educational
Institutions (NSNP); or
2. Proprietary Educational Institutions
Lets discuss first (1) Non Stock, Non-Profit
Educational Institutions.
What is the coverage of tax exemption NSNP
Educational Institutions? The coverage is all revenues
and assets which means income as well as the
properties of this educational institutions so long they
are non stock and non profit they are exempt from
taxes and duties.
Second, what is the requirement for before these
institutions revenue and assets will be exempt from
taxes duties?
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
The requirement is that the revenues and
assets are actually, directly, and exclusively used for
educational purpose. This time what is involved is not
only the real property but the assets: the money, the
properties of these institutions, it also includes the
income of these educational institutions. So it is safe
to say generally speaking NSNP Educational
Institutions all of their income is not subject to income
tax because of this constitutional provision.
As to the revenues what is important here is
that where the revenue will be placed A. Say for
example, this school Ateneo we are renting a space to
Mercury Drug.Where will the net income go?
A. If its rent income will go to
educational purposes then that
income/revenue is EXEMPT FROM
TAXATION take note we are not
talking about property taxes here
only income taxes
B. What if you will invest this income?
You will invest this income taken
from the rents of Mercury Drug and
then the income from this
investment you will apply it to
educational purposes. So from
Mercury Drug to Ateneo, Ateneo
used it for investment and that
investment will earn income and
then use it again for school means.
And it would be that money since
Ateneo has already invested it
outside, the money taken from
Mercury Drug that income is NOT
COVERED by the exemption.
C. But then if it has income from that
investment which ultimately that
Ateneo uses it for educational
purposes because it is actually,
directly, and exclusively used for
educational purpose that income
will be EXEMPT FROM TAXATION.
Is this tax exemption self executing?
Yes,you do not need a law for that.
So to summarize to avail of this tax
exemption of this constitutional provision
the following are the requisites:
1. It must be a Non Stock, Non-Profit
Educational Institutions (NSNP);
and
2. Coverage: The revenues and the
assets must be actually, directly,
and exclusively used for educational
purposes.
Next, (2) Proprietary Educational Institutions are
there revenues and assets also tax exempt?
Nakalagay dito sa provisions:
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Proprietary educational institutions, including those cooperatively ow
exemptions, subject to the limitations provided by law, including restr
reinvestment.
In other words, when it comes to proprietary
educational institutions they do not have an
automatic tax exemption on there revenue and assets
there must be an enabling law. Under the current
setup, these proprietary educational institutions are
not tax exempt on their revenue and assets under this
constitutional provision but they can avail of the 10%
preferential tax rate under the National Internal
Revenue Code (NIRC).
What about the real properties of these proprietary
institutions?
These properties of the proprietary educational
institutions are tax exempt only: when they are
actually, directly, and exclusively used for education
purposes. Then we have
Section 28. Article VI, 1987 Constitution
(3) Charitable institutions, churches and
parsonages 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.
Then we have constitutional provisions that deal with
grants, endowments, donations:
Section 4. Article XIV, 1987 Constitution
(4) Subject to conditions prescribed by law,
all grants, endowments, donations, or contributions
used actually, directly, and exclusively for
educational purposes shall be exempt from tax.
Pretty much the same, it’s about donations
to these institutions this is not self executing because
there must be a law providing for exemption. This is
covered by NIRC Section 101
Section 101. NIRC
(3) Gifts in favor of an educational and/or
charitable, religious, cultural or social welfare
corporation, institution, accredited
nongovernment organization, trust or
philanthropic organization or research institution
or organization: Provided, however, That not
more than thirty percent (30%) of said gifts shall
be used by such donee for administration
purposes. For the purpose of this exemption, a
'non-profit educational and/or charitable
corporation, institution, accredited
nongovernment organization, trust or
philanthropic organization and/or research
institution or organization' is a school, college or
university and/or charitable corporation,
accredited nongovernment organization, trust or
philanthropic organization and/or research
institution or organization, incorporated as a
nonstock entity, paying no dividends, governed
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
by trustees who receive no compensation, and
devoting all its income, whether students' fees
or gifts, donations, subsidies or other forms of
philanthropy, to the accomplishment and
promotion of the purposes enumerated in its
Articles of Incorporation.
Under the current set up only NSNP Educational
Institution may avail of the tax exemption.
Then you have Non-Impairment of Supreme Court
Jurisdiction in Tax Cases:
Section 5. Article VIII, 1987 Constitution
The Supreme Court shall have the following powers:
2. Review, revise, reverse, modify, or affirm on
appeal or certiorari, as the law or the Rules of Court
may provide, final judgments and orders of lower
courts in:
b. All cases involving the legality of any tax, impost,
assessment, or toll, or any penalty imposed in
relation thereto.
We also have Non Imprisonment for Non Payment of
Poll Tax
Section 20. Article III, 1987 Constitution
No person shall be imprisoned for debt or non-
payment of a poll tax.
And the Freedom of Speech and of the Press
Section 4. Article III, 1987 Constitution
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.
Then you have Religious Freedom
Section 5. Article III, 1987 Constitution
No law shall be made respecting an establishment
of religion, or prohibiting the free exercise thereof.
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.
Then just read on the cases: Tolentino v Sec. of
Finance and American Bible v City of Manila which
were under your Constitutional Law 1 cases.
Then we have Non-Impairment of Contracts
Section 10. Article III, 1987 Constitution
No law impairing the obligation of contracts shall
be passed.
What do you mean by impairing the obligation?
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To impair the obligations of the contracts is
to alter or change the terms and effects of the
contract and that is the contemplation of the law to
weaken the position of rights of one or all of the
parties to it.
POLICE POWER POWER TO TAX
Superior to the non- Inferior to the non-
impairment clause impairment clause
What about the legislative franchises are these
covered by the non-impairment clause of the
constitution. This is actually discussed in the case of
Meralco vs Province of Laguna
G.R. No. 131359. May 5, 1999
Contractual tax exemptions, in the real sense of the
term and where the non-impairment clause of the
Constitution can rightly be invoked, are those
agreed to by the taxing authority in contracts, such
as those contained in government bonds or
debentures, lawfully entered into by them under
enabling laws in which the government, acting in its
private capacity, sheds its cloak of authority and
waives its governmental immunity.
Truly, tax exemptions of this kind may not be
revoked without impairing the obligations of
contracts. These contractual tax exemptions,
however, are not to be confused with tax
exemptions granted under franchises. A franchise
partakes the nature of a grant which is beyond the
purview of the non-impairment clause of the
Constitution.
Indeed, Article XII, Section 11, of the 1987
Constitution, like its precursor provisions in the
1935 and the 1973 Constitutions, is explicit that no
franchise for the operation of a public utility shall
be granted except under the condition that such
privilege shall be subject to amendment, alteration
or repeal by Congress as and when the common
good so requires.
TAXPAYER’S SUIT
Then we talk about the Taxpayer’s Suit
It is more of a constitutional law concept
which is related to the judicial review aspect.
The Power of Judicial Review
Is the power of the Supreme Court to declare
a treaty, international or executive agreement, law,
etc. unconstitutional not just the law but also the
application of the law.
Elements of Judicial Review:
1. There must be an actual case or controversy;
2. There must be a locus standi;
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018

3. The issue must be raised on the earliest 1. Franchise Tax;

opportunity; and 2. Contractors Tax;
4. The issue must be the very lis mota of the 3. VAT
case 4. Documentary Stamp Tax (DST);
5. SPA Tax;
Where does Taxpayer Suit come in? 6. Percentage Tax
On the second element or (2) there must be
a locus standi. A taxpayer has a standing to file and The incidence and the impact of taxation please do
action questioning the validity of law based on the: not be confused with these two items.
theory that expenditure of public funds by the officer
of the government for the purpose of administering or Why is it that in Indirect Taxes the burden can be
implementing a valid law constitutes a misapplication shifted to another person?
of funds. It is because in indirect taxes the impact and the
incidence of taxation may be split.
Strictly speaking there is a taxpayers suit, a taxpayer
has a standing to file if: IMPACT OF TAXATION INCIDENCE OF TAXATION
1. He is a sufficient interest in preventing the It refers to the liability of It refers to the burden of
illegal expenditure of money raised by the payment of tax paying the tax
taxation; and
2. He will sustain a direct injury in the In Direct Taxation the impact and incidence of
enforcement of the law taxation will always fall upon one person only.

Read the 3 cases, kaya niyo na yan let’s go now to

escape from taxation. July 28, 2018
Jessa Puerin

ESCAPE FROM TAXATION

In Indirect Taxes, it is different because the incidence
of taxation may fall of some other person.
How do you differentiate escape from taxation and
Simply lang VAT, the selling price supposedly is
tax exemption?
P100 pesos, because of the VAT I will charge
P112 to the buyer. Who will bear the tax? It’s
ESCAPE FROM TAXATION TAX EXEMPTION
actually the buyer. But what if the buyer will not
It is the taxpayer’s These are the laws
pay the tax? What if the buyer will not pay the
employment of any promulgated by the
VAT? Ayaw niya magbayad ng additional P12. Oh
means regardless of its Congress wherein the
sige benta ko na lang P100 wag na lang ang P12,
legality to reduce or to taxpayer will not suffer
does that mean the seller will not longer liable
altogether avoid the the burden of taxation
to the government. No, because at the end of
payment of taxes
the day , it is the impact of taxation falls on the
buyer and he will be the one to remit the VAT to
The ways to avoid the payment of taxes: the government. Iyong buyer na ayaw
1. Tax Shifting magbayad, wala lang siya.
2. Tax Avoidance
3. Tax Evasion That is the significance of impact and incidence of
taxation.
1. Tax Shifting
The taxpayer shifts the burden of taxation to DIAGEO PHILIPPINES VS. CIR
some other person. This is about a refund. Diageo here is engaged in the
importing and exporting of liquors. So ang ginagawa
Ways of shifting the taxation: niya magpurchase siya ng alcohol from the outside, it
a. Including the tax in the purchase pays its excise taxes around P12M. What happens that
price; or its exported a course to their neighboring countries.
Ex. Attorneys Fee 100,000 So export sale siya. If it’s an export sale normally it is
already included in it is the 3% subject to zero rated transaction. So in effect to put it
Percentage Tax roughly supposedly if you will export something you
b. Adding the tax on your selling price will not be liable for any excise taxes and then the
Ex. Bill it separately; magbill ako Diageo filed a claim for a refund. Refund or credit of
ng 100,000 patungan ko pa ng any excise taxes paid for the locally goods for those
3%
manufactured which are actually exported. The BIR
denied the claim for refund because the BIR said that
In either of way the burden of taxation will always be Diageo is not the proper person to file for a refund.
on the part of the person paying my services, however Simply because Diageo in purchasing the property, in
not all taxes can be shifted. purchasing the goods and raw materials, it pays the
selling price only. The person who are ultimately liable
Taxes that can be shifted to another: for the taxes is not Diageo but it’s actually the

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 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
suppliers. Which is precisely the decision of the court
here. Diageo cannot claim for refund of excise taxes it
paid because it (Diageo) only bears the burden of tax
and not the liability of the tax in other words the
statutory taxpayer is the proper party to claim a
refund of indirect taxes.
2. Tax Avoidance
When we say tax avoidance this is the exploitation
by the taxpayer of legally permissible scheme or
methods of assessing taxable property or income
in order to reduce not entirely in order avoid the
payment of tax liability.
To put it simply the taxpayer merely exploits a
legal loophole in order for him to avoid the
payment of taxes.
Possible ba yan? Yes it is entirely possible. Uso yan
dati when I think it is applicable until now.
Estate planning, before the TRAIN Law, ngayon
kasi pareho na lang ang tax rates sa estate tax and
donors tax. But before the train law, the rates for
donor taxes are actually lower especially if you
donate it to a relative.
So if the person is already dying, he slowly donates
his properties until such time that he is already
dead, the estate will pay minimal estate taxes only.
So tax avoiding siya. Is that allowed? It is actually
allowed because you are only exploiting a little
loophole. I know that I am dying, previously sa
Train Law, P100,000 donation per year is donor’s
tax exempt. Mag donate diay ko 100, 000 kada tuig
and at the time I am almost dying, I have no more
properties left, wala na akong estate taxes na
babayaran. Tax free lahat. Is that allowed? Yes,
because you are exploiting a little loophole.
Right now, applicable pa ba siya? I think to some
extent even if donor’s taxes and estate taxes now
are the same, you can still exploit that. You can still
donate yearly to a maximum of 200,000 pesos
since it is still tax free. And that is allowed.
3. Tax Evasion
Tax evasion, by the way, is different from tax
avoidance since it is an illegal means to reduce and
avoid the payment of taxes. This is no longer
exploiting a legal loophole but you are actually
defeating the payment of taxes. Through illegal means
you employ fraud, use false pretenses and forbidden
devices in order to lessen and defeat the payment of
taxes.
What are the factors to consider integrated in tax
evasion?
1. The ends to be achieved- payment of less
than that known by the taxpayer to be legally
due or the nonpayment of tax for additional
tax is due
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2. The accompany state of mind which is
described as being even for in bad faith
deceitful, deliberate and not incidental-
meaning there is an intent to deceive or to
defraud the government
3. Course of action or failure of action which is
unlawful- an overt action or non-action
which is considered unlawful
CIR VS. ESTATE OF TODA
One case is CIR vs Estate of Toda. If I remember it
correctly, there was this person who owns a
corporation and then this person sold it to a certain
person again. Let us say Person A sold it to person
B, and then after that the person B sold it to
another corporation C. In the end when person A
died, he paid taxes nagkuha pa siya ng legal opinion
sa BIR and eventually he was free from tax.
But then the BIR assessed him of deficiency estate
taxes. Sabi niya bayad ka man this has already been
paid you even secured a legal opinion for this type
of transaction. The BIR said no, that is actually or
you cannot use that as the legal opinion the we
made because what you mean is actually to defraud
the government if I may not spoke of everything of
the income tax due for that estate for the transfer
etc., kasi minimal transfer, minimal taxes lang
binayaran nila.
So in the end the main issue being discussed here
by the supreme court is whether or not a tax
evasion. This is the case ot tax evasion or tax
avoidance. Then there are requisites to adhere, the
three factors: one, the end to be achieved-to defeat
taxes or reduce taxes; second, the intent to defraud
or in bad faith; third, course of action.
n this case, all factors are present. Why?
1) The ends to be achieved through transactions
making the transaction deemed to transferring
the shares to B, then from B transferring to C
another corporation. All those transaction
resulted to reduction of the taxes. Miskan
gamay gibayaran niya.
2) The scheme employed, there is no other
intention but a fraudulent intention to defeat
the government in collecting the tax due-
because the transaction was actually a sham.
There is no exchange of money,so the person in
between of person B is just an intermediary for
everything and merely use as a conduit in order
to save taxes.
The obvious objective of the transaction is to
create a tax shelter and no other. This person B
never controlled or benefited from the
property in fact he sold right away. Gibaligya
niya dayon. Pagsale ni person A to person B
there was a deed of sale and then this person B
on the very same day sold it to person C. okay
lang sana yun but the problem is this, the deed
of sale executed from person B to corporation
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
C was notarized ahead than the sale between
person A and person B. Gets niyo yan kaya next
time later on you should be careful about your
notarial book. When you notarized something
see to it that mauna ang authority bago and
deed of sale. The deed of sale in front was
notarized was made of the same day the deed
of sale was even notarized ahead of the
previous deed of sale. So in other words there
was completely no other purpose of those
transaction except to reduce the taxes and to
mislead the BIR as to the true nature of the
transaction entered by this persons A, B, and C.
Let’s check. It’s achieve, yes nabawasan ang
tax. No.2, state of mind, yes there is fraud
because the transaction is a sham.
3) No. 3, unlawful course of action. What is the
illegal act here is that the intermediary
transaction between person A and person B
was merely is a sham. It’s fraudulent in nature.
Atik atik lang walay unod. Giliba lang nila ang
gobyerno.
But I have certain reservation of this court
decision here. I think there is something wrong
with the decision because person A is a
corporation. It was only owned by the majority
or almost of it or the vast majority of that
corporation is owned by this person, person A.
So medyo weird siya.
TAX EXEMPTION
Tax exemption is the grant of immunity express or
implied to a particular person(s) or corporation of the
obligation for payment of taxes. It is the act of the
State or the prerogative to collect taxes upon certain
subject or object of taxation.
What is the basis of tax exemption? In tax exemption,
the grant of tax exemption is part and parcel of the
government’s power to grant tax. The power to tax
necessarily involves the power to create tax
exemption.
What is the nature of tax exemption? Tax exemption
is in the nature of a waiver of the state. Hence, this is
strictly construed against the taxpayer and evenly in
favor of the government. It is granted only upon the
clear intention which should not exist by mere
implication.
What are the PRINCIPLES ONE MUST REMEMBER
ABOUT TAX EXEMPTIONS:
1. Tax exemptions are not presumed. Tax
exemption is highly disfavored because it affects
the very life of the state. Lifeblood theory naman
tayo.
2. Tax exemption are strictly construed against
the taxpayer and in favor of the government.
And in line with this, tax exemption is strictly
construed, and the consequences are as follows:
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a) The taxpayer who claims tax exemption
should prove that he is exempted from
tax. There is a law providing for such tax
exemption;
b) The taxpayer must also be able to prove
that he is included among the tax
subjects or objects declared by law to be
tax exempt
What are the kinds of tax exemption?
1. Express
2. Implied and;
3. Contractual
Wala tayong problema sa Express tax exemption
because it is specifically provided by law. But is there
an implied tax exemption? Meron din tayong implied
tax exemption. Some books would say that this is not
possible because tax exemption dapat klaro siya
because it is strictly construed with the taxpayer gud.
There must be clear intention on the part of the
government to exempt a taxpayer from taxation.
What are the rule on exclusions? What about a tax
subject is excluded by law. Wala siya naapil sa taxable
items ba. So In that aspect probably there is an
implied tax exemption but if you want just to be strict
about it, it is not legally possible because there must
be a clear intention on the part of the government to
exempt tax subject or object through law.
COMPENSATION
And we also have concept of compensation.
Compensation is an ObliCon. It is the mode of
distinguishing an obligation when two persons, in
their own right, are creditors and debtors of each
other.
There are TWO TYPES OF COMPENSATION:
1. Legal compensation- arises as a matter of
law. When the requisites of legal
compensation are complied with, the
compensation will automatically take place
even the parties are unaware of it. The
requisites of a legal compensation under
Article of 1279 of the New Civil Code are:
a. The obligors are principally bound as
creditors and debtors of each other;
b. Both debts consist of some of money or
consumable goods
c. Both debts must be due
d. Both debts are liquidated and
demandable
e. That over neither of them there be any
retention or controversy
2. Conventional compensation- arises by mere
agreement of the parties.
GR: Taxes cannot be subject to
compensation.
Because the taxpayer and the Government
are not creditors and debtors of each other.
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
- Because the obligation of the taxpayer
is one created by law. Balaod ang
nagbuhat ana so that the taxpayer will
pay the taxes. Please take note that
even the taxpayer is sustain? (not
clear), there is no assurance on the
part of the government that I give
something to you in concrete terms di
ba. So you cannot say that these two
parties are mutually creditor and
debtor of each other.
- Second, taxes are not obligations.
Taxes are not contractual obligations.
Taxes are not considered debts to
begin with.
- Lastly, the Lifeblood Theory.
What is the DOCTRINE OF EQUITABLE RECOUPMENT?
Equitable Recoupment where the refund of a
tax illegally or erroneously corrected or overpaid by a
taxpayer is barred by prescription, a tax presently
being assessed against taxpayer may be recouped or
set-off against the tax already barred by prescription.
So basically it goes like this, the taxpayer has a
claimed of tax refund from the government. The
taxpayer did not avail of the refund, so nag prescribe.
The following year the government assessed tax
deficiency against this taxpayer. Under the doctrine
of equitable recoupment, even if the taxpayer’s
claim of refund is already prescribed, he can still set-
off the taxes.
This is not applicable in our jurisdiction because says
for a prescriptive period for the claim of tax refund.
Equitable recoupment to be applicable was still
provided by law. This is not under our NILR or tax laws
in that matter.
TAX AMNESTY
TAX AMNESTY is a general pardon to taxpayers or the
intentional overlooking by the State of its authority to
impose penalties on persons otherwise guilty of
violating a tax law.
July 28 Part 6
Dane Viola
CONSTRUCTION AND INTERPRETATION OF TAX LAWS
1st Rule: If the law is clear, there’s no need to interpret
it.
Where the provision of law speaks categorically there
is no need of an interpretation, all that has to be done
is to apply in in the cases which fall under its terms.
Relate this with the Robredo recount- 25% daw should
be counted in her favor. But what did the COMELEC
Rules say? It’s clear that it must be shaded
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completely. Is there a provision in the Omnibus
Election Code saying that the intent of the voter must
prevail? If Robredo is saying that the 25% rule should
be counted in her favor and there is this provision of
the OEC that the intent of the voter must prevail, I
think the COMELEC Res even if it says it must be
completely shaded it must yield to the OEC.
When is statutory construction needed?
This is only needed when there’s doubt in the
interpretation in the provision of a tax law.
General Rule: In case of doubt laws must be construed
strictly against the State and liberally in favor of the
tax payer.
There are 2 things you have to remember here:
1. There must be a law.
2. There must be a doubt on that tax law.
The rules is that a law shall not be construed as
imposing a tax without a clear and express provision
for that.
CIR V FORTUNE TOBACCO
There’s this revenue regulation and the BIR is
essentially saying that the tax payer is supposed to
prove the invalidity of the revenue regulation because
after all, tax laws are construed strictly against the tax
payer and in favor of the government. What the SC is
essentially saying is this: the strict interpretation of
tax law presupposes that there is any law to begin
with.
There’s also a rule here about tax exemption or tax
refund. The tobacco company is claiming for a refund
that’s why the tobacco company must prove that it is
entitled to a refund, and that the tax law entitles it to
a refund. Tax refunds are supposedly construed
strictly against the tax payer and in favor of the State.
So when it comes to the rule on the interpretation of
tax law and tax exemptions, baliktad. What the SC
said here is this: BIR is correct because the tax
exemptions including tax refund are strictly construed
against a tax payer because this is in derogation of the
right of the tax payer. But for the rule on the tax
exemption and tax refund to apply, it presupposes
that there is an existence of a tax law to begin with
and there is a provision which excludes a tax payer
from taxation thereof.
Which is why in this case, the SC expounded on the
rule on interpretation of tax laws. Tax laws are strictly
construed against the government so the BIR must be
able to show that it is allowed by law to implement
that revenue regulation which provides for a floor or a
ceiling of the tobacco prices.
From FT:
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018
A claim for tax refund may be based on statutes
granting tax exemption or tax refund. In such case, the
rule of strict interpretation against the taxpayer is
applicable as the claim for refund partakes of the
nature of an exemption, a legislative grace, which
cannot be allowed unless granted in the most explicit
and categorical language. The taxpayer must show
that the legislature intended to exempt him from the
tax by words too plain to be mistaken.
The rule in the interpretation of tax laws is that a
statute will not be construed as imposing a tax unless
it does so clearly, expressly, and unambiguously. A tax
cannot be imposed without clear and express words
for that purpose. Accordingly, the general rule of
requiring adherence to the letter in construing
statutes applies with peculiar strictness to tax laws
and the provisions of a taxing act are not to be
extended by implication.
In answering the question of who is subject to tax
statutes, it is basic that in case of doubt, such statutes
are to be construed most strongly against the
government and in favor of the subjects or citizens
because burdens are not to be imposed nor presumed
to be imposed beyond what statutes expressly and
clearly import. As burdens, taxes should not be
unduly exacted nor assumed beyond the plain
meaning of the tax laws.
The rule on tax exemptions is also applicable in tax
exclusions, tax refunds, tax amnesty and tax pardons
because they are essentially of the same nature – they
are all in derogation of the right of the State to
impose taxes and to collect them.
AMINISTRATIVE RULES AND REGULATIONS
They must be in harmony of the provisions of law. In
case there is conflict in the revenue regulation and the
NIRC, the NIRC will prevail.
MANDATORY AND DIRECTORY PROVISIONS OF LAW
• MANDATORY PROVISIONS
As a general rule our tax laws provide for mandatory
provisions – taxes are the life blood of the State.
Specifically the mandatory provisions provided for the
security of the citizens, those that require the equality
of taxation as to the nature and amount of taxation.
Normally these pertains to the mandatory
requirement such that when the government will not
follow the provisions, such government actions will be
considered void.
Example:
1. Provisions for the levy of properties: publication,
notice to the tax payer and incase the tax payer is
not around there must be witness etc. Those
things must be followed before the government
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could actually get the property and sell it to
public auction.
2. Another mandatory provision is the rules on
appeal. Appeal is not a matter of right, it is just a
privilege.
2. And we also have assessment and decisions and
rulings on the disputed assessment, it must
contain the facts, the law or jurisprudence or
legal basis on which the assessment is based,
otherwise the assessment is void.
3. As a tax payer you have the procedures for
protest which are mandatory.
4. Rules on waiver. Under the tax code, the 3 yr
prescriptive period in the collection and
assessment, the government only has 3 yrs to
make an assessment but this can be extended
through the waiver executed by the tax payer.
There are rules to be followed on waivers:
a. it must be I writing,
b. signed by the tax payer, the Commissioner or
his authorized representative,
c. waiver must be for a definite period,
d. waiver must be for a specific tax period only.
All those things must have to be followed otherwise
the waiver will not be valid because this will already
be in derogation on the right of the tax payer for
giving out a defense.
• DIRECTORY PROVISIONS
These are provisions providing for the direction of the
officers to secure methodological ay systematic
modes of proceedings.
Golf Air v CIR
San Pablo Manufacturing v CIR
(lifted from 2015 tsn)
In this case the SC applied the statcon rule expression
unius est exclusion alterius (anything that is not
included in the enumeration is excluded therefrom).
That’s the basic thrust of the decision.
SPMC is engaged in the business of milling,
manufacturing and exporting coconuts and its other
products. It supplies these products for UniChem. And
UniChem is exporting these products.
BIR assessed SPMC of percentage tax deficiency. Kasi
miller sya eh – subject to a 3% miller’s tax. Sabi ng
SPMC, “we are supposed to be tax exempt because
we are millers and the products that we provide are
exported.” Because if you read the tax law: “provided
however that this tax shall not apply to coconut oil,
palm oil, copra,…etc.” (read from case)
SPMC said that they are tax exempt. They give it to
UniChem, and at the same time UniChem exports it –
 T A X A T ION 1
FROM THE LECTURES OF ATTY. DONAL VO 2018

so it’s good as exportation. We are millers and

therefore we are exempt from tax.

But what the SC said was, NO. You are still subject to
3% miller’s tax. Why? If you take a look at the law,
who are the persons exempt from tax?
1. Proprietor of the factory
2. Operator of the factory
3. Miller himself

In this case, SPMC is selling its product to another

Filipino corporation which, in turn, exports the
products. It would have been different if SPMC was
selling. Where the law enumerates the subject upon
which it applies to be considered as excluding from its
effects all those not included in its express mention.
Expresio unius est exclusion alterius.

ASPECTS OR STAGES OF TAXATION

Most books would say the there are only 3 stages of

taxation:

1. Levy
2. Assessment and Collection
3. Payment

Some books would provide a 4th which is Refund, but

some would include it with payment.

Levy- Legislative in character, this is tax legislation

Assessment, collection, payment or refund- these

refer to tax administration.

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