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June 21 (Part 1) estate. Those properties will be subjected to taxation.

Transcribed by: Olamit, Ara Princess O.
On top of that, it’s not enough that you die because
INTRODUCTION there is a certain limit for which the heirs, or your
Now let’s begin with taxation. estae, must have to pay the estate tax. At least one
year, or within one year you pay your taxes under
For the entire semester, we will discuss two things: normal circumstances. So you see? You’re already
First, the General Principles of Taxation and the dead but you are still being made to pay the tax.
second is the Income Taxation Proper. That’s why, probably, some people would say that
there are three permanent things in the world.
For your first exam, the coverage will be the entire
General Principles of Taxation. 1. Death - Mamatay man kayo lahat. Whether you
like it or not, we will all die. Each and everyday
The first question that I always ask to my class is “Why we are dying slowly.
do we have to study taxation?” 2. God - Regardless of your religion, we all know
that God will be permanent in our lives.
Aside from being a bar subject and aside from the 3. Taxes - We cannot escape taxes. Even if we die,
fact that you are all students, you are required to we will always be subjected to taxation.
take the subject, why do we need to study
taxation to begin with? Why is it important? Why So more or less, since we encounter it daily, we
is it important to learn how tax works here in the should know at least a little bit of how our Tax works
Philippines? here in the Philippines. Because, probably, if you are
in the real world right now, you are an employee or
There are several reasons. employer, you have you own businesses, you will be
subjected to taxation. How would you know that you
We will encounter taxation daily. are paying the correct taxes? Or how would you know
Even if we don’t know it, we are actually that the taxes collected from you by the BIR are the
encountering taxation, right from the time that correct amount of taxes that you should pay?
we were born until the time we die. For example,
you were born, what about the money that your Or let’s make it simpler. What about the compliance?
parents would spend in the hospital? That money Okay for you who are business people here, lagi
is worth subject to taxation. The money that will kayong na-pepenalty. Bakit yan? Diba. So magbabayad
be given to the doctor will form part to the na lang kayo ng penalty so that there would be no
doctor’s PF (professional fee). Again we are trouble. But just think of how much. You just don’t
subjected to the VAT or the percentage tax or know
probably it will be subjected to the income tax if when and where to find. Diba, you can avoid that.
the doctor will declare it as an income to begin
with. Okay. And lastly, you have to study tax because this is a bar
subject. You need to pass taxation in order for you to
Let’s go to more contemporary context. When you graduate in Ateneo and for you all to become a
buy gas to your cars. What do you see in your lawyer. So I think more or less, this taxation is one of
receipts? Diba, there is a VAT component. Who pays the important subjects that you should know or
for the VAT? It’s not you guys but it is actually the understand a bit.
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 DEFINITIONS OF TAXATION
now, in 2018, there is an increase in the excise tax law
or the pens from the national bookstore, those are If you look at a lot of books, there are different
subjected to tax. definitions of taxation.

What if you are filthy rich and you would like to give Aban: Taxation is the power by which the sovereign
out a house and lot to your boylet or girlet. Or to your raises revenue to defray the necessary expenses of
husband and wife. You would like to give it for free. So the government.
what kind of contract is that? That is donation. If you
donate something, you give something for free, you Black’s Law Dictionary: Taxation is a process or an act
will be subjected to donor’s tax. And who will pay the imposing a charge by governmental authority on
donor’s tax? It is not the person who will receive the property, individuals, or transactions to raise money
gift but it is actually the person who gives the gift. for public purposes.
Maghatag na lang gani ka, pabayaron pa jud kag tax.
Diba that’s how crazy our tax is. De Leon: Taxation is a means by which the State,
through its law-making body, raises income to defray
Even if we die, we will still be subjected to taxation. the necessary expenses of the government”.
May Succession na kayo? What do you call the
properties that are left behind by the decedent? The From these definitions, we find that there are

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THREE BASIC CONCEPTS OF TAXATION This is actually affirmed in the case of Pepsi
Cola vs. Municipality of Tanauan.
1. Taxation is a power. It is a power wielded by the “The power of taxation is an essential
State, to collect money, so that they have to and inherent attribute of sovereignty
spend something for public purposes. belonging as a matter of right to every
2. Taxation is a process. It’s basically a process. independent government, without being
From the time the Tax law is being made, is being expressly conferred by the people.”
enforced, form the time it is collected, it is a
whole process that all of us encounter. The power to tax is tend to be the most powerful
3. Taxation is a means. It is a means of survival. among the inherent powers of the state.
Taxation is not only a way for the State to collect
money but also for the State to survive. It is a way Why is it powerful? Because the POWER TO TAX is
for the State to endure and survive. plenary, all encompassing, and unlimited.

I would like to impart to you this definition of taxation What do you mean by that?
by Domondon. I like this definition because it more or How is it being manifested?
less encompasses the nature and characteristics of
taxation. From this definition, andami nating What are the THREE OBJECTS OF TAXATION to
masagot., andami nating discussion. So let’s begin. begin with?
1. Persons - (ex. Community tax)
Taxation is the inherent power of the State, 2. Property - (ex. Real property tax)
exercised through the legislature, to impose 3. Rights - (ex. Excise tax, income tax) When
burdens upon subjects and objects within its you say income tax, the government does not
jurisdiction, for the purpose of raising revenues to tax the money that you receive because you
carry out the legitimate objects of the government. 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?
Most books would say that Taxation has a two-fold
Taxation practically covers everything. The
government can practically tax everything under
(1) It is an inherent power and
the sun. If you have certain property, possible
(2) It is a legislative power in itself.
that the government can enact taxes. For
example, right now, grabe na ang traffic sa
Some books would like to add one nature of
(3) It is subject to inherent and constitutional June 21, 2018 (2nd half)
limitations. Transcribed by: Campaner, Marrie Allexa F.

So let’s go back to the definition. The government would like to curve down the
purchase of vehicles, what can it do? One, it may raise
I. TAXATION IS THE INHERENT POWER OF THE the excise tax. Or probably it may enforce taxes based
SOVEREIGN. on ownership of cars (it’s a property tax). The
The power to tax is one of powers of the government can do this and you cannot do anything
government. This is basic in Constitutional Law. about it. It encompasses all the spectrum involved in
What are the 3 inherent powers of the state? taxation, one of which is the rate of taxes – if the
Police power, Power of eminent domain, and government will say that all the properties will be
power of taxation. liable for 80% tax rate, can it do that? Theoretically,
It is inherent because the moment that the yes! This is because the power to tax is all-
state comes into being, the power to tax, along encompassing, plenary, and unlimited.
with the other inherent powers will automatically
come out with it. ‘Pag merong state, meron ng Later you will know that Taxes are burdens, this is a
power to tax. natural effect of this principle – it is the most powerful
of all the inherent powers of the government. It is not
Thus: the most pervasive, but it is the most powerful.
(1) We do not need the Constitution in
order for the government to exercise Tio v. Videogram Regulatory Board
the power of taxation; and
(2) We don’t need any laws so that the There is a certain law enacted by the government
government may enact tax measures in back then regulating the videotapes. If the videotapes
order for it to survive. are not locally made, it will be subjected to a tax, but
if it is locally made – tax free.

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Valentin Tio is a videogram operator. His contention is 3. The power to tax involves the power to
that the tax is very oppressive and harsh. If the destroy so it must be exercised with great
government should tax the videotapes, what will be caution (Phil Health Care v. Commission)
left to our business (Tio)?
Phil Health Care v. Commission
Thus the constitutionality of the tax law was
challenged in that it is oppressive and harsh, and it is One of the issues here is the imposition of
in restrict of trade. Documentary Stamp Taxes (DST).

SC: Yes, it is actually very harsh, what is being When the SC 1st decided the case, it said that
collected is big. But the mere fact that the tax the PhilHealth should pay the tax imposed.
measure is oppressive in itself does not make it The PhilHealth filed a Motion for
unconstitutional. Reconsideration.

“However, it is beyond serious question that a tax does The SC granted the MR. Naawa sya sa
not cease to be valid merely because it regulates, PhilHealth, why? The deficiency assessment
discourages, or even definitely deters the activities is around 300M, it assets is only 259M.
taxed. 8 The power to impose taxes is one so unlimited
in force and so searching in extent, that the courts “As a general rule, the power to tax is an
scarcely venture to declare that it is subject to any incident of sovereignty and is unlimited in its
restrictions whatever, except such as rest in the range, acknowledging in its very nature no
discretion of the authority which exercises it. “ limits, so that security against its abuse is to
be found only in the responsibility of the
The SC is saying “the law is harsh but it is the law”. We legislature which imposes the tax on the
cannot do anything about it. That is how powerful the constituency who is to pay it. So potent
power to tax of the government is. indeed is the power that it was once opined
that "the power to tax involves the power to
The power to tax is the power to destroy destroy."

This is the opinion of Justice Marshall in one But: “Given the realities on the ground,
US case. The power to tax is a destructive power imposing the DST on petitioner would be
which can pirece through personal, property and highly oppressive. It is not the purpose of the
property rights of the people. If the state should wield government to throttle private business. On
it, it can destroy a particular business; all in the name the contrary, the government ought to
of taxation. encourage private enterprise. Petitioner, just
like any concern organized for a lawful
The power to tax is NOT the power to destroy economic activity, has a right to maintain a
legitimate business.”
This is according to Justice Holmes – “the
power to tax is not the power to destroy while this “The power of taxation is sometimes called
court sits.” also the power to destroy. Therefore it should
be exercised with caution to minimize injury
Contradicting right? Because you cannot really deny to the proprietary rights of a taxpayer. It
that power to tax is so powerful and it can destroy a must be exercised fairly, equally and
particular industry. But then, Justice Holmes says that uniformly, lest the tax collector kill the "hen
it is not a power to destroy. that lays the golden egg."

How do we reconcile the two principles? CIR v. SM Prime Holdings

When we say that the power to tax is the power
to destroy, it refers to a valid tax law. SM, et al. are cinematographic operators.
This involves VAT deficiency assessment –
When we say that the power to tax is NOT the kulang daw ang binayaran na VAT. The SM
power to destroy, it refers to an invalid tax law; did not want to pay, so it filed a protest.
meaning it violated some inherent limitations or
constitutional limitations. BIR – SM lost
CTA – SM won
What is the implication of “Power to Tax is Not the
Power to Destroy”? Republic went to SC to ask for the reversal of
1. The courts may strike down an invalid tax the CTA decision.
2. The power to tax is still subject to limitations SC: There is no need for SM to pay the VAT
– (a) inherent limitations; and (b) for two reasons:
Constitutional limitations; 2. There is no law that says that

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cinema operators are liable for VAT

3. If the cinema operators are made What is the scope the legislative power of the
liable to pay the VAT, it is already Congress in the taxation aspect? Basically, it
so oppressive and unjust. Because covers the entire spectrum of taxation. Like
under the LGC they are already what?
being made to pay the 30% 1. The object of taxation;
amusement tax. And on top of that 2. The nature and kind;
is the 10% VAT should the court 3. The extent or the rate of that particular
adjudge it liable. And mind you, subject or object;
these taxes are based on the gross 4. The coverage of taxation.
sales, walang deductions pa yan. So Right like now the Philippine law
ano nalang kikitain? Again, apply
already covers sugar (e.g coke); cosmetic
the golden egg principle.
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.
Taxes are the lifeblood of the state, without Kung haplas-haplas lang okay lang yan. I am
which the government cannot endure or survive. This wondering in manicure and pedicure.
is the Article 19 of taxation. Ano ba Article 19 sa Civil Cosmetic man din yan. Sir is wondering.)
Code? “Everyone must in the exercise …” (abuse of 5. Place or Situs of Taxation.
rights principle). So this phrase is very important, if The Government or the Congress
you don’t know if taxable or not, this is what you will may have a particular subject or object that
answer; but don’t do this in our exam! 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
Manifestations of the lifeblood doctrine: will still be taxed as part of your gross
1. NO INJUNCTION PRINCIPLE income. So diba even if your income is
GR: The collection of national taxes cannot outside in the Philippines it will still be
be enjoined. You should read the case covered by our Philippine taxation. And why
of Republic v. Caguioa, just focus on is that? Because the law says so. There is no
the propriety of the judge in issuing other reason to it.
the writ of preliminary injunction.
E: The exception is the CTA Law. Upon PRINCIPLE OF NON-DELEGATION
compliance with certain GR: The power of taxation cannot be delegated.
requirements, the CTA may enjoin the It is basically because, what the Congress has
collection of taxes. right now is just a delegated power. If we
take out Congress it is actually the people
2. STRICT CONSTRUCTION OF TAX EXEMPTION who has the power to negotiate. Because we
LAWS. inform the State. But because of our
Constitution, we delegate it to certain group
June 26, 2018 – Castro, SS
of people sometimes they are idiots and they
are divided into Senate and House of
FUNCTION. XPNS: Those provided in Abakada vs. Ermita (please
It is legislative in character. It is the Congress, read this case kasi madami matamaan na general
the Senate and House of Representatives, they principles sa Taxation):
are the one task creating our tax laws. 1. Delegation to the LGU
2. Delegation to the President
How are tax laws passed? First it is in the House
3. Delegation to the administrative agencies
of Representative and then second it is submitted
4. Delegation to the people at large
to the Congress and the latter will make
amendments and propose its amendments and 5. Emergency powers of the President
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 What is our legal basis for the delegation to
the central legislative body cannot delegate the LGUs? It is under Article X, Section 5 of
either to the executive or judicial department. the 1987 Constitution:
Each LGU shall have the power to create
So basically when we say that the power of its own sources of revenues and to levy
taxation is legislative in character we still follow taxes, fees and charges subject to such
the rule in your Constitution Law that the power guidelines and limitations as Congress
of taxation cannot be delegated. That is our may provide consistent with the basic
GENERAL RULE. policy of local autonomy. Such taxes,

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fees and charges shall accrue exclusively How do you reconcile the two principles of the
to the local governments. delegation of taxation powers?
It is a mere delegated power. Without the
The first question will always be: what is the Constitution, the LGU’s will not have the power
nature of the LGU’s power to tax? Is it to tax. It is not an inherent power. Nonetheless,
delegated or direct grant? Delegated by who it is a direct grant by the Constitution. The
or by what? Or is it a direct grant from where? express provision of the Constitution, the LGU’s
have the power to tax without having to wait for
That is always the controversy going on for an executing law. The purpose of the Local
quite some time. Even the SC cannot agree. If Government Code is merely to limit the powers
you have shifted to the cases I gave you- may to tax.
iba sinasabi na delegated power meron din The power of the LGU to tax is limited, not
naman na direct power tapos after na naman plenary.
delegated power na naman siya. But in the
Ferrer, Jr. vs. Bautista: National Government: Power to tax is plenary.
Local Government: Power to tax is not plenary
- It is against Herbert Bautista yung boyfriend because it is limited by the Local Government
daw ni Kris Aquino. In this case, it is purely Code.
delegated power. But how do we properly
interpret that? The first principle you have to 2. DELEGATION TO THE PRESIDENT
remember is that the LGU has no inherent ART. VI, SEC 28
power to tax. That’s the very principle you (2) The Congress may, by law, authorize the
have to remember in the first place. And why President to fix within specified limits, and
is that? Because the power to tax is lodge in subject to such limitations and restrictions
the National Government. But what is LGU? Is as it may impose, tariff rates, import and
it a government in itself? Is it a State in itself? export quotas, tonnage and wharfage dues,
The LGU is a municipal corporation. They are and other duties or imposts within the
corporations created by law with special framework of the national development
functions, with special purpose, etc. And they program of the Government.
have been given the power to tax by virtue of
this Constitutional provision. The powers of the President to tax is merely
delegated. The President has no inherent power
So it is merely DELEGATED POWER. Because if to tax. Remember that the power to tax is
there is no Constitution basically this LGU has inherently legislative in nature while the nature
no authority to tax at all. It can tax only of the function of the President is executive. His
because of that particular provision. This power is necessarily related to the enforcement
keeps us thinking that the Constitution is of the laws.
supposed to be there to limit the power of
taxation. But right now in our current set up it But then, by this Constitutional fiat, he is
would seem that the 1987 Constitution would somehow given this limited power of taxation.
expand the power tax. It would not be limited
to the national government only. But the What is the SCOPE? It is limited to tariffs and
national government may delegate the same customs duties. This is related to importation or
to the LGU or municipal corporations. So that exportation. (These terms are interchangeable
is one way to argue. under Customs laws)

Second, it is a DIRECT GRANT. It is a direct GARCIA VS. EXECUTIVE SECRETARY (1992)

grant from the Constitution. But what does EO 438 was issued by the President imposing
that mean? Once it is in the Constitution, we import duties. The rate was increased; then
do not need any enabling law for that to decreased by EO 475 with the exception of
happen. Automatically, the LGU has the power crude oil and other oil products. Here comes
to tax already because of that Constitutional Cong. Garcia challenged constitutionality of
provision. The Congress may then set forth the the EO on the ground that in issuing those
limits of the LGU’s power to tax and right now EOs the President is in effect exercising the
it is in the Local Government Code. power to tax which is vested exclusively in
the Congress.
Whatever side you choose or argue on, you
always think of one thing- still the LGU do not Do you see the flaw in his argument?
have the inherent power to tax.
SC upheld the constitutionality of the EOs
Part 2
Inah del Rosario
based on Art. VI, Sec. 28(2).

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There are 2 REQUIREMENTS FOR THE VALID must conform to the law. It can neither expand
EXERCISE OF THE PRESIDENT OF THE POWER nor constrict what is written in the red letter of
TO TAX: the law.
(1) There must be a law promulgated by
Congress authorizing the President to do If there is discrepancy between the law and the
such thing. revenue regulation, it is the law which will
(2) The exercise must be within the limits prevail.
set forth in the law.
What is the law that authorizes the This involves RA 9337 (amended the NIRC )
President to adjust/remove the rates? particularly the stand-by powers of the
Formerly it was the Tariff and Customs Code. President. The stand-by powers of the
Now, it is the Customs Modernization and President if exercised will raise the VAT
Tariff Act. percentage. RA 9337 contains a proviso
authorizing the President, upon
recommendation of the Secretary of Finance
SOUTHERN CROSS VS. CEMENT to raise the VAT rate to 12% effective Jan 1,
MANUFACTURERS 2006 after the ff. conditions are met:
This is about the Safeguard Measures Act. If 1) VAT collection as a percentage of
you read the facts, you won’t understand a GDP of the previous year exceeds 2
thing. But, the principles laid down in the 4/5%; or
case is actually easy to understand. There are 2) National Government deficit as a
BASIC POSTULATES INGRAINED IN ART. VI, percentage of GDP of the previous
SECTION 28(2): year exceeds 1 1/2%
(1) It is the Congress which authorizes the
President to impose tariff rates import SC said that there was no delegation of
and export quotas, tonnage and legislative power to the President. This is
wharfage dues, and other duties or because the President is mandated to
imposts within the framework of the increase VAT percentage upon the happening
national development program of the or existence of any of the conditions.
Meaning this is a pure delegation June 26, 2018, Part 3
Transcribed by: Dianne Marie Isidor
to the President
(2) It’s not enough for the Congress to allow
Based on the happening of the two facts, the
the President to exercise such power.
President is authorize to, what, increase the
That delegation must be embodied in a
VAT percentage.
(3) The authorization of the President may
Does the President have the option to not
only be exercised within the specified
exercise the standby power?
limits in the law and is further subject to
A: Wala daw discretion kasi once na the
limitations and restrictions which
conditions will happen, the President has
Congress may impose.
no authority to not follow the increase of
Once there is a law allowing the
the VAT rate.
President, he may never have a
vested right over such power.
So isipin nyo, sometimes its delegation, this is
Because it may be adjusted later on
one case that I found it difficult to
or taken away. We go back to the
understand. The law says na, the President
basic principle that the Congress as
may increase the VAT rate upon the
the legislative body has the
happening of the conditions.
inherent power to tax.
Dissenting opinion of the case(as
summarized by sir):
The argument there is that it is still
This is also known as subordinate legislation.
discretionary on the part of the President
whether or not he or she will apply or
exercise his or her standby powers.
(1) Completeness Test
(2) Sufficient Standards Test
 Without passing these tests, there is no valid
RA 8240 increased the tax rates on cigarettes
from 10% to 11%. By virtue of that law, the
What is basic principle when we talk about
BIR issued a Revenue Regulation No.17-99
delegation to administrative bodies? The rules
which provided (t)hat the new specific tax
and regulations issued by administrative bodies

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rate for any existing brand of cigars, Alam nyo ba kung gano kalaki yan? 20% discount plus
cigarettes packed by machine, distilled 12% vat exemption.
spirits, wines and fermented liquor shall not
be lower than the excise tax that is actually So sa 200 pesos, ang babayaran mo lang ay nasa
being paid prior to January 1, 2000. around 150 or 160. So, malaki di ba? So order lang
kayo ng order(HAHAHA).But you cannot say that you
The effect of this is the BIR made a floor. . So, know because you are paying your taxes and you can
essentially, what the BIR is saying that by now avail of the senior citizen discount. Because you
virtue of that revenue regulation, hanggang are not yet a Senior Citizen. Basically what the
dito lang yan. You cannot go below these government offers, is really a chance for all of us to
even if there is an increase in the excise tax avail of the government services later on. Hindi na pag
rates. Your taxes that you should pay will not may binigay ka, kailangan meron din ibigay.
go below a certain threshold.
Can one refuse to pay the tax because he doesn’t
Q: So what’s the issue in this case? derive any benefits from it? The person cannot
A: The issue in this case is W/N the BIR actually refuse that. You can refuse, kung ayaw na
exceed in exercising its delegated power? nya,ayaw na nyang magbayad, but there will be
sanctions later on.
Ruling: The SC ruled in the affirmative. By
setting the floor for excise tax on cigarettes As one SC decision would say: Tax is the price we pay
you have already exceeded what was for a civilized society. There is no need that one must
provided by law. What was provided for by seen an actual or direct consideration. Because
law is that you just adjust the rates. remember that it is enough that the money made for
taxation is for profit, for cost and for the benefit of the
Principle: public in general. Tax is a burden to be used as a
The Rule is that administrative regulations power to destroy and at the same time it can also be
must be in harmony with the provisions of the used as a power to build.
law. The revenue regulations must not
expand, modify, alter or amend thebasic law
which it seeks to implement. July 3, 2018 0:00-13:00
Lexi Singanon


This is through Initiative and Referendum. We Let’s begin with Jurisdiction. When you talk about
will not delve deeper into that. Because it is Jurisdiction in the concept of taxation, you talk about
actually impossible for people to exercise Tax territory.
powers through Initiative and Referendum.
Who would want to make a law imposing new 1. TERRITORIALITY
taxes, diba? Probably siguro tax exemption.
But this is a very difficult thing to do as you When you say that taxation is jurisdictional in nature,
already know in your Constitutional law and it means the power of taxation operates only within
Elections law. the territorial limits of the taxing authority.
III. TAX IS A BURDEN As a GENERAL RULE, once the object or subject is
already outside the Philippines, it is no longer subject
Tax power involves the imposition of Burdens. to Philippine taxation.
EXCEPTION: If there is a privity of relationship
What are the subjects of taxation? Persons, Property between the taxing authority and the tax subject
and Rights, right? It is all encompassing. or object.
The state can tax anything under the sun. There is
almost no exception. How do you determine if there is a privity of
relationship between the taxing authority and the
On top of that, it is a Forced Contribution. Pugson tax subject or object?
ka nga mubayad. You pay your taxes otherwise There is a privity of relationship between the
there will be sanctions. You may even go to taxing authority and the tax subject or object if
prison. You pay your taxes and you will not the taxing authority can afford protection to the
immediately feel the benefits given by the tax subject or object.
government. Bayad ka ngayon, yung taxes mo
para sa mga roads na iconstruct sa Ilocos, pano So everything boils down to protection.
yan? Can you avail of that? NO.
Now, how do you specifically determine if the
What about let’s put it in the context of, you government can afford protection to the tax subject
know,senior citizen discounts and vat exemption? or object?

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2. RESIDENCE or LOCATION of the taxpayer; and

Generally, it devolves upon THREE FACTORS: 3. SOURCE of the income.

1. CITIZENSHIP of the tax subject or object; So those are the three factors. So parang “mix-and-
2. RESIDENCE or LOCATION of the tax subject or match” siya.
object; and
3. SOURCE of the tax subject or object. Examples:
1) Resident of the Davao and earning income in the
When you talk about jurisdiction, you are also talking Davao. Taxable here.
about the territorial limits of the power to tax You don’t have any problem with me when it
pursuant to its territorial in nature. This also has comes to Philippine taxation because I am
something to do with the SITUS of taxation. residing here in Davao, and I am earning
income here. What type of income? It’s
2. SITUS OF TAXATION compensation income, coming from an
employer-employee relationship.
What do you mean by situs of taxation?
2) Resident of Davao but earning income abroad.
It means place of taxation. Income abroad taxable in the Philippines.
It doesn’t mean that if a particular tax subject or Now, suppose I own a restaurant in Hong
object is here in the Philippines, it is already Kong, and I am living here in Davao City. I am
covered. No. Because you also have to look at the a Filipino citizen operating a Filipino
situs of taxation, the rules on situs of taxation. restaurant in Hong Kong.

The rules on situs of taxation are the general rules Because of the fact that I am a Filipino citizen
that states or taxing authorities follow when it comes who is residing here in the Philippines, even
to taxation schemes and most of them, if not all, are my income from abroad are taxable under
applicable to the Philippine taxation setting. Philippine laws. Why? Because the
government can afford protection on my
PHILIPPINE TAXATION: 3) Non-resident Foreigner earning income in the
1. Kind of tax being imposed or levied; Philippines. Her income made in the Philippines
2. The place where the thing or property is is taxable in the Philippines.
located; Let’s twist the problem a little bit further.
3. Residence of the person being taxed; What if si Maria Ozawa, a Japanese citizen
4. Citizenship of the person being taxed; working as a model here in the Philippines.
5. Source of the tax subject or object; and She’s not even residing here, but she earns
6. Place where the excise or privilege or income here in the Philippines.
business or occupation is being performed
(the place of exercise of these rights) Does it mean that if she is not a resident here
in the Philippines, her income here are not
Must all these factors go together? subject to Philippine income tax?

No need. It is enough that one or some of the No, because there is still the source of
factors exist in order that the tax subject or object income. Where is the source of her income
may be covered by Philippine taxation. from her modelling? Here in the Philippines.
That’s why even if she is not a resident and a
DIFFERENT TYPES OF TAX SUBJECTS citizen of the Philippines, the government
can still afford her protection because she
Please take note that we’re still in the general earns here and she is contributing to the
principles. Pag mag-exam na tayo sa general principles community.
I don’t want people to answer in the context of the
NIRC provisions. I want you to answer in the context 4) Filipino residing abroad; has properties in the
of the general principles. Philippines
What about if I am a Filipino and I am residing
a) INCOME TAX abroad, and I own a number of properties in
the Philippines? So even if I am not physically
What are the considerations that must be looked here but the mere fact that I am a Filipino and
into in order to determine the situs of taxation of the source of my income is here in the
income tax? Philippines, then it will be subjected to
Philippine taxation.
There are three considerations:

1. CITIZENSHIP of the taxpayer;

Page 8 of 49

So those are the three considerations that you have to There’s this old case mentioned in the De
look into to determine the situs of taxation of income Leon book, here the decedent died outside
tax. the Philippines but he owned a stock from a
Philippine corporation. The question there is
July 3, 2018
Emille Dane S. Viola
whether or not the stocks from the
Philippine corporation is subject to estate
b) PROPERTY TAX tax, the SC said yes. Normally we follow
mobilia sequntur personam, but the
It’s easier to understand property tax because we can exception is when the rights to intangible
see it. What is the situs of taxation when it comes to property is exercisable in the Philippines, so
property? The first thing you have to consider is to because it is a stock from a Philippine
determine what type of property is subject to tax? Corporation, the owner will exercise his
rights here in the Philippine jurisdiction.
1. Real Properties TAX ON PERSONS
2. Personal Properties
A state may impose taxes on a person subject to its
A. Real properties - the situs is where the property is sovereignty. In the Philippines we have community tax
located. Here in the Philippines our real property tax is or the Cedula, if you are a resident in a particular
governed by the Local Government Code, it is the locality you should pay your community tax for that.
Local Government Unit that imposes real property tax.

For example, you have a land here in Davao City, it will EXCISE OR PRIVILEGE TAXES
be subject to the real property taxes imposed or
levied by the local government of Davao. Properties This is the tax on the enjoyment of a privilege.
outside the jurisdiction of the city cannot be levied by
them, so we still apply the territoriality principle. GR: the situs is where the act is performed, where the
occupation is engaged in or where the business is
B. Personal property- distinguish first what kind of done.
personal property:
1. Tangible A. Donor’s tax - In case of donation we have to
2. Intangible consider the following:

a) Tangible personal property – a. the residency of the donor

b. the citizenship of the donor
GR : the situs is where the property is c. and sometimes, the location of the property
B. Sales tax- the situs is the place where the sales
However some authors would say that the contract is consummated.
thing follows the owner, but Dean Quibod
follows the general rule where the property July 5, 2018
is found. But usually when it comes to Patricia Balgoa
personal properties the thing follows the
owner. Read the case of CIA v. Collector.

b) Intangible personal property – CIA V. COLLECTOR

GR: mobilia sequntur personam –the thing GR NO. L-5896 (Not in case list)
follows it’s owner.
This is because these properties have Facts:
to form and they are essentially rights which
follows the owner. 1. Petitioner was engaged in the business of
selling surplus goods acquired from the Foreign
XPN: When the law specifically provides for Liquidation Commission pursuant to an agreement
the situs of the personal property. with the United States Government whereby
Example is the shares of stocks in a petitioner undertook to rehabilitate the Veterans
corporation. Under the NIRC we have to first Administration Building (formerly Heacock Building)
determine whether or not the stocks is here for and in consideration of over a million pesos worth
in the Philippines or outside to determine if of surplus goods.
they are subject to Philippine income
taxation. 2. Petitioner had yards where some of the
goods were stored and those that were defective
were reconditioned.

Page 9 of 49

operations to its new plant in Barrio Ungca,

3. United Africa Co., Ltd. sent its representative, Municipality of Pavia, Province of Iloilo, which is
Hugh Watson Gibson, to the Philippines to look into outside the jurisdiction of the City of Iloilo
the availability of tractors for sale in the Philippines.  That it could not anymore be liable to pay the
Gibson learned of the petitioner's business and municipal license fee because its bottling plant
contracted to buy tractors from the latter, to be (was) not anymore inside the City of Iloilo,
delivered f.a.s. (free alongside ship), Manila, in good and that moreover, since it itself (sold) its own
working condition and capable of running off lighters products to its(customers) directly, it could not be
under their own power. A tractor expert, Mr. Tex considered as a distributor
Taylor, was employed by the foreign company to  That the plaintiff does not maintain any store or
select, inspect and test the tractors before delivery. commercial establishment in the City of Iloilo
from which it distributes its products, but by
4. Tex Taylor gave a list of tractors to petitioner, means of a fleet of delivery trucks, plaintiff
to which the latter acquired and reconditioned. distributes its products from its bottling plant at
Petitioner then presented such before the Philippine Barrio Ungca Municipality of Pavia, Iloilo,
Refining Co., affiliate of the foreign buyer. The latter directly to its customers in the different towns
would then notify banks to which UAC had dollar of the Province of Iloilo as well as the City
deposit to pay for the acquisition of the tractors. of Iloilo;
Petitioner sold a total of 57 tractors.  That the plaintiff is already paying the National
Government a percentage Tax on all the softdrinks it
Issue: manufactures.

Whether or not petitioner is liable for the payment of The CFI rendered on January 26, 1973 a decision in
percentage or sales tax on its gross sales of the 57 favor of Iloilo Bottlers, Inc. declaring the Corporation
tractors in question to the United Africa Co., Ltd. not liable under the ordinance. The City of Iloilo
under the provisions of Sec. 186 of the National appealed to the Court of Appeals which certified the
Internal Revenue Code case to this Court.

Ruling: Issue:

1. Petitioner argues that the goods in question did not WON Iloilo Bottlers Inc. is liable is liable under Iloilo
acquire a taxable situs in the Philippines because they City tax Ordinance No. 5, series of 1960, as amended,
merely passed Philippine territory in transit and that which imposes a municipal license tax on distributors
they were not intended for local use but for of soft-drinks.
exportation to a foreign country.
Ruling: YES.
2. The sale of the tractors was consummated in the
Philippines, for title was transferred to the foreign Iloilo Bottlers, Inc. disclaims liability on two grounds:
buyer at the pier in Manila; hence, the situs of the sale
is Philippines and it is taxable in this country. 1) Since it is not engaged in the independent business
of distributing soft-drinks, but that its activity of
3. As for the legislative policy to exempt consignments selling is merely an incident to, or is a necessary consequence
abroad from tax in order to encourage exports, the of its main or principal business of bottling, then it is
Solicitor General has pointed out that it is only the NOT liable under the city tax ordinance.
exportation of locally produced or manufactured 2) Only manufacturers or bottlers having their plants
products, and not every kind of exportation, that inside the territorial jurisdiction of the city are
Congress wanted to encourage and promote covered by the ordinance.

The second ground is manifestly devoid of merit. It is

ILOILO BOTTLERS V. CITY OF ILOILO clear from the ordinance that three types of activities
are covered: (1) distribution, (2) manufacture and
Facts: (3) bottling of softdrinks.

Iloilo Bottlers Inc. filed a complaint with the CFI A person engaged in any or all of these activities is
of Iloilo for the recovery of the sum of subject to the tax. The first ground, however, merits
P3,329.20,which allegedly constituted payments serious consideration. To determine whether an entity
of municipal license taxes under Iloilo City Tax engaged in the principal business of manufacturing, is likewise
Ordinance No. 5 series of 1960 that the company paid engaged in the separate business of selling, its marketing
under protest. Among the arguments of Iloilo Bottlers system or sales operations must be looked into.
Inc. were as follows:
There are two marketing systems: Under the first
 -That it already closed its bottling plant at Muelle system, the manufacturer enters into sales transactions
Loney, Iloilo City, and transferred its bottling and invoices the sales at its main office where purchase orders are

Page 10 of 49

received and approved before delivery orders are sent businesses are done or performed within the
to the company's warehouses, where in turn actual deliveries jurisdiction of said authority.
are made. No warehouse sales are made; nor are separate
stores maintained where products may be sold How did Iloilo Bottlers conduct its business
independently from the main office. The warehouses pertaining to its distribution?
only serve as storage sites and delivery points of the They have their own salesmen and these salesmen sell
productsearlier sold at the main office. Under the the softdrinks in the city of Iloilo.
second system, sales transactions are entered into
and perfected at stores or warehouses maintained by In the case at bar, the company distributed its
the company. Any one who desires to purchase the softdrinks by means of a fleet of delivery trucks which
product may go to the store or warehouse and there went directly to customers in the different places in
purchase the merchandise. The stores and warehouses lloilo province. Sales transactions with customers
serve as selling centers. were entered into and sales were perfected and
consummated by route salesmen. Truck sales were
Entities operating under the first system are NOT made independently of transactions in the main
considered engaged in the separate business of selling office. The delivery trucks were not used solely for the
or dealing in their products, independent of purpose of delivering softdrinks previously sold at
their manufacturing business. Entities operating under Pavia. They served as selling units. They were what
the second system are considered engaged in the were called, until recently, "rolling stores". The
separate business of selling. delivery trucks were therefore much the same as the
stores and warehouses under the second marketing
In the case at bar, the company distributed its system. Iloilo Bottlers, Inc. thus falls under the second
softdrinks by means of a fleet of delivery trucks which category above. That is, the corporation was engaged
went directly to customers in the different places in in the separate business of selling or distributing soft-
lloilo province. Sales transactions with customers drinks, independently of its business of bottling them.
were entered into and sales were perfected and
consummated by route salesmen. Truck sales were How does the company distribute the softdrinks?
made independently of transactions in the main The Court distinguished 2 marketing systems:
office. The delivery trucks were not used solely for the (1) The manufacturer enters into sales
purpose of delivering softdrinks previously sold at transactions and invoices the sales at its main
Pavia. They served as selling units. They were what office where purchase orders are received
were called, until recently, "rolling stores". The and approved before delivery orders are sent
delivery trucks were therefore much the same as the to the company's warehouses, where in turn
stores and warehouses under the second marketing actual deliveries are made. No warehouse
system. Iloilo Bottlers, Inc. thus falls under the second sales are made; nor are separate stores
category above. That is, the corporation was engaged maintained where products may be sold
in the separate business of selling or distributing soft- independently from the main office. The
drinks, independently of its business of bottling them. warehouses only serve as storage sites and
delivery points of the products earlier sold at
The tax imposed under Ordinance No. 5 is an excise the main office.
tax. It is a tax on the privilege of distributing, (2) The sales transactions are entered into and
manufacturing or bottling softdrinks. Being an excise perfected at stores or warehouses
tax, it can be levied by the taxing authority only when maintained by the company. Any one who
the acts, privileges or businesses are done or desires to purchase the product may go to
performed within the jurisdiction of said authority the store or warehouse and there purchase
[Commissioner of Internal Revenue v. British Overseas the merchandise. The stores and warehouses
Airways Corp. and Court of Appeals, G.R. Nos. 65773- serve as selling centers.
74, April 30, 1987, 149 SCRA 395, 410.] Specifically,
the situs of the act of distributing, bottling or What is the main difference between these 2
manufacturing softdrinks must be within city limits, schemes?
before an entity engaged in any of the activities may Entities operating under the first system are NOT
be taxed in Iloilo City. considered engaged in the separate business of selling
or dealing in their products, independent of their
manufacturing business. Entities operating under the
Where is it based? second system are considered engaged in the
Initially the business was based in Iloilo, but later on it separate business of selling.
transferred to Fabia. In the first, the transaction occurs in the MAIN
WAREHOUSE. In the second, however, the transaction
What is the nature of the tax involved here, license does not only occur in the main warehouse, but it also
or business tax? occurs inside the city.
Excise tax. Being an excise tax, it can be levied by the
taxing authority only when the acts, privileges or What is the taxable transaction based on the

Page 11 of 49

The tax imposed under Ordinance No. 5 is an excise Q: What did the Court of Tax Appeals do with respect
tax. It is a tax on the privilege of distributing, to her claim for refund?
manufacturing or bottling softdrinks. A:The CTA first denied her claim. That’s why she went
to the Court of Appeals.
Where is the situs of taxation when it comes to
excise tax? Q: What happened to the Court of Appeals?
The situs of taxation here is the place where the A: It reversed the decision of the CTA. Meaning, the
activity is performed. In this case, it is the place of CA granted her refund.
Q: What’s the issue here?
Where does the sale transaction occur? A: The issue here: W/N Baier-Nickle’s income is
It occurs inside the City of Iloilo. taxable here?

Q: What’s the nature of this sales commission?

July 5, 2018 A: It’s in the nature of labor and service. Meaning, it’s
Transcribed by: Dianne Marie Isidor
14:00-28:00 an income.

CIR vs Baier Nickle Q: What are the factors that were considered to
determine the taxability of the income?
Baier-Nickle is a President of the company and at the A: a. Citizenship, b. Residency, c. Source of Income
same time a commission agent of JUBANITEX, Inc.
JUBANITEX is engaged in the business of manufacture, Q; In this case, what matters most?
marketing and wholesale of textiles. A: It is where she performed the taxable acticity.

Q: As President of that company and commission Q: In this case, what is the situs of income?
agent, what does she receive, how much dose she A: The situs of income here, since this is a labor and
receive? service income, it is the place where the labor and
service were performed.
A: She receives arounds 1.7 million based on her 10%
commission. Q: Where was the labor or service performed here by
Q:What did JUBANITEX do with respect to the A: According to her version, she performed it in
commission that she receives? Germany.
A: There is a withholding tax.
Q: What did the SC say about this?
Q: What do you understand of that withholding A: According to the SC ruling, there were no evidences
tax?Essentially what happens? or documents that would support the contention of
A: Withholding tax- before the person receives his Baier-Nickle that she indeed performed such taxable
compensation there is already, a company will activity in Germany.
withheld a part of his income.
Q: Because of lack of evidence, what happens now?
In other words, there’s already a cut. Kuhaan dayon A: Since there was lack of evidence, hence, upheld the
ug tax. taxability of the income.

A: So in this case, there was a withholding tax that So, please take note of this case.
was, with regard to her income.
The point here is the source or situs of income.
Q: What did Baier-Nickle do?Because a part of her The source of income of personal services. The place
income was withheld. What was the action of Baier- where the services were actually rendered.
A: She claimed for a refund.

Q: What is the ground of her refund? PURPOSES OF TAXATION

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- The PRIMARY PURPOSE OF TAXATION is for Raising
resident here in the Philippines, hence, such activity Income.
should not be taxable here.
Is it the sole purpose? NO.
Q: What did the BIR do to her claim for refund?
A: The BIR did not respond. It did not do anything. So, SECONDARY PURPOSES OF TAXATION:
she raised the matter here to the Court of Tax 1. Social Justice/Compensatory

Page 12 of 49

An example of which is the discount given to Q: Okay. For purposes of decentralization. So that it
the Senior Citizens. can have its own source of revenues. Let’s go now to
public purpose. How do you define public purpose?
2. Regulatory/Sumptuary A: Public purpose is when the general welfare of the
Ex. The taxes imposed on liquors. The regulatory people are taken into consideration.
purpose for these taxes is for the general welfare
of the people, like their health, and also for peace Q: Okay now. What happens if that particular
and order. Basically, the Power of Taxation can be community does not derive any benefit from
used to implement Police Power. government? Does that circumstance take it out from
the term public purpose?
3. To implement the Eminent Domain powers of 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
A: Juridical person. Private corporation.
July 5 (28:00 - 42:03)
Ara Olamit
Q: How about Fertiphil?
Q: Can you give an example where the power of A: It is also a private corporation.
taxation is used for police power?
The power of taxation is also used for police power. Q: What did Fertiphil do against Planters Products?
A: An example would be raising the taxes on alcohol. What is the respective business of Fertiphil and
Planters Products?
Q: Okay alcohol. So why? What is the regulatory A: They are engaged in agricultural products.
purpose there?
A: For the general welfare of the people, for health Q: Then what happened during the time of Marcos?
purposes. A: There was an LOI issued by Marcos.

Q: Okay. So basically what you’re saying is that power Q: Based on the LOI, what did Planters Products do
of taxation can be used as an implement of police against Fertiphil?
power. Right? So let’s go now to the social justice. A: Contribution was collected to make PPI viable.
How is it also made manifest? The power of taxation
as a tool for promoting social justice. Q: After Marcos was toppled, what happened next?
A: A good example of social justice in power of A: Fertiphil asked for a refund of all the contributions
taxation would be the discount given to the senior it made.
Q: Moving on, what are the issues tackled in this case?
Q: Yes. That is also one way of looking at it. Is the Was the LOI valid in this case? Is it valid to begin with?
social justice provision under the Constitution
applicable only to the people in general? Does it also The LOI somehow imposes a 10 peso per bag for the
affect the government? viability of Planters. What is the nature of that 10
A: Yes sir. peso payment? What is the nature of that collection?
A: It was in the nature of a tax.
Q: Yes. It also applies to the government. How?
A: When they delegated the power to tax to the Q: Why is it in the nature of a tax? Why did the SC say
municipal corporation or the local government unit. that this is a tax?
Diba the purpose of that exaction was to make
Q: Okay. Case in point is what? Planters viable? Was it supposed to be for regulation?
A: Batangas Power. A: No sir.

Q: What’s that case all about? How did the SC discuss Q: Then if it is not for regulation, why do you say that
the social provision there? The power to tax. Can you it is for tax purposes? Why is it considered a tax?
give a brief explanation why is it the power to tax What is the primary purpose of taxation?
given to the LGU’s is actually a way to implement the A: The primary purpose of taxation is to raise
social justice provision? revenues.
A: For the need to provide to the poor.
Q: Yes, to raise revenue. Meaning, to raise income.
Q: But why is it, based on that case, that the LGU is Going back here, why did the SC say that this is an
granted the power to taxation? exercise of the power to tax? By the way, dati kasi, si
A: The LGU is granted the power of taxation so that President Marcos, he has legislative powers. Ang LOI,
they may, by themselves, also raise revenues. 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?

Page 13 of 49

Okay. It’s supposed to raise income, right? Raise

income. For what purpose? What is the ultimate end We say that police power can go together with power
goal of getting that 10 peso per bag? of taxation, what thing about the police power is it is
A: For the viability of the PPI. not merely in money form, as you can see, it involves,
one is for confiscation of money and confiscation of
Q: In other words, for capitalization of PPI. There’s no property, and under the police power you can
end point except to raise money so that we can confiscate a property without giving something in
capitalize this particular corporation. Okay. Now, the return and even without the consent of the owner of
SC also said that this is for police power. How did the such property, that is in the name of regulation. Like
SC argue on this? This is supposed to be for _____ for example example contrabands or drugs or
because this is regulatory. That 10 peso per bag is marijuana. I have client earlier he wants to file before
supposed to be for regulatory purpose so that this that FDA to legalized the cannabis oil, kasi maraming
(PPI) will become viable. How did the SC argue on benefits. According to him he has seen the effect of
that? cannabis oil to his dying grandma. According to him
it’s a good substitute daw for morphine. What about
Anyway, it can be argued that that exaction was drugs? Not only the police officer will confiscate that
supposed to be for police power. Because anyway drugs, they are going to take away your right and offer
these two powers (power to tax and police power) it to satan.
may go together.
What is the guise of police power, it is the power to
Let’s go now to the legality of the LOI. Why is it regulate. If you have read the cases in your outline,
considered as not legal? Why is it considered an illegal some would say that the exaction is for the power to
power to tax? regulate and some would say that it’s the power to
A: Because there was already a declaration in the LOI tax.
that the purpose of such would be for the private
company (PPI). What is our main guiding principle?
The cases would say, that you LOOK AT THE PRIMARY
Q: What is the ultimate effect in giving the 10 pesos REASON OR PRIMARY GOAL.
per bag to a private corporation? If the principal purpose of exaction is raising
A: Such exaction would favor only that private income or raising revenue, even if there is a
corporation. regulation that will have an effect of it, it would
still be considered as the power to tax.
Q: Meaning it gives an undue advantage and benefit
on the part of a private corporation. And what is our So, all of the tax related principles that we have
basic principle with respect to the power of taxation? learned so far, will apply it to that kind of
What is the end goal there aside from raising exaction.
A: It is for public purpose However, if the principal purpose is to regulate,
even if there is an income generation as an
Q: For public purpose only. Again, what is the heart of incidental to that law, that is actually an exercise
taxation? of police power.
A: The heart of taxation is public purpose.

Okay. Eto yung kaso na yun. So basically that’s it. You Kung isipin mo parang madali lang, you just look at the
read the cases. principle but if you read the cases, you would look at
the ruling first, pano ba kayo magbasa ng case,
July 17, 2018 Part 1 pabaliktad? start with the wherefore, look for that tax
Johaina Madum
portion then, you go to the facts? But if you just read
TAXATION VS. POLICE POWER it, like a normal human being would read it, una ka
from facts, issues to ruling, you could say that oh its to
Can tax be used to implement police power? Can the regulate pero pag abot sa ruling the SC would say that
police power go together with power of taxation? this is actually an exercise of power to tax.
The answer is yes of course! In fact the reason
behind for making our tax laws is to promote Like for example yong sa motor vehicle licensing fee,
police power, like for example the sin tax we have, ung case ng PAL v. EDU.
its to regulate the people from buying the yosi or You’re paying the LTO for the registration para sa
cigars, it’s for public health. What about tax motor vehicles natin, its to regulate diba? But the
exemption or tax leeway’s given to, ung bago SC says that its actually an exercise of the power
ngayon sa TRAIN law ung electric vehicles. There is to tax. How does the supreme court justify under
some sort of incentives given to car manufacturer the EDU case? You look at the primary purpose of
if they sell hybrid or totally electric vehicle. In fact the exaction taken from, you know the registration
if it’s totally electric vehicle its walang excise tax of the motor vehicle, the main purpose is to be
yan. used for the constructions and maintenance of
public road and highways. But anyways aside from

Page 14 of 49

that, according to the SC, the main purpose of the a great source of the state's wealth, is one, of the
motor vehicle registration fees is supposed to be important sources to foreign exchange needed by
for raising income. our government, and is thus pivotal in the plans of a
regime committed to a policy of currency stability. Its
So anong effect, meron tayong mga rules diba? promotion, protection and advancement, therefore
Lets start from the random of cases. Lets start redounds greatly to the general welfare.
with Republic v. Murcia.
As stated in Johnson vs. State ex rel. Marcy — "The
Republic vs. Bacolod-Murcia Milling Co. protection of a large industry constituting one of the
GR L-19824-26, 9 July 1999 great source of the state's wealth and therefore
directly or indirectly affecting the welfare of so great
FACTS: This is a joint appeal by three sugar centrals,
a portion of the population of the State is affected to
Bacolod Murcia Milling Co., Inc., Ma-ao Sugar Central
such an extent by public interests as to be within the
Co., Inc., and Talisay-Silay Milling Co., sister
police power of the sovereign." (128 So. 857).
companies under one controlling ownership and
management, from a decision of the Court of First
Instance of Manila finding them liable for special It is, therefore, an exercise of a sovereign power
assessments under Section 15 of Republic Act No. 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,
Sec. 15. Capitalization. — To raise the necessary either agricultural or industrial, for the purpose of
funds to carry out the provisions of this Act and the introducing into the sugar industry such practices or
purposes of the corporation, there shall be levied on processes that will reduce the cost of production and
the annual sugar production a tax of TEN CENTAVOS achieve greater efficiency in the industry, justifies the
[P0.10] per picul of sugar to be collected for a period acquisition of the refinery in question. The financial
of five (5) years beginning the crop year 1951-1952. loss resulting from the operation thereof is no means
The amount shall be borne by the sugar cane an index that the industry did not profit therefrom,
planters and the sugar centrals in the proportion of as other gains of a different nature (such as
their corresponding milling share, and said levy shall experience) may have been realized.
constitute a lien on their sugar quedans and/or
warehouse receipts.
*This is a 1966 case. Ito yong usually na sinasabi nila,
RA 632 created the Philippine Sugar Institute, a semi- if you read your text books, as your Sugar Central
public corporation. In 1951, the Institute acquired case.
the Insular Sugar Refinery for P3.07 million payable
in installments from the proceeds of the sugar tax to There is this Republic Act 632 which created the
be collected under RA 632. The operation of the Philippine Sugar Institute (PhilSugIn) . This was
refinery for 1954 to 1957 was disastrous as the created to conduct research work on sugar industry
Institute suffered tremendous losses. Contending here in the Philippines, mainly to improve existing
that the purchase of the refinery with money from methods of raising sugar cane and manufacturing of
the Institute’s fund was not authorized under RA sugar by product etc.. Anyway, they came also for the
632, and that the continued operation of the refinery capitalization of Philsugin, anong sabi nya? There
is inimical to their interest, Bacolod-Murcia Milling shall be levied on the annual sugar production tax of
Co., Ma-ao Sugar Central, Talisay-Silay Milling Co. TEN CENTAVOS [P0.10] per picul of sugar to be
and the Central Azucarera del Danao refused to collected. Ano yang picul? Maimagine nyo nyang
continue with their contribution to said fund. The picul? Pwede ba yan sa rice, diba sa rice kay ‘sack”,
trial court found them liable under RA 632. bakit sa sugar picul? But anyway, 10 cents per picul of
sugar, and then using the once acquired from this
ISSUE: Whether the defendants-appellants may scheme, yang 10 cents na yan, Philsugin bought a
refuse to pay the special assessment. No factory, or refinery. But what happened, it was a
disaster in the sense that PHILSUGIN incurred
RULING: The nature of a “special assessment” similar tremendous losses. So eventually sugar centrals
to the case has been discussed and explained in Lutz (Bacolod stop paying exaction of the 10 cents.
vs. Araneta. The special assessment or levy for the What are their reasons why they stop paying these 10
Philippine Sugar Institute (Philsugin) Fund is not so cents. Ang sabi nila its not supposed to be a tax,
much an exercise of the power of taxation, nor the because its not for revenue purpose, ano ito? It’s not
imposition of a special assessment, but the exercise for income, it’s a special assessment. Ok what is a
of police power for the general welfare of the entire special assessment?
Basically, a special assessment is levied on land. It is
This Court can take judicial notice of the fact that
levied on land because of the benefits that a land
sugar production is one of the great industries of our
receives because of some public construction for
nation, sugar occupying a leading position among its
example if the government make a road then
export products; that it gives employment to
tatamaan yong propert. Aano bang levy sa property
thousands of laborers in fields and factories; that it is
nayan? So as an effect the local or local government

Page 15 of 49

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
so that security against its regulating the use of
custom construction, the special assessment will stop.
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
through which the State,
law) and Rule 18 of the Rules and Regulations (IRR) of
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 The SC now said that the universal charge is not a tax,
that the end users will have to pay so suko ang mga
but an exaction in the exercise of the State's police
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.
(a) To ensure and accelerate the total electrification of
the country;
The SC had a long discussion regarding the distinctions
between powers of taxation and police power. Let me (b) To ensure the quality, reliability, security and
focus on that. 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
The power to tax is an On the other hand, full public accountability to achieve greater
incident of sovereignty police power is the operational and economic efficiency and enhance the

Page 16 of 49

competitiveness of Philippine products in the global

market; The SC said that the royalty fee is an exercise of police
power. The subject royalty fee was imposed primarily
(d) To enhance the inflow of private capital and for regulatory purposes, and not for the generation of
broaden the ownership base of the power generation, income or profits as petitioner claims. Again we look
transmission and distribution sectors; at the purpose and that is in the Policy Guidelines on
the Movement of Petroleum Fuel to and from the
(e) To ensure fair and non-discriminatory treatment of Clark Special Economic Zone which provides:
public and private sector entities in the process of
restructuring the electric power industry; DECLARATION OF POLICY

(f) To protect the public interest as it is affected by the It is hereby declared the policy of CDC to develop and
rates and services of electric utilities and other maintain the Clark Special Economic Zone (CSEZ) as a
providers of electric power; highly secured zone free from threats of any kind,
which could possibly endanger the lives and
(g) To assure socially and environmentally compatible properties of locators, would-be investors, visitors,
energy sources and infrastructure; and employees.

(h) To promote the utilization of indigenous and new It is also declared the policy of CDC to operate and
and renewable energy resources in power generation manage the CSEZ as a separate customs territory
in order to reduce dependence on imported energy; ensuring free flow or movement of goods and capital
within, into and exported out of the CSEZ.26
(i) To provide for an orderly and transparent (Emphasis supplied.)
privatization of the assets and liabilities of the
National Power Corporation (NPC);
From the foregoing, it can be gleaned that the Policy
(j) To establish a strong and purely independent Guidelines was issued, first and foremost, to ensure
regulatory body and system to ensure consumer the safety, security, and good condition of the
protection and enhance the competitive operation of petroleum fuel industry within the CSEZ. The
the electricity market; and questioned royalty fees form part of the regulatory
framework to ensure "free flow or movement" of
(k) To encourage the efficient use of energy and other petroleum fuel to and from the CSEZ. The fact that
modalities of demand side management. respondents have the exclusive right to distribute and
market petroleum products within CSEZ pursuant to
So in the end if you look at the policies it’s not much its JVA with SBMA and CSBTI does not diminish the
on money making but it’s more of ensuring the total regulatory purpose of the royalty fee for fuel products
electrification of the country in general. So this is in supplied by petitioner to its client at the CSEZ. In the
pursuit to the state’s police power objective. case at bar, there can be no doubt that the oil industry
is greatly imbued with public interest as it vitally
And then what if the exaction is too big? What if I will affects the general welfare.30 In addition, fuel is a
collect money from you ranging from 1,000,000- highly combustible product which, if left unchecked,
24,000,000? poses a serious threat to life and property. Also, the
reasonable relation between the royalty fees imposed
That is the case of CHEVRON PHILIPPINES, INC. on a "per liter" basis and the regulation sought to be
(Formerly CALTEX PHILIPPINES, INC.), Petitioner, vs. attained is that the higher the volume of fuel entering
BASES CONVERSION DEVELOPMENT AUTHORITY and CSEZ, the greater the extent and frequency of
CLARK DEVELOPMENT CORPORATION, G.R. No. supervision and inspection required to ensure safety,
173863, September 15, 2010 the Board of Directors of security, and order within the Zone. As to the issue of
respondent Clark Development Corporation (CDC) reasonableness of the amount of the fees, we hold
issued and approved Policy Guidelines on the that no evidence was adduced by the petitioner to
Movement of Petroleum Fuel to and from the Clark show that the fees imposed are unreasonable.
Special Economic Zone (CSEZ). Now Chevron is a
supplier of Nanox Philippines which is inside the CSEZ July 17, 2018 21:00-32:00
Jessa Puerin
and then CDC charged and demanded to Chevron the
payment of royalty fees because there was this The fuel is highly combustible and it can cause severe
regulation approved imposing royalty fees and then damage if left unchecked. The more fuel ,the greater
Chevron did not ought to pay because the royalty fees the extent and frequency of supervision and
were excessive. What was the argument of Chevron inspection required to ensure safety, security, and
here? Chevron said that the royalty fees imposed had order within the Zone. (Mas marami ang tao daw mas
no reasonable relation to the probable expenses of malaki ang tao).
regulation and that the imposition on a per unit
measurement of fuel sales was for a revenue REPUBLIC VS INTERNATIONAL COMMUNICATIONS
generating purpose, thus, akin to a "tax". Sir: The law in point here is the Public Service Act.

Page 17 of 49

FACTS: On April 4, 1995, respondent ICC, holder of a police power, the amount should not exceed
legislative franchise under Republic Act (RA) No. the cost of regulation.
7633 to operate domestic telecommunications, filed 4. As to compensation: In tax, the compensation
with the NTC an application for a Certificate of is continuous protection and organized
Public Convenience and Necessity to install, society; in police power, the compensation is
operate, and maintain an international the healthy economic standard of economy.
telecommunications leased circuit service between 5. As to property taken: Tax is generally payable
the Philippines and other countries, and to charge
in money (then later on you will realize that
rates therefor, with provisional authority for the
the BIR can get the property and sell it in
purpose. Respondent ICC filed a motion for partial
public auction); in police power, it involves
reconsideration of the Order insofar as the same
required the payment of a permit fee. In a not only money but other properties which
subsequent Order dated June 25, 1997, the NTC may the source of danger, safety and morals
denied the motion. Therefrom, ICC went to the CA that means to be regulated.
on a petition for certiorari with prayer for a 6. In relation to non-impairment clause: tax is
temporary restraining order and/or writ of inferior to non-impairment clause of the
preliminary injunction, questioning the NTC's Constitution; police power is superior to non-
imposition against it of a permit fee of impairment clause.
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 POWER TO TAX VS. POWER OF EMINENT DOMAIN
favor of the NTC whose challenged orders were
sustained, and accordingly denied ICC's certiorari What is the Power of Eminent Domain?
petition. In time, ICC moved for a reconsideration. Eminent Domain - is the inherent power of the State
This time, the CA, in its Amended Decision dated to take private property for public use after payment
September 30, 1999, reversed itself, granting ICC its of just compensation.
motion for reconsideration. Petitioner NTC filed a
motion for reconsideration, but its motion was 3 MAJOR REQUIREMENTS FOR THE VALID EXERCISE
1. The taking of private property
ISSUES: 1. Whether the fee in question is in the 2. The taking is for public purpose
nature of a tax, or is merely a regulatory measure. 3. Just compensation must be paid to the
property owner.

RULING: 1. Section 40(g) of the Public Service Act is Take note of the meaning of Just Compensation.
not a tax measure but a simple regulatory provision
for the collection of fees imposed pursuant to the There is one requirement when it comes to LGUs:
exercise of the State‘s police power. A tax is There must a previous offer that must be made by the
imposed under the taxing power of government local government unit to which the property owner
principally for the purpose of raising revenues. The has rejected.
law in question, however, merely authorizes and
requires the collection of fees for the The power to tax can be used to implement Eminent
reimbursement of the Commission's expenses in Domain. That is additional because if you browse
the authorization, supervision and/or regulation of jurisprudence, as in the case of CIR VS CENTRAL
public services. There can be no doubt then that LUZON, the Supreme Court said that the power of
petitioner NTC is authorized to collect such fees. taxation can be used in conjunction of the power of
However, the amount thereof must be reasonably eminent domain.
related to the cost of such supervision and/or
So let us recap. This is about the 20% senior citizen discount. The tax
benefit for taking up the 20% senior citizen discount.
How do you differentiate police power from power Way back then, when business establishments will
to tax? provide for 20% discount, the discount can be claimed
1. As to concept: Tax is the power that imposed as tax credit.
burdens to raise money for public use; A tax credit is a peso for peso deduction for tax
whereas, police power is a power to make liabilities. Babayaran kung tax is P100K, what if
nagbigay ako ng P20k as senior citizen discount
laws for general welfare.
under the Senior Citizen’s Law, P100k less 20k,
2. As to purpose: Tax is for revenue; police
ang bayronon sa government na lang is 80k. So, it
power is for regulation. is peso for peso deduction.
3. As to amount: In tax, the amount is generally
unlimited, plenary and all-encompassing; in The Supreme Court said here na this is actually an
exercise of eminent domain because these

Page 18 of 49

establishments giving 20% senior citizen discount In this case of Manila Memorial vs. DSWD, if you have
is partaking with own property. They are forced read this case, this essentially has the same principles
to give discounts to senior citizens and sabi ng laid down in the Superdrug case. This is a tax
Supreme Court dito na “okay, that is not allowed deduction, not a tax credit, but is still legal because
because we are going to take their money, their in the end it is the exercise of the police power and
income and give it for public purpose.” So, how not the power of eminent domain.
are we compensate those business
establishments? This is through giving of tax So if you are ask in your exam, is the senior citizen
credits. Kaya sabi ng Supreme Court dito na tax discount is considered an exercise of power of
credit benefits granted to these establishments eminent domain? I think you have to answer this as an
can be deemed as their just compensation for the exercise of police power citing first the Superdrug
private property taken for public use. case and second, the Manila Memorial case.

As a result of the 20% discount as imposes by the But if you are ask: can the power of taxation go
Republic Act, the respondents are entitled for just together with power of eminent domain since both
compensation. That is way back then. are for public purpose, then you cite the case of
Central Luzon.
But here comes the amendment. What happened now
is this: the establishments or several establishments Case Digests from the internet:
are still required to give out the senior citizen discount CIR v. CENTRAL LUZON DRUG CORPORATION, GR NO.
to senior citizen, and yet what are the benefits 148512, 2006-06-26
received by these persons, is just a tax deduction.
Ang tax deduction kasi minus lang yan sa income, Facts:
hindi sa tax- but a deduction of your income. So
what is the effect? If the tax credit is a direct Central Luzon Drug Corporation has been a retailer of
deduction of your tax liability, the tax deduction medicines and other pharmaceutical products since
reduces your net income or reduces your net December 19, 1994. In 1995, it opened three (3)
taxable income- the effect of the tax liability of drugstores as a franchisee under the business name
the taxpayer is only indirect. Tax deduction is an and style of "Mercury Drug."
indirect deduction; it is no longer a peso for peso
deduction, but only a fraction of the total For the period January 1995 to December 1995, in
discount gave out to the senior citizens. conformity to the mandate of Sec. 4(a) of R.

CARLOS SUPERDRUG VS. VELASCO Subsequently, on December 27, 1996, claiming that
Ang ground dito sa Superdrug, there is improper according to Sec. 4(a) of R.A. No. 7432, the amount of
exercise of the power of eminent domain. It P219,778 should be applied as a tax credit,
constitutes taking of private property without just respondent filed a claim for refund in the amount of
compensation and violates the equal protection P150,193... he amount of P150,193 claimed as a
clause. Why? Because the tax deductions scheme for refund represents the tax credit allegedly due to
giving out of 20% discount does not fully reimbursed respondent under R.A. No. 7432.
the petitioners or the establishments in general in
giving out senior citizen discounts. This is an exercise the CTA dismissed the petition, declaring that even if
of eminent domain, but another, this is an exercise of the law treats the 20% sales discounts granted to
police power for the public welfare. Siguro moengon senior citizens as a tax credit, the same cannot apply
ko yes but this an unnecessary evil so that they could when there is no tax liability or the amount of the tax
help the senior citizens. credit is greater than the tax due

The Supreme Court held that “the law is a legitimate . In... the latter case, the tax credit will only be to the
exercise of police power which, similar to the power extent of the tax liability.
of eminent domain, has general welfare for its
object. Also, no refund can be granted as no tax was
Police power is not capable of an exact definition, erroneously, illegally and actually collected based on
but has been purposely veiled in general terms to the provisions of Section 230, now Section 229, of the
underscore its comprehensiveness to meet all Tax Code.
exigencies and provide enough room for an
efficient and flexible response to conditions and Furthermore, the law does not state that a refund can
circumstances, thus assuring the greatest be claimed by the private establishment concerned as
benefits. For this reason, when the conditions so an alternative to the tax credit.
demand as determined by the legislature,
property rights must bow to the primacy of police Thus, respondent filed with the CA a Petition for
power because property rights, though sheltered Review
by due process, must yield to general welfare.”


Page 19 of 49

On May 31, 2001, the CA rendered a Decision stating Where... there is no tax liability or where a private
that Section 229 of the Tax Code does not apply in this establishment reports a net loss for the period, the tax
case. It concluded that the 20% discount given to credit can be availed of and carried over to the next
senior citizens which is treated as a tax credit taxable year.
pursuant to Sec. 4(a) of R.A. No. 7432 is considered
just compensation... and, as such, may be carried over It must also be stressed that unlike in Sec. 229 of the
to the next taxable period if there is no current tax Tax Code wherein the remedy of refund is available to
liability 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
whether the 20% sales discount granted by the establishments can be deemed as their just
respondent to qualified senior citizens pursuant to compensation for private property taken by the State
Sec. 4(a) of R.A. No. 7432 may be claimed as a tax for public use. The privilege enjoyed by the senior
credit or as a deduction from gross sales in citizens does not come directly from the State, but
accordance with Sec. 2(1) of Revenue rather from the... private establishments concerned.

Regulations No. 2-94. CARLOS SUPERDRUG CORP., ET. AL. vs. DSWD
G.R. No. 166494 June 29, 2007
The CA and the CTA correctly ruled that based on the Petitioners are domestic corporations and proprietors
plain wording of the law discounts given under R.A. operating drugstores in the Philippines. Meanwhile,
No. 7432 should be treated as tax credits, not AO 171 or the
deductions from income. Policies and Guidelines to Implement the Relevant
Provisions of Republic Act 9257, otherwise known as
The above provision explicitly employed the word "tax the “Expanded Senior Citizens Act of 2003”was issued
credit." Nothing in the provision suggests for it to by the DOH, providing the grant of twenty percent
mean a "deduction" from gross sales. To construe it (20%) discount in the purchase of unbranded generic
otherwise would be a departure from the clear medicines from all establishments dispensing
mandate of the law. medicines for the exclusive use of the senior citizens.
DOH issued Administrative Order No 177 amending
Thus, the 20% discount required by the Act to be A.O. No. 171. Under A.O. No. 177, the twenty percent
given to senior citizens is a tax credit, not a deduction discount shall not be limited to the purchase of
from the gross sales of the establishment concerned. unbranded generic medicines only, but shall extend to
both prescription and non-prescription medicines
As a corollary to this, the definition of "tax credit" whether branded or generic. Thus, it stated that “[t]he
found in Section 2(1) of Revenue Regulations No. 2-94 grant of twenty percent(20%) discount shall be
is... erroneous as it refers to tax credit as the amount provided in the purchase of medicines from all
representing the 20% discount that "shall be establishments dispensing medicines for the exclusive
deducted by the said establishment from their gross use of the senior citizens.” Petitioners assert that
sales for value added tax and other percentage tax Section 4(a) of the law is unconstitutional because
purposes." This definition is contrary to what our itconstitutes deprivation of private property.
lawmakers... had envisioned with regard to the Compelling drugstore owners andestablishments to
treatment of the discount granted to senior citizens. grant the discount will result in a loss of profit and
capital because 1)drugstores impose a mark-up of
Finally, for purposes of clarity, Sec. 229[11] of the Tax only 5% to 10% on branded medicines; and 2) the
Code does not apply to cases that fall under Sec. 4 of lawfailed to provide a scheme whereby drugstores will
R.A. No. 7432 because the former provision governs be justly compensated for thediscount.
exclusively all kinds of refund or credit of internal
revenue taxes that were erroneously or... illegally ISSUE: WON Section 4(a) of the Expanded Senior
imposed and collected pursuant to the Tax Code while Citizens Act is unconstitutional or not violative of
the latter extends the tax credit benefit to the private Article 3 Section 9 of the Constitution which provides
establishments concerned even before tax payments that private property shall not be taken for public use
have been made. without just compensation and the equal protection
clause of Article 3 Section 1?
The tax credit that is contemplated under the Act is a
form of just compensation, not a... remedy for taxes RULING:
that were erroneously or illegally assessed and The permanent reduction in their total revenues is a
collected. In the same vein, prior payment of any tax forced subsidy corresponding to the taking of private
liability is not a precondition before a taxable entity property for public use or benefit. This constitutes
can benefit from the tax credit. The credit may be compensabletaking for which petitioners would
availed of upon payment of the tax due, if any. ordinarily become entitled to a just compensation.

Page 20 of 49

Just compensation is defined as the full and fair and come up with a financial report, so that they have
equivalent of the property takenfrom its owner by the not beenable to show properly whether or not the tax
expropriator. The measure is not the taker’s gain but deduction scheme really works greatly totheir
the owner’sloss. The word Just is used to intensify the disadvantage. The Court is not oblivious of the retail
meaning of the word compensation , and to convey side of the pharmaceutical industry and
the idea that the equivalent to be rendered for the thecompetitive pricing component of the business.
property to be taken shall bereal, substantial, full and While the Constitution protects propertyrights,
ample. A tax deduction does not offer full petitioners must accept the realities of business and
reimbursement of the senior citizen discount.As such, the State, in the exercise of police power, can
it would not meet the definition of just compensation. intervene in the operations of a business which may
Having said that, this raises the question of whether result in animpairment of property rights in the
the State, in promoting thehealth and welfare of a process. Moreover, the right to property has a social
special group of citizens, can impose upon private dimension. While Article XIII of theConstitution
establishmentsthe burden of partly subsidizing a provides the precept for the protection of property,
government program.The Court believes so. The law various laws and jurisprudence, particularly on
grants a twenty percent discount to senior citizens for agrarian reform and the regulation of contracts and
medical and dentalservices, and diagnostic and publicutilities, continuously serve as a reminder that
laboratory fees; admission fees charged by theaters, the right to property can be relinquishedupon the
concerthalls, circuses, carnivals, and other similar command of the State for the promotion of public
places of culture, leisure and amusement; faresfor good.
domestic land, air and sea travel; utilization of
services in hotels and similar lodgingestablishments, MANILA MEMORIAL PARK v. SECRETARY OF
restaurants and recreation centers; and purchases of DEPARTMENT OF SOCIAL WELFARE,
medicines for theexclusive use or enjoyment of senior GR No. 175356, 2013-12-03
citizens. As a form of reimbursement, the law provides
that business establishments extending the twenty Facts:
percent discount to senior citizens may claim the Petitioners emphasize that they are not questioning
discount as a tax deduction.The law is a legitimate the 20% discount granted to senior citizens but are
exercise of police power which, similar to the power only assailing the constitutionality of the tax
of eminent domain, has general welfare for its object. deduction scheme prescribed under RA 9257 and the
Police power is not capable of anexact definition, but implementing rules and regulations issued by the
has been purposely veiled in general terms to DSWD and the DOF
underscore its comprehensiveness to meet all
exigencies and provide enough room for an efficient Petitioners posit that the tax deduction scheme
and flexible response to conditions and contravenes Article III, Section 9 of the Constitution,
circumstances, thus assuring the greatest benefits. which provides that: "[p]rivate property shall not be
Accordingly, it has been described as “the most taken for public use without just compensation."...
essential, insistent and the least limitable of powers, petitioners cite
extending as it does to all the great public needs.” It is
“[t]he power vested inthe legislature by the Central Luzon Drug Corporation, where it was ruled
constitution to make, ordain, and establish all manner that the 20% discount privilege constitutes taking of
of wholesomeand reasonable laws, statutes, and private property for public use which requires the
ordinances, either with penalties or without, payment of just compensation
notrepugnant to the constitution, as they shall judge
to be for the good and welfare of thecommonwealth, Issues:
and of the subjects of the same.” For this reason,
when the conditions so demand as determined by the WHETHER SECTION 4 OF REPUBLIC ACT NO. 9257 AND
legislature, property rights must bow to the primacy ITS IMPLEMENTING RULES AND REGULATIONS,
of police power because property rights, INSOFAR AS THEY PROVIDE THAT THE TWENTY
thoughsheltered by due process, must yield to general PERCENT (20%) DISCOUNT TO SENIOR CITIZENS MAY
Police power as an attribute to promote the common ESTABLISHMENTS, ARE INVALID AND
good would be dilutedconsiderably if on the mere UNCONSTITUTIONAL.
plea of petitioners that they will suffer loss of earnings
andcapital, the questioned provision is invalidated. Ruling:
Moreover, in the absence of evidencedemonstrating The Petition lacks merit.
the alleged confiscatory effect of the provision in
question, there is no basis for its nullification in view The validity of the 20% senior citizen discount and tax
of the presumption of validity which every law has in deduction scheme under RA 9257, as an exercise of
itsfavor. Given these, it is incorrect for petitioners to police power of the State, has already been settled in
insist that the grant of the senior citizen discount is Carlos Superdrug Corporation.
unduly oppressive to their business, because
petitioners have not takentime to calculate correctly

Page 21 of 49

The permanent reduction in their total revenues is a operation or conduct of the business of private
forced subsidy corresponding to the taking of private establishments, for the use or benefit of the public, or
property for public use or benefit. This constitutes senior citizens for that matter
compensable taking for which petitioners would
ordinarily become entitled to a just compensation. The subject regulation may be said to be similar to,
but with substantial distinctions from, price control or
A tax deduction does not offer full reimbursement of rate of return on investment control laws which are
the senior citizen discount. As such, it would not meet traditionally regarded as police power measures.[77]
the definition of just compensation. These laws generally regulate public... utilities or
industries/enterprises imbued with public interest in
Having said that, this raises the question of whether order to protect consumers from exorbitant or
the State, in promoting the health and welfare of a unreasonable pricing as well as temper corporate
special group of citizens, can impose upon private greed by controlling the rate of return on investment
establishments the burden of partly subsidizing a of these corporations... considering that they have a
government program. monopoly... over the goods or services that they
provide to the general public.
The Court believes so.
On its face, therefore, the subject regulation is a
As a form of reimbursement, the... law provides that police power measure.
business establishments extending the twenty percent
discount to senior citizens may claim the discount as a The obiter in Central Luzon Drug Corporation,[78]
tax deduction. however, describes the 20% discount as an exercise of
the power of eminent domain and the tax credit,
The law is a legitimate exercise of police power which, under the previous law, equivalent to the amount of
similar to the power of eminent domain, has general discount given as the just compensation... therefor.
welfare for its object.
It presupposes that the subject regulation, which
For this reason, when the conditions so demand as impacts the pricing and, hence, the profitability of a
determined by the legislature, property rights must private establishment, automatically amounts to a
bow to the primacy of police power because property deprivation of property without due process of law.
rights, though sheltered by due process, must yield to
general welfare. If this were so,... then all price and rate of return on
investment control laws would have to be invalidated
Police power as an attribute to promote the common because they impact, at some level, the regulated
good would be diluted considerably if on the mere establishment's profits or income/gross sales, yet
plea of petitioners that they will suffer loss of earnings there is no provision for payment of just
and capital, the questioned provision is invalidated. compensation

Given these, it is incorrect for petitioners to insist that The obiter is, thus, at odds with the settled doctrine...
the grant of the senior citizen discount is unduly that the State can employ police power measures to
oppressive to their business, because petitioners have regulate the pricing of goods and services, and, hence,
not taken time to calculate correctly and come up the profitability of business establishments in order to
with a financial report, so that they have not been pursue legitimate State objectives for the common
able to... show properly whether or not the tax good, provided that the regulation does not go too far
deduction scheme really works greatly to their as to... amount to "taking."
We, thus, found that the 20% discount as well as the
tax deduction scheme is a valid exercise of the police Police power versus eminent domain.
power of the State.
Police power is the inherent power of the State to
The 20% discount is intended to improve the welfare regulate or to restrain the use of liberty and property
of senior citizens who, at their age, are less likely to be for public welfare.[58] The only limitation is that the
gainfully employed, more prone to illnesses and other restriction imposed should be reasonable, not
disabilities, and, thus, in need of subsidy in purchasing oppressive.
basic commodities.
"property rights of individuals may be subjected to
the 20% discount is a regulation affecting the ability of restraints and burdens in... order to fulfill the
private establishments to price their products and objectives of the government.
services relative to a special class of individuals, senior
citizens, for which the Constitution affords The State "may interfere with personal liberty,
preferential concern... it does... not purport to property, lawful businesses and occupations to
appropriate or burden specific properties, used in the promote the general welfare [as long as] the
interference [is] reasonable and not arbitrary.

Page 22 of 49

Eminent domain, on the other hand, is the inherent

power of the State to take or appropriate private CHAVEZ VS. ONGPIN
property for public use. There was an Executive Order issued by the
government increasing the values of the real
private property shall not be taken without due properties for real property taxation purposes.
process of law and the... payment of just The increase was more than 100%. This was
compensation challenged by Francisco Chavez (former SolGen)
on the ground that it was oppressive for being
In the exercise of police power, a property right is tantamount to confiscation of property without
impaired by regulation,[65] or the use of property is due process of law.
merely prohibited, regulated or restricted[66] to
promote public welfare. SC here ruled against Chavez. Without the
Executive Order which raised the real property
payment of just compensation is not required. values the real properties would not mirror the
current value of the real properties considering
in the exercise of the power of eminent domain, the changes brought about by the passage time.
property interests are appropriated and applied to And we also have to accept the fact of the
some public purpose which necessitates the payment increasing expenses of the government, the
of just compensation therefor. government will give value.

Normally, the title to and possession of the property According to the SC, fiscal adequacy Fiscal
are transferred to the... expropriating authority. adequacy, which is one of the characteristics of a
sound tax system, requires that sources of
June 24 Part 1 revenues must be adequate to meet
SS Castro
government expenditures and their variations.


Lagi natin balik-balikan ang case na ito. There
Synonymous with the Canons of Sound Tax System or are a lot of general principles of Taxation here,
Characteristics of Sound Tax System. so you should read this.

Keyword is F-A-T ABAKADA challenged the standby powers given

1. Fiscal Adequacy to the President to increase the VAT
2. Administrative Feasibility percentage given certain conditions.
3. Theoretical Justice
SC said here first condition is decided by the
FISCAL ADEQUACY President. But the second is that in case there is
From the word itself adequate. any increase in the deficit, fiscal adequacy
dictates the need to raise the VAT rate. That’s
Fiscal Adequacy means the TAX SYSTEM must be able why when those 2 conditions will happen, the
to provide submission revenues in order to meet the President already has the authority to increase
legitimate needs of the government, adequate or VAT rate in order to make up for all those
sufficient. deficiencies.

The sources of income taken as a whole must ADMINISTRATIVE FEASIBILTY

be sufficient to meet the ever expanding needs
or expenditures of the government regardless From the word itself feasible.
of conditions, export taxes, and problems of
economic adjustments. Feasible meaning doable. A tax measure should be
easily implemented in order to assure the smooth
The taxes being collected by the government must be flow into the treasury the fiscally adequate amounts.
enough to answer the government expenditures –
even in cases where there will be a deficit despite a
The tax system or the prevailing tax measures that
100% collection on the internal revenue taxes. 1 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,

Dead Quibod (2016 TSN): Salaries of EEs, medical services, should the Congress increase the tax rate? NO. This is what
and other governmental expenditures should be able to fiscal adequacy means: Problems with the collection and
meet the economic provisions of the country as well as enforcement of the law should not be resolved through
problems on economic adjustment. The sources of revenue legislating or enacting more taxes. The state, through the
should be sufficient to meet the varied levels of executive branch in charge of tax administration, should be
expenditure, regardless of business condition and problems able to enforce the tax laws.
on economic adjustment.

Page 23 of 49

necessarily invalid unless some aspect of it is

To put it simply, this means that the tax system shown to violate any law or the Constitution.
should be capable of being effectively
administered and enforced with the least So in the end, these are just principles or simple
inconvenience to the taxpayer. guidelines for the lawmakers in making tax laws. But
with respect to the legality of a tax law, the violation
Administrative feasibility requires easy tax collection of these canons by themselves does not necessarily
on the part of the government and easy tax payment constitute a violation of the statutory or constitutional
of the tax. But what happens in reality is that this limitations of that tax law.
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 THEORY AND BASIS OF TAXATION
so stupid.
Please remember that the theory and basis of taxation
So it must be easy for the government to collect and are two different things.
also taxes must be easy for the people to pay.
We have Saudia Arabia. There, it is very easy for THEORY OF TAXATION: Necessity Theory
the people to pay their taxes because they are only The power to tax emanates from a necessity in
required to pay taxes 3 times a year. order for the government to make for us an
organized society.
Whereas right now, especially if you are not
registered taxpayer, you have to fill up the form The existence of the government is a necessity.
and submit it monthly and at the same time pay it
monthly. This is also where the lifeblood theory comes in.

Right now, there is a cute move by the government What are the concepts that float in the lifeblood
under the TRAIN LAW, if are covered in the theory?
percentage tax system, you are only required to (1) The collection of taxes may not be enjoined
submit quarterly. Hindi na per month na grabe ka by an injunction, as a general rule. (No-
hassle especially if small business ka lang. It takes a injunction Rule)
day for one to pay his taxes. (2) The taxes cannot be subject of a
compensation or set-off
(3) The power to tax is unlimited and plenary
July 24, 2018 Part 2 (4) The power to tax may also involve the power
Inah del Rosario
to destroy.
This is the ability-to-pay theory. NO INJUNCTION RULE
GR: The collection of taxes cannot be enjoined
The tax system must be based on the taxpayer’s by the courts.
ability to pay. XPNS:
(1) Local Taxes can be enjoined by the courts.
It must not be so burdensome. Those who have more The no-injunction rule only applies to national
shall pay more and those who have less shall pay less. taxes.

Even if we have these kinds of principles of a sound ANGELES CITY VS. ANGELES
tax system, even if a certain tax law will violate these, In the collection of local taxes, there is no
it does not necessarily mean that the tax law will express prohibition in the LGC that
automatically be unconstitutional. prohibits courts from issuing an injunction
to restrain local governments from
This case involves the imposition of VAT by the
BIR on the collections of tollway operators. The (2) Under the CTA Law, RA 1125 as amended by
SC said that all cars must be subject to VAT. Diaz RA 9282
argued that it this is very difficult to implement,
specifically the issuance of receipts to persons. SEC. 11. Who May Appeal; Mode of Appeal;
SC said: Effect of Appeal. – x x x That when in the
opinion of the Court the collection by the
Non-observance of the canon, however, will not aforementioned government agencies may
render a tax imposition invalid except to the jeopardize the interest of the Government
extent that specific constitutional or statutory and/or the taxpayer the Court any stage of
limitations are impaired. Thus, even if the the proceeding may suspend the said
imposition of VAT on tollway operations may collection and require the taxpayer either to
seem burdensome to implement, it is not deposit the amount claimed or to file a surety

Page 24 of 49

bond for not more than double the amount

with the Court. 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
BASIS OF TAXATION: Benefits- Protection Theory return required by the NIRC or date or the time of
This is characterized by the relationship between payment of the tax, whichever comes later.
the taxpayer and the government.

July 24,2018
There is a reciprocal duty between the taxpayer Transcribed by: Dianne Marie Isidor
and the government to support each other.

Is the imprescriptibility of tax laws still

applicable right now?
(1) PROSPECTIVITY OF TAX LAWS Sabi nga ng batas natin, NIRC, db meron tayong
GR: Tax laws do not have retroactive prescriptive period. Even the law says, even if in
application. cases of non-filing of tax returns, even in cases of
To give retroactive effect to tax laws will fraud employed by the taxpayer to defeat or
violate the right of the tax payer to due refute taxes, the government may have a 10 year
process. A taxpayer should always know prescriptive period.
when to pay his obligations. How should a
taxpayer pay his dues when he doesn’t know But the question is again, is the principle of
of it? imprescriptibility of taxes still applicable, even with
this law?
E: Tax laws have retroactive application only
when the law explicitly says so. The way I see the provision, I think the principle of
imprescriptibility of tax is still applicable.
What if before the repeal of a tax law there was
an assessment made by the government? You 1. When there is fraud involved.
did not pay the assessment not even after there 2. If there is a failure to file the income tax
was a repeal. This is the case of return or the income tax return filed is false.

COMMISSIONER VS. ACOSTA You know why? Even if the prescriptive period is 10
This concerns the manner in which the action for years, when will you reckon the 10 year period?
tax refund was filed. Acosta applied the new NIRC
where it was not required to file a written claim From the time of discovery db? So kung dili sya
for the refund. However, the SC said that the old madiscvoer kunohay sa government, then the
law should be applied. government will have unlimited time to make an
assessment and demand for the payment of the taxes.
Tax laws are prospective in operation, unless the So, I think, more or less, the doctrine of
language of the statute clearly provides Imprescriptibility is still applicable up until this pont.
otherwise. Revenue statutes are substantive laws
and in no sense must their application be equated DOUBLE TAXATION
with that of remedial laws. As well said in a prior
case, revenue laws are not intended to be Okay, let us go now to the PRINCIPLE OF DOUBLE
liberally construed. Considering that taxes are the TAXATION.
lifeblood of the government and in Holmes’s
memorable metaphor, the price we pay for Some books would say that double taxation is one of
civilization, tax laws must be faithfully and strictly the inherent limitations, some books would also say
implemented. that double taxation is actually part of constitutional
limitaions. So, which is which?

(2) IMPRESCRIPTIBILITY OF TAXES For me, I would say, that double taxation is just a
GR: The right of the government to collect taxes is constitutional limitation. It’s not an inherent
imprescriptible. limitation. Why? Because of our basic premise that
the power to tax is plenary, all-encompassing and
Without any law which provides for a prescriptive unlimited.
period for the collection of taxes, the government
will have an unlimited time to collect the taxes So, technically speaking, the government can tax a
from the taxpayer. subject twice kasi kailangan nila ng pera.

Hence the law itself can provide for rules on But what makes Double Taxation illegal? Because not
prescription. all forms of double taxation is actually illegal. Double

Page 25 of 49

taxation is not illegal per se. It’s not prohibited City of Manila, is already imposing two types of taxes.
because it always happens. Like what? What if you’re But then, Orinance B was subsequently declared as
doing business? You’re paying income taxes and at the unconstitutional. So nagrevert sya to Ordinance A ulit.
same time weekly percentage tax or VAT. It’s the Meanwhile, prior to the repeal or the nullity of
same money and yet there are two types of tax being Ordinance B, the City of Manila attempted to collect
imposed by the government. taxes from Coca-Cola. Magbayad ka. Probably the City
was thinking, during that time that this ordinance was
So, when will the Double taxation become illegal? still effective, all legal effects thereto are also
So, basically, there are two forms of Double effective.
Ang sabi ng Coca-Cola dito, we don’t want to pay
1. Direct Double Taxation/Direct Double Taxation because, one of their arguments is that, this is double
2. Indirect Double Taxation/Indirect Double Taxation taxation.

When is there a Direct Double Taxation? SC: Yes, this is actually a DOUBLE TAXATION. Kasi sabi
ng City dito, this is not Double Taxation, because the
Ito yung ILLEGAL. Another term for it is Obnoxious purposes are different or the kind of tax is different.
Double Taxation this is taken from dean and I guess he The SC said, it’s still double taxation because even if
took it from Aban book. Direct Double Taxation that is for manufacturer and the other one is for
happens when the same subject or property is taxed distribution, it’s still in the same nature. This is a form
twice, by the same taxing authority, for the same of business tax. And then the SC here made a
taxing purpose, the same period and taxing all objects wrapped down of the requirements.
or property within the same territory for the first time
without taxing them for the second time. (FROM THE FULL TEXT OF THE CASE)

Another definition given is that:

The same property is taxed twice, where it should “Using the aforementioned test, the Court finds that
be taxed only once, and that both taxes are there is indeed double taxation if respondent is
imposed to the same property or subject matter subjected to the taxes under both Sections 14 and 21
for the same purpose, same taxing authority, of Tax Ordinance No. 7794, since these are being
within the same jurisdiction, covering the same imposed: (1) on the same subject matter – the
taxing period, for the same kind or character of privilege of doing business in the City of Manila; (2)
tax. for the same purpose – to make persons conducting
business within the City of Manila contribute tocity
Make no mistake about this. YOU HAVE TO revenues; (3) by the same taxing authority –
MEMORIZE THIS DEFINITION because absent one of petitioner Cityof Manila; (4) within the same taxing
these elements, there is only what you call as jurisdiction – within the territorial jurisdiction of the
INDIRECT DOUBLE TAXATION which is allowable by City of Manila; (5) for the same taxing periods – per
law. calendar year; and (6) of the same kind or character
– a local business tax imposed on gross sales or
Let’s run through the definition again: The taxpayer receipts of the business.”
is taxed twice, when he should be only taxed once
and the TAX IS: So, probably nagkaproblema lang sa wordings sa
1. For the same subject matter; batas.
2. For the same purpose;
3. For the same taxing authority;
4. Within the sae jurisdiction;
5. During the same taxing period;
6. And the taxes are of the same kind and

CITY OF MANILA VS COCA-COLA Another peculiar case that I found, that had led me to
DOUBLE TAXATION is the Ericsson vs City of Pasig.
Case in point: City of Manila vs Coca-Cola, reiterated
in the case of Swedish Match vs City of Manila Eto naman, there is a City Ordinance, there’s no
question about it. There’s a City Ordinance imposing
So, this City of Manila, there is this old ordinance, let’s business taxes again which included Ericsson but the
say Ordinance A. Oridnance A exempted the Coca- problem is the City of Pasig wanted to collect these
Cola from paying the manufacturing taxes. Because business taxes on the basis of Gross Revenues. And
the Coca-Cola is already subjected to another kind of sabi naman ng Ericsson, hindi yan pwede. You cannot
business tax. And then there was this another collect taxes on the basis of gross revenues because
ordinance, Ordinance B that was enacted which took the law says it must be based on gross receipts. Sabi
out the tax exemption of Coca-Cola. So, basically, the naman ng City, gross revenues and gross receiots are
actually the same. So babayad ka na lang para walang

Page 26 of 49

gulo. Essentially ganyan ang sinasabi ng City of Pasig.

GROSS REVENUES – is a broader term because it
Now, the issue here is will the tax based on the gross includes money which you will still receive in the
revenues instead of gross receipts constitute Double future.
So where is double taxation if the tax will be based on
We’re talking about the same law and yet in this case, gross revenues?
this is with respect to the collection already. This is
why which I found this weird. Kasi we’re talking about SC: “The imposition of local business tax
the collection here. But the argument here is based on based on petitioners gross revenue will
double taxation. Will there be a Double Taxation if inevitably result in the constitutionally
the tax is based on gross revenue instead of gross proscribed double taxation taxing of the
receipts? same person twice by the same jurisdiction
for the same thing inasmuch as petitioners
revenue or income for a taxable year will
What is the difference between the two terms?
definitely include its gross receipts already
reported during the previous year and for
(FROM THE FULL TEXT OF THE CASE) which local business tax has already been
paid.” (Ericsson vs. City of Pasig)
(n) Gross Sales or Receipts include
the total amount of money or its In other words, if the tax base is on the
equivalent representing the gross revenue, on the next year some items
contract price, compensation or which have already been taxed in the prior
service fee, including the amount year might also be included in the present
charged or materials supplied with year’s tax. That is the main reason why the
the services and the deposits or SC ruled that the tax should be based on
advance payments actually or the gross receipts.
constructively received during the
taxable quarter for the services Read also the case of CIR vs BPI, it’s in the outline.
performed or to be performed for And also the case of Nursery Care vs Acevedo.
another person excluding discounts
if determinable at the time of sales, As we have discussed, take out one of the
sales return, excise tax, and value- requirements of double taxation, then it becomes an


The law is clear. Gross receipts include money or its 2. TAX CREDITS
equivalent actually or constructively received in 3. TAX DEDUCTION
consideration of services rendered or articles sold, 4. TAX REDUCTION
exchanged or leased, whether actual or constructive.
Gross revenue covers money or its equivalent
actually or constructively received, including the are mainly there to avoid international double
value of services rendered or articles sold, exchanged taxation. The prime example I can give you is Pacquiao
or leased, the payment of which is yet to be – he earns income from boxing matches. Because the
received. match is done abroad, the host country will impose
income taxes on him. When he arrives in the
Philippines, because of the fact that he is a resident
July 24, 2018 Part 4
By: M.A. CAMPANER citizen, he will also be liable for taxes for the income
he earned abroad. It’s practically the same – same
GROSS RECEIPTS vs GROSS REVENUES money, same purpose, same earning, same type of
tax, but then, the territory and the taxing authority
GROSS RECEIPTS – whatever you have received. It is are different.
not only limited to ACTUAL receipts but also includes
those that are CONSTRUCTIVELY received by the So tax treaties usually provides for tax exemption.
taxpayer – those which are placed in your control. International Double Taxation takes place when a
Because what if the other party pays through the person who is a resident of a contracting state and
bank, is it actually received? NO. But in effect, the derives income from, or own capital in another
payor loses control of the money upon the deposit contracting state and both states impose tax on the
and the recipient of the money has total control of income or capital.
that money and may do anything he wants to do with
it. What is the purpose of international tax treaties? (CIR

Page 27 of 49

1. The elimination of international juridical This is more of a legislative side. This would just
double taxation; mean that Congress would enact a new law that
2. To encourage the free-flow of goods and would reduce the tax liabilities of a taxpayer or
services movement of capital and technology the tax rate or the tax base of a particular tax
between the two countries. measure. Like what happened now in Train Law.
There was an increase in a lot of excise taxes.
2. TAX CREDITS There were new items which were already
excisable but the income tax rates and tax base
Are provided for by law. What is its nature? This is a were only adjusted. But according to Dean, even
peso-for-peso deduction of the tax liability of a with the reduction of the tax rates and the tax
taxpayer. The amount of the tax credit is also the very base, these actually has no bearing at all.
amount which will be deducted from the tax due. Kumbaga parang palami lang sa mata.

Where do you get these tax credits? In NIRC, there is

what we call Tax Credits for Foreign Income Taxes LIMITATIONS
Paid. Like for instance what happen to Pacquiao
before, he was pursued by Kim Henares. Henares You have two kinds of limitations of taxing powers.
claims that he is requesting for the IRS (Internal
Revenue Service) documents of Pacquiao so that we 1. Inherent Limitations; and
can apply the tax credit. The tax liabilities of Pacquiao 2. Constitutional Limitations
will be reduced by the foreign income taxes he has
paid abroad. But what Pacquiao and his team did was So what are the inherent limitations of the power to
they did not provide any document. So according to tax? You have five (5).
Henares he has no other choice but to enforce the
collection. 1. Public Purpose
2. Inherently Legislative
This is also found in Estate Taxation. There are some 3. Territorial
decedents who died with a will and they have 4. International Comity
properties all over the world. What about the estate 5. Exception of Government Entities
taxes paid abroad? That can be used as deduction to
the estate tax to be paid here. It is also found in Now, most of these items, we have already discussed.
Donor’s Tax. Like for example, public purpose. Diba sabi natin
“Public purpose is the heart of tax law”. The power of
Another form of tax credit is VAT. The component of taxation may be exercised only for a public purpose.
VAT is actually two – (1) Output tax. It comes from the
sales of a certain period and there is a corresponding Second. Inherently Legislative. You know the drill
12% VAT on it, (2) Input Taxes is a form of tax credit. here. Generally, it is solely lodged in the Congress.
Why? Because the buyer is the one who shoulders the What are the exceptions? We have at least 5 diba?
burden of VAT. Now the VAT component of your Cannot be delegated is the General Rule, diba? What
payment can be used as a direct deduction of your are the 5 exceptions?
total VAT liabilities.
Delegation to the President
July 24 Part 5 Delegation to the LGUs
Ara Olamit
Delegation to the Administrative Bodies
Let’s say you have tax deductions. How is it different Delegation to the people at large
from tax credits? Emergency Powers
(Abakada vs. Ermita)
is pretty much similar in intent with tax credits
because it will reduce the tax liability of the 1. Constitution
taxpayer. But when you say tax deductions these 2. Existing Statutes
items will only indirectly reduce the taxes. 3. NIRC and other related laws
4. Previously the TCCP now amended into
Like for example, in the computation of income CPMA
taxes, right now, if you provide for senior citizens’ 5. Local tax laws or ordinance
discounts, you can avail of a deduction. Deduction 6. Local Government Code
which will form part of your business expenses. If 7. Miscellaneous tax laws
you have a lot of expenses, your income will
reduce, and smaller income would mean smaller Some books look also into the revenue regulations
taxes that you have to pay. like the memorandum orders and other issuances of
the BIR and other tax agencies. But I think these are
4. TAX REDUCTIONS. just mere interpretation of the law. BIR rulings, by the

Page 28 of 49

way, and the revenue regulations are not laws regular corporate income tax on its gambling
themselves but they have the force and effect of laws. operations, it is liable for franchise taxes.

And also you have jurisprudence. It’s by reason of the Oh diba, PAGCOR, gobyerno man yan? And yet the
Civil Code. Supreme Court decisions will form part of government imposes taxes. And in the same way, this
the laws of the land. PAGCOR is also liable for the regular corporate tax
under the NIRC for its non-gambling operations.
What is the nature of a tax law by the way? It’s civil in Alright? So i think that’s it. Let’s proceed with the
nature because this is a public matter, collection, Constitutional Limitations next meeting.
although this can be said as a unilateral obligation of
the taxpayer to the government. It’s not penal 28 July 2018 || Part 1 of 6 (00:00:01-00:20:00)
By: Patricia Nicole M. Balgoa
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 CONSTITUTIONAL LIMITATION
put penal laws in the tax laws in case of violation. It's
also not political in nature. I. DUE PROCESS
And lastly you have Territorial. The rule is, generally,
Art. III, Sec. 1, 1987 Phil. Const. No person shall be
territorial in nature. What is the exception? There is a
deprived of life, liberty, or property without due
privity and relationship between the tax authority and
process of law, nor shall any person be denied the
the tax subject or object. Please also take note on the
equal protection of the laws.
rules on Situs.

And then you have International Comity. How do you define ‘due process’?

International Comity has something to do with the My former Consti law professor, Atty. dela Banda,
respect accorded by one nation to another. These are gave us a stupid-sounding definition of due process,
declarations or agreement or interaction between but it actually works. According to him, due process is
nations. Under International Comity, the property of when the process is due. Sounds stupid, right? But
the state or government may not be taxed by another basically, that’s it. All it is saying is that if the law
state. The principle is actually based on public affords you a process, then the government must be
grounds: able to give you that process before the government
will take away the life, liberty, and property of an
1. Concept of Sovereign Equality individual or a person.
2. There is also the concept when one enters
the territory of another. There is already an Normally, when you say due process, this refers to the
implied understanding between these states PROCEDURAL DUE PROCESS of laws. It refers to
that the entering state does not subject itself procedural fairness.
to the jurisdiction of the other state or the
host state. However, procedural due process is not enough
3. There is also this rule in international law because we also have this concept of SUBSTANTIVE
that foreign government may not be sued DUE PROCESS.
without its consent.
Thus, due process presupposes that:
Then we also have the exception of taxes of (1) There is a valid law; and
government agencies, entities and instrumentalities. (2) A valid procedure.

When it comes to the government, exemption from Due process is also essential in taxation, not only in
taxation is the general rule. Taxation is the exception. the collection aspect and not only in the payment
Baliktad siya. aspect. It is also essential in the making of tax laws.
Take note that taxation is a burden in itself. It involves
What is the reason behind this? Why is it the the taking of property against persons.
government cannot tax itself? Why is it the
government is exempt from taxation? Sometimes we just say that it is a unilateral obligation,
but once you did not pay your taxes, the government
The only logical reason I can think of is because it’s can enforce its strong arm in order for it to collect the
stupid. By sheer stupidity. It’s like transferring money money due it.
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 PEPSI V. MUNICIPALITY OF TANAUAN
agency especially when this government agency is
propriety in nature. Like for instance PAGCOR. While SC Said: “This is not to say though that the
it is true that PAGCOR is exempt from income taxes, constitutional injunction against deprivation of
property without due process of law may be passed

Page 29 of 49

over under the guise of the taxing power, except Whether or not due process was observed in
when the taking of the property is in the lawful the issuance of the formal assessment notice against
exercise of the taxing power, as when: Metro Star.
(1) the tax is for a public purpose;
(2) the rule on uniformity of taxation is observed; Ruling: NO.
(3) either the person or property taxed is within the It is true that there is a presumption that the
jurisdiction of the government levying the tax; and tax assessment was duly issued. However, this
(4) in the assessment and collection of certain kinds of presumption is disregarded if the taxpayer denies ever
taxes notice and opportunity for hearing are provided. having received a tax assessment from the Bureau of
Internal Revenue. In such cases, it is incumbent upon
Due process is usually violated where the tax imposed the BIR to prove by competent evidence that such
is for a private as distinguished from a public purpose; notice was indeed received by the addressee-
a tax is imposed on property outside the State, i.e., taxpayer. The onus probandi was shifted to the BIR to
extraterritorial taxation; and arbitrary or oppressive prove by contrary evidence that the Metro Star
methods are used in assessing and collecting taxes. received the assessment in the due course of mail. In
But, a tax does not violate the due process clause, as the case at bar, the CIR merely alleged that Metro Star
applied to a particular taxpayer, although the purpose received the pre-assessment notice in January 2002.
of the tax will result in an injury rather than a benefit The CIR could have simply presented the registry
to such taxpayer. receipt or the certification from the postmaster that it
mailed the pre-assessment notice, but failed. Neither
Due process does not require that the property did it offer any explanation on why it failed to comply
subject to the tax or the amount of tax to be raised with the requirement of service of the pre-assessment
should be determined by judicial inquiry, and a notice notice. The Supreme Court emphasized that the
and hearing as to the amount of the tax and the sending of a pre-assessment notice is part of the due
manner in which it shall be apportioned are generally process requirement in the issuance of a deficiency
not necessary to due process of law.” tax assessment,” the absence of which renders
nugatory any assessment made by the tax authorities.
What the SC is saying here is that: Taxes are the lifeblood of the government
There must be a valid law imposing such tax. You also and so should be collected without unnecessary
have to consider the inherent limitation of taxation. If hindrance. But even so, it is a requirement in all
the inherent limitation of taxation is violated in democratic regimes that it be exercised reasonably
making such tax laws, in levying taxes against persons and in accordance with the prescribed procedure.
or property, then that law may be struck down as an
invalid law. It is a violation of the substantive due Here, BIR forgot to send the preliminary assessment
process. In the same way, when there is a mandatory notice (PAN) against the bus station. In the entire
procedure provided by law, then the government process of collecting the taxes, especially if there are
must follow it before collecting money from the tax deficiencies, the BIR will first call an informal
person or property from whom the tax is levied. conference. During the conference, the BIR will
explain that there are deficiencies or discrepancies.
Most of the cases in your outline involving taxation After the informal conference, if the BIR is not
pertains to procedural due process. satisfied with the explanation of the taxpayer, it will
then issue a PAN. The PAN is basically a document
CIR V. METRO STAR which states the facts, law, and jurisprudence and the
tax deficiency of a taxpayer. I is just a piece of letter
Facts: informing the taxpayer to explain. It is not yet a
In January 2001, a revenue officer was demand letter. The taxpayer then will need to explain.
authorized to examine the books of accounts of Metro Then, when the BIR is still not satisfied with the
Star Superama, Inc. In April 2002, after the audit explanation of the taxpayer, it will then issue a final
review, the revenue district officer issued a formal assessment notice. This final assessment notice differs
assessment notice against Metro Star advising the from the PAN in the sense that the final assessment
latter that it is liable to pay P292,874.16 in deficiency notice is actually a demand letter from the
taxes. Metro Star assailed the issuance of the formal government. This is the time that the taxpayer will file
assessment notice as it averred that due process was its protest.
not observed when it was not issued a pre-assessment
notice. Nevertheless, the Commissioner of Internal In this case, however, BIR forgot to issue a PAN. What
Revenue authorized the issuance of a Warrant of Metro Star is saying here is that its procedural right to
Distraint and/or Levy against the properties of Metro due process is violated because a PAN was not issued
Star. before the final demand letter was sent to collect the
Metro Star then appealed to the Court of Tax alleged deficiencies.
Appeals (CTA Case No. 7169). The CTA ruled in favor
of Metro Star. BIR is saying that they (PAN and final assessment
nnotice) are basically the same thing because both
Issue: state the facts, issues, ruling, and kung magkano ang

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dapat bayaran. Thus, even if there is no PAN, it TAKE NOTE, there are four requirements for a valid
already sent a final assessment notice, which is in classification:
writing and therefore, Metro Star’s right to due (1) There must be a substantial distinction;
process was not violated. (2) The classification must be germane to the
purpose of law;
According to the SC: BIR violated the right to due (3) It must apply to future and existing
process of this bus station because the law provides conditions; and
for a mandatory procedure in making a tax (4) It must be applicable to all members of the
assessment. same class.

In sum, if there is a process that is due, then the state FERRER V. BAUTISTA
must afford that process, lest there will be a violation
of the due process clause. Facts:
 The City of Quezon passed two ordinances.
 The first one was the Socialized Housing Tax of
II. EQUAL PROTECTION QC allowing the imposition of special assessment
(1/2 of the assessed valued of land in excess of
Art. III, Sec. 1, 1987 Phil. Const. No person shall be P100k)
deprived of life, liberty, or property without due
 The second one was Ordinance No. SP-2235, S-
process of law, nor shall any person be denied the
equal protection of the laws. 2013 on Garbage Collection Fees imposing fees
depending on the amount of the land or floor
Read this provision together with the uniformity and area).
equitability of taxation under Art. VI, Sec. 28 (1), 1987  Jose Ferrer, as a property in Quezon City
Phil. Const. because these are related provisions. questioned the validity of the city ordinances.
 According to Ferrer:
Art. VI, Sec. 28 (1), 1987 Phil. Const. The rule of -The city has no power to impose the tax.
taxation shall be uniform and equitable. The Congress -The SHT violates the rule on equality because it
shall develop a progressive system of taxation. burdens real property owners with expenses to
provide funds for the housing of informal settlers.
As you will notice, the equal protection clause is -The SHT is confiscatory or oppressive.
essentially the same with the uniformity and
equitability clause of the Constitution. Issue:
Whether or not the Socialized Housing Tax
As of now, it would seem that there is no longer any violates the equal protection clause.
difference between equity of taxation and uniformity
of taxation. However, if you want to be technical Ruling: NO.
about it: There is no violation of the rule on equality
 Equity of taxation: Taxes must be based on There is a substantial distinction between:
the taxpayer’s ability to pay real property owner and an informal settler. In fact,
the Supreme Court said that the disparity is so
 Uniformity of taxation: When the SC
obvious. It is inherent in the power to tax that a State
discusses uniformity, this concept always
is free to select the subjects of taxation. Inequities
includes the concept of equitability of which result from a singling out of one particular class
taxation. for taxation or exemption infringe no constitutional
Criterion that must be had to follow the equal All these requisites are complied with: An
protection and uniformity rule: ordinance based on reasonable classification does not
The tax laws operate uniformly in all persons under violate the constitutional guaranty of the equal
similar circumstance and all persons are treated the protection of the law. The requirements for a valid
same manner in both the privileges conferred and the and reasonable classification are: (1) it must rest on
liabilities imposed. substantial distinctions; (2) it must be germane to the
purpose of the law; (3) it must not be limited to
So there is some sort of a discrimination, ie: one class existing conditions only; and (4) it must apply equally
will be taxed, and the other class will not be taxed. So to all members of the same class.
there will always be a discrimination. Hat is a fact of
life. But then, while there is this discrimination, what One of the issues raised in this case is the violation of
the law allows is that there will be a reasonable the equal protection clause. According to Ferrer, the
classification between the taxable object. The State ordinance is actually a violation of the equal
can make a classification as to the taxability of protection clause because you are giving preference
persons or property, as long as the classification is to squatters or informal settlers and you are charging
reasonable and based on real and substantial the landowners to provide homes for the settlers.

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The Supreme Court said that the equal protection class shall be taxed at the same rate. The taxing power
clause is not violated. Equal protection clause requires has the authority to make reasonable and natural
that all persons and things similarly situated must be classifications for purposes of taxation, ... As clarified
treated alike both as to rights conferred and by Justice Tuason, where "the differentiation"
responsibilities imposed. In this case, for the purpose complained of "conforms to the practical dictates of
of undertaking and continuing urban development, justice and equity" it "is not discriminatory within the
disparities between a real property owner and an meaning of this clause and is therefore uniform."
informal settler, as two distinct classes are too There is quite a similarity then to the standard of
obvious, need not be discussed at length. equal protection for all that is required is that the tax
"applies equally to all persons, firms and corporations
SISON V. ANCHETA placed in similar situation."

This pertains to the modified gross income tax July 28 Part 2
Johaina Madum
wherein the individuals who are purely compensation
income earner were subject to a set of graduated and Discrimination is allowed as long as the discrimination
progressive rates. Individuals who are self-employed, is reasonable. And then the SC also here made a
professionals are engaged in business were also taxed discussion about the uniformity and equity clause, the
on graduated rates. But the rates for these individuals SC defines the uniformity equity clause, when the tax
were higher compared to the rates of individuals who operates with the same force and effect in every place
are purely compensation earners. So the tax law was where the subject maybe found. I think this is the case
questioned claiming there was discrimination or which states that uniformity of taxation pertains to
violation of equality, that it was not based on geographical uniformity.
substantial distinction which makes real differences
because they are the same tax payers, earning TIU VS. CA
income. This is a 1999 case. What is being challenged here is
the EO promulgated by the president, which
Issue: segregated the area of a special economic zone and
WON the tax law is arbitrary and violates enjoyed tax-and-duty free privileges. The SC said here
equality. that the EO is constitutional and there is no violation
of the equal protection clause.
NO. The SC ruled that the law is valid. There was Again, the supreme court run down the elements of a
no violation of equality or uniformity in taxation. valid classification, that there is substantial distinction
The due process clause of the Constitution may between an ordinary place or area compared to the
be invoked only when a tax instance is so arbitrary secured area. Mainly because of the investment
that it finds no support in the Constitution. An obvious involved. When you’re inside the secured area
example is where it can be shown to amount to the basically the investors here are big time already, there
confiscation of property. That would be a clear abuse is so much money involved, that is why there is need
of power. It then becomes the duty of this Court to for a delineation.
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
Tiu v Ca
also been held that where the assailed tax measure is
G.R. No. 127410. January 20, 1999
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
On March 13, 1992, Congress, with the approval of
due process grounds.
the President, passed into law RA 7227. This was for
the conversion of former military bases into industrial
Constitution does not require things which are
and commercial uses. Subic was one of these areas. It
different in fact or opinion to be treated in law as
was made into a special economic zone.
though they were the same." Hence the constant
reiteration of the view that classification if rational in
In the zone, there were no exchange controls. Such
character is allowable. As a matter of fact, in a leading
were liberalized. There was also tax incentives and
case of Lutz V. Araneta, this Court, through Justice
duty free importation policies under this law.
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
On June 10, 1993, then President Fidel V. Ramos
select the subjects of taxation, and it has been
issued Executive Order No. 97 (EO 97), clarifying
repeatedly held that 'inequalities which result from a
the application of the tax and duty incentives. It said
singling out of one particular class for taxation, or
that On Import Taxes and Duties. — Tax and duty-
exemption infringe no constitutional limitation.'"
free importations shall apply only to raw
"Equality and uniformity in taxation means that
materials, capital goods and equipment brought in
all taxable articles or kinds of property of the same
by business enterprises into the SSEZ

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conferred and liabilities enforced.

On All Other Taxes. — In lieu of all local and national
taxes (except import taxes and duties), all business Classification, to be valid, must (1) rest on substantial
enterprises in the SSEZ shall be required to pay the tax distinctions, (2) be germane to the purpose of the law,
specified in Section 12(c) of R.A. No. 7227. (3) not be limited to existing conditions only, and (4)
apply equally to all members of the same class.
Nine days after, on June 19, 1993, the President
issued Executive Order No. 97-A (EO 97-A), specifying RA 7227 aims primarily to accelerate the conversion
the area within which the tax-and-duty-free privilege of military reservations into productive uses. This was
was operative. really limited to the military bases as the law's intent
provides. Moreover, the law tasked the BCDA to
Section 1.1. The Secured Area consisting of the specifically develop the areas the bases occupied.
presently fenced-in former Subic Naval Base shall be
the only completely tax and duty-free area in the Among such enticements are: (1) a separate customs
SSEFPZ. Business enterprises and individuals (Filipinos territory within the zone, (2) tax-and-duty-free
and foreigners) residing within the Secured Area are importations, (3) restructured income tax rates
free to import raw materials, capital goods, on business enterprises within the zone, (4) no foreign
equipment, and consumer items tax and duty-free. exchange control, (5) liberalized regulations
on banking and finance, and (6) the grant of resident
Petitioners challenged the constitutionality of EO 97-A status to certain investors and of working visas to
for allegedly being violative of their right to equal certain foreign executives and workers. The target of
protection of the laws. This was due to the limitation the law was the big investor who can pour in capital.
of tax incentives to Subic and not to the entire area of
Olongapo. The case was referred to the Court of Even more important, at this time the business
Appeals. activities outside the "secured area" are not likely to
have any impact in achieving the purpose of the law,
The appellate court concluded that such being the which is to turn the former military base to productive
case, petitioners could not claim that EO 97-A is use for the benefit of the Philippine economy. Hence,
unconstitutional, while at the same time maintaining there was no reasonable basis to extend the tax
the validity of RA 7227. incentives in RA 7227.

The court a quo also explained that the intention It is well-settled that the equal-protection guarantee
of Congress was to confine the coverage of the SSEZ does not require territorial uniformity of laws. As long
to the "secured area" and not to include the "entire as there are actual and material differences between
Olongapo City and other areas mentioned in Section territories, there is no violation of the constitutional
12 of the law. clause.

Hence, this was a petition for review under Rule 45 of Besides, the businessmen outside the zone can always
the Rules of Court. channel their capital into it.

Issue: RA 7227, the objective is to establish a "self-

Whether the provisions of Executive Order No. 97-A sustaining, industrial, commercial, financial and
confining the application of R.A. 7227 within the investment center”. There will really be differences
secured area and excluding the residents of the zone between it and the outside zone of Olongapo.
outside of the secured area is discriminatory or not
owing to a violation of the equal protection clause The classification of the law also applies equally to the
residents and businesses in the zone. They are
Held: No. Petition dismissed. similarly treated to contribute to the end goal of the
The fundamental right of equal protection of the laws
is not absolute, but is subject to ABAKADA VS. ERMITA
reasonable classification. If the groupings are This case is kinda weird because one of the arguments
characterized by substantial distinctions that make of the petitioner here is about the equal protection
real differences, one class may be treated and clause. It has something to do with the input taxes, na
regulated differently from another. explain ko na sa inyo yan before diba? There are two
The classification must also be germane to the taxes involved, the output tax which comes from sales
purpose of the law and must apply to all those and the input tax which is in a form of tax credit,
belonging to the same class. which will reduce your VAT liabilities. Now there is a
certain limit on the input taxes that can be credited to
Inchong v Hernandez- Equal protection does not your output tax, its like 70%. And they are saying that
demand absolute equality among residents; it merely this 70% rule from maximum amount that we can
requires that all persons shall be treated alike, under claim as a tax credit violates the equal protection
like circumstances and conditions both as to privileges clause. It is because this only benefit those big

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businesses and not those people, or those on a level things similar to each other in certain particulars and
of a small business enterprises. The SC said here that different from all others in these same particulars.”
there is no violation of equal protection clause.

The interpretation given by the petitioners here is

actually fallacy because the maximum amount BRITISH AMERICAN TOBACCO VS. CAMACHO ET AL
claimable is only 70% and it doesn’t end there, The allegation is that there is discrimination between
because even if the tax payers cannot fully utilize the the new and old brand and also involves the
70 percent, for example nagsobra sila beyond the 70 classification tax fees provision.
percent, like somobra sila sa 80%, its ok, this tax
payers can still claim it on the subsequent taxable American Tobacco v. Camacho
quarter. So magamit gihapon nila either way. In fact
there is no classification involved here to begin with, FACTS:
di ka nman nila gina classify as a tax payer, the law
does not classify the taxpayers. The law only set-up a On June 2001, petitioner British American Tobacco
ceiling on how much tax credit that a tax payer can introduced and sold Lucky Strike, Lucky Strike Lights
claim during that time. and Lucky Strike Menthol Lights cigarettes w/ SRP P
9.90/pack - Initial assessed excise tax: P 8.96/pack
On the other hand, it cannot be said also that even if (Sec. 145 [c])
there is classification between businessman, it cannot
be said that there is a reasonable classification, On August 8, 2003, Sec. 145 of the NIRC RR 22-2003
because the law itself provides a revenue on what was implemented which revised tax classification of
accounts the smaller business enterprises. If these certain new brands introduced in the market after
enterprises do not reach a certain amount on there January 1, 1997 based on the survey of their current
gross income, they will not be subjected to VAT. So on net retail prices. This increased the excise tax to
small businesses, they are either VAT exempted or P13.44 since the average net retail price is above P
required to pay a percentage of only 3% compared to 10/pack.
This cause petitioner to file before the RTC of Makati a
Excerpt from the ABAKADA V. ERMITA: petition for injunction with prayer for issuance of a
Temporary Restraining Order and/or Writ of
“The equal protection clause under the Constitution Preliminary Injunction sought to enjoin the
means that no person or class of persons shall be implementation of Sec. 145 of the NIRC, RR No. 22-
deprived of the same protection of laws which is 2003 on the ground that they discriminate against
enjoyed by other persons or other classes in the same new brands of cigarettes in violation of the equal
place and in like circumstances.[83] protection and uniformity provisions of the
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 Issue: W/N RA 9334 of the classification freeze
several transactions with the government, is not provision is unconstitutional for violating the equal
based on real and substantial differences to meet a protection and uniformity provisions of the
valid classification. Constitution

The argument is pedantic, if not outright baseless. The Held:

law does not make any classification in the subject of No. In Sison Jr. v. Ancheta, the court held that "xxx It
taxation, the kind of property, the rates to be levied or suffices then that the laws operate equally and
the amounts to be raised, the methods of assessment, uniformly on all persons under similar circumstances
valuation and collection. Petitioners alleged or that all persons must be treated in the same
distinctions are based on variables that bear different manner, the conditions not being different, both in
consequences. While the implementation of the law the privileges conferred and the liabilities imposed. If
may yield varying end results depending on ones the law be looked upon in tems of burden on charges,
profit margin and value-added, the Court cannot go those that fall within a class should be treated in the
beyond what the legislature has laid down and same fashion, whatever restrictions cast on some in
interfere with the affairs of business. the group equally binding on the rest. xxx" Thus,
classification if rational in character is allowable. In
The equal protection clause does not require the Lutz v. Araneta: "it is inherent in the power to tax that
universal application of the laws on all persons or a state be free to select the subjects of taxation, and it
things without distinction. This might in fact has been repeatedly held that 'inequalities which
sometimes result in unequal protection. What the result from a singling out of one particular class for
clause requires is equality among equals as taxation, or exemption infringe no constitutional
determined according to a valid classification. By limitation" SC previously held: "Equality and
classification is meant the grouping of persons or uniformity in taxation means that all taxable articles

Page 34 of 49

or kinds of property of the same class shall be taxed at sanctions through the creation of a Rewards and
the same rate. The taxing power has the authority to Incentives Fund (Fund) and a Revenue Performance
make reasonable and natural classifications for Evaluation Board (Board). It covers all officials and
purposes of taxation" employees of the BIR and the BOC with at least six
months of service, regardless of employment status.

Under the rational basis test, a legislative Petitioners, invoking their right as taxpayers filed this
classification, to survive an equal protection petition challenging the constitutionality of RA 9335, a
challenge, must be shown to rationally further a tax reform legislation. They contend that, by
legitimate state interest. The classifications must be establishing a system of rewards and incentives, the
reasonable and rest upon some ground of difference law “transforms the officials and employees of the BIR
having a fair and substantial relation to the object of and the BOC into mercenaries and bounty hunters” as
the legislation they will do their best only in consideration of such
rewards. Thus, the system of rewards and incentives
A legislative classification that is reasonable does not invites corruption and undermines the constitutionally
offend the constitutional guaranty of the equal mandated duty of these officials and employees to
protection of the laws. The classification is considered serve the people with utmost responsibility, integrity,
valid and reasonable provided that: (1) it rests on loyalty and efficiency.
substantial distinctions; (2) it is germane to the
purpose of the law; (3) it applies, all things being Petitioners also claim that limiting the scope of the
equal, to both present and future conditions; and (4) system of rewards and incentives only to officials and
it applies equally to all those belonging to the same employees of the BIR and the BOC violates the
class. constitutional guarantee of equal protection. There is
no valid basis for classification or distinction as to why
Moreover, petitioner failed to clearly demonstrate the such a system should not apply to officials and
exact extent of such impact as the price is not the only employees of all other government agencies.
factor that affects competition
ABAKADA VS. PURISIMA Whether or not the scope of the system of rewards
Sa Abakada v. Purisima, this is different from the and incentives limitation to officials and employees of
Abakada v. Ermita which involves the old VAT law. the BIR and the BOC violates the constitutional
Pag sinabing Abakada v. Purisima, this involves guarantee of equal protection. - YES.
government employees especially those employees
connected with BIR and BOC. This is about the tax Ruling:
incentives given to BIR and BOC officials, kung mag The equal protection clause recognizes a valid
exceed sila sa target sila meron silang mga classification, that is, a classification that has a
incentives. This is the reason why pataka silag reasonable foundation or rational basis and not
kuhag ug taxes, because if they will exceed their arbitrary. With respect to RA 9335, its expressed
target they will receive incentives. public policy is the optimization of the revenue-
generation capability and collection of the BIR and the
Petitioner challenged this provision of RA 9335 BOC Since the subject of the law is the revenue-
because it merely limited the scope of incentives to generation capability and collection of the BIR and the
BIR and BOC employees. The SC said that the BOC, the incentives and/or sanctions provided in the
classification has a reasonable foundation or law should logically pertain to the said agencies.
rational basis. There is a reasonable distinction Moreover, the law concerns only the BIR and the BOC
between employees of this institutions and to other because they have the common distinct primary
government institutions. These people, the BIR and function of generating revenues for the national
BOC employees have the common distinct primary government through the collection of taxes, customs
function of generating revenues for the national duties, fees and charges.
government through the collection of taxes, custom
duties, fees and charges. Both the BIR and the BOC principally perform the
special function of being the instrumentalities through
ABAKADA V. PURISIMA which the State exercises one of its great inherent
Facts: functions – taxation. Indubitably, such substantial
distinction is germane and intimately related to the
Petitioners seeks to prevent respondents from purpose of the law. Hence, the classification and
implementing and enforcing Republic Act (RA) 9335. treatment accorded to the BIR and the BOC under R.A.
R.A. 9335 was enacted to optimize the revenue- 9335 fully satisfy the demands of equal protection.
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 III. PROGRESSIVE SYSTEM OF TAXATION
targets by providing a system of rewards and

Page 35 of 49

ARTICLE VI, SECTION 28(1), the provision involves a majority of all the Members of the Congress
Progressive system of taxation.
The case on point here is the case of CAMP JOHN HAY
ARTICLE VI, SECTION 28(1), V. LIM, this is about RA 7227, the Bases Conversion
and Development Act of 1992. This law gives authority
(1) The rule of taxation shall be uniform and to the President to create through an executive
equitable. The Congress shall evolve a proclamation, a special economic zone. But the
progressive system of taxation. 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
Please do not confuse it with progressive tax. actually 3 reasons here why the presidential
Progressive system of taxation is different from a
proclamation is void:
progressive tax or a progressive rate.
1. The implementing authority cannot exceed,
modify or supplant what was stated in the
A progressive system is one where the system of law. The law itself says the only the Subic SEZ
taxation of a country is more inclined with direct enjoys those exemptions.
taxes. It has more direct taxes than indirect taxes.
2. The nature of the assailed privileges is in the
While a progressive tax rate means that a tax rates go nature of a tax exemption. Only the
higher as the tax base goes higher. legislative branch can grant exemptions. The
president’s power to grant exemptions is
only limited to tariff, custom duties, etc.
Kung mudako imong income, mudako pud
imong tax. But in several cases like for example 3. The grant of tax exemption is a
in Tolenino v. Secretary and Abakada v. Ermita. circumvention of the constitutional provision
which requires a concurrence of the majority
What is the nature of this constitutional provision? Is of all the members of congress.
this mandatory? Because the VAT laws here in these
cases are challenged, accordingly it violates
constitutional provisions of progressive system of CAMP JOHN HAY VS LIM
taxation. FACTS: R.A. 7227 was enacted granting to Subic SEZ
tax privileges and tax exemptions. President Ramos
But the SC interpreted, that these are merely issued Proclamation No. 420, the title of which was
policy guidelines in making tax laws. This is earlier indicated, which established a SEZ on a portion
directory in nature. As much as possible, the of Camp John Hay which granted the John Hay SEZ the
congress must avoid indirect taxes and put into same tax exemption enjoyed by Subic SEZ under R.A.
premium direct taxes. But it’s not mandatory. 7227.
Nothing in the constitution prevents the
government from enacting a law which provides
for indirect taxes. ISSUE: Whether the tax exemptions and other
financial incentives granted to the Subic SEZ under
IV. DELEGATION TO THE PRESIDENT TO FIX TARIFF R.A. No. 7227 (Bases Conversion and Development Act
RATES of 1992), are applicable to the John Hay SEZ.

We already discussed this. In connection with this we

have Article VI, Section 24. 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,"
V. ORIGIN OF APPROPRIATION, REVENUE AND does not lie. It is the legislative branch which has the
TARIFF BILLS inherent power not only to select the subjects of
taxation but to grant exemptions. Paragraph 4,
ARTICLE VI, SECTION 24. All appropriation, revenue Section 28 of Article VI of the Constitution is crystal
or tariff bills, bills authorizing increase of the public clear: "[n]o law granting any tax exemption shall be
debt, bills of local application, and private bills shall passed without the concurrence of a majority of all
originate exclusively in the House of Representatives, the Members of the Congress." Hence, it is only the
but the Senate may propose or concur with legislature, as limited by the provisions of the
amendments Constitution, which has full power to exempt any
person or corporation or class of property from
VI. VOTING REQUIREMENT IN GRANTING TAX taxation. The Constitution itself may provide for
EXEMPTION specific tax exemptions or local governments may
pass ordinances providing for exemption from local
ARTICLE VI SECTION 28(4). No law granting any tax taxes, but, otherwise, it is only the legislative branch
exemption shall be passed without the concurrence of which has the power to grant tax exemptions, its

Page 36 of 49

power to exempt being as broad as its power to tax. ano yan sya ,hotel, bar, restaurants, golf courses and
There is absolutely nothing in R.A. No. 7227 which can other places for entertainment. Second, tax rate,
be considered a grant of tax exemption in favor of when you talk about the tax rate, this is a particular
public respondent BCDA. Rather, the beneficiaries of item . So, it’s just either of these two, that president
the tax exemptions and other incentives in Section 12 can veto. For example there is new tax law passed by
(the only provision in R.A. No. 7227 which expressly congress, imposing taxes to hotels, motels, inn, bar,
grants tax exemptions) are clearly the business resthouses, lodges, golf course and other places of
enterprises located within the Subic SEZ. Contrary to entertainment for tax of 20% , lets say if their gross
public respondents' interpretation, the Decision of income reaches 3 millions.
October 24, 2003 does not "tie the hands" of
Can the president remove now the motels, lodges,
executive or administrative agencies from
golf course? The answer is YES of course. It is because
implementing any present or future legislation which
it involves the subject of taxation. Now, can the
affords tax or other financial incentives to qualified
president say that I don’t want the 20%, because it is
persons doing business in the John Hay SEZ or
too burdensome. Can the president do that? YES,
elsewhere. The second sentence of Section 3 of
because it refers to the tax rate. How about if the
Proclamation No. 420 was declared null and void only
president would say that I don’t want the
insofar as it purported to grant tax exemptions and
qualification, if the gross sale or receipt of this
other financial incentives to business enterprises
establishment would exceed 3 million. Does it refer to
located in John Hay SEZ. However, where there is
a tax rate or tax subject? Is the president allowed to
statutory basis for exemptions or incentives, there is
do that? You read the case if CIR v. Tax Appeals and
nothing to prevent qualified persons from applying for
Manila Golf.
and availing thereof.

CIR v Court of Tax Appeals and Manila Golf

REVENUE AND TARIFF BILLS FACTS: Manila Golf & Country Club, Inc., a non-stock
corporation who maintains a golf course and operates
ARTICLE VII, SECTION 27. (2) The President shall have a clubhouse with a lounge, bar & dining room
the power to veto any particular item or items in an exclusively for its members & guests claims that they
appropriation, revenue, or tariff bill, but the veto shall should have been exempt from payment of privilege
not affect the item or items to which he does not taxes were it not for the last paragraph of Section
object. 191-A of RA No. 6110, otherwise known as "Omnibus
What is an item? What is the general rule on veto? Tax Law".

GR: Veto all or veto none. By virtue of RA No. 6110, the CIR assessed the Manila
Golf and Country Club fixed taxes as operators of golf
EXP: With respect to tax laws, the president can links and restaurant, and also percentage tax
veto an item. (caterer's tax) for its sale of foods and fermented
liquors/wines for the period covering September 1969
to December 1970 in the amount of P32,504.96 in
The Congress passed a law and then the President has which the club protested claiming the assessment to
power to veto it. Just like what happened in the TRAIN be without basis because Section 42 was vetoed by
law, inaprobahan nya but there are certain provisions then President Marcos.
which were vetoed. We will discuss more bout this
when we reach income taxation. CIR denied the protestation of the club, who maintain
that Section 42 was not entirely vetoed but merely
What do you understand by the term “ITEM”? Ano the words "hotel, motels, resthouses" on the ground
yang item nayan? Uyy item sila, iba yong item nayan that it might restrain the development of hotels which
ha… Item veto is allowed when it comes to revenue is essential to the tourism industry.
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”? ISSUE: Whether or not the presidential veto referred
to the entire section or merely to the imposition of
In the case of CIR V. TAX APPEALS AND MANILA 20% tax on gross receipt of operators or proprietors of
GOLF defines “item” is in a revenue bill does not refer restaurants, refreshment parlors, bars and other
to an entire section imposing a particular kind of tax, eating places which are maintained within the
but rather to the subject of the tax and the tax rate. In premises or compound of a hotel, motel or
the portion of a revenue bill which actually imposes a resthouses.
tax, a section identifies the tax and enumerates the
persons liable therefore with the corresponding tax
rate 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
So again dalawa ang item na yan, dalawa ang covered section. It was then agreed by the SC with then
sa item, number one, it maybe the subject of the tax, Solicitor General Estelito Mendoza and his associates

Page 37 of 49

that inclusion of hotels, motels, and rest houses in the and exclusively used for religious, charitable, or
20% caterer's tax bracket are "items" in themselves educational purposes shall be exempt from taxation
within the meaning of Sec. 20(3), Article VI of the
1935 Constitution.
Now let’s go to the more important provision. I said
An "item" in a revenue bill does not refer to an entire
this is important because from time to time, like for
section imposing a particular kind of tax, but rather to
example from last bar examination lumabas to. Let’s
the subject of the tax and the tax rate. In the portion
just summarize this constitutional provision.
of a revenue bill which actually imposes a tax, a
section identifies the tax and enumerates the persons The first question is, what kind of tax is covered
liable therefore with the corresponding tax rate. To under this provision?
construe the word "item" as referring to the whole
section would tie the President's hand in choosing
does not refer to income, it does not refer to
either to approve the whole section at the expense of
any receipt, any donation. It just refers to
also approving a provision therein which he deems
real property taxes.
unacceptable or veto the entire section at the
expense of foregoing the collection of the kind of tax Second, what are the institutions covered here?
altogether. The evil which was sought to be prevented
- Institutions are exclusive, first you charitable
in giving the President the power to disapprove items
institutions, churches and personages or
in a revenue bill would be perpetrated rendering that
convents, and mosque, meaning religious
power inutile
buildings. Second non profit cemeteries, and
lastly all lands, buildings, and improvements,
actually, directly, and exclusively used for
religious, charitable, or educational purposes.
ARTICLE VI, SECTION 29(3). All money collected on What are the requirements so that these institutions
any tax levied for a special purpose shall be treated as will be able to avail of real property tax exemption?
a special fund and paid out for such purpose only. If
the purpose for which a special fund was created has - The requirement is this, that all lands,
been fulfilled or abandoned, the balance, if any, shall buildings, and improvements, ACTUALLY,
be transferred to the general funds of the DIRECTLY, AND EXCLUSIVELY USED for
Government. religious, charitable, or educational purposes.
*Sir talking about his recit with Father Gus.

Example for this is the Coco Levy fund and yong motor
vehicle registration fees the purpose is to raise money July 28, 2018 Part 3
in order to build and maintain public roads and Lexi Singanon

highways etc.. That’s a specific purpose.

What do you mean by “actually, directly, and
exclusively used”? Does it mean that such property in
IX. GRANT TO LGU’S TO CREATE ITS OWN SOURCE order to be exempt from real property tax, should be
OF REVENUE. actually and strictly used for educational purposes
only? What if majority of the entire property of the
We already discussed this. educational institution is used for school or
educational purposes, and a portion thereof, example,
the “Arrneo”, di ba? Ano ba ginagawa ng mga bangko
X. FLEXIBLE TARIFF CLAUSE diyan? Nagarenta man yan sila di ba? But the income
ARTICLE VI, SECTION 28(2). The Congress may, by derived from the rental payments are used to
law, authorize the President to fix within specified supplement school needs.
limits, and subject to such limitations and restrictions
as it may impose, tariff rates, import and export So, the SC actually has two interpretations for this
quotas, tonnage and wharfage dues, and other duties “actually, directly, and exclusively used”
or imposts within the framework of the national requirement.
development program of the Government.
1. Most old cases would use the liberal
meaning – even if the property is not directly
We also discussed this in detail. used for religious, charitable, or educational
purposes, but these facilities are incidental to
or are reasonably necessary for the
XI. EXEMPTION FROM REAL PROPERTY TAXES accomplishment of the main purpose
ARTICLE VI, SECTION 28(3). Charitable institutions, (religious, charitable, or educational), they
churches and personages or convents appurtenant are covered in the exemption.
thereto, mosques, non-profit cemeteries, and all
lands, buildings, and improvements, actually, directly, 2. Some newer cases would also say, that the
“actually, directly, and exclusively used”

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requirement is actually restrictive – if you are Mr. Pedro V. Borgonia, and his family including
not actually using them for religious, the in-laws and grandchildren; and (3) for
charitable, or educational purposes, then commercial purposes because the ground floor of
they are not tax exempt. the college building is being used and rented by a
commercial establishment, the Northern
Cases: Marketing Corporation.”

Roman Catholic Bishop v. Ilocos Norte Issue: What is the tax liability of Abra Valley
GR No. 27588, December 31, 1927 College?

Ilocos Norte wanted to collect real property taxes To be more specific, what is the tax liability of the
against the church. According to them, yes, there real property of Abra Valley College?
may be a church, but there is also a dormitory and
a vegetable garden. What should only be covered Held: To determine the taxability of the property,
by the tax exemption is the portion where the you must first distinguish how is that portion of
church is situated because it is the only portion the property being used. There seems to be no
actually used for religious purposes, and not the problem with the building which is being used by
the dormitory and vegetable garden. the school because this actually, directly, and
exclusively used for educational purposes.
What did the SC say here?
What about the portion of the lot which is being
“The exemption in favor of the convent in the used by the President and his family? As well as
payment of the land tax (sec. 344 [c] that portion that is being rented out to
Administrative Code) refers to the home of the commercial establishments?
parties who presides over the church and who has
to take care of himself in order to discharge his The SC said:
duties. It therefore must, in the sense, include
not only the land actually occupied by the “It must be stressed however, that while this
church, but also the adjacent ground destined to Court allows a more liberal and non-restrictive
the ordinary incidental uses of man. Except in interpretation of the phrase "exclusively used for
large cities where the density of the population educational purposes" as provided for in Article
and the development of commerce require the VI, Section 22, paragraph 3 of the 1935 Philippine
use of larger tracts of land for buildings, a Constitution, reasonable emphasis has always
vegetable garden belongs to a house and, in the been made that exemption extends to facilities
case of a convent, it use is limited to the which are incidental to and reasonably necessary
necessities of the priest, which comes under the for the accomplishment of the main purposes. Otherwise stated, the use of the school building
or lot for commercial purposes is neither
In regard to the lot which formerly was the contemplated by law, nor by jurisprudence. Thus,
cemetery, while it is no longer used as such, while the use of the second floor of the main
neither is it used for commercial purposes and, building in the case at bar for residential
according to the evidence, is now being used as a purposes of the Director and his family, may find
lodging house by the people who participate in justification under the concept of incidental use,
religious festivities, which constitutes an which is complimentary to the main or primary
incidental use in religious functions, which also purpose—educational, the lease of the first floor
comes within the exemption.” thereof to the Northern Marketing Corporation
cannot by any stretch of the imagination be
considered incidental to the purpose of
Abra Valley College v. Aquino education.”
162 SCRA 106

This case involves a school, which has several Lung Center v. Quezon City
portions in the college building that are rented GR No. 144104, June 29, 2004
out to commercial establishments. Meron siyang
canteen concessionaires, book supplies, etc. And There are 2 main issues here:
then the 2nd floor was being used by the principal
and his family as residence. 1. What is the definition of a charitable
“The college lot and building in question which 2. What is the extent of the real property
were subjected to seizure and sale to answer for tax exemption afforded to charitable
the unpaid tax are used: (1) for the educational institutions?
purposes of the college; (2) as the permanent
residence of the President and Director thereof, Lung Center of the Philippines is a hospital that is

Page 39 of 49

situated in the middle of a big vast tract of land. A actual work performed, the character of the
big space at the ground floor is being leased to services rendered, the indefiniteness of the
private parties, for canteen and small store beneficiaries, and the use and occupation of the
spaces, and to medical or professional properties.”
practitioners who use the same as their private
clinics for their patients whom they charge for Now here comes the contention of the
their professional services. Almost one-half of the government that since it is gaining profit, it is no
entire area on the left side of the building along longer a charitable institution, to which the SC
Quezon Avenue is vacant and idle, while a big held that:
portion on the right side, at the corner of Quezon
Avenue and Elliptical Road, is being leased for “As a general principle, a charitable institution
commercial purposes to a private enterprise does not lose its character as such and its
known as the Elliptical Orchids and Garden exemption from taxes simply because it derives
Center. income from paying patients, whether out-
patient, or confined in the hospital, or receives
So what happened is, Quezon City assessed both subsidies from the government, so long as the
the land and the hospital building for real money received is devoted or used altogether to
property taxes, and then the Lung Center applied the charitable object which it is intended to
for real property tax exemptions but it was achieve; and no money inures to the private
eventually denied. benefit of the persons managing or operating the
According to Lung Center, a minimum of 60% of
its hospital beds are exclusively used for charity So even if it’s receiving income pero saan papunt
patients and that the major thrust of its hospital ang pera? It’s still for the purpose of giving out
operation is to serve charity patients. As such, it is free services for the benefit of those who cannot
a charitable institution and therefore, it should be afford medical services.
exempt from real property taxes.
And there’s this another contention of the
Issues: government: It’s still not a pure charitable
institution because it derives subsidies from the
1. Is Lung Center a charitable institution? government. The SC held that it still doesn’t
YES. matter because it does not destroy the charitable
character of the institution as long as it uses the
The argument of Quezon City is that Lung Center subsidies granted by the government for the
cannot be a charitable institution because it furtherance of its charitable purposes.
receives income from paying clients. For a
charitable institution to be exempt from real “Under P.D. No. 1823, the petitioner is entitled to
property taxes, it must not be earning profits. receive donations. The petitioner does not lose its
character as a charitable institution simply
But what is the test in determining whether an because the gift or donation is in the form of
entity is a charitable institution? subsidies granted by the government.”

The test whether an enterprise is charitable or not 2. Is the entirety of Lung Center’s real
is whether it exists to carry out a purpose property exempted from real property
reorganized in law as charitable or whether it is taxes? NO.
maintained for gain, profit, or private advantage.
Now, according to the Lung Center, the entire
So where do you look in order to know whether property is dominantly and primarily used for
an institution is indeed charitable or not? charitable purposes. Because in the end the SC
held that not all of the properties owned by Lung
The SC said that you look into its corporate Center is exempt from real property tax.
documents and its by-laws. That’s why the SC
found that Lung Center is indeed a charitable “Under the 1973 and 1987 Constitutions and Rep.
institution. Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove,
“We hold that the petitioner is a charitable by clear and unequivocal proof, that (a) it is a
institution within the context of the 1973 and charitable institution; and (b) its real properties
1987 Constitutions. To determine whether an are ACTUALLY, DIRECTLY and EXCLUSIVELY used
enterprise is a charitable institution/entity or not, for charitable purposes. "Exclusive" is defined as
the elements which should be considered possessed and enjoyed to the exclusion of others;
include the statute creating the enterprise, its debarred from participation or enjoyment; and
corporate purposes, its constitution and by-laws, "exclusively" is defined, "in a manner to exclude;
the methods of administration, the nature of the as enjoying a privilege exclusively." If real

Page 40 of 49

property is used for one or more commercial exempt from tax.

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 Let us outline this provision. This is quite similar to the
exclusively" without doing violence to the previous constitutional limitation that we discussed.
Constitutions and the law. Solely is synonymous It’s pretty much almost the same but there are
with exclusively. substantial differences.

What is meant by actual, direct and exclusive use What are the type of schools mentioned here? Take
of the property for charitable purposes is the note that this constitutional provision we are talking
direct and immediate and actual application of about right now pertains to educational institutions.
the property itself to the purposes for which the
charitable institution is organized. It is not the
July 28,2018
use of the income from the real property that is
determinative of whether the property is used for
Nikki Tan
tax-exempt purposes.

The petitioner failed to discharge its burden to There are two types of educational institution
prove that the entirety of its real property is mentioned:
actually, directly and exclusively used for 1. Non Stock, Non-Profit Educational
charitable purposes. While portions of the Institutions (NSNP); or
hospital are used for the treatment of patients 2. Proprietary Educational Institutions
and the dispensation of medical services to them,
whether paying or non-paying, other portions Lets discuss first (1) Non Stock, Non-Profit
thereof are being leased to private individuals for Educational Institutions.
their clinics and a canteen. Further, a portion of What is the coverage of tax exemption NSNP
the land is being leased to a private individual for Educational Institutions? The coverage is all revenues
her business enterprise under the business name and assets which means income as well as the
"Elliptical Orchids and Garden Center." properties of this educational institutions so long they
are non stock and non profit they are exempt from
It's pretty much the same here in Ateneo. It’s a non- taxes and duties.
stock non-profit educational institution “daw” but
that portion being rented out to and used by Mercury Second, what is the requirement for before these
Drug is not exempt from real property tax. institutions revenue and assets will be exempt from
taxes duties?
XII. TAX EXEMPTION OF REVENUES, ASSETS, The requirement is that the revenues and
INCLUDING DONATIONS TO EDUCATIONAL assets are actually, directly, and exclusively used for
INSTITUTIONS (Art. XIV, Sec. 4 (3) and (4)) educational purpose. This time what is involved is not
only the real property but the assets: the money, the
ART. XIV, SEC. 4 (3) AND (4) properties of these institutions, it also includes the
income of these educational institutions. So it is safe
1. All revenues and assets of non-stock, non- to say generally speaking NSNP Educational
profit educational institutions used actually, Institutions all of their income is not subject to income
directly, and exclusively for educational tax because of this constitutional provision.
purposes shall be exempt from taxes and
duties. Upon the dissolution or cessation of As to the revenues what is important here is
the corporate existence of such institutions, that where the revenue will be placed A. Say for
their assets shall be disposed of in the example, this school Ateneo we are renting a space to
manner provided by law. Mercury Drug.Where will the net income go?
A. If its rent income will go to
Proprietary educational institutions, educational purposes then that
including those cooperatively owned, may income/revenue is EXEMPT FROM
likewise be entitled to such exemptions, TAXATION take note we are not
subject to the limitations provided by law, talking about property taxes here
including restrictions on dividends and only income taxes
provisions for reinvestment.
B. What if you will invest this income?
2. Subject to conditions prescribed by law, all You will invest this income taken
grants, endowments, donations, or from the rents of Mercury Drug and
contributions used actually, directly, and then the income from this
exclusively for educational purposes shall be investment you will apply it to
educational purposes. So from

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Mercury Drug to Ateneo, Ateneo taxation.

used it for investment and that
investment will earn income and
then use it again for school means. Then we have constitutional provisions that deal with
And it would be that money since grants, endowments, donations:
Ateneo has already invested it Section 4. Article XIV, 1987 Constitution
outside, the money taken from (4) Subject to conditions prescribed by law,
Mercury Drug that income is NOT all grants, endowments, donations, or contributions
COVERED by the exemption. used actually, directly, and exclusively for
educational purposes shall be exempt from tax.
C. But then if it has income from that
investment which ultimately that
Ateneo uses it for educational Pretty much the same, it’s about donations
purposes because it is actually, to these institutions this is not self executing because
directly, and exclusively used for there must be a law providing for exemption. This is
educational purpose that income covered by NIRC Section 101
will be EXEMPT FROM TAXATION. Section 101. NIRC
(3) Gifts in favor of an educational and/or
Is this tax exemption self executing? charitable, religious, cultural or social welfare
Yes,you do not need a law for that. corporation, institution, accredited
nongovernment organization, trust or
So to summarize to avail of this tax philanthropic organization or research institution
exemption of this constitutional provision or organization: Provided, however, That not
the following are the requisites: more than thirty percent (30%) of said gifts shall
1. It must be a Non Stock, Non-Profit be used by such donee for administration
Educational Institutions (NSNP); purposes. For the purpose of this exemption, a
and 'non-profit educational and/or charitable
2. Coverage: The revenues and the corporation, institution, accredited
assets must be actually, directly, nongovernment organization, trust or
and exclusively used for educational philanthropic organization and/or research
purposes. institution or organization' is a school, college or
university and/or charitable corporation,
Next, (2) Proprietary Educational Institutions are accredited nongovernment organization, trust or
there revenues and assets also tax exempt? philanthropic organization and/or research
institution or organization, incorporated as a
Nakalagay dito sa provisions: nonstock entity, paying no dividends, governed
Proprietary educational institutions, including those cooperatively ownedwho
by trustees mayreceive
entitled to such
exemptions, subject to the limitations provided by law, including restrictions
devoting all its on dividends
income, and provisions
whether students' for
reinvestment. or gifts, donations, subsidies or other forms of
philanthropy, to the accomplishment and
In other words, when it comes to proprietary promotion of the purposes enumerated in its
educational institutions they do not have an Articles of Incorporation.
automatic tax exemption on there revenue and assets
there must be an enabling law. Under the current
setup, these proprietary educational institutions are Under the current set up only NSNP Educational
not tax exempt on their revenue and assets under this Institution may avail of the tax exemption.
constitutional provision but they can avail of the 10%
preferential tax rate under the National Internal Then you have Non-Impairment of Supreme Court
Revenue Code (NIRC). Jurisdiction in Tax Cases:
Section 5. Article VIII, 1987 Constitution
What about the real properties of these proprietary The Supreme Court shall have the following powers:
These properties of the proprietary educational 2. Review, revise, reverse, modify, or affirm on
institutions are tax exempt only: when they are appeal or certiorari, as the law or the Rules of Court
actually, directly, and exclusively used for education may provide, final judgments and orders of lower
purposes. Then we have courts in:
Section 28. Article VI, 1987 Constitution b. All cases involving the legality of any tax, impost,
(3) Charitable institutions, churches and assessment, or toll, or any penalty imposed in
parsonages or convents appurtenant thereto, relation thereto.
mosques, non-profit cemeteries, and all lands,
buildings, and improvements, actually, directly, and
exclusively used for religious, charitable, or We also have Non Imprisonment for Non Payment of
educational purposes shall be exempt from Poll Tax

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Truly, tax exemptions of this kind may not be

Section 20. Article III, 1987 Constitution revoked without impairing the obligations of
No person shall be imprisoned for debt or non- contracts. These contractual tax exemptions,
payment of a poll tax. however, are not to be confused with tax
exemptions granted under franchises. A franchise
And the Freedom of Speech and of the Press partakes the nature of a grant which is beyond the
purview of the non-impairment clause of the
Section 4. Article III, 1987 Constitution Constitution.
No law shall be passed abridging the freedom of
speech, of expression, or of the press, or the right of Indeed, Article XII, Section 11, of the 1987
the people peaceably to assemble and petition the Constitution, like its precursor provisions in the
government for redress of grievances. 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
Then you have Religious Freedom privilege shall be subject to amendment, alteration
or repeal by Congress as and when the common
Section 5. Article III, 1987 Constitution good so requires.
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 TAXPAYER’S SUIT
preference, shall forever be allowed. No religious
test shall be required for the exercise of civil or Then we talk about the Taxpayer’s Suit
political rights. It is more of a constitutional law concept
which is related to the judicial review aspect.
Then just read on the cases: Tolentino v Sec. of
Finance and American Bible v City of Manila which The Power of Judicial Review
were under your Constitutional Law 1 cases. Is the power of the Supreme Court to declare
a treaty, international or executive agreement, law,
Then we have Non-Impairment of Contracts etc. unconstitutional not just the law but also the
application of the law.
Section 10. Article III, 1987 Constitution
No law impairing the obligation of contracts shall Elements of Judicial Review:
be passed. 1. There must be an actual case or controversy;
2. There must be a locus standi;
What do you mean by impairing the obligation? 3. The issue must be raised on the earliest
To impair the obligations of the contracts is opportunity; and
to alter or change the terms and effects of the 4. The issue must be the very lis mota of the
contract and that is the contemplation of the law to case
weaken the position of rights of one or all of the
parties to it. Where does Taxpayer Suit come in?
On the second element or (2) there must be
POLICE POWER POWER TO TAX a locus standi. A taxpayer has a standing to file and
Superior to the non- Inferior to the non- action questioning the validity of law based on the:
impairment clause impairment clause theory that expenditure of public funds by the officer
of the government for the purpose of administering or
What about the legislative franchises are these implementing a valid law constitutes a misapplication
covered by the non-impairment clause of the of funds.
constitution. This is actually discussed in the case of
Strictly speaking there is a taxpayers suit, a taxpayer
Meralco vs Province of Laguna has a standing to file if:
1. He is a sufficient interest in preventing the
G.R. No. 131359. May 5, 1999
illegal expenditure of money raised by
Contractual tax exemptions, in the real sense of the taxation; and
2. He will sustain a direct injury in the
term and where the non-impairment clause of the
enforcement of the law
Constitution can rightly be invoked, are those
agreed to by the taxing authority in contracts, such
as those contained in government bonds or Read the 3 cases, kaya niyo na yan let’s go now to
escape from taxation.
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.

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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
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
1. Franchise Tax; suppliers. Which is precisely the decision of the court
2. Contractors Tax; here. Diageo cannot claim for refund of excise taxes it
3. VAT paid because it (Diageo) only bears the burden of tax
4. Documentary Stamp Tax (DST); and not the liability of the tax in other words the
5. SPA Tax; statutory taxpayer is the proper party to claim a
6. Percentage Tax refund of indirect taxes.

The incidence and the impact of taxation please do 2. Tax Avoidance

not be confused with these two items. When we say tax avoidance this is the exploitation
by the taxpayer of legally permissible scheme or
Why is it that in Indirect Taxes the burden can be methods of assessing taxable property or income
shifted to another person? in order to reduce not entirely in order avoid the
It is because in indirect taxes the impact and the payment of tax liability.
incidence of taxation may be split.
To put it simply the taxpayer merely exploits a
IMPACT OF TAXATION INCIDENCE OF TAXATION legal loophole in order for him to avoid the
It refers to the liability of It refers to the burden of payment of taxes.
the payment of tax paying the tax
Possible ba yan? Yes it is entirely possible. Uso yan
In Direct Taxation the impact and incidence of dati when I think it is applicable until now.
taxation will always fall upon one person only.
Estate planning, before the TRAIN Law, ngayon
kasi pareho na lang ang tax rates sa estate tax and
July 28, 2018 donors tax. But before the train law, the rates for
Jessa Puerin
donor taxes are actually lower especially if you
donate it to a relative.
In Indirect Taxes, it is different because the incidence
of taxation may fall of some other person.

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So if the person is already dying, he slowly donates

his properties until such time that he is already So in the end the main issue being discussed here
dead, the estate will pay minimal estate taxes only. by the supreme court is whether or not a tax
So tax avoiding siya. Is that allowed? It is actually evasion. This is the case ot tax evasion or tax
allowed because you are only exploiting a little avoidance. Then there are requisites to adhere, the
loophole. I know that I am dying, previously sa three factors: one, the end to be achieved-to defeat
Train Law, P100,000 donation per year is donor’s taxes or reduce taxes; second, the intent to defraud
tax exempt. Mag donate diay ko 100, 000 kada tuig or in bad faith; third, course of action.
and at the time I am almost dying, I have no more
properties left, wala na akong estate taxes na n this case, all factors are present. Why?
babayaran. Tax free lahat. Is that allowed? Yes, 1) The ends to be achieved through transactions
because you are exploiting a little loophole. making the transaction deemed to transferring
the shares to B, then from B transferring to C
Right now, applicable pa ba siya? I think to some another corporation. All those transaction
extent even if donor’s taxes and estate taxes now resulted to reduction of the taxes. Miskan
are the same, you can still exploit that. You can still gamay gibayaran niya.
donate yearly to a maximum of 200,000 pesos 2) The scheme employed, there is no other
since it is still tax free. And that is allowed. intention but a fraudulent intention to defeat
the government in collecting the tax due-
3. Tax Evasion because the transaction was actually a sham.
Tax evasion, by the way, is different from tax There is no exchange of money,so the person in
avoidance since it is an illegal means to reduce and between of person B is just an intermediary for
avoid the payment of taxes. This is no longer everything and merely use as a conduit in order
exploiting a legal loophole but you are actually to save taxes.
defeating the payment of taxes. Through illegal means
you employ fraud, use false pretenses and forbidden The obvious objective of the transaction is to
devices in order to lessen and defeat the payment of create a tax shelter and no other. This person B
taxes. never controlled or benefited from the
property in fact he sold right away. Gibaligya
What are the factors to consider integrated in tax niya dayon. Pagsale ni person A to person B
evasion? there was a deed of sale and then this person B
1. The ends to be achieved- payment of less on the very same day sold it to person C. okay
than that known by the taxpayer to be legally lang sana yun but the problem is this, the deed
due or the nonpayment of tax for additional of sale executed from person B to corporation
tax is due C was notarized ahead than the sale between
2. The accompany state of mind which is person A and person B. Gets niyo yan kaya next
described as being even for in bad faith time later on you should be careful about your
deceitful, deliberate and not incidental- notarial book. When you notarized something
meaning there is an intent to deceive or to see to it that mauna ang authority bago and
defraud the government deed of sale. The deed of sale in front was
3. Course of action or failure of action which is notarized was made of the same day the deed
unlawful- an overt action or non-action of sale was even notarized ahead of the
which is considered unlawful previous deed of sale. So in other words there
was completely no other purpose of those
CIR VS. ESTATE OF TODA transaction except to reduce the taxes and to
One case is CIR vs Estate of Toda. If I remember it mislead the BIR as to the true nature of the
correctly, there was this person who owns a transaction entered by this persons A, B, and C.
corporation and then this person sold it to a certain Let’s check. It’s achieve, yes nabawasan ang
person again. Let us say Person A sold it to person tax. No.2, state of mind, yes there is fraud
B, and then after that the person B sold it to because the transaction is a sham.
another corporation C. In the end when person A
died, he paid taxes nagkuha pa siya ng legal opinion 3) No. 3, unlawful course of action. What is the
sa BIR and eventually he was free from tax. illegal act here is that the intermediary
transaction between person A and person B
But then the BIR assessed him of deficiency estate was merely is a sham. It’s fraudulent in nature.
taxes. Sabi niya bayad ka man this has already been Atik atik lang walay unod. Giliba lang nila ang
paid you even secured a legal opinion for this type gobyerno.
of transaction. The BIR said no, that is actually or
you cannot use that as the legal opinion the we But I have certain reservation of this court
made because what you mean is actually to defraud decision here. I think there is something wrong
the government if I may not spoke of everything of with the decision because person A is a
the income tax due for that estate for the transfer corporation. It was only owned by the majority
etc., kasi minimal transfer, minimal taxes lang or almost of it or the vast majority of that
binayaran nila.

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corporation is owned by this person, person A.

So medyo weird siya. COMPENSATION
And we also have concept of compensation.
TAX EXEMPTION Compensation is an ObliCon. It is the mode of
distinguishing an obligation when two persons, in
Tax exemption is the grant of immunity express or their own right, are creditors and debtors of each
implied to a particular person(s) or corporation of the other.
obligation for payment of taxes. It is the act of the
State or the prerogative to collect taxes upon certain There are TWO TYPES OF COMPENSATION:
subject or object of taxation. 1. Legal compensation- arises as a matter of
law. When the requisites of legal
What is the basis of tax exemption? In tax exemption, compensation are complied with, the
the grant of tax exemption is part and parcel of the compensation will automatically take place
government’s power to grant tax. The power to tax even the parties are unaware of it. The
necessarily involves the power to create tax requisites of a legal compensation under
exemption. Article of 1279 of the New Civil Code are:
a. The obligors are principally bound as
What is the nature of tax exemption? Tax exemption creditors and debtors of each other;
is in the nature of a waiver of the state. Hence, this is b. Both debts consist of some of money or
strictly construed against the taxpayer and evenly in consumable goods
favor of the government. It is granted only upon the c. Both debts must be due
clear intention which should not exist by mere d. Both debts are liquidated and
implication. demandable
e. That over neither of them there be any
What are the PRINCIPLES ONE MUST REMEMBER retention or controversy
ABOUT TAX EXEMPTIONS: 2. Conventional compensation- arises by mere
1. Tax exemptions are not presumed. Tax agreement of the parties.
exemption is highly disfavored because it affects
the very life of the state. Lifeblood theory naman GR: Taxes cannot be subject to
tayo. compensation.
2. Tax exemption are strictly construed against Because the taxpayer and the Government
the taxpayer and in favor of the government. are not creditors and debtors of each other.
And in line with this, tax exemption is strictly
construed, and the consequences are as follows: - Because the obligation of the taxpayer
a) The taxpayer who claims tax exemption is one created by law. Balaod ang
should prove that he is exempted from nagbuhat ana so that the taxpayer will
tax. There is a law providing for such tax pay the taxes. Please take note that
exemption; even the taxpayer is sustain? (not
b) The taxpayer must also be able to prove clear), there is no assurance on the
that he is included among the tax part of the government that I give
subjects or objects declared by law to be something to you in concrete terms di
tax exempt ba. So you cannot say that these two
parties are mutually creditor and
What are the kinds of tax exemption? debtor of each other.
1. Express
2. Implied and; - Second, taxes are not obligations.
3. Contractual Taxes are not contractual obligations.
Taxes are not considered debts to
Wala tayong problema sa Express tax exemption begin with.
because it is specifically provided by law. But is there
an implied tax exemption? Meron din tayong implied - Lastly, the Lifeblood Theory.
tax exemption. Some books would say that this is not
possible because tax exemption dapat klaro siya What is the DOCTRINE OF EQUITABLE RECOUPMENT?
because it is strictly construed with the taxpayer gud. Equitable Recoupment where the refund of a
There must be clear intention on the part of the tax illegally or erroneously corrected or overpaid by a
government to exempt a taxpayer from taxation. taxpayer is barred by prescription, a tax presently
being assessed against taxpayer may be recouped or
What are the rule on exclusions? What about a tax set-off against the tax already barred by prescription.
subject is excluded by law. Wala siya naapil sa taxable
items ba. So In that aspect probably there is an So basically it goes like this, the taxpayer has a
implied tax exemption but if you want just to be strict claimed of tax refund from the government. The
about it, it is not legally possible because there must taxpayer did not avail of the refund, so nag prescribe.
be a clear intention on the part of the government to The following year the government assessed tax
exempt tax subject or object through law. deficiency against this taxpayer. Under the doctrine

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of equitable recoupment, even if the taxpayer’s after all, tax laws are construed strictly against the tax
claim of refund is already prescribed, he can still set- payer and in favor of the government. What the SC is
off the taxes. essentially saying is this: the strict interpretation of
tax law presupposes that there is any law to begin
This is not applicable in our jurisdiction because says with.
for a prescriptive period for the claim of tax refund.
Equitable recoupment to be applicable was still There’s also a rule here about tax exemption or tax
provided by law. This is not under our NILR or tax laws refund. The tobacco company is claiming for a refund
in that matter. that’s why the tobacco company must prove that it is
entitled to a refund, and that the tax law entitles it to
TAX AMNESTY a refund. Tax refunds are supposedly construed
strictly against the tax payer and in favor of the State.
TAX AMNESTY is a general pardon to taxpayers or the
intentional overlooking by the State of its authority to So when it comes to the rule on the interpretation of
impose penalties on persons otherwise guilty of tax law and tax exemptions, baliktad. What the SC
violating a tax law. said here is this: BIR is correct because the tax
exemptions including tax refund are strictly construed
July 28 Part 6 against a tax payer because this is in derogation of the
Dane Viola
right of the tax payer. But for the rule on the tax
exemption and tax refund to apply, it presupposes
CONSTRUCTION AND INTERPRETATION OF TAX LAWS that there is an existence of a tax law to begin with
and there is a provision which excludes a tax payer
1st Rule: If the law is clear, there’s no need to interpret from taxation thereof.
Which is why in this case, the SC expounded on the
Where the provision of law speaks categorically there rule on interpretation of tax laws. Tax laws are strictly
is no need of an interpretation, all that has to be done construed against the government so the BIR must be
is to apply in in the cases which fall under its terms. able to show that it is allowed by law to implement
that revenue regulation which provides for a floor or a
Relate this with the Robredo recount- 25% daw should ceiling of the tobacco prices.
be counted in her favor. But what did the COMELEC
Rules say? It’s clear that it must be shaded From FT:
completely. Is there a provision in the Omnibus A claim for tax refund may be based on statutes
Election Code saying that the intent of the voter must granting tax exemption or tax refund. In such case, the
prevail? If Robredo is saying that the 25% rule should rule of strict interpretation against the taxpayer is
be counted in her favor and there is this provision of applicable as the claim for refund partakes of the
the OEC that the intent of the voter must prevail, I nature of an exemption, a legislative grace, which
think the COMELEC Res even if it says it must be cannot be allowed unless granted in the most explicit
completely shaded it must yield to the OEC. and categorical language. The taxpayer must show
that the legislature intended to exempt him from the
When is statutory construction needed? tax by words too plain to be mistaken.

This is only needed when there’s doubt in the The rule in the interpretation of tax laws is that a
interpretation in the provision of a tax law. statute will not be construed as imposing a tax unless
it does so clearly, expressly, and unambiguously. A tax
General Rule: In case of doubt laws must be construed cannot be imposed without clear and express words
strictly against the State and liberally in favor of the for that purpose. Accordingly, the general rule of
tax payer. requiring adherence to the letter in construing
statutes applies with peculiar strictness to tax laws
There are 2 things you have to remember here: and the provisions of a taxing act are not to be
extended by implication.
1. There must be a law.
2. There must be a doubt on that tax law. In answering the question of who is subject to tax
statutes, it is basic that in case of doubt, such statutes
The rules is that a law shall not be construed as are to be construed most strongly against the
imposing a tax without a clear and express provision government and in favor of the subjects or citizens
for that. because burdens are not to be imposed nor presumed
to be imposed beyond what statutes expressly and
CIR V FORTUNE TOBACCO clearly import. As burdens, taxes should not be
unduly exacted nor assumed beyond the plain
There’s this revenue regulation and the BIR is meaning of the tax laws.
essentially saying that the tax payer is supposed to
prove the invalidity of the revenue regulation because

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The rule on tax exemptions is also applicable in tax be in derogation on the right of the tax payer for
exclusions, tax refunds, tax amnesty and tax pardons giving out a defense.
because they are essentially of the same nature – they
are all in derogation of the right of the State to  DIRECTORY PROVISIONS
impose taxes and to collect them. These are provisions providing for the direction of the
officers to secure methodological ay systematic
modes of proceedings.
Golf Air v CIR
They must be in harmony of the provisions of law. In San Pablo Manufacturing v CIR
case there is conflict in the revenue regulation and the (lifted from 2015 tsn)
NIRC, the NIRC will prevail.
In this case the SC applied the statcon rule expression
MANDATORY AND DIRECTORY PROVISIONS OF LAW unius est exclusion alterius (anything that is not
included in the enumeration is excluded therefrom).
 MANDATORY PROVISIONS That’s the basic thrust of the decision.
As a general rule our tax laws provide for mandatory SPMC is engaged in the business of milling,
provisions – taxes are the life blood of the State. manufacturing and exporting coconuts and its other
Specifically the mandatory provisions provided for the products. It supplies these products for UniChem. And
security of the citizens, those that require the equality UniChem is exporting these products.
of taxation as to the nature and amount of taxation.
Normally these pertains to the mandatory BIR assessed SPMC of percentage tax deficiency. Kasi
requirement such that when the government will not miller sya eh – subject to a 3% miller’s tax. Sabi ng
follow the provisions, such government actions will be SPMC, “we are supposed to be tax exempt because
considered void. we are millers and the products that we provide are
exported.” Because if you read the tax law: “provided
Example: however that this tax shall not apply to coconut oil,
palm oil, copra,…etc.” (read from case)
1. Provisions for the levy of properties: publication,
notice to the tax payer and incase the tax payer is SPMC said that they are tax exempt. They give it to
not around there must be witness etc. Those UniChem, and at the same time UniChem exports it –
things must be followed before the government so it’s good as exportation. We are millers and
could actually get the property and sell it to therefore we are exempt from tax.
public auction.
But what the SC said was, NO. You are still subject to
2. Another mandatory provision is the rules on 3% miller’s tax. Why? If you take a look at the law,
appeal. Appeal is not a matter of right, it is just a who are the persons exempt from tax?
privilege. 1. Proprietor of the factory
2. Operator of the factory
2. And we also have assessment and decisions and 3. Miller himself
rulings on the disputed assessment, it must
contain the facts, the law or jurisprudence or In this case, SPMC is selling its product to another
legal basis on which the assessment is based, Filipino corporation which, in turn, exports the
otherwise the assessment is void. products. It would have been different if SPMC was
selling. Where the law enumerates the subject upon
3. As a tax payer you have the procedures for which it applies to be considered as excluding from its
protest which are mandatory. effects all those not included in its express mention.
Expresio unius est exclusion alterius.
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 ASPECTS OR STAGES OF TAXATION
make an assessment but this can be extended
through the waiver executed by the tax payer. Most books would say the there are only 3 stages of
There are rules to be followed on waivers:
a. it must be I writing, 1. Levy
b. signed by the tax payer, the Commissioner or 2. Assessment and Collection
his authorized representative, 3. Payment
c. waiver must be for a definite period,
d. waiver must be for a specific tax period only. Some books would provide a 4th which is Refund, but
some would include it with payment.
All those things must have to be followed otherwise
the waiver will not be valid because this will already Levy- Legislative in character, this is tax legislation

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Assessment, collection, payment or refund- these

refer to tax administration.

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