General Principles - Part III

Sunday, June 14, 2009

This post is a sequel to the limitations of the taxing power of the state. This time let us proceed to
the CONSTITUTIONAL LIMITATIONS - those limitations on the state's exercise of the
taxing power specifically provided by the particular provisions of the Philippine Constitution.

a. Due process of law. As provided for, no person shall be deprived of life, liberty or property
without due process of law. This covers two types: substantive, and procedural. Substantive due
process relates to the circumstances and procedures in the passage of tax laws and ordinances,
while the other relates to the procedural aspects in the implementation of the tax laws and
ordinances. Applied to taxation, due process mandates that there should be a valid law imposing
a tax to a particular taxpayer, and should the taxpayer failed to pay the same, it must be given
each and every opportunity to explain itself and justify. No law imposing a tax, then the taxpayer
shall not be collected such tax. On the other hand, granting that the taxpayer failed to pay in full
but was not issued as assessment notice informing the facts and the law of the assessment, still,
the taxpayer could not be held to pay. These are the essence of due process. The taxing authority,
while implementing the necessary mandates of its office must give due respect to the established
procedures the way it works in an organized society.

b. Equal protection of law. "...nor shall any person be denied equal protection of law". Equal
protection relates to how a particular tax measure or ordinance is being applied to persons or
class of persons similarly situated. Thus, if two entities falling on the same classification shall be
taxed similarly. Example, if an ordinance imposes a tax on technicians and it happened that in a
locality there was a single technician, such technician cannot complain for unequal application
because the ordinance is made applicable to all technicians belonging to the same class.

c. Non-imprisonment for non-payment of debt or poll tax. Debt refers to a civil obligation
that is payable in money or in kind, while poll tax or community tax refers to an charge or
imposition administered by the local government unit (LGU) where the taxpayer is located. The
prohibition admits the fact of inequality of distribution of wealth in the society and provides for
instances in extreme poverty. This is likewise in furtherance of the basic doctrine in civil law that
civil liability does not put the person liable behind bars. Applied to tax, while poll tax is a basic
mandate in the Local Government Code, its non-payment does not entitle imprisonment.

d. Non-impairment of obligations of contracts. To impair is to damage or to harm and

obligation referred to is the duty or commitment imposed upon by the valid contract entered into
by the contracting parties. Applied to tax, a new tax law shall not be passed in such a way as to
impair or to prejudice the obligation of a contracting party by virtue of a contract entered into
with the state. This is to give due respect to the contractual terms the state is bind with respect to
its contract with private individuals. A theoretical example of this is, if an exemption is granted
by the state by virtue of a contract with a private entity for which a valuable consideration is
involved, then no new law could later be passed to prejudice said exemption.

e. Rule of taxation shall be uniform and equitable. As stated in uniform application above,
uniformity relates to classification of taxpayers to be subjected to tax. Equitable on the other
hand relates to the ability to pay the tax of those that belong to the same class. In other words, it
refers to how much will each pay and the constitution requires that there must be a reasonable
classification and justification for the unequal imposition.

f. Separation of church and state. This is based on the sad experiences during the Spanish
regime where the church had much to say about the governance of state. Applied to tax, no
public money from taxes shall be spent for furtherance of religious activities. Thus, a
municipality cannot spend public funds for the celebration of its municipal fiesta.

g. Exemption of educational, charitable, and religious institutions. The state acknowledges

the valuable contribution of educating its inhabitants, benefits brought about by charities on
various programs for general welfare, and the religious well-being of its inhabitants to the
success and development of the society as a whole. Thus, to encourage private individuals and
entities for the furtherance of this objectives, the constitution provided certain tax exemptions
from income, real property and customs duties and taxes under specific circumstances and
limitations. There must be showing of an actual, direct, and exclusive use and furtherance of
such objectives in order to be exempt to prevent abuse and capitalization of such objectives to
escape from tax.

h. Concurrence of the majority members of Congress in granting tax exemption. Tax

exemptions are immunity from a particular tax that is being imposed to others similarly situated.
The more exemptions, the less collections. Accordingly, in order to control and to see to it that
only those necessarily entitled must be provided exemptions, the constitution require that such
grant of tax exemption shall be concurred by the vote of the majority of the membership in the
Congress. It should be noted that Philippines is on a bicameral congress, the senate and the lower
house, thus, granting tax exemptions are not quite easy to legislate.

i. Non-impairment of the jurisdiction of the Supreme Court on tax cases. This is in

furtherance of the principles of check and balances. The jurisdiction of the lower courts are based
on the mercy of the laws passed for the purpose, thus, may be modified and revised from time to
time. However, in the case of the Supreme Court, no law can take its power to become the final
arbiter of tax cases.

j. Veto power of the President in tax bills. Generally, on bills passed by Congress, the
President is empowered to either approve or disapprove a bill as a whole. If approved or not
acted upon within a certain period of time, it becomes a law, and if vetoed, it does not become a
law in its entirety. Tax bills however, can be granted either fully or partially. If a bill is granted
partially, provisions which are approved becomes part of the law while those provisions vetoed
upon becomes ineffective.