TAX LAW AND JURISPRUDENCE Legislative taxing power includes authority:

Vitug and Acosta To determine the:

Nature (kind)
PART I GENERAL PRINCIPLES Object (purpose
Extent (amount or rate)
A. Concept
Coverage (subjects and objects)
Taxation - mode by which governments make exactions for revenue Situs (place) of tax imposition
in order to support their existence and carry out their To grant tax exemptions or condonations
legitimate objectives. To specify or provide for the administrative, as well as
- may refer to either or both the power to tax or the judicial remedies that either the government or the
act or process by which the taxing power is exercised taxpayers may avail themselves of in the proper
implementation of the tax measure.
Governmental necessity theory or underlying basis of taxation
Exemptions in tax delegation:
Commissioner vs. Pineda (21 SCRA 105) To local governments (to be exercised by the local
Taxes are the lifeblood of the Government and their prompt and legislative bodies thereof) or political subdivisions
certain availability are an imperious need. When allowed by the Constitution; or
When the delegation relates merely to administrative
Vera vs Fernandez (89 SCRA 199) implementation that may call for some degree of
Upon taxation depends the Governments ability to serve the discretionary powers under a set of sufficient
people whose benefit taxes are collected. standards expressed by law

Commissioner vs. Algue, Inc. (158 SCRA 9) Taxation may exceptionally be delegated under the following
Taxation is the indispensable and inevitable price for civilized well-settled limitations:
society; without taxes, the government would be paralyzed. The delegation shall not contravene any constitutional
provision or the inherent limitations of taxation;
Mun. of Makati vs CA (190 SCRA 206) The delegation is effected either by the Constitution or
Revenues derived from taxes are intended primarily to finance the by validly enacted legislative measures or statue; and
government and its activities and are thus exempt from execution. The delegated levy power, except when the delegation
is by an express provision of the Constitution itself,
B. Principles of a Sound Tax System
should only be in favor of the local legislative body of
the local or municipal government concerned.
1. Fiscal Adequacy
The power of taxation may be delegated to local governments
The sources (proceeds) of tax revenue should coincide with
in respect of matters of local concern.
and approximate the needs of government expenditures.
In delegating authority, the State is not limited to the exact
2. Theoretical Justice
measure of the power which is exercised by itself. When it is
said that the taxing power may be delegated to municipalities
The tax system should be fair to the average taxpayer and
and the like, it is meant that there may be delegated such
based upon his ability to pay.
measure of power to impose and collect taxes as the
legislature may deem expedient. Thus, municipalities may be
3. Administrative Feasibility
permitted to tax subjects, which for reasons of public policy the
State has not deemed wise to tax for general proposes (Pepsi
The tax system should be capable of being properly and
Cola vs. Mun. of Tanauan 69 SCRA 460).
efficiently administered by the government and enforced with
the least inconvenience to the taxpayer.
The assessment and collection of taxes duly levied are
executive or administrative functions, and these aspects of
C. Scope and Limitation of Taxation
taxation are not covered by the non-delegation rule.
SCOPE OF TAXATION
3.) Taxation is territorial.
TAXATION IS:
Unlimited,
Taxation may be exercised only within the territorial
Far-reaching,
jurisdiction of the taxing authority (determination of place
Plenary of taxation or tax situs).
Comprehensive
Supreme Poll Taxes residence of the taxpayer
Property Taxes where the property is situated
INHERENT LIMITATIONS Excise Taxes
1.) Taxation must be for a Public purpose o Where the privilege is exercised
The proceeds of the tax must be used: o Where the taxpayer is a national
o for the support of the State or o Where he has residence
o some recognized objects of government or
directly to promote the welfare of the community. 4.) Taxation is subject to international comity.
The public purpose of a tax may legally exist even if the
motive which impelled the legislature to impose the tax The Philippine Constitution, indeed, has expressly
was to favor one industry over another. adopted the generally accepted principles of international
It is inherent in the power to tax that a state be free to law as part of the law of the land.
select the subject of taxation, and it has been repeatedly Principle of sovereign equality among states
held that inequities which result from a singling out of Principle of their freedom from suit without their
one particular class for taxation or exemption infringes no consent, that limit the authority of a government
constitutional limitation. to effectively impose taxes on a sovereign state
Taxation has been made the implement of the states and its instrumentalities, as well as on its
police power. property held, and activities undertaken, in that
capacity.
2.) Taxation is inherently legislative
The constitutional injunction against deprivation of property
It is also legislative in character and a legislative without due process of law may not be passed over under
prerogative. (NAPOCOR vs Albay) guise of the taxing powers, except when the taking of the
These powers are not inherent in, but merely delegated by property is in the lawful exercise of the taxing power, as when:
constitutional mandate or by law to, local governments. The tax is for public purpose
The rule on uniformity of taxation is observed
 Either the person or property taxed is within the 7) All appropriation, revenue or tariff bills shall originate exclusively
jurisdiction of the government levying the tax in the House of Representatives, but the Senate may propose or
In the assessment and collection of certain kinds of taxes, concur with amendments
notice and opportunity for hearing are provided It is the bill, not the law that must originate from House; bill
Therefore, the due process clause can be said to be the may undergo extensive changes in Senate
constitutional basis for these inherent limitations. Rationale: members of House are more sensitive to local
needs.

CONSTITUTIONAL LIMITATIONS 8) Charitable institutions, churches, and parsonages or convents

A. Direct appurtenant thereto, mosques and non-profit cemeteries and all
1) Due process lands, buildings and improvements ACTUALLY, DIRECTLY and
Should not be harsh, oppressive, or confiscatory EXCLUSIVELY USED for charitable, religious and educational
(Substantive) purposes shall be exempt from taxation
By authority of valid law (Substantive) (Art VI, Sec 28, par 3)
Must be for a public purpose (Substantive) Pertains only to real estate tax.
Imposed within territorial jurisdiction (Substantive) Test of exemption: actual use of the property, not
No arbitrariness in assessment and collection (Procedural) ownership
Right to notice and hearing (Procedural) Use of word exclusively means primarily rather than
solely.
2) Equal protection Exemption extends to property incidental to or reasonably
All persons subject to legislation shall be treated alike, necessary for the accomplishment of the purposes
under like circumstances and conditions both in privileges mentioned.
conferred and liabilities imposed.
Power to tax includes power to classify provided: 9) Tax exemption of all revenues and assets of
a. Based on substantial distinction a. non-stock, non-profit educational institutions
b. Apply to present and future conditions b. used ACTUALLY, DIRECTLY AND EXCLUSIVELY for
c. Germane to purpose of law educational purposes
d. Apply equally to all members of the same class Exemption covers income, property, donors tax, and
customs duties (distinguish from previous which pertains
3) Non-impairment clause only to property tax)
Rules Revenue must both be
(a) When government is party to contract granting exemption a) derived from an activity in pursuance of educational
cannot be withdrawn without violating non-impairment purpose; and
clause b) proceeds must be used for the same purpose (ex. hospital
(b) When exemption generally granted by law adjunct to medical school tax exempt)
withdrawal does not violate (ex. Interest income not exempt).
(c) When exemption granted under a franchise Income exempt provided it is used for maintenance or
may be revoked because the constitution provides that improvement of institution.
Distinguish from tax treatment of
franchise is subject to amendment, alteration, or repeal by
(a) proprietary educational institutions (Preferential Tax);
Congress.
and
(b) government educational institutions (exempt, ex. UP)
4) Must be uniform and equitable
(Art VI, Sec 28, par 1)
10) Delegated authority of President to impose tariff rates, import
Uniform - all articles or properties of the same class taxed and export quotas, tonnage and wharfage dues
at same rate delegated by Congress
Tax operates with the same force and effect in through a law
every place where the subject may be found subject to Congressional limits and restrictions
within the framework of national development program
Classification is permitted:
1) If the standards used therefor are not arbitrary but 11) Law granting tax exemption (includes amnesties, condonations
reasonable and substantial and refunds) shall be passed with concurrence of Congress -
2) If the classification is germane to achieve the purpose majority of all members voting separately
of the legislation Relative majority (majority of quorum) is sufficient to
3) If that classification applies to both present and future withdraw exemption.
conditions, other circumstances being equal
4) If the classification applies equally to all those 12) No use of public money or property for religious purposes
belonging to the same class except if priest is assigned to armed forces, penal institutions,
government orphanage or leprosarium
Equity - apportionment must be more or less just in the
light of taxpayers ability to shoulder tax burden 13) Special purpose - special fund for said purpose, balance goes
Means fair, just, reasonable and proportionate to to general funds
ones ability to pay.
14) Veto power of the President - revenue/tariff bill
5) Non-imprisonment for non-payment of poll tax (Art. VI Sec 27, second par)
No person shall be imprisoned for non-payment of a poll tax (Art
II, Sec 20) 15) Power of review, revise, reverse, modify or affirm on appeal or
Poll Tax/Community Tax one levied on persons certiorari of the SC Rules of Court
who are residents within the territory of the taxing (Art VIII, Sec 5, par 2)
authority without regard to their property, business or
occupation. 16) Power of Local Government to create their own sources and
Taxpayer may be imprisoned for non-payment of other levy taxes, fees, charges
kinds of taxes where the law so expressly provides. (Art X, Sec 6)
An imposition of a fine (but no subsidiary imprisonment) or
even imprisonment for any violation other than non- 17) Just share of local government in national revenue which shall
payment would not be unconstitutional. be automatically released.

6) Congress shall evolve a progressive system of taxation 18) Tax exemption of all revenues and assets of
(Art VI, Sec 28, par 1) (a) proprietary or cooperative educational institutions
As resources of the taxpayer becomes higher, his tax rate (b) subject to limitations provided by law
likewise increases (ex. Income tax) (Art XIV, Sec 4(3))
Constitution does not prohibit regressive taxes; this is a
19) Tax exemption of grants, endowments, donations or
directive upon Congress, not a justiciable right.
contributions USED ACTUALLY, DIRECTLY and EXCLUSIVELY for
educational purposes
 1) Specific tax imposed and based on a physical unit of
B. Indirect measurement, as by head, number, weight, length or volume
Ex. Tax on distilled spirits, fermented liquors, cigars
Freedom of religion
Activities simply and purely for propagation of faith are 2) Ad Valorem - tax of a fixed proportion of the value of property
exempt (e.g. sale of bibles and religious articles by non- with respect to which the tax is assessed; requires intervention of
stock, non-profit organization at minimal profit). assessor.
Tax is unconstitutional if it operates as a prior restraint on Ex. Real estate tax, excise tax on cars, nonessential
exercise of religion Goods
Income even of religious organizations from any activity
conducted for profit or from any of their property, real or D. As to purpose
personal, regardless of disposition of such income, is 1) General, fiscal or revenue - imposed for the general purpose of
taxable supporting the government
Ex. Income tax, percentage tax
Freedom of press/expression
Tax that operates as a prior restraint invalid. 2) Special or regulatory - imposed for a special purpose, to
If fee is only for purpose of defraying cost of registration achieve some social or economic objectives
and not for exercise of privilege, no violation. Ex. Protective tariffs or customs duties on imported goods intended
Mandatory Character of Constitutional Provision to protect local industries
The established rule is that constitutional provisions are to be
considered as mandatory unless by express provision or by E. As to authority imposing the tax
necessary implication. 1) National - imposed by the national government
A directory provision is generally intended merely for Ex. National internal revenue taxes, custom duties
expediency or convenience such that to have it enforced
strictly may cause more harm than by disregarding it. 2) Municipal or local - imposed by the municipal corporations or
In case of statutory enactments, those dealing on the aspects local governments
of levy and compliance are generally treated as mandatory Ex. Real estate tax, occupation tax
and those that are intended merely for administrative
feasibility as directory. F. As to graduation of rate (Three systems of taxation)

Aspects of Taxation 1) Proportional - based on a fixed percentage of the amount of the

(Phases, Processes, Stages/Steps in Taxation) property, income or other basis to be taxed
Levy act of imposition by the legislature such as by its Ex. Real estate tax, VAT, percentage tax
enactment of the law.
- include not only the mandate on when and how the 2) Progressive or graduated - tax rate increases as the tax base
tax is imposed but also, whenever it may be or bracket increases
appropriate, the grant of tax exemptions, tax Ex. Income tax, estate tax, donors tax
amnesties or tax condonations.
3) Regressive - tax rate decreases as the tax base increases
Assessment and Collection act of administration and
4) Degressive - increase of rate is not proportionate to the
implementation of the tax law by the executive through its
increase of tax base
administrative agencies.
- means notice and demand for payment of a tax
5) Mixed - partly progressive and partly regressive
liability
SITUS OF TAXATION - the place of taxation, the country that has
Payment act of compliance by the taxpayer including the power to levy and collect the tax.
such options, schemes or remedies as may be legally
open or available to him. Distinction from Certain Kinds of Exactions
Classification of Taxes TAX DISTINGUISHED FROM POLICE POWER
A. As to subject matter of object
TAX POLICE POWER
1) personal, poll, capitation tax (in the form of a FEE)
(a) fixed amount Purpose Raise revenue Exercise to promote public
(b) individuals residing within specified territory welfare through regulation
(c) without regard to their property, occupation or business
Amount of No limit Limited to the cost of
Ex. Community Tax (Cedula)
exaction regulation, issuance of
license, or surveillance
2) property tax
Superiority Contracts may Contracts may be
(a) imposed on property, real or personal
of contracts be impaired unless impaired
(b) in proportion to its value or other reasonable method of (a) government is
apportionment party to contract
Ex. Real estate tax granting exemption;
or (b) involves
3) excise, privilege tax franchise
Transfer of Taxes paid Allows merely the
(a) imposed upon performance of an act, the enjoyment of a Property form part of the restraint on the
privilege or the engaging in an occupation, profession or rights public funds exercise of property
business rights
Ex. Income tax, VAT, estate tax, donors tax

B. As to who bears the burden TAX DISTINGUISHED FROM EMINENT DOMAIN

1) Direct the tax is imposed on the person who also bears the
burden thereof TAX EMINENT DOMAIN
Ex. Income tax, community tax, estate tax, donors tax Purpose Raise revenue The taking of
property for public
2) Indirect imposed on the taxpayer who shifts the burden of the use
tax to another Compensation Payment of taxes Just compensation is given
- levied upon transactions or activities before the articles subject accrue the owner
matter thereof reach the consumers to whom the burden of the tax to the general of the expropriated
may ultimately be charged or shifted benefit of the property
Ex. VAT, specific tax, percentage tax, customs duties citizens of the
taxing State
C. As to determination of amount Persons Applies to all Only particular
affected persons, property property is government of public
and comprehended improvement
excises that When Regular exaction Exceptional as to
may be imposed time and locality
subject
thereto Basis Necessity Benefits obtained
TAX DISTINGUISHED FROM TOLL
TAX DISTINGUISHED FROM LICENSE FEE
TAX TOLL
Kind of Demand of Demand of
TAX LICENSE FEE
demand sovereignty ownership
Source Exercise of Emanate from the police
Purpose support of Collection for the
Taxing power power of the State
government use of property
Purpose Raise revenue Regulation
Amount no limit depends Fair return of the
Object Persons, Right to exercise a
on need of the cost of the property
property and privilege
government or improvement
privilege
Amount no limit only necessary to carry out
TAX DISTINGUISHED FROM CUSTOMS DUTY
regulation
TAX CUSTOMS DUTY
Distinction lies in the primary purpose: Coverage More Kind of tax
License fee if primary purpose is to regulate and the excess of comprehensive
the amount collected from the cost to carry out the regulation is than customs duty
minimal and incidental. Object Persons, Goods imported
Tax if primary purpose, or at least one of the real and substantial property and or exported
purposes is to raise revenue. etc.
If amount is too high for regulation, it would be a tax; unless
imposed on non-useful occupations or businesses.
Purpose of distinction: limitations and exemptions apply only to
one and not to the other (ex. Exemption from taxation does not
include exemption from fee)

TAX DISTINGUISHED FROM DEBT INTERPRETATION AND CONSTRUCTION

OF TAX STATUTES
TAX DEBT Where the doubt exists in determining the legislative intent, the
Source Law; legal Based on contract doubt must be resolved liberally in favor of taxpayers and
obligation strictly against the taxing authority.
Personal Assignable The government is never estopped from collecting taxes
Generally not May be the subject because of mistakes or errors on the part of its agents.
subject to of compensation/setoff The tax burdens are not to be imposed nor presumed to be
compensation/setoff
imposed beyond what the statute expressly and clearly
Imprisonment is No imprisonment imports, tax statutes being construed strictissimi juris against
sanction for for non-payment the government.
nonpayment The exemptions (or equivalent provisions such as tax
amnesties and tax condonations) are not presumed and when
GENERAL RULE: Taxes cannot be the subject of compensation or granted, are strictly construed against the grantee.
set-off
Classification of Tax Exemptions
* A person cannot refuse to pay a tax on the ground that the 1. Express
government owes him an amount equal to or greater than the tax - by exemption provisions in the Constitution, statutes,
being collected. The collection of tax cannot await the results of a treaties, franchises or similar legislative acts
lawsuit against the government. Examples of statutory exemptions are:
(a) Sec. 30, National Internal Revenue Code
Reasons: (b) Sec. 105, Tariff and Customs Code
lifeblood theory (c) Special laws
taxes are not contractual obligation (absence of consent of
taxpayer) 2. Implied or by Omission
taxpayer and government are not mutual debtors and - There is no tax by silence but, where the law levies a tax,
creditors of each other so also must the tax exemption be explicit in the law.
- There is no tax exemption solely on the ground of equity,
but equity can be used as a basis for a statutory
exemption; thus, at times the law authorizes the
EXCEPTIONS: condonation of taxes on equitable considerations.

1) Both claims already became overdue and demandable as well 3. Contractual

as fully liquidated - These are those agreed to by the taxing authority in
there must have already been an act of appropriation by contracts lawfully entered into by them under enabling
the government (legislative) of funds for payment of the laws.
debt. - May not be revoked without impairing the obligations of
contracts
2) Tax overpayment (BIRs obligation to refund or set-off arises
from time tax was paid) Tax exemptions are construed liberally in favor of the
grantee in the following cases:
3) If the case involves local government taxes When the law so provides for such liberal construction
Exemptions from certain taxes granted under special
TAX DISTINGUISHED FROM SPECIAL ASSESSMENT circumstances to special classes of persons
Exemptions in favor of the government, its political
TAX SPECIAL ASSIGNMENT subdivisions or instrumentalities
Imposed on persons, Only on land Exemptions to traditional exemptees, such as those in
properties, etc. favor of religious and charitable institutions
Why regardless of public Public improvement Tax statutes offering rewards are liberally construed in
imposed improvement that benefits the land favor of awardees.
Purpose Support of Contribution to cost
 (c) Tax credit provisions
NATURE OF TAX AMNESTY
1) general or intentional overlooking by the State of its authority TAX TREATY AS A MODE OF ELIMINATING DOUBLE
to impose penalties on persons otherwise guilty of evasion TAXATION:
or violation of a revenue or tax law 1) EXEMPTION METHOD the income or capital which is taxable
2) partakes of an absolute forgiveness or waiver of the in the state of source or situs is exempted in the state of residence,
Government of its right to collect although in some instances it may taken into account in
3) to give tax evaders, who wish to relent & are willing to reform determining the rate of tax applicable to the tax payers remaining
a chance to do so income or capital (ex. Tax Sparing Credit scheme)

RULES ON TAX AMNESTY 2) CREDIT METHOD the tax paid in the state of source is
1) Tax amnesty credited against the tax levied in the state of residence
(a) like tax exemption, never favored nor presumed
(b) construed strictly against the taxpayer (must show POWER TO TAX INVOLVES THE POWER TO DESTROY
complete compliance with the law) The doctrine seeks to describe the consequential nature of
taxation and its resulting implications to wit:
2) Government not estopped from questioning the tax liability even (a) The power to tax must be exercised with caution to
if amnesty tax payments were already received minimize injury to the proprietary rights of a taxpayer
Reason: Erroneous application and enforcement of the law by (b) If the tax is lawful and not violative of any of the inherent
public officers do not block subsequent correct application of the and constitutional limitations, the fact alone that it may
statute. The government is never estopped by mistakes or errors of destroy an activity or object of taxation will not entirely
its agents. permit the courts to afford any relief
Basis: Lifeblood Theory (c) A subject or object that may not be destroyed by the
taxing authority may not not likewise be taxed
3) Defense of Tax amnesty, like insanity, is a personal defense. Thus, a tax may not be imposed on the exercise of a fundamental
Reason: Relates to the circumstances of a particular accused and right since to otherwise permit it would amount to destroying that
not the character of the acts charged in the information fundamental right.

ESCAPE FROM TAXATION

CERTAIN DOCTRINES IN TAXATION Tax Avoidance (Tax Minimization) tax saving device that is
legally permissible
PROSPECTIVITY OF TAX LAWS
Taxes may be imposed retroactively by law but, unless so Tax Evasion (Tax Dodging) connotes fraud through the use of
expressed by such law, these taxes must only be imposed pretenses and forbidden devices to lessen or defeat taxes; must be
prospectively. willful and intentional.
Tax laws are neither political nor penal in nature and they
are deemed laws of the occupied territory rather than of SET-OFF OF TAXES
the occupying enemy, hence, the ex post facto rule, Taxes are not subject to set-off or legal compensation.
except for the penalty imposed (not the interest), would be Reasons:
inapplicable. 1) Taxes are of a distinct kind, essence and nature and these
A harsh retroactivity of the law, however, may make it impositions cannot be so classed in merely the same
inequitable and violative of the Constitution; similarly, due category as ordinary obligations
process is violated if the tax is oppressive. 2) The applicable laws and principles governing each are
peculiar, not necessarily common to each
IMPRESCRIPTIBILITY OF TAXES 3) Public policy is better subserved if the integrity and
For the purpose of safeguarding taxpayers from any independence of taxes be maintained
unreasonable examination, investigation or assessment,
our tax law provides a statute of limitations in the TAXPAYER SUIT
collection of taxes. It is only when an act complained of, which may include a
The law on prescription; being a remedial measure, legislative enactment, directly involves the illegal
should be liberally construed in order to afford such disbursement of public funds derived from taxation that
protection. the taxpayers suit may be allowed.
As a corollary, the exception to the law on prescription
should perforce be strictly construed. COMPROMISES
These are allowed and enforceable when the subject
DOCTRINE OF EQUITABLE RECOUPMENT matter thereof is not prohibited from being compromised
1) refund of a tax illegally or erroneously collected or overpaid and the person entering into it is duly authorized to do so.
by a taxpayer No provisions exist under the Local Government Code,
2) such tax refund is barred by prescription while the tax (not criminal) liability is not prohibited from
3) tax presently being assessed against a taxpayer being compromised; there is no specific authority,
4) may be recouped or set-off against the tax barred by however, given to any public official to execute the
prescription not allowed in Philippines, reason - LIFE compromise so as to render it effective.
BLOOD

CONCEPT OF DOUBLE TAXATION

Kinds of Double Taxation
A. DIRECT DUPLICATE
taxing same person, property or right twice
for the same purpose
by the same taxing authority
within the same jurisdiction or taxing district
within the same taxable period
and they must be of the same kind or character of tax

B. INDIRECT DUPLICATE
Exists if any of the elements for Direct taxation is not present
No constitutional prohibition on double taxation. However,
where there is direct duplicate taxation then there may be
violation of the constitutional precepts of equal protection
and uniformity in taxation.

Measures to avoid double taxation:

(a) Treaty provisions against double taxation
(b) Reciprocity provisions