TAX 1 The exercise of the powers is presumed understood and

acknowledged by the people from the very moment they

INTRODUCTION TO TAXATION establish their government.

TAXATION SIMILARITIES OF THE (3) POWERS OF THE STATE

 State power – inherent power to enforce a proportional 1. Necessary attributes of sovereignty.
contribution from its subjects for public purpose. 2. Inherent to the State.
 Process – process of levying taxes by the legislature of the 3. Legislative in nature.
state to enforce proportional contributions from its subjects 4. Ways in which the State interferes with private rights and
for public purpose. properties.
 Mode of government cost distribution – the state 5. Exist independently of the Constitution/ and are exercisable
allocates its costs or burden to its subjects who are by the government even without Constitutional grant.
benefited by its spending. 6. Presuppose an equivalent form of compensation received by
the persons affected by the exercise of the power.
THE THEORY OF TAXATION 7. The exercise of these powers by the local government units
 A government cannot exist without a system of funding. may be limited by the national legislature.
The government’s necessity for funding is the theory of
taxation. SCOPE OF THE TAXATION POWER ( CPUS )
 Comprehensive
THE BASIS OF TAXATION  Plenary
 The government provides benefits to the people in the form  Unlimited
of public services, and the people provide the funds that  Supreme
finance the government. ( mutual )
 Taxpayers cannot avoid payment of taxes under the Despite the seemingly unlimited nature of taxation, it is not
defense of absence of benefit received. absolutely unlimited.
 The direct receipt or actual availment of government
services is not a precondition to taxation. THE LIMITATIONS OF THE TAXATION POWER

THEORIES OF COST ALLOCATION A. INHERENT LIMITATIONS

1. Benefit Received Theory – the more benefit he receives;
the more taxes he should pay. 1. Territoriality Of Taxation – it cannot enforce upon subjects
2. Ability To Pay Theory – based on their capacity to outside its territorial jurisdiction.
sacrifice for the support of the government.
Exception to the territoriality principle
ASPECTS OF ABILITY TO PAY THEORY 1. In income taxation, resident citizens and domestic
1) Vertical equity – directly proportional to the level of his corporations are taxable on income derived within and
tax base. (Gross concept) outside the Philippines.
2) Horizontal equity – requires consideration for the 2. In transfer taxation, residents or citizens such as
particular circumstance of the taxpayer. (Net concept ) resident citizens, non-resident citizens and resident
aliens are taxable on transfers of properties located
THE LIFEBLOOD DOCTRINE within or outside the Philippines
 Without taxes the government would be paralyzed for lack
of motive power to activate or operate it. Two-Fold Obligations Of Taxpayers
 Taxes are the lifeblood of the government, and their 1. Filing of returns and payments of taxes
prompt and certain availability are an imperious need. 2. Withholding of taxes on expenses and its remittance
to the government.
IMPLICATION OF THE LIFEBLOOD DOCTRINE OF These obligations can only be enforced upon citizens
TAXATION and residents
1. Tax is imposed even if the absence of Constitutional grant.
2. Claims for tax exemption are construed against taxpayers. 2. International Comity – mutual courtesy or reciprocity
3. The government reserves the right to choose objects of between countries (no country is powerful than the other).
taxation. 1. Governments do not tax the income and properties of
4. The courts are not allowed to interfere with the collection other governments.
of taxes. 2. Governments give primacy to their treaty obligations
5. In income taxation: over their own domestic tax laws.
a. Income received in advance is taxable upon receipt.
b. Deduction for capital expenditures and prepayments is Not Subject To Philippine Taxation
not allowed as it effectively defers the collection of 1) Embassies or consular offices of foreign governments
income tax. in the Philippines - including international
c. A lower amount of deduction is preferred when a organizations and their nonFilipino staff
claimable expense is subject to limit. 2) Income of foreign government and foreign
d. A higher tax base is preferred when the tax objects has government owned and controlled corporations
multiple tax bases. [under National Revenue Code (NIRC)]

INHERENT POWERS OF THE STATE 3. Public Purpose - tax is intended for the common good, must
1. Taxation Power – to enforce proportional contribution be exercised absolutely for public purpose and it can’t be
from its subjects to sustain itself. exercised to further any private interest
2. Police Power – to enact laws to protect the well-being of
the people. 4. Exemption Of The Government – this will not raise
3. Eminent Domain – to take private property for public use additional funds but will only impute additional costs.
after paying just compensation.
 Income of the government from its properties and activities
These rights, dubbed as “powers” are natural, inseparable conducted for profit including income from government
and inherent to every government. No government can sustain owned and controlled corporations is subject to tax.
or effectively operate without these powers.
  government properties and income from essential public  this Constitutional guarantee applies only when the debt is
functions are NOT subject to taxation (under NRC): acquired by the debtor in good faith.
 Debt acquired in bad faith constitutes estafa, a criminal
5. Non-Delegation Of The Taxing Power – legislative taxing offense punishable by imprisonment.
power is vested exclusively in Congress, and is non-delegable
pursuant to the doctrine of separation of the branches of the Is non-payment of tax equivalent to non-payment of debt?
government to ensure a system of checks and balances  Non-payment of tax compromises public interest while the
 The power of lawmaking, including taxation, is delegated non-payment of debt compromises private interest.
by the people to the legislature  The non-payment of tax is similar to a crime.
 What has been delegated cannot further be delegated.  The Constitutional guarantee on non-imprisonment for
nonpayment of debt does not extend to non-payment of tax,
Exceptions To The Rule Of Non-Delegation except poll tax.
1. Under the Constitution, local government units are Poll, personal, community or residency tax
allowed to exercise the power to tax to enable them to Poll tax has two components:
exercise their fiscal autonomy. a. Basic community tax
2. Under the Tariff and Customs Code, The President is b. Additional community tax
empowered to fix the amount of tariffs to be flexible to
trade conditions.  The constitutional guarantee of non-imprisonment for
3. Other cases that require expedient and effective nonpayment of poll tax applies only to the basic
administration and implementation of assessment and community tax.
collection of taxes.  Non-payment of the additional community tax is an act or
tax evasion punishable by imprisonment.

B. CONSTITUTIONAL LIMITATIONS 6. Non-Impairment Of Obligation And Contract – it should

no set aside its obligations from contracts by the exercise of its
1. Due Process Of Law - No one should be deprived of his life, taxation power.
liberty, or property without due process of law. Tax law should
neither be harsh nor oppressive. 7. Free Worship Rule – does not extend to income from
properties or activities of religious institutions that are
Aspects of Due Process proprietary or commercial in nature.
1. Substantive Due Process – tax must be imposed only for  Not subject to taxation: the properties and revenues of
public purpose, collected only under authority of a valid religious institutions such as tithes or offerings
law and only by the taxing power having jurisdiction.  Subject to taxation: income from properties or activities
or religious institutions that are proprietary or commercial
2. Procedural Due Process – there should be no arbitrariness in nature
in assessment and collection of taxes, and the government
shall observe the taxpayer’s right to notice and hearing. 8. Exemption of religious or charitable entities, non-profit
cemeteries, churches and mosques, lands, buildings and
 Under the NIRC, assessments shall be made within improvements from property taxes – actually, directly and
three years from the due date of filing of the return or exclusively used for charitable, religious, and educational
from the date of actual filing, whichever is later. purposes.
 Collection shall be made within five years from the date  Doctrine Of Use – properties actually devoted for religious,
of assessment. charitable, or educational activities are exempt from real
property tax.
2. Equal Protection Of The Law – taxpayers should be treated  Doctrine Of Ownership – properties of religious,
equally both in terms of rights conferred and obligations charitable, or educational entities whether or not used in
imposed (same circumstances). their primary operations are exempt from real property tax
 Congress cannot exempt sellers of “balot” while
subjecting sellers of “penoy” to tax since they are 9. Non-appropriation of public funds or property for the
essentially the same goods. benefit of any church, sect or system of religion – intended to
highlight the separation of religion and the State.
3. Uniformity Rule In Taxation – the rule of taxation shall be  Compensation to priests, imams, or religious ministers
uniform and equitable. working with the military, penal institutions, orphanages or
 Taxpayers under dissimilar circumstances should not be leprosarium is not considered religious appropriation.
taxed the same.
 Taxpayers should be classified according to 10. Exemption from taxes of the revenues and assets of non-
commonality in attributes, and the tax classification to profit, non-stock educational institutions including grants,
be adopted should be based on substantial distinction. endowments, donations, or contributions for educational
 Uniformity is relative equality. purposes – applies only on revenues and assets that are actually,
directly and exclusively devoted for educational purposes.
4. Progressive System Of Taxation – tax rates increase as the  Exempts government educational institutions from
tax base increases. income tax and subjects’ private educational institutions
 Aids in an equitable distribution of wealth t society by to a minimal 10% income tax.
taxing the rich more than the poor.
11. Concurrence of a majority of all members of Congress
5. Non-Imprisonment For Non-Payment Of Debt/Poll Tax for the passage of a law granting tax exemption – requires the
 Applies only when the debt is acquired by the debtor in vote of the majority of all members of Congress.
good faith.  In the approval of an exemption law, an absolute majority
 Debt is acquired by the debtor in bad faith constitutes a or the majority of all members of Congress is required.
estafa, a criminal offense punishable by imprisonment.  In the withdrawal of tax exemption, only a relative
majority or quorum majority is required.
As a policy, no one shall be imprisoned because of his poverty,
and no one shall be imprisoned for mere inability to pay debt. 12. Non-Diversification Of Tax Collections – it should never
be diversified for private purposes.
13. Non-Delegation Of The Power Of Taxation – requires that
taxation power as part of lawmaking be vested exclusively in 4. Non-compensation or set-off – tax is not a debt; hence, it is
Congress. not subject to set-off.
 Exceptions:
14. Non-impairment of the jurisdiction of the Supreme a. Taxpayer’s claim has already become due and demandable
Court to review tax cases – notwithstanding the existence of b. Cases of obvious overpayment of taxes.
the Court of Tax Appeals, which is a special court, all cases c. Local taxes
involving taxes can be raise to and be finally decided by the
Supreme Court of the Philippines. 5. Non-assignment of taxes – tax obligations cannot be
transferred to another entity by contract.
15. The requirement that appropriations, revenue, or tariff
bills shall originate exclusively in the House of 6. Imprescriptibility in taxation – prescription is the lapsing of
Representatives, but the Senate may propose or concur with a right due to the passage of time.
amendments  Tax prescribes if not collected within 5 years from the
date of its assessment.
16. The delegation of taxing power to local government units  In the absence of assessment, tax prescribes if not
shall exercise the power to create its own sources of revenue collected by judicial action within 3 years from the date
and shall have a just share in the national taxes – this is a the return is required to be filed.
constitutional recognition of the local autonomy of local  Taxes due from taxpayers who did not file a return or
government and an express delegation of the taxing power. those who filed fraudulent returns do not prescribe.

STAGES OF HE EXERCISE OF TAXATION POWER 7. Doctrine of Estoppel – any misrepresentation made by one
1. Levy Or Imposition – enactment of a tax law by Congress party toward another who relied therein in good faith will
and is called impact of taxation or legislative act in taxation. be held true and binding against that person who made the
2. Assessment And Collection – referred to as incidence of misrepresentation.
taxation or the administrative act of taxation.  The error of any government employee does not bind the
government.
Congress is composed of two bodies:
1. The House of Representatives 8. Judicial Non-interference – courts are not allowed to issue
2. The Senate injunction against the government’s pursuit to collect tax
Tax bills cannot originate exclusively from the Senate. as this would unnecessarily defer tax collection (Lifeblood
Doctrine).
SITUS OF TAXATION – the place of the taxation.
 Situs rules serve as frames of reference in gauging whether 9. Strict Construction of Tax Laws – “taxation is the rule;
the tax object is within or outside the tax jurisdiction of the exemption is the exemption”
taxing authority.  There is no room for interpretation, there is only room for
Examples: application.
1. Business tax situs – where the business is conducted.  When taxation laws are vague, the doctrine of strict legal
2. Income tax situs on services – where they are rendered. construction is observed.
3. Income tax situs on sale of goods – place of sale.
4. Property tax situs – location.  Vague tax laws – construed against the government
5. Personal tax situs – place of residence. and in favor of the taxpayers.
 It means no tax law.
OTHER FUNDAMENTAL DOCTRINES IN TAXATION  Obligation arising from law is not presumed.
1. Marshall Doctrine – “the power to tax involves the power to
destroy”.  Vague exemption laws – construed against the
 Does not include the power to destroy if it is used solely taxpayer and in favor of the government.
for the purpose of raising revenue  It means no exemption law.
 Imposition of excessive tax on cigarettes.  Construed strictly against the taxpayer in
accordance with the lifeblood doctrine.
Taxation power
- can be used as an instrument of police power  Tax Exemption - cannot arise from vague inference and
- it can be used to discourage or prohibit undesirable must be clear and unequivocal.
activities or occupation - carries with it the power to A taxpayer claiming a tax exemption must
destroy point to a specific provision of law conferring on the
- does not include the power to destroy if it is used solely taxpayer, in clear and plain terms, exemption from a
for the purpose of raising revenue (Roxas vs. CTA) common burden. Any doubt whether a tax exemption
exists is resolved against the taxpayer.

2. Holme’s Doctrine – “taxation power is not the power to  Right of Taxation - is inherent to the State
destroy while the court sits” - It is a prerogative essential to the perpetuity of the
 Include the creation of Ecozones with tax holidays government
and provision of incentives. He who claims exemption from the common
burden must justify his claim by the clearest grant of
Taxation power organic or statute law.
- may be used to build activities or industries by the grant When exemption is claimed, it must be shown
of tax incentives. indubitably to exist. At the outset, every presumption is
- both are employed in practice even though they appear to against it. A wellfounded doubt is fatal to the claim; it
contradict each other is only when the terms of the concession are too
explicit to admit fairly of any other construction that
the proposition can be supported.
3. Prospectivity of tax laws – tax laws are generally
prospective in operation.
 an ex post facto law or a law that retroacts is prohibited DOUBLE TAXATION – occurs when the same taxpayer is
by the Constitution. taxed twice by the same tax jurisdiction for the same thing.
 B. Those That Do Not Result To Loss Of Government
ELEMENTS OF DOUBLE TAXATION Revenue
1. Primary elements:
a. same object 1. Shifting – transferring tax burden to other taxpayers.
2. Secondary elements:  Common with business taxes where taxes imposed on
a. Same type of tax business revenue can be shifted or passed-on to customers.
b. Same purpose of tax
c. Same taxing jurisdiction a. Forward – normal flow of distribution (manufacturer
d. Same tax period to customers).
 common with essential commodities and services
TYPES OF DOUBLE TAXATION such as foods and fuel.
1. Direct Double Taxation – all element of double taxation
exists for both impositions. b. Backward – reverse of forward shifting.
 Discouraged because it is oppressive and burdensome to  Common with non-essential commodities where
taxpayers. buyers have considerable market power and
Examples: commodities with numerous substitute products.
a. An income tax of 10% on monthly sales and a 2% income
tax on the annual sales (total of monthly sales) c. Onward – any tax shifting in the distribution channel
b. A 5% tax on bank reserve deficiency and another 1% that exhibits forward or backward shifting.
penalty per day as a consequence of such reserve deficiency
3. Capitalization – adjustment of the value of an asset cause by
2. Indirect Double Taxation – at least one of the secondary changes in tax rates.
elements of double taxation is not common for both  This is a form of backward shifting of tax.
impositions.
 Prevalent in practice. 4. Transformation – elimination of wastes or losses by the
taxpayer to form savings to compensate for the tax imposition
Examples: or increase in taxes.
a. The national government levies business tax on the sales
or gross receipts of business while the local government TAX AMNESTY – general pardon granted by the government
levies business tax upon the same sales or receipts. for erring taxpayer to give them a chance to reform and
b. The national government collects income tax from a enable them to have a fresh start to be part of a society with a
taxpayer on his income while the local government clean slate.
collects community tax upon the same income.  Absolute forgiveness or waiver by the government on its
c. The Philippine government taxes foreign incomes of right to collect and is retrospective in application.
domestic corporations and resident citizens while a Covers both civil and criminal liabilities.
foreign government also taxes the same income  Conditional upon the taxpayer paying the government of a
(international double taxation). portion of the tax.

Nothing in our law expressly prohibits double taxation. TAX CONDONATION – forgiveness of the tax obligation of a
certain taxpayer under certain justifiable grounds.
How Can Double Taxation Be Minimized?  Also referred to as tax remission.
a. Provision Of Tax Exemption – only one tax law is  Construed against the taxpayer and in favor of the
allowed to apply to the tax object while other tax law government.
exempts the same tax object.  Covers civil liabilities of the taxpayer.
b. Allowing foreign tax credit – tax payments in the foreign  Applies prospectively to any unpaid balance of the tax;
tax law is deductible against the tax due of the domestic hence, the porting already paid by the taxpayer will not be
tax law. refunded.
c. Allowing reciprocal tax treatment – provisions in tax  Requires no payment.
laws imposing a reduced tax rates or even exemption if the
country of the foreign taxpayer also give the same
treatment to Filipino nonresidents therein.
d. Entering into treaties or bilateral agreements –
countries may stipulate for a lower tax rates for their
residents if they engage in transactions that are taxable by
both of them.
ESCAPES FROM TAXATION – available to the taxpayer to
limit or even avoid the impact of taxation.

CATEGORIES OF ESCAPES FROM TAXATION

A. Those That Result To Loss Of Government Revenue

1. Tax Evasion – also known as tax dodging, refers to any
act or trick that tends to illegally reduce or avoid the
payment of tax.
2. Tax Avoidance – also known as tax minimization, refers
to any act or trick that reduces or totally escapes taxes by
any legally permissible means.
3. Tax Exemption – also known as tax holiday, refers to the
immunity, privilege or freedom from being subject to a tax
which others are subject to.
 All forms of tax exemptions can be revoked by
Congress except those granted by the Constitution and
those granted under contracts.