Legal Bases of Public Finance and Fiscal Administration

Taxation

1. Section 1, Article III of the 1987 Constitution – No person shall be deprived of life,
liberty, or property without due process of law, nor shall any person be denied the
equal protection of the laws.

2. Section 5, Article III of the 1987 Constitution – No law shall be made respecting an
establishment of religion, or prohibiting the free exercise thereof.

3. Section 10, Article III of the 1987 Constitution – No law impairing the obligation of
contracts shall be passed.

4. Section 20, Article III of the 1987 Constitution – No person shall be imprisoned for
debt or non-payment of a poll tax.

5. Section 28(1), Article VI of the 1987 Constitution – The rule of taxation shall be
uniform and equitable. The Congress shall evolve a progressive system of taxation.

6. Section 28(2), Article VI of the 1987 Constitution – The Congress may, by law,
authorize the President to fix within specified limits, and subject to such limitations
and restrictions as it may impose, tariff rates, import and export quotas, tonnage and
wharfage dues, and other duties or imposts within the framework of the national
development program of the Government.

7. Section 28(3), Article VI of the 1987 Constitution – Charitable institutions, churches

and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and
all lands, buildings, and improvements, actually, directly, and exclusively used for
religious, charitable, or educational purposes shall be exempt from taxation.

8. Section 28(4), Article VI of the 1987 Constitution – No law granting any tax exemption
shall be passed without the concurrence of a majority of all the Members of the
Congress.

9. Section 24(3), Article XIV of the 1987 Constitution – All revenues and assets of non-
stock, non-profit educational institutions used actually, directly, and exclusively for
educational purposes shall be exempt from taxes and duties. Upon the dissolution or
cessation of the corporate existence of such institutions, their assets shall be disposed
of in the manner provided by law.

10. Section 29(3), Article VI of the 1987 Constitution – All money collected on any tax
levied for a special purpose shall be treated as a special fund and paid out for such
purpose only. If the purpose for which a special fund was created has been fulfilled or

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 abandoned, the balance, if any, shall be transferred to the general funds of the
Government.

11. Section 5(2b), Article VIII of the 1987 Constitution – The Supreme Court shall have
the power to review, revise, reverse, modify or affirm on appeal or certiorari, as the
law or the Rules of Court may provide, final judgments and orders of lower courts in
all cases involving the legality of any tax, impost, assessment, or toll or any penalty
imposed in relation thereto.

12. In addition to national taxes, the Constitution provides for local government taxation.
(Article X, Section 5; Article X, Section 6). Parenthetically, the Local Government
Code provides that all local government units are granted general tax powers, as well
as other revenue-raising powers like the imposition of service fees and charges, in
addition to those specifically granted to each of the local government units. But no
such taxes, fees and charges shall be imposed without a public hearing having been
held prior to the enactment of the ordinance. The levy must not be unjust excessive,
oppressive, confiscatory or contrary to a declared national economic policy (Section
186 and 187). Further, there are common limitations to the grant of the power to tax
to the local government, such that taxes like income tax, documentary stamp tax, etc.
cannot be imposed by the local government.

13. The basic source of Philippine tax law is the National Internal Revenue Law (NIRC),
which codifies all tax provisions, the latest of which is embodied in Republic Act No.
8424 (The Tax Reform Act of 1997). It amended previous national internal revenue
codes, which was approved on December 11, 1997. There are, however, special laws
that separately provide special tax treatment in certain situations.

14. Treaties – The Philippines has entered into several tax treaties for the avoidance of
double taxation and prevention of fiscal evasion with respect to income taxes. At
present, there are 31 Philippine Tax Treaties in force.

15. Administrative Materials – The Secretary of Finance, upon the recommendation of

the Commissioner, promulgates needful rules and regulations for the effective
enforcement of the provisions of the Tax Code (Section 244, Tax Code of 1997). The
Commissioner of Internal Revenue, however, has the exclusive and original power to
interpret the provisions of the Tax Code, but subject to review by the Secretary of
Finance. Administrative issuances which may be relied upon in interpreting the
provisions of the Tax Code, which are signed by the Secretary of Finance, or the
Commissioner of Internal Revenue, or his duly authorized representative, come in the
form of Revenue Regulations, Revenue Memorandum Orders, Revenue
Memorandum Rulings, Revenue Memorandum Circulars, Revenue Memorandum
Rulings, and BIR Rulings. Revenue Regulations (RRs) are issuances signed by the
Secretary of Finance, upon recommendation of the Commissioner of Internal
Revenue, that specify, prescribe or define rules and regulations for the effective
enforcement of the provisions of the National Internal Revenue Code (NIRC) and
related statutes. Revenue Memorandum Orders (RMOs) are issuances that provide

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 directives or instructions; prescribe guidelines; and outline processes, operations,
activities, workflows, methods and procedures necessary in the implementation of
stated policies, goals, objectives, plans and programs of the Bureau in all areas of
operations, except auditing. Revenue Memorandum Rulings (RMRs) are rulings,
opinions and interpretations of the Commissioner of Internal Revenue with respect to
the provisions of the Tax Code and other tax laws, as applied to a specific set of facts,
with or without established precedents, and which the Commissioner may issue from
time to time for the purpose of providing taxpayers guidance on the tax consequences
in specific situations. BIR Rulings, therefore, cannot contravene duly issued RMRs;
otherwise, the Rulings are null and void ab initio. Revenue Memorandum Circular
(RMCs) are issuances that publish pertinent and applicable portions, as well as
amplifications, of laws, rules, regulations and precedents issued by the BIR and other
agencies/offices. BIR Rulings are the official position of the Bureau to queries raised
by taxpayers and other stakeholders relative to clarification and interpretation of tax
laws.

16. Case Law / Jurisprudence – The Supreme Court decisions form part of the law of the
land. As such, decisions by the Supreme Court in the exercise of its power to review,
revise, reverse, modify or affirm on appeal or certiorari, as the law or the Rules of
Court may provide, final judgments and orders of lower courts cases involving the
legality of any tax, impost, assessment, or toll or any penalty imposed in relation
thereto are adhered to and recognized as binding interpretations of Philippine tax law.
Court of Appeals and Court of Tax Appeals decisions which have become final and
executory are also recognized interpretations of Philippine tax law.

17. Local Government Tax Law – Local government taxation in the Philippines is based
on the constitutional grant of the power to tax to the local governments. Local taxes
may be imposed, as the Constitution grants, to each local government unit, the power
to create its own sources of revenues and to levy taxes, fees, and charges which shall
accrue to the local governments (Article X, Section 5). With respect to national taxes,
local Government units shall have a just share, as determined by law, in the national
taxes which shall be automatically released to them (Article X, Section 6). However,
certain taxes, such as the following, may not be imposed by local government units:

a. Income tax, except when levied on banks and other financial institutions;
b. Documentary stamp tax;
c. Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis
causa, except as otherwise provided in the Local Government Code (Code)
(except taxes levied on the transfer of real property ownership under Section
135, and Section 151 of the Code);
d. Customs duties, registration fees of vessels (except license fees imposed under
Section 149, and Section 151 of the Code), wharfage on wharves, tonnage dues
and all other kinds of customs fees, charges and dues except wharfage on
wharves constructed and maintained by the local government unit concerned;
e. Taxes, fees, charges and other impositions upon goods carried into or out of,
or passing through, the territorial jurisdictions of local governments in the guise

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 of charges for wharfage, tolls for bridges or otherwise, or other taxes in any
form whatever upon such goods or merchandise;
f. Taxes, fees or charges on agricultural and aquatic products when sold by
marginal farmers or fishermen;
g. Taxes on business enterprises certified by the Board of Investments as pioneer
or non-pioneer for a period of six and four years, respectively, from the date of
registration;
h. Excise taxes on articles enumerated under the National Internal Revenue Code
and taxes, fees, or charges on petroleum products, but not a tax on the business
of importing, manufacturing or producing said products;
i. Percentage tax or value-added tax on sales, barters or exchanges of goods or
services or similar transactions thereon (but not fixed graduated taxes on gross
sales or on volume of production);
j. Taxes on the gross receipts of transportation contractors and persons engaged
in the transportation of passengers or freight by hire and common carriers by
air, land or water except as provided by the Code;
k. Taxes on premiums paid for reinsurance or retrocession;
l. Taxes, fees or charges for the registration of motor vehicles and for the issuance
of all kinds of licenses or permits for the driving thereof, except tricycles;
m. Taxes, fees, or other charges on Philippine products actually exported except
as provided by the Code (the prohibition applies to any local export tax, fee, or
levy on Philippine export products but not to any local tax, fee, or levy that
may be imposed on the business of exporting said products);
n. Taxes, fees or charges on duly organized and registered Countryside and
Barangay Business Enterprises (R.A. No. 6810) and on cooperatives (R.A. No.
6938); and
o. Taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalities, and local government units (Section 133, LGC).

Budget

1. Section 24, Article VI of the 1987 Constitution – All appropriation, revenue or tariff
bills, bills authorizing increase of the public debt, bills of local application, and private
bills shall originate exclusively in the House of Representatives, but the Senate may
propose or concur with amendments.

2. Section 25 (1), Article VI of the 1987 Constitution – The Congress may not increase
the appropriations recommended by the President for the operation of the Government
as specified in the budget. The form, content, and manner of preparation of the budget
shall be prescribed by law.

3. Section 25 (2), Article VI of the 1987 Constitution – No provision or enactment shall

be embraced in the general appropriations bill unless it relates specifically to some
particular appropriation therein. Any such provision or enactment shall be limited in
its operation to the appropriation to which it relates.

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4. Section 25 (3), Article VI of the 1987 Constitution – The procedure in approving
appropriations for the Congress shall strictly follow the procedure for approving
appropriations for other departments and agencies.

5. Section 25 (4), Article VI of the 1987 Constitution – A special appropriations bill shall
specify the purpose for which it is intended, and shall be supported by funds actually
available as certified by the National Treasurer, or to be raised by a corresponding
revenue proposed therein.

6. Section 25 (5), Article VI of the 1987 Constitution – No law shall be passed authorizing
any transfer of appropriations; however, the President, the President of the Senate, the
Speaker of the House of Representatives, the Chief Justice of the Supreme Court, and
the heads of Constitutional Commissions may, by law, be authorized to augment any
item in the general appropriations law for their respective offices from savings in other
items of their respective appropriations.

7. Section 25 (6), Article VI of the 1987 Constitution – Discretionary funds appropriated

for particular officials shall be disbursed only for public purposes to be supported by
appropriate vouchers and subject to such guidelines as may be prescribed by law.

8. Section 25 (7), Article VI of the 1987 Constitution – If, by the end of any fiscal year,
the Congress shall have failed to pass the general appropriations bill for the ensuing
fiscal year, the general appropriations law for the preceding fiscal year shall be deemed
re-enacted and shall remain in force and effect until the general appropriations bill is
passed by the Congress.

9. Section 27 (2), Article VI of the 1987 Constitution – The President shall have the power
to veto any particular item or items in an appropriation, revenue, or tariff bill, but the
veto shall not affect the item or items to which he does not object.

10. Section 29(1), Article VI of the 1987 Constitution – No money shall be paid out of the
Treasury except in pursuance of an appropriation made by law.

11. Section 29(2), Article VI of the 1987 Constitution – No public money or property shall
be appropriated, applied, paid, or employed, directly or indirectly, for the use, benefit,
or support of any sect, church, denomination, sectarian institution, or system of
religion, or of any priest, preacher, minister, or other religious teacher, or dignitary as
such, except when such priest, preacher, minister, or dignitary is assigned to the armed
forces, or to any penal institution, or government orphanage or leprosarium.

12. Section 5(5), Article XIV of the 1987 Constitution – The State shall assign the highest
budgetary priority to education and ensure that teaching will attract and retain its
rightful share of the best available talents through adequate remuneration and other
means of job satisfaction and fulfillment.

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Accounting and Auditing

1. Section 2, Article IX (D) of the 1987 Constitution – This is the prime basis of
accounting and auditing of public finance.

The COA shall have the power, authority, and duty to examine, audit, and settle all
accounts pertaining to the revenue and receipts of, and expenditures or uses of funds
and property, owned or held in trust by, or pertaining to, the Government, or any of
its subdivisions, agencies, or instrumentalities, including government-owned or
controlled corporations with original charters, and on a post-audit basis: (a)
constitutional bodies, commissions and offices that have been granted fiscal autonomy
under this Constitution; (b) autonomous state colleges and universities; (c) other
government-owned or controlled corporations and their subsidiaries; and (d) such non-
governmental entities receiving subsidy or equity, directly or indirectly, from or
through the Government, which are required by law or the granting institution to
submit to such audit as a condition of subsidy or equity. However, where the internal
control system of the audited agencies is inadequate, the Commission may adopt such
measures, including temporary or special pre-audit, as are necessary and appropriate
to correct the deficiencies. It shall keep the general accounts of the Government and,
for such period as may be provided by law, preserve the vouchers and other supporting
papers pertaining thereto.

The Commission shall have exclusive authority, subject to the limitations in this
Article, to define the scope of its audit and examination, establish the techniques and
methods required therefor, and promulgate accounting and auditing rules and
regulations, including those for the prevention and disallowance of irregular,
unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of
government funds and properties.

2. Section 3, Article IX (D) of the 1987 Constitution – No law shall be passed exempting
any entity of the Government or its subsidiary in any guise whatever, or any
investment of public funds, from the jurisdiction of the COA.

3. The Govt. Auditing Code of the Philippines (PD 1445)

Procurement

1. RA 9184 and its IRR

2. GPPB Circulars, Resolutions, Manuals and other issuances

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