TAXATION 1 availability is an imperious need”, [Bull v.

United
TAX PRINCIPLES AND REMEDIES States, 295 U.S. 247, 15 APTR 1069, 1073].
The collection of taxes must be made without
any hindrance if the state is to maintain its
TAXATION
orderly existence.

 Taxation is the inherent power of the sovereign, NECESSITY THEORY

exercised through the legislature, to impose
 It is necessary to preserve the state’s
burdens upon subjects and objects within its
sovereignty.
jurisdiction for the purpose of raising revenues to
 It is a necessary burden to preserve the State’s
carry out the legitimate objects of government.
sovereignty and a means to give the citizenry an
 It is also defined as the act of levying a tax, i.e.
army to resist aggression, a navy to defend its
the process or means by which the sovereign,
shores from invasion, a corps of civil servants to
through its law-making body, raises income to
serve, public improvements for the enjoyment of
defray the necessary expenses of government.
the citizenry, and those which come within the
It is a method of apportioning the cost of
State’s territory and facilities and protection
government among those who, in some
which a government is supposed to provide.
measure, are privileged to enjoy its benefits and
must therefore bear its burdens. BENEFIT PROTECTION THEORY or BENEFITS
 It is a mode of raising revenue for public RECEIVED PRINCIPLE
purposes, [Cooley]
 The basis of taxation is found in the reciprocal
TAXES duties of protection and support between the
State and its inhabitants. In return for his
 Taxes are the enforced proportional contribution, the taxpayer received benefits and
contributions from persons and property levied protection from the government.
by the law-making body of the State by virtue of BENEFITS-PROTECTION / RECIPROCITY
its sovereignty for the support of the government THEORY
and all public needs, [Cooley]  Taxation is described as a symbiotic relationship
 They are not arbitrary exactions but contributions whereby in exchange of the benefits and
levied by authority of law, and by some rule of protection that the citizens get from the
proportion which is intended to ensure uniformity Government, taxes are paid. (CIR v. Algue, Inc.)
of contribution and a just apportionment of the
burdens of government. DOCTRINE OF SYMBIOTIC RELATIONSHIP

ESSENTIAL ELEMENTS/CHARACTERISTICS OF  This doctrine is enunciated in CIR v. Algue, Inc.

A TAX [158 SCRA 9], which states that “Taxes are what
we pay for civilized society. Without taxes, the
1. It is an enforced contribution. government would be paralyzed for lack of the
2. It is generally payable in money. motive power to activate and operate it. Hence,
3. It is proportionate in character. despite the natural reluctance to surrender part
4. It is levied on persons, property, or the exercise of one’s hard-earned income to the taxing
of a right or privilege (Excise tax). authorities, every person who is able must
5. It is levied by the State which has jurisdiction contribute his share in the b urden of running the
over the subject or object of taxation. government. The government for its part, is
6. It is levied by the law-making body of the State. expected to respond in the form of tangible and
7. It is levied for public purpose or purposes. intangible benefits intended to improve the lives
of the people and enhance their material and
moral values.”
LIFEBLOOD DOCTRINE
DOCTRINE IF PIERCING THE VEIL
 The power of taxation proceeds upon the theory
that the existence of government is a necessity;  refers to a situation in which courts put aside
that it cannot continue without means to pay its limited liability and hold a corporation's
expenses; and that for these means, it has a right shareholders or directors personally liable for the
to compel all its citizens property within its limits corporation's actions or debts.
to contribute.  Stockholders may be held liable on the part of
 Taxes are the lifeblood of the government and the unpaid taxes of a dissolved corporation if it
their prompt and certain availability I an appears that the corporate assets have passed
imperious need. into their hands.
 The power of taxation is essential because the
government can neither exist nor endure without
taxation. “Taxes are the lifeblood of the
government and their prompt and certain
NATURE OF TAX LIABILITY Taxation proper

- It includes only levy or assessment. It does not

 A tax creates civil liability on the part of the
include collection.
delinquent taxpayer although the non-payment
thereof creates a criminal liability which could be
the subject of criminal prosecution under the
existing laws. EXTENT OF THE LEGISLATIVE POWER TO TAX

Taxation power is essentially legislative. Only

NATURE OF THE POWER OF TAXATION congress can impose tax laws. However, through
1. IT IS INHERENT IN SOVEREIGNTY the enactment of the LGC, LGU can exercise the
 the power of taxation is an incidental of power of taxation within the control of the legislative.
sovereignty as it is inherent in the state, (Delegation of power: raising revenues)
belonging as a matter of right to every 1. SUBJECTS OR OBJECTS TO BE TAXED
independent government. - Coverage and the kind or nature of the tax is
 Mere existence of a state, it carries with it already discretionary to congress.
the power to tax 2. PURPOSE OR OBJECT OF TAX SO LONG AS
 It does not require a law to impose tax. It only IT’S A PUBLIC PURPOSE
limits the taxing power of the state under the - The court can look into whether or not the
constitution. purpose it for public.
(note: constitutional provisions relating to the power - Court cannot go into the wisdom whether or not
of taxation do not operate as grant of the power of it be a public purpose.
the government. They merely constitutes 3. THE AMOUNT OF TAX RATE
limitations.) - As a general rule, the legislature may levy a tax
of any amount or rate it sees fit.
2. IT IS LEGISLATIVE IN CHARACTER
PURPOSE OF TAXATION
- the power to tax is peculiar and exclusively
legislative and cannot be exercised by the executive 1. (Primary) REVENUE OF FISCAL: The primary
or judicial branch of government. purpose of taxation on the part of the
3. IT IS SUBJECT TO CONSTITUTIONAL AND government is to provide funds or property with
INHERENT LIMITATIONS which to promote the general welfare and the
protection of its citizens and to enable it to
- the power to tax In NOT ABSOLUTE. finance its multifarious activities.

2. (Secondary) NON-REVENUE OR
ASPECTS OF TAXATION REGULATORY: Taxation may also be
employed for purposes of regulation or control.
1. LEVY/IMPOSITION (Legislative/Political Act)
e.g.:
- Refers to the enactment of tax laws or statutes (act
of imposing taxes) a. Imposition of tariffs on imported goods to
protect local industries.
Levy or Assessment – passing of law in congress b. The adoption of progressively higher tax
subjecting a particular person, a particular property, rates to reduce inequalities in wealth and
a particular transaction. (A political act. The court income.
cannot question the reason why the law has passed. c. The increase or decrease of taxes to prevent
Only congress can do so) inflation or ward off depression.
2. DISCRETION AS TO THE SUBJECT OF
TAXATION Taxation is often employed as a devise for
- it is inherent in the power to tax that a state be free regulation by means of which certain effects or
to select the subject of taxation. conditions envisioned by government may be
achieved.
Discretion: (1) as to amount or rate of tax; and

(2) as to the manner, means and

agencies of collection of taxes. BASIC PRINCIPES OF A SOUND TAX SYSTEM

Characteristics

What comprises taxation system? FISCAL ADEQUACY

- Comprises BOTH assessment and Collection - Sources of revenues must be adequate to meet
government expenditures and other public
What constitute taxation system? needs.
- BOTH Levy/Assessment and Collection
EQUALITY OR THEORETICAL JUSTICE PURBLIC PURPOSE

- It means that the tax burden should be - The power to tax exists for the general welfare,
distributed in proportion to the taxpayer’s ability hence, implicit in its power is the limitations that
to pay. it should be used only for a public purpose.
- Our laws mandate that taxes must be
INTERNATIONAL COMITY
reasonable, just, fair and conscionable.
- Uniformity and equitable taxation. - Agreement between 2 states
- Principle of reciprocity (laws of other countries
ADMINISTRATIVE FEASIBILITY
must be respected)
- It means that tax laws should be capable of
convenient, just and effective administration or
enforcement at a reasonable cost. TERRITORIALITY
---- - Taxation power can only operate within our
territory.
POLICE POWER
- Tax Situs (place where the tax collected)
- Has been referred to as the power of the state
to enact such laws in relation to the person and
property as may promote public health, public RULES OBSERVED IN FIXING THE TAX SITUS
morals, public safety, and the general
prosperity and welfare of its inhabitants. POLL/CAPITATION/COMMUNITYTAX (1)

POWER OF EMINENT DOMAIN - Are based upon the residence of the taxpayers,
regardless of the source of the income or
- Is the power of the state or those to whom the location of the property of the taxpayers.
power has been delegated to take private
property for a public use upon payment of just PROPERTY TAX (2)
compensation. - is subject to taxation in the state/country where
Q: may the power to tax may be used to it is located regardless of whether the owner is
implement the power of eminent domain? a resident or a non-resident.

A: Yes. Payment of just compensation in the (Lex Rei Sitae – The law of the place where the
payment of Tax Credit (CIR vs Central Luzon) property is situated)

(Personal Property – wherever it was actually kept

or located, was held to be at the domicile of its
---- owner) (Mobilla Sequuntur Personam)
Legal Compensation (requisites) (Shares of Stock (personal property) – its situs for
the purpose of taxation is the state in which they are
a. Both parties must be mutually creditors and
permanently kept regardless of the domicile of the
debtors in their own rights as principal
owner or the state in which the corporation was
b. Both debts must consist in sum of money or
organized)
if consumable, of the same kind or quality
c. Both debts are due and demandable EXCISE TAX (3)
d. Both debts are liquidated and demandable.
- are taxes imposed on the exercise of a right or
---- privilege.
LIMITATIONS ON THE TAXING POWER
(a) INCOME TAX
1. Inherent limitations
Place (Applied to)
2. Constitutional limitations
 Non-resident alien
 Non-resident Foreign Corporation
INHERENT LIMITATIONS  Non-resident citizen

a. Public purpose RULE: [taxed upon sources of income derived from

b. International comity WITHIN THE PHILIPPINES]
c. Territoriality
Nationality (Applied to)
d. Non-delegation of the power to tax
e. Various tax exemptions granted government  Resident citizen
agencies or instrumentalities.  Domestic corporation

RULE: [Taxed upon sources of income derived

from WITHIN THE PHILIPPINES]

Residence (Applied to)

 Resident alien NON-DELEGATION OF THE POWER TO TAX (4)
 Resident foreign corporation
GR: the power to tax is exclusively vested in the
RULE: [taxed upon income derived from sources Legislative Body
WITHIN THE PHILIPPINES]
XPNS: Article VI, Section 28(2) and Article X,
(b) DONORS TAX (tax on donation) Section 5.

Place EXEMPITON FROM TAXATION OF

GOVERNMENTAGENCIES/INSTRUMENTALITIE
 Non-resident alien [taxed based upon
S (5)
properties situated WITHIN THE PHILIPPINES]
- Properties of the national government as well
Nationality
as those of the local government units are not
 Resident and Non-resident citizen [taxed based subject to tax, otherwise it will result in the
upon properties WHEREVER SITUATED] absurd situation of the government "taking
money from one pocket and putting it in
Residence another."
 Resident alien [taxed based upon properties
WHEREVER SITUATED] Q: May the Government Tax Itself? (YES)

A: “nothing can prevent Congress from decreeing

(c) ESTATE TAX that even instrumentalities or agencies of the
government performing governmental function may
Place be subject to tax.”
 Non-resident aliens [are taxed on properties
situated WITHIN THE PHILIPPINES] Agencies performing governmental functions –
are tax-exempt UNLESS expressly taxed.
Nationality
Agencies performing proprietary functions – are
 Resident and non-resident citizen [are taxed
subject to tax UNLESS expressly exempted.
upon their properties WHEREVER SITUATED]
(Note: GOCC performing proprietary functions are
Residence
subject to tax. Except: GSIS, SSS, PHIC and PCSO)
 Resident Alien [are taxed upon properties
WHEREVER SITUATED]
BOARD OF ASSESSMENT APPEALS OF
LAGUNA VS CTA
(D) VALUE ADDED TAX (VAT)
 In the absence of constitutional provision, the
- it’s tax situs is the place where the transaction is power to tax may be delegated to LGU in
made accordance with the well-settled doctrine that
the power to create LGU by implication
(note: if the transaction ismade (perfected and
confers upon it the power to tax. So, even if
consummated) outside the Philippines, we can no
no constitutional provision exists, LGU still
longer tax such transaction)
possess the power to tax.
---

DESTINATION PRINCIPLE
PEPSI-COLA BOTTLING CO. OF THE
- Goods and services are taxed only in the PHILIPPINES VS CITY OF BUTUAN
country where these are consumed.
 The general principle against delegation of
CROSS-BORDED DOCTRINE legislative powers, in consequence of the
theory of separation of power is subject to one
- Mandate that no VAT shall be imposed to form
well-established exception, namely:
part of the cost of the goods destined for
legislative powers may be delegated to local
consumption outside the territorial border of the
governments.
taxing authority.

(NOTE: actual export of goods and services from the PEPSI-COLA BOTTLING CO. OF THE
Philippines to a foreign country must be FREE OF PHILIPPINES VS MUNICIPALITY OF TANAUAN,
VAT while those destined for use or consumption LEYTE
WITHIN the Philippines shall be imposed with 12%
tax Under RA 9337. The power of taxation granted to
municipalities under the Local Autonomy Act is
constitutional.
 The power of taxation is an essential and
inherent attribute of sovereignty, belonging as a MANILA INTERNATIONAL AIRPORT
matter of right to every independent government, AUTHORITY (MIAA) VS CA
without being expressly conferred by the people.  SC held that the real properties of MIAA are
owned by the Republic of the Philippines and
It is a power that is purely legislative and thus exempt from real estate tax.
which the central legislative body cannot delegate
either to the executive or judicial power of the PHILIPPINE FISHERIES DEVELOPMENT
government without infringing upon the theory of AUTHORITY VS THE MUNICIPALITY OF
separation of powers. The exception, however, lies NAVOTAS
in the case of municipal corporations, to which said  wherein the Supreme Court ruled that PFDA,
theory does not apply. Legislative powers may be being an instrumentality of the national
delegated to local governments in respect of matters government, is exempt from real property tax
of local concern. The exception, however, lies in the but the exemption does not extend to the
case of municipal corporations, to which said theory portions of the Navotas Fishing Port Complex
does not apply. Legislative powers may be (NFPC) that were leased to taxable or private
delegated to local governments in respect of matters persons and entities for their beneficial use.
of local concern.
Instrumentalities – refers to any agency of the
In delegating the authority, the State is not national Government, not integrated within the
limited to the exact measure of that which is department framework, vested with special functions
exercised by itself. When it is said that the taxing or jurisdiction by law, endowed with some if not all
power may be delegated to municipalities and the corporate powers, administering special funds, and
like, it is meant that there may be delegated such enjoying operational autonomy, usually through a
measure of power to impose and collect taxes as the charter.
legislature may deem expedient
GOCC – refers to any agency organized as a stock
Requisites for Valid Delegation of Power or non-stock corporation, vested with functions
(1) Complete in itself, that is, it must set forth relating to public needs whether governmental or
the policy to be executed by the delegate; proprietary in nature, and owned by the Government
and directly or through its instrumentalities either wholly,
(2) It must fix a standard – limits of which are or, where applicable as in the case of stock
sufficiently determinate or determinable to corporations, to the extent of at least fifty-one
which the delegate must conform. percent of its capital stock

MAYOR ANTONIO J. VILLEGAS VS HIU CHIONG

TSAI PAO HO AND JUDGE ARCA NOTE:

Facts: …Ordinance prohibited aliens from being Philippine Reclamation Authority is EXEMPT
employed or to engage or participate in any position, from Real Property Tax
occupation or business enumerated therein,  PRA is a Government Instrumentality vested
whether permanent, temporary or casual, without with corporate powers and performing an
first securing an employment permit from the Mayor essential public service pursuant to section
of Manila and paying the permit fee. Respondent- 2(1) of Admin Code. Being an incorporated
judge declared the ordinance null and void. government instrumentality, it is exempt from
payment of real property tax.
Ruling: Ordinance No. 6537 is VOID because it
does not contain or suggest any standard or criterion
to guide the mayor in the exercise of the power which Mactan Cebu International Airport Authority
has been granted to him in the ordinance. Ordinance (MCIAA) is EXEMPT from RPT
No. 6537 does not lay down any criterion or standard  MIAA’s airport lands and buildings are exempt
to guide the Mayor in the exercise of his discretion. from RPT imposed by the LG; that is not
GOCC but an instrumentality of the national
HON. RAMON BAGATSING, ET AL. VS HON. government, with its real properties being
PEDRO RAMIREZ, ET AL onwed by the RP, and these are exempt from
 The entrusting of the collection of the fees RPT.
does not destroy the public purpose of the
ordinance. So long as the purpose if public, it
does matter whether the agency through Philippine Economic Zone Authority (PEZA)
which the money is dispensed is public or cannot be taxed by LGU
private. The right to tax depends upon the  PEZA is an instrumentality of the national
ultimate use, purpose and object for which the government. It is not integrated within the
fund is raised.
 department framework but is an agency (12) exemption from property tax of properties of
attached to the DTI. religious, educational, charitable institutions;
(13) tax exemption granted to non-stock, non-
DOCTRINE OF SUPREMACY of the National profit educational institutions;
Government over Local Government (14) no public money or property used for a
 The power of local government to "impose particular sect, priest, religious minister, etc.;
taxes and fees" is always subject to (15) grant of tax exemptions;
"limitations" which Congress may provide by (16) grant of power of taxation to local
law. government units;
(17) money collected for a special purpose shall
NATIONAL DEVELOPMENT COMPANY VS CEBU be considered a special fund;
CITY AND AUGUSTO PACIS (18) exclusive appellate jurisdiction of the
 The public land reserved by the President for Supreme Court over judgments of lower courts
warehousing purposes in favor of a involving the legality of taxes, imports,
government owned or -controlled corporation, assessment, fees, penalty.
as well as the warehouse subsequently
erected thereon is EXEMPT from real
property tax (AS REGARD TO LAND) DUE PROCESS OF LAW
 The exemption of public property from  "No person shall be deprived of life, liberty or
taxation does not extend to improvements on property without due process of law.”
the public land made by pre-emptioners,  The implication is that one may be deprived of
homesteaders and other claimants, or property as long as the requirement of due
occupants, at their own expense, and these process — notice and hearing — have been
are taxable by the state (AS REGARD TO complied with.
WAREHOUSE)
RE: MAYOR ANTONIO VILLEGAS V. HIU
CHIONG TSAI PAO
ESSO STANDARD EASTERN, INC. VS ACTING
COMMISSIONER OF CUSTOMS - Requiring a person before he can be employed
 In this factual environment, it is quite evident to get a permit from the City Mayor of Manila
that the pump parts are not used in who may withhold or refuse it at will is
petitioner's industry of processing gasoline, or tantamount to denying him the basic right to
manufacturing lubricating oil, grease and tin engage in a means of livelihood. While it is true
containers, hence taxable. Since the law that the Philippines as a state is not obliged to
(R.A. 1394) states that, to be tax exempt, admit aliens within its territory, once an alien is
equipment and spare parts should be "for the admitted, he cannot be deprived of life without
use of industries," the coverage herein should due of law. This guarantee includes the means
not be enlarged to include equipment and of livelihood. The shelter of protection under the
spare parts for use in dispensing gasoline at due process and equal protection clause is
retail. In comparable factual backdrop, this given to all persons, both aliens and citizens.
Court has held that tax exemption in
connection with the manufacture of asbestos - However, The due process clause may be
roof does not extend to the installation invoked where a taxing statute is so arbitrary
thereof. that it finds no support in the Constitution, as
where it can be shown to amount to a
confiscation of property .(Reyes v. Almanzor,
---- 196 SCRA 322) However, to justify the
CONSTITUTIONAL LIMITATIONS ON THE nullification of a tax law, mere allegation is not
POWER TO TAX enough. There must be a clear and
unequivocal breach of the Constitution; there
(1) due process of law; must be proof of arbitrariness. The law must be
(2) equal protection of laws; unreasonable and unjust, not merely
(3) uniformity; hypothetical, argumentative or of doubtful
(4) progressive system of taxation; implication.
(5) non-impairment of contracts;
(6) non-imprisonment for non-payment of poll tax;
(7) appropriation, revenue and tariff bills must The following situations are illustrative of
originate exclusively in the House of violations of the due process clause:
Representatives;
(8) presidential veto; a. If the tax amounts to a confiscation of property;
(9) presidential power to fix tariff rates; b. If the subject of confiscation is outside the
(10) freedom of the press; jurisdiction of the taxing authority;
(11) freedom of religion; c. If the law is imposed for a purpose than a public
purpose;
d. If the law which is applied retroactively imposes  The taxing power has the authority to make
unjust and oppressive taxes; reasonable and natural classification for
e. Where the law is in violation of inherent purposes of taxation but the government's act
limitations. must not be prompted by a spirit of hostility, or at
the very least discrimination that finds no support
in reason.
Taxation is an inherent attribute of sovereignty.
It is a power that is purely legislative. Essentially, this
means that in the legislature primaryil lies the EQUAL PROTECTION OF THE LAW
discretion to determine the nature (kind), object  ‘…nor shall any person be denied the equal
(purpose), extent (rate), coverage (subjects) and protection of the law’
situs (place) of taxation. It has the authority to
prescribe a certain tax at a specific rate for a EQUALITY VS UNIFORMITY
particular public purpose on persons or things within
its jurisdiction. It other words, the legislature wields Equality – taxation is said to be equitable when its
the power to define what tax shall be imposed, why burden falls on those better able to pay.
it should be imposed, how much tax shall be
imposed, against whom (or what) it shall be imposed Uniformity – has been defined as that principle by
and where it shall be imposed. which all taxable articles or kinds of property of the
same class shall be taxed at the same rate. (same
In SISON JR. V. ANCHETA, ET AL, the class – same rate)
Supreme Court held that the due process clause
may properly be invoked to invalidate, in appropriate
cases, a revenue measure when it amounts to a EQUALITY IN TAXATION - is accomplished when
confiscation of property. the burden of the tax falls equally and impartially
upon all persons and property subject to it, so that
no higher rate or greater levy in proportion to value
For income to be taxable, the following is imposed upon one person or species or property
requisites must exist: than upon others similarly situated or of like
character.
(1) there must be gain;
(2) the gain must be realized or received; and UNIFORMITY IN TAXATION – requires that all
(3) the gain must not be excluded by law or treaty taxable property subjected to the tax, shall be alike
from taxation. and this requirement is violated if particular kinds,
species, or items of property are selected to bear the
whole burden of the tax, while others, which should
CARLOS SUPERDRUG CORP. V. DEPARTMEN T be equally subject to it, are left untaxed.
OF SOCIAL WEL FARE AND DEVELOPMENT
(DSWD)
EQUAL PROTECTION CLAUSE OF THE LAW, as
RE: Senior Citizen’s discounted price for medicine applied to Taxation:
alleged to be unconstitutional as it deprives private
property. "Equal protection" does not require equal
rates of taxation on different classes of property, nor
The law is a legitimate exercise of police prohibit unequal taxation so long as the inequality is
power which, similar to the power of eminent not based upon arbitrary classification.
domain, has general welfare for its object.
It merely requires that all persons subjected
It is incorrect for petitioners to insist that the to such legislation shall be treated alike, under like
grant of the senior citizen discount is unduly circumstances and conditions, both in the privileges
oppressive to their business, because petitioners conferred and in the liabilities imposed.
have not taken time to calculate correctly and come
up with a financial report, so that they have not been
able to show properly whether or not the not the tax UNIVERSAL APPLICATION IS NOT REQUIRED
deduction scheme really works greatly to their
disadvantage.  The equal protection clause does not require the
universal application of the laws on all persons
JOSE REYES VS PEDRO ALMANZOR or things without distinction.
 The due process clause may be invoked where
a taxing statute is so arbitrary that it finds no Requisites for VALID CLASSIFICATION
support in the Constitution, as where it can be
shown to amount to a confiscation of property. 1. it must be based on substantial distinction;
 2. it must apply both to present and future the same force and effect in every place where the
conditions; subject may be found.
3. it must be germane to the purposes of the law;
4. it must apply equally to all members of the
same class. ANTERO SISON v. ANCHETA

 The State has the inherent power to select the

FERRER, JR VS BAUTISTA subjects of taxation, and inequalities which result
 no substantial distinction between an occupant from the singling out of one particular class for
of a lot, on one hand, and an occupant of a unit taxation or tax exemption infringe no
in a condominium, socialized housing project or constitutional limitation.
apartment on the other hand.
Consequently, the Supreme Court ruled that the
EASTERN THEATRICAL CO. V. VICTOR schedular income tax which imposes graduated
ALFONSO taxes of 0% to 35% without deductions on
compensation income of individuals and a rate
 Equality and uniformity means that all taxable scheme of 5% to 60% on business and other income
articles or kinds of property of the same class with deductions does not violate the rule on equal
shall be taxed at the same rate. The taxing power protection since there is no infirmity if classifications
has the authority to make reasonable and natural are based on substantial distinctions.
classifications for purposes of taxation.
ASSOCIATION OF CUSTOM BROKERS, INC. v.
MANILA RACE HORSE TRAINERS MUN. BOARD, CITY OF MANILA, et al. (Invalid
ASSOCIATION, INC. VS DE LA FUENTE (Valid Classification)
Classification)
 Race horses are devoted to gambling if RE: Plaintiffs Association of Customs Brokers, Inc.
legalized, their owners derive fat income and the challenge the validity of Ord. No. 3379 which confers
public hardly any profit from horse racing, and upon the municipal board the power to tax motor and
this business demands relatively heavy police other vehicles operating within the City of Manila on
supervision. the ground that said ordinance offends against the
rule of uniformity of taxation.

SILVESTRE PUNSALAN V. THE MUN. BOARD OF RULING: The ordinance infringes upon the rule of
THE CITY OF MANILA uniformity. It does not distinguish between a motor
vehicle for hire and one which is purely for private
RE: Plaintiffs sought the annulment of Ordinance use. Neither does it distinguish between a motor
No. 3398 of the City of Manila which imposes a vehicle registered in the City of Manila and one
municipal occupation tax on persons exercising registered in another place but occasionally comes
various professions. to Manila and uses its streets and public highways.

It is not for the court to decide what cities or

municipalities should be so authorized for such is a ORMOC SUGAR COMPANY, INC. v. THE
matter of judicial determination. TREASURER OF ORMOC CITY, et al. (invalid:
Singling out)
RULING: There was a substantial distinction
between them and other professionals as RE: Ormoc Sugar Company alleged that ordinance
practitioners in Manila could expect a more lucrative imposing “on any and all productions of centrifugal
income than those in other parts of the country. sugar milled at the Ormoc Sugar Co. Inc in Ormoc
City a municipal tax equivalent to (1%) per export
sale to the USA and other foreign countries’’ is
CITY OF BAGUIO v. FORTUNATO DE LEON unconstitutional for being violative of the equal
protection clause and the rule o uniformity of
RE: Defendant-appellant De Leon, a real estate taxation.
dealer, assailed the validity of an ordinance of the
City of Baguio imposing a license fee on any person, RULING: The requisites of valid classification does
firm, entity, or corporation doing business in the City not meet in this case for it Taxes only centrifugal
of Baguio. sugar produced and exported by the Ormoc Sugar
Co., Inc. and none other. At the time of the taxing
RULING: The ordinance is valid. Equality and Ordinance's enactment, Ormoc Sugar Company, it
uniformity in taxation means that all taxable articles is true, was the only sugar central in the City of Still,
or kind of property of the same class be taxed at the the classification, to be reasonable, should be in
same rate. A tax is considered uniform when it terms applicable to future conditions as well.
operates with
MISAM IS ORIENTAL ASSOCIAT ION OF COCO XPNS:
TRADERS, INC. v. DEPARTMENT OF FINANCE
SECRETARY, et al. CAGAYAN ELECTRIC POWER AND LIGHT
CO., INC. v. CIR
RULING: There is a material or substantial
difference between coconut farmers and copra  The non-impairment clause does not apply to
producers on the one hand, and copra traders and public utility franchises. Art. Sec. 11 of the 1987
dealers, on the other. The former produce and sell Constitution mandates that no public utility
copra, the latter merely sell copra. The Constitution franchise or right shall be granted "except under
does not forbid the differential treatment of persons the condition that it shall be subject to
so long as there is a reasonable basis for classifying amendment, alteration, or repeal by the
them differently. Congress when the common good so requires."

UNIFORMITY OF TAXATION PHIL. POWER AND DEVEL OPM ENT CO. v. CIR
 The rule of taxation shall be uniform and
equitable. (Art. VI, Sec. 28 [1] of the Constitution)  The Court of Tax Appeals held that the rule on
 A tax is uniform when it operates with the same non-impairment is not disregarded with the
form and effect in every place where the subject imposition of a higher tax rate on an existing
of it is found. franchise it appearing that said franchise was
granted with the express understanding and
upon the condition that it shall be subject to
PROGRESSIVE TAXATION amendment, alteration and repeal.
 Congress shall evolve a progressive system of
taxation. (Art. VI, Sec. 28(1)) NON-IMPAIRMENT FOR NON-PAYMENT OF
POLL TAX
Q: Is a tax law adopting a regressive (indirect tax)  No person shall be imprisoned for non-payment
system of taxation valid? (Ex. VAT, excise tax on of a debt or poll tax .(Art. 3, Section 20,
cigarette) Constitution)

A: The constitution does not really prohibit the

imposition of regressive taxes What it simply BILLS TO ORIGIN ATE FROM THE HOUSE OF
provides that Congress shall evolve progressive REPRESENTATIVES
system of taxation. The constitutional provision
should be construed to mean simply that "direct  All appropriation, revenue or tariff bills, bills
taxes are to be preferred and indirect taxes, as much authorizing the increase of the public debt, bills
as possible, should be minimized." of local application and private bills, shall
originate in the House of Representatives, but
the Senate may propose or concur with
NON-IMPAIRMENT CLAUSE amendments. (Art. 3, Section 24, Constitution)

 No law shall be passed impairing the obligations Both Houses of Congress may initiate bills, but
of contracts. (Art. 3, Section 10, Constitution) only the Lower House may propose tax measures.
Q: Is a tax exemption revocable?

A: It depends. If the grant of an exemption does not TOLENTINO VS SEC OF FINANCE

constitute a contract, but is merely "a spontaneous
concession by the legislature, not connected with Indeed, what the Constitution simply means
any service or duty imposed" it is REVOCABLE by is that the initiative for filing revenue, tariff, or tax
the power which made the grant. A state may, at its bills, bills authorizing an increase of the public debt,
pleasure, withdraw an exemption which is a mere private bills and bills of local application must come
gratuity possessing no element of a contract, even from the House of Representatives on the theory
though the corporation may have incurred expense that, elected as they are from the districts, the
on the faith thereof. members of the House can be expected to be more
sensitive to the local needs and problems. On the
other hand, the senators, who are elected at large,
WITHDRAWAL OF TAX EXEMPTIONS UNDER are expected to approach the same problems from
THE LGC: EXCEPTIONS the national perspective. Both views are thereby
made to bear on the enactment of such laws.
GR: Section 193, LGC: The tax exemptions or
incentives granted to or presently enjoyed by natural Nor does the Constitution prohibit the filing in
or juridical persons are withdrawn upon the the Senate of a substitute bill in anticipation of its
effectivity of LGC. receipt of the bill from the House, so long as action
by the Senate as a body is withheld pending receipt educational purposes shall be exempt from taxation.
of the House Bill. (Article VI, Section 28[3], Constitution)

The test of exemption from taxation is the

VETO POW ER OF THE PRESIDENT use of the property for the purpose mentioned in the
 The President shall have the power to veto any constitution.
particular item or items in an appropriation,
revenue or tariff bill but the veto shall not affect EXCLUSIVE BUT NOT ABSOLUTE USE
the item or items to which he does not
object.(Article VI, Section 27(2) Constitution) The term "exclusively used" does not
necessarily mean total or absolute use for religious,
charitable and educational purposes. Even if the
PRESIDENT’S POWER TO TAX property is incidentally used for said purposes, the
 The Congress may, by law, authorize the tax exemption will apply.
President to fix within specified limits and subject
to such limitations and restrictions as it may Corollary, if a property, although actually
impose, tariff rates, import and export quotas, owned by a religious, charitable and educational
tonnage and wharfage dues and other duties or institution is used for a non-exempt purpose, the
imposts within the framework of the national exemption from tax shall not attach.
development program of the Government.
(Article VIII, Section 28(2) Constitution)
CONTROLLING DOCTRINE ON EXEMPTION
However, it bears stressing that the statutory FROM TAXATION OF REAL PROPERTY OF
Power of the President to fix tariff rates, import or RELIGIOUS, CHARITABLE AND EDUCATIONAL
export quotas, and tonnage or wharfage dues must INSTITUTION
be subject to limitations and restrictions indicated
within the law itself. Thus, the records of the Constitutional
Commission reveal that what is exempted is not the
TAXATION AND THE FREEDOM OF THE PRESS institution itself; those exempted from real estate
 No law shall be passed abridging the freedom of taxes are lands, buildings and improvements
speech, of expression, or of the press (Article III, actually, directly and exclusively used for religious,
Section 4, Constitution) charitable or educational purposes.

TAXATION AND FREEDOM OF RELIGION

 No law shall be made respecting an ST. LOUIS YOUNG MEN'S CHRISTIAN
establishment of religion or prohibiting the free ASSOCIATION V. GEHNER
exercise thereof. The free exercise and
enjoyment of religious profession and worship What is meant by actual, direct and exclusive
without discrimination or preference shall forever use of the property for charitable institutions is the
be allowed. No religious test shall be required for direct and immediate and actual application of the
the exercise of civil or political right (article III, property itself to the purposes for which the
Section 5, Constitution) charitable institution is organized. It is not the use of
the income from the real property that is
determinative of whether the property is used for tax-
AMERICAN BIBLE SOCIETY VS CITY OF exempt purposes.
MANILA: However, the income of such
organizations from any activity conducted for profit In sum, the Court ruled that the portions of
or from any of their property, real or personal, the land leased to private entities as well as those
regardless of the disposition made of such income, parts of the hospital leased to private individuals are
is taxable. not exempt from taxes.

REV. FR. CASIMIRO LLADOC v. The CIR and The

TAX EXEMPTION OF PROPERTIES ACTUALLY CTA
DIRECTLY AND EXCLUSIVELY USED FOR
RELIGIOUS, CHARITABLE AND EDUCATIONAL RULING: ….what the Collector assessed was a
PURPOSES donee's gift tax; the assessment was not on the
properties themselves.
Charitable institutions, churches, and
parsonages or convents appurtenant thereto, A gift tax is not a property tax, but an excise
mosques, non-profit cemeteries, and all lands, tax imposed on the transfer of the property by way
buildings and improvements actually, directly, and of gift inter vivos, the imposition of which on property
exclusively used for religious, charitable, or used exclusively for religious purposes does not
constitute an impairment of the Constitution.
 Proprietary educational institutions, including
YMCA OF MANILA v. COLLECTOR OF those cooperatively owned may likewise be entitled
INTERNAL REVENUE to such exemptions, subject to the limitations
provided by law, including restrictions on dividends
RULING: The Supreme Court ruled that while it may and provisions for reinvestments.
be true that the YMCA keeps a lodging and a
boarding house and maintains a restaurant for its (4) Subject to the conditions prescribed by all
members, still, these do not constitute business in grants, endowments, donations or contributions
the ordinary acceptance of the word, but an used actually, directly and exclusively for
institution used exclusively for religious, charitable educational purposes shall be exempt from tax.
and educational purposes, and as such, it is entitled (Article XIV, Section 4 (3) and (4), Constitution)
to be exempted from taxation.

ACTUALLY, DIRECTLY AND EXCLUSIVELY

BISHOP OF NUEVA SEGOVIA v. PROVINCIAL USED
BOARD OF ILOCOS NORTE
The use of the term "actually, directly and
RULING: Thus, the exemption from payment of land exclusively used" referring to religious institutions
tax in favor of the convent includes, not only the land cannot be applied to this above article. The provision
actually occupied by the building but also the of Article VI, Section 28(3) applies to three
adjacent garden devoted to the incidental use of the institutions — religious, charitable and educational
parish priest. The lot which is not used for institutions — while Article XIV applies solely to non-
commercial purposes but serves solely as a sort of stock, non-profit educational institutions.
lodging place, also qualifies for exemption because
this constitutes incidental use in religious functions.
CIR VS DE LA SALLE UNIVERSITY, INC.
HERRERA v. QUEZON CITY BOARD OF
ASSESSMENT APPEALS, 3 SCRA 186 [1961] and SC declared the last par. of section 30 f the
COMMISSIONER OF INTERNAL REVENUE v. tax code without force and effect for being contrary
BISHOP OF THE MISSIONARY DISTRICT to the constitution insofar as it subjects to tax the
income and revenues of non-stock, non-profit
RULING: …the exemption in favor of property used educational institutions used actually, directly and
exclusively for charitable or educational purposes is exclusively for educational purpose.
not limited to property actually indispensable
therefore, but extends to facilities which are APPROPRIATION OF PUBLIC MONEY
incidental to and reasonably necessary for the
accomplishment of said purposes, such as in the No public money or property shall be
case of hospitals, a school for training nurses, a appropriated, applied, paid or employed directly or
nurses' home, property use to provide housing indirectly for the use, benefit or support of any sect,
facilities for interns, resident doctors, church, denomination, sectarian institution, or
superintendents, and other members of the hospital system of religion or of any priest, preacher,
staff, and recreational for student nurses, interns, minister, or other religious teacher or dignitary as
and residents ' (84 6621), such as Athletic fields' such EXCEPT when such priest, preacher, minister
including firm used for the inmates of the institution. or dignitary is assigned to the armed forces or to any
penal institution or government orphanage or
PROVINCE OF ABRA v. HERNANDO leprosarium .(Article VI, Section 29[l]
Constitution)
To be exempt from realty taxation, there
must be proof of the actual and direct USE of the Meaning of the STRICT CONSTRUCTION RULE
lands, buildings, and improvement for religious or
charitable It simply means that if, after the application of all
rules of interpretation for the purpose of ascertaining
TAX EXEMPTIONS GRANTED TO NON-STOCK, the intention of the legislature, a well-founded doubt
NON-P ROFIT EDUCATIONAL INSTITUTIONS exists, then the ambiguity occurs which may be
settled by the rule of strict construct.
Section 4. (3) All revenues and assets of
non-stock, non-profit educational institutions used TAX AMNESTY VS TAX EXEMPTION
actually, directly and exclusively for educational
purposes shall be exempt from taxes and duties. Tax amnesty is an immunity from all criminal and
Upon the dissolution and cessation of the corporate civil obligations arising from non-payment of taxes. It
existence of such institutions, their assets shall be is a general pardon given to all taxpayers. On the
disposed of in the manner provided by law. other hand, tax exemption is an immunity from the
civil liability only. It is an immunity or privilege, a
freedom from a charge or burden of which others are Review, revise, reverse, modify or affirm on
subjected. It is generally prospective in application. appeal or certiorari as the law or the Rules of Court
may provide, final judgments or orders of lower
MISAMIS ORIENTAL ASSOCIATION OF COCO courts in:
TRADERS , INC. v. DEPARTMENT OF FINANCE
SECRETARY, et al. (b) All cases involving the legality of any tax, impost,
assessment or toll, or any penalty imposed in
RULING: In interpreting Section 103(a) and (b) of relation thereto.
the NIRC, the Commissioner of Internal Revenue
gave it a strict construction consistent with the rule NOTE: The SC exercises exclusive appellate
that tax exemptions must be strictly construed jurisdiction over certain judgement or orders of the
against the taxpayer and liberally in favor of the lower courts involving the legality of a tax, impost,
state. assessment, fee, or penalty imposed in relation
thereto.
LOCAL TAXATION

The general principle against the delegation KINDS OF TAXES DIFFERENTIATED

of Legislative powers as a consequence of the
principle of separation of powers is subject to one Direct and Indirect
well-established exception: legislative powers may
be delegated to local government units. (Pepsi Cola A direct tax is a tax for which a taxpayer is directly
vs City of Butuan) liable on the transaction or business it engages in.
Indirect tax is a tax primarily paid by persons who
can shift the burden upon someone else.
DOCTRINE OF PREEMPTION in Local Taxation
Specific and Ad Valorem Tax
Preemption in the matter of taxation simply
means to an instance where the national A specific tax is imposed and based on weight or
government elects to tax a particular area, impliedly volume capacity or any other physical unit of
withholding from the local government the delegated measurement, whereas ad valorem tax is based on
power to tax the same field. selling price or other specified value of the goods .

FERRER, JR VS BAUTISTA General and Special

RULING: …the power to impose a tax, fee, or A general tax is imposed solely to raise revenue for
charge, or to generate revenue shall be exercised by the government, such as: income donor's tax, estate
the Sanggunian of the local government unit tax and value-added tax. On the other hand, special
concerned through an appropriate ordinance. tax is imposed and collected to achieve a particular
legitimate object of government.

SPECIAL FUND National and Local

All money collected on any tax levied for a A national tax is imposed by the national
special purpose shall be treated as a special fund government (e.g., revenue taxes under the NIRC
and paid out for such purpose only. If the purpose and custom duties), while local tax is levied and
for which a special fund was created has been collected by the local government.
fulfilled or abandoned, the balance, if any, shall be
transferred to the general fund of the government. Personal and Property
(Article VI, Section 29(3),Constitution)
A personal tax is of fixed amount imposed on
SUPREME COURT’S JURISDICTION OVER TAX individuals, whether citizens or not, residing within a
CASES specified territory, without regard to their property or
occupation(e.g., community tax), while property tax
ART. VIII, SEC. 2: is imposed on property, real or personal, in
The Congress shall have the power to define, proportion to its value
prescribe, and apportion the jurisdiction of the
various courts but may not deprive the Supreme Progressive and Regressive
Court of its jurisdiction over cases enumerated in
section 3 hereof. A progressive tax is one whereby the rate
increases as the tax base (amount) increases. On
ART. VIII, SEC. 5: the other hand, regressive tax is one where the tax
The Supreme Court shall have the following rate decreases as the tax base increases.
powers:
CONCEPT OF DOOUBLE TAXATION 1. EXEMPTION METHOD — the income or capital
which is taxable in the state of source or situs is
There is double taxation where one tax is imposed exempted in the state of residence, although in
by the State and the other is imposed by the city; it some instances it may be taken into account in
being widely recognized that there is nothing determining the rate of tax applicable to the
inherently obnoxious in the requirement that license taxpayer’s remaining income or capital.
fees or taxes be enacted with respect to the same
occupation, calling or activity by both the state and 2. CREDIT METHOD — the tax paid in the state of
the political subdivision THEREOF. source is credited against the tax levied in the
state of residence.

KINDS OF DOUBLE TAXATION CITY OF MANILA VS COCA-COLA BOTTLERS

PHILIPPINES, INC
a. DIRECT – double taxation in the objectionable
or prohibited sense. (DIRECT DUPLICATE Double taxation means taxing the same
TAXATION). property twice when it should be taxed only once;
that is “taxing the same person twice by the same
(Elements) This occurs when the same jurisdiction for the same thing.
property is taxed twice when it should be taxed
but once;
(a) both taxes must be imposed on the same TAX EVASION AND TAX AVOIDANCE
property or subject matter, DISTINGUISHED.
(b) for the same purpose,
(c) by the same State, Government, TAX EVASION connotes fraud through the use of
(d) or taxing authority, pretenses and forbidden devices to lessen or defeat
(e) within the same jurisdiction or taxing district taxes. Refers to the willful attempt to defeat or
(f) during the same taxing period circumvent the tax law in order to illegally reduce
(g) they must be of the same kind or character. one’s tax liability. On the other hand, TAX
AVOIDANCE is a legal means used by the taxpayer
to reduce taxes. It delves into the act of taking
b. INDIRECT — is permissible double taxation. advantage of legally available tax-planning
This is allowed if the taxes are of different nature opportunities in order to minimize one’s tax liability.
or character, imposed by different taxing
authorities. Evidence required: CLEAR AND CONVINCING
EVIDENCE AMOUNTING TO MORE THAN MERE
c. DOMESTIC — this arises when the taxes are PREPONDERANCE.
imposed by the local or national government
(within the same state).
Tax Evasion (3 factors)
d. INTERNATIONAL – refers to the imposition of a. The end to be achieved
comparable taxes in two or more states on the b. An accompanying state of kind which is
same taxpayer in respect of the same subject described as being evil, in bad faith, willful or
matter and for identical periods deliberate and not accidental
c. A course of action or failure of action which
NOTE: The Supreme Court declared that double is unlawful.
taxation, in general, is not forbidden by our
Constitution since we have not adopted as part Meaning of ESTATE PLANNING as Tax
thereof the injunction against double taxation found Avoidance Scheme
in the Constitution of the United States and some
states of the Union. Double taxation becomes Refers to the preparation for the distribution
obnoxious only where the taxpayer is taxed twice for and management of a person’s estate at death
the benefit of the same governmental entity or by the through the use of wills, trusts, insurance policies,
same jurisdiction for the same purpose, but not in a and other arrangements, especially to reduce
case where one tax is imposed by the State and the administration costs and transfer-tax liability.
other by the city or municipality. (Pepsi Cola Bottling
Co. vs Municipality of Tanauan, Leyte)
UNGAB DOCTRINE SUSTAINED IN CIR VS
TAX TREATY AS A MODE OF ELIMINATING PASCOR
DOUBLE TAXATION
 the Supreme Court held that while there can be
In order to eliminate double taxation, a tax treaty no civil action to enforce collection before the
resorts to two methods of relief, to wit: assessment procedures provided in the Code
 have been followed, there is no requirement for they became due. In case of fraud or intent to
the precise computation and assessment of the evade the payment of taxes, fees or charges
tax before there can be a criminal prosecution the same may be assessed within ten (10)
under the Tax Code. years from discovery of the fraud or intent to
evade payment. They shall also be collected
the Court ruled that an assessment is not either by administrative or judicial action within
necessary before a criminal charge can be filed. five (5) years from date of assessment (Sec.
194. LGC)
First — Section 205 of the Tax Code clearly
mandates that the civil and criminal aspects of the
case may be pursued simultaneously. NATURE AND PROSPECTIVITY OF TAX LAWS

Second — A criminal complaint is instituted not to CIR VS REYES

demand payment, but to penalize the taxpayer for
violation of the Tax Code. - the Supreme Court ruled that failure to comply
with 228 (of the NIRC, as amended by R.A.
Third — The crime is complete when the violator 8424, requiring that "The taxpayers shall be
has knowingly and willfully filed a fraudulent return informed in writing of the laws and the facts on
with intent to evade and defeat a part of all of the tax. which the assessment is made; otherwise, the
assessment shall be void") does not only
render the assessment void, but also finds no
DOCTRINE OF IMPRESCRIPTIBILITY validation in any provision in the Tax Code.

As a rule, taxes are imprescriptible as they are the The general rule under the Civil Code that laws
lifeblood of the government. However, tax statutes shall have prospective application applies to tax
may provide for statute of limitations. laws. Retroactive application of revenue laws may
be allowed if it will not amount to denial of due
The rules that have been adopted are as follows: process.

a.) National Internal Revenue Code STRICT CONSTRUCTION OF TAX LAWS

- The statute of limitation for assessment of tax if
a return is filed is within three (3) years from No person or property is subject to taxation
the last day prescribed by law for the filling of unless they fall within the terms or plain import of
the return or if filed after the last day, within a taxing statute. (CIR vs CA)
three years from date of actual filling. If no
return is filed or the return filed is false or
fraudulent, the period to assess is within ten TAX PAYER’S SUIT, REQUISITES
years from discovery of the omission, fraud or
falsity. Requisites:
a. The tax money is being extracted and spent in
- The period to collect tax is within three years violation of specific constitutional protections
from date of assessment. In the case, however, against abuses of legislative power.
of omission to file or if the return filed is false or b. That public money is being deflected to any
fraudulent, the period to collect is within ten improper purpose (Pascual vs Secretary of
years from discovery without need of an Public Works)
assessment. c. That the petitioner seeks to restrain respondents
from wasting public funds through the
b.) Tariff and customs code enforcement of an invalid or unconstitutional law
- It does not express any general statute of
limitation; it provided, however, that ‗‘ when NOTE:
articles have entered and passed free of duty - Taxpayer's suit requires illegal expenditure of
or final adjustment of duties made, with public money.
subsequent delivery, such entry and passage - Significantly, a taxpayer need not be a party to
free of duty or settlement of duties will, after the the contract to challenge its validity.
expiration of one (1) year, from the date of the - A taxpayer is deemed to have the standing to
final payment of duties, in the absence of fraud raise a constitutional issue when it is
or protest, be final and conclusive upon all established that the public funds from taxation
parties, unless the liquidation of import entry have been disbursed in alleged contravention
was merely tentative.” (Sec 1603,TCC) of the law or the constitution.

c.) Local Government Code

- Local Taxes, fees, or charges shall be
assessed within five (5) years from the date
TAXPAYER’S SUIT VS CITIZEN’S SUIT

In Taxpayer’s suit, the plaintiff is affected by the

expenditure of public funds, while In Citizen’s suit,
he is but the instrument of the public concern.

Concept of Locus Standi vis-à-vis Doctrine of

Transcendental Importance.

Locus Standi is defined as “a right of appearance in

a court of justice on a given question.”

The “Direct injury” test in our jurisdiction holds that

the person who impugns the validity of a statute
must have a personal and substantial interest in the
case such that he has sustained, or will sustain
direct injury as a result.