General Principles of Taxation

MEANING OF TAXATION

Non-Revenue:
a. Promotion of General Welfare Taxation may
be used as an implement of police power in order

1. Taxation is the process or means by which

to promote the general welfare of the people.

the sovereign, through its law-making body,

This is illustrated in the cases of Osmena vs

raises income to defray the necessary

Orbos and Republic vs Bacolod-Murcia.

expenses of the government.

2. Taxation is the power of the State to impose
charge or burden upon persons, property, or
property rights, for the use and support of
the government and to enable it to discharge
its appropriate functions. It is the act of
levying tax.

PURPOSE OF TAXATION
Revenue:

Osmea vs. Orbos

GR No 99886, March 31, 1993
Facts: The Oil Price Stabilization Fund (OPSF) was
created by President Marcos to reimburse oil
companies for cost increases in crude oil.
Subsequently, the OPSF was reclassified into a "trust
liability account," and ordered released from the
National Treasury to the Ministry of Energy. It is
contended that the creation of trust fund violates the
Constitution on the reason that if a special tax is

The primary purpose of taxation is to raise

collected for a specific purpose, the revenue

revenue to finance government expenditures. Always

generated as a special fund to be used only for the

remember this purpose.

purpose indicated.

Note!!!!

Issue: Whether the creation of the trust fund is

It applies to all taxes, whether income,

unconstitutional.

donors, estate, VAT, etc. So when you are asked why

Held: No. The tax collected is not in pure exercise of

VAT is levied, your answer should be to raise

the taxing power. It is levied with a regulatory

revenue to finance government expenditures,

purpose, to provide a means for the stabilization of

sigurado check na yan. However, there are times that

the petroleum products industry. The levy is primarily

taxes are levied for regulatory purposes. Always

in the exercise of the police power of the State.

remember to check the intent why such tax was

levied as in the case of Osmena vs Orbos, where it
was held that the tax is levied with a regulatory

Republic of the Philippines vs. Bacolod-Murcia

purpose which is for the stabilization of the petroleum

GR No. L-19824, L-19825, L-19826

products industry.

July 9, 1966

Facts: RA 632 created the Philippine Sugar Institute,

d.

Encourage Economic Growth in the realm of

a semi-public corporation. It acquired the Insular

tax exemptions and tax reliefs, for instance, the

Sugar Refinery from the proceeds of the Sugar tax to

purpose is to grant incentives or exemptions in

be collected under RA 632. The operation of the

order to encourage investments and thereby

refinery was disastrous. Bacolod-Murcia refused to

promote the countrys economic growth.

pay its contribution to the said fund contending that

the purchase of refinery with money from the
Institutes fund was not authorized under RA 632 and
that the continued operation of the refinery is inimical
to its interest.
Issue: Whether Bacolod- Murcia is liable.

e.

Protectionism in some important sectors of

the economy, as in the case of foreign
importations,

exercise of the power of taxation, nor the imposition

of a special assessment, but the exercise of police
power for the general welfare of the entire country. It
is, therefore, an exercise of a sovereign power which

sometimes

provide

protection to local industries like protective

tariffs and customs.

SCOPE OF TAXATION

Held: Yes. The special assessment or levy for the

Philippine Sugar Institute Fund is not so much an

taxes

Taxation
plenary

and

is

unlimited,

supreme,

comprehensive,

subject

to

limitations

enumerated in the constitution and the will of the

legislature.

MEANING OF TAX

no private citizen may lawfully resist.

1. Tax is defined as the lifeblood of the
In the two cited cases, the collection of revenue is
only the SECONDARY. The primary purpose is the
promotion of the general welfare.
b.

government.
2. Taxes

are

the

enforced

proportional

contributions from persons and property

Regulation As in the case of taxes levied on

levied by the lawmaking body of the State by

excises and privileges like those imposed in

virtue of its sovereignty for the support of the

tobacco or alcoholic products or amusement

government and all public needs.

places like night clubs, cabarets, cockpits, etc.

c.

Reduction of Social Inequality this is made

possible through the progressive system of
taxation where the objective is to prevent the

ESSENTIAL CHARACTERISTICS OF TAX

1. It is levied by the law-making body of the
State.

under-concentration of wealth in the hands of

few individuals.

The power to tax is a legislative power which

under the Constitution only Congress can
exercise through the enactment of laws.

Accordingly, the obligation to pay taxes is a

Question: Should the money be in legal

statutory liability.

tender?
Answer: YES.
Question: May the government be compelled

2. It is an enforced contribution
A tax is not a voluntary payment or donation.
It is not dependent on the will or contractual
assent, express or implied, of the person
taxed. Taxes are not contracts but positive

to accept a check as payment for taxable

obligations?
Answer: No. a check is not legal tender.
4. It is proportionate in character
It is ordinarily based on the taxpayers ability

acts of the government.

to pay.
Take note na ang source ng obligation to pay
taxes is LAW, hindi sya based on contract
kasi consent is not essential. Hindi kailangan
na pumayag ka munang magbayad ng tax

burden to provide income for public

Tax is a pecuniary burden an exaction to

be discharged alone in the form of money
which must be in legal tender, unless
qualified by law.
So you cannot pay your taxes with chickens,
properties, etc., only in money. Why?
Mahihirapan si BIR nyan, isipin mo
baboy

transactions, rights or privileges.

Taxation involves, and a tax constitutes, a

3. It is generally payable in money

ng

A tax may also be imposed on acts,

6. It is levied for public purpose or purposes

bago ka maging liable.

mapupuno

5. It is levied on persons or property

ang

purposes.
7. It is levied by the State which has
jurisdiction over the persons or property.
The persons, property or service to be taxed
must be subject to the jurisdiction of the
taxing state.

BIR.

Magkakaobligasyon pa sila na pakainin ang

THEORY

mga ito, kasi kung hindi, paano kung

(JUSTIFICATION FOR TAXATION)

pumayat ang baboy. Bumaba ang timbang.

Sigurado bababa ang value neto. Nalugi na
nga sila, nangamoy baboy pa. Remember,
nagfufluctuate ang value ng properties unlike
money.

AND

BASIS

OF

TAXATION

1. Necessity Theory - The power of taxation

of living in an organized society

proceeds upon the theory that the existence

established and safeguarded by the

of the government is a necessity. The state

devotion

cannot continue to exist without the means

to pay its expenses, and that for these
means it has a right to compel all its citizens

of

taxes

to

public

purposes.
d. A taxpayer cannot object to or resist
the

payment

of

taxes

solely

because no personal benefit to him

and property within its limits to contribute.

can be pointed out as arising from

Take note that what is necessary under this
theory

is

the

EXISTENCE

of

the tax.

the

GOVERNMENT, not the EXISTENCE of

3. Lifeblood Theory - Taxes are the lifeblood

of the government. Thus, their prompt and

TAXES.

certain availability is an imperious need.

2. Benefits-Protection Theory - The basis of
taxation is found in the reciprocal duties of
protection and support between the State

Without taxes, the government would be

paralyzed for lack of motive power to
activate and operate it.

and its inhabitants. In return for the citizens

contribution

for

the

support

of

the

government, the State is supposed to make

adequate and full compensation in the form

Under this theory, the EXISTENCE of TAX is

a necessity, not the EXISTENCE of the
GOVERNMENT.

of benefits and protection which it gives to

NATURE OF THE POWER OF TAXATION

his life, liberty, and property.

Qualifications of Benefits-Protection Theory:

1. Inherent in sovereignty The power of

a. It does not mean that only those

taxation is inherent in sovereignty as an

who are able to pay and do pay

incident or attribute thereof, being essential

taxes can enjoy the privileges and

to the existence of every government. It can

protection given to a citizen by the

be exercised by the government even if the

government.
b. From the contributions received, the
government renders no special or
commensurate

benefit

to

any

particular property or person.

c. The only benefit to which the

Constitution is entirely silent on the subject.

2. Legislative in character The power to tax
is exclusively legislative and cannot be
exercised by the executive or judicial branch
of the government.

taxpayer is entitled is that derived

3. Subject to constitutional and inherent

from his enjoyment of the privileges

limitations Most of these limitations are

specifically provided in the Constitution or

collected without unnecessary hindrance On the other

implied there from while the rest are inherent

hand, such collection should be made in accordance

and they are those which spring from the

with law as any arbitrariness will negate the very

nature of the taxing power itself although,

reason for government itself. It is therefore necessary

they may or may not be provided in the

to reconcile the apparently conflicting interests of the

Constitution.

authorities and the taxpayers so that the real purpose

Though taxes are the lifeblood of the

government, the power of taxation is not

of taxation, which is the promotion of the common

good, may be achieved.

absolute as held in the case of CIR vs.

Algue, Inc.

But even as we concede the inevitability and

indispensability of taxation, it is a requirement in all

COMMISSIONER v. ALGUE, INC.

GR No. L-28896, February 17, 1988
158 SCRA 9
Facts: Algue Inc. filed its income tax returns showing
deductions, for promotional fees paid, from their gross
income. The BIR assessed Algue based on such
deductions contending that the promotional fees are

democratic regimes that it be exercised reasonably

and in accordance with the prescribed procedure. If it
is not, then the taxpayer has a right to complain and
the courts will then come to his succor. For all the
awesome power of the tax collector, he may still be
stopped in his tracks if the taxpayer can demonstrate,
as it has here, that the law has not been observed.

not ordinary, reasonable and necessary expenses,

Roxas v CTA

thus, disallowed. Algue was able to prove that the

GR No L-25043, April 26, 1968

professional fees were necessary and reasonable in

the light of the efforts exerted by the payees in

Facts: The Roxas brothers inherited from their

inducing investors and prominent businessmen to

grandparents several properties which included

venture in an experimental enterprise and involve

farmlands.

themselves in a new business requiring millions of

constitutional mandate to acquire big landed estates

pesos.

and apportion them among landless tenants-farmers,

The government, in line with the

persuaded the Roxas brothers to part with their

Issue: Whether the BIR correctly disallowed the

landholdings The brothers agreed to sell the lots to

deduction.

the government. Unfortunately, the government did

not have funds so the brothers agreed to a purchase

Held: No, because Algue was able to prove that the

by installment. Subsequently, the CIR demanded from

professional fees were ordinary, necessary and

the brothers the payment of deficiency income taxes

reasonable. It is well-settled that taxes are the

resulting from the sale.

lifeblood of the government and so should be

Issue: whether the brothers are liable.

Held: No. It should be borne in mind that the sale of
the farmlands to the very farmers who tilled them for
generations was not only in consonance with, but
more in obedience to the request and pursuant to the
policy of our Government to allocate lands to the

EXTENT OF THE LEGISLATIVE POWER TO

TAX
1.
2.
3.
4.

Subjects or objects to be taxed

Purpose of the tax
Amount or rate of the tax
Manner, means and agencies of collection of
the tax

landless. In order to maintain the general publics trust

and confidence in the Government this power must
be used justly and not treacherously. It does not
conform with the sense of justice for the Government
to persuade the taxpayer to lend it a helping hand and
later on penalize him for duly answering the urgent
call.

BASIC PRINCIPLES OF A SOUND TAX

SYSTEM
1. Fiscal Adequacy the sources of tax
revenue

should

coincide

with,

and

approximate the needs of government

expenditure. Neither an excess nor a

ASPECTS OF TAXATION

deficiency of revenue vis--vis the needs of

government would be in keeping with the

1. Levy determination of the persons,

principle.

property or excises to be taxed, the sum or

sums to be raised, the due date thereof and

Chavez v Ongpin

the time and manner of levying and

GR No 76778, June 6, 1990

collecting taxes (strictly speaking, such

refers to taxation)

Facts: President Corazon Aquino issued EO 73

increasing the basis for assessment of real property

2. Collection consists of the manner of

tax. Chavez, a taxpayer and landowner, questioned

enforcement of the obligation on the part of

the constitutionality of EO 74. He alleged that it will

those who are taxed. (this includes payment

bring unreasonable increase in real property taxes.

by the taxpayer and is referred to as tax

Issue: Whether EO 73 is constitutional.

administration)

Held: Yes. Without EO 73, the basis for collection of

real property taxes will still be the 1978 revision of

The two processes together constitute the

property values. Certainly, to continue collecting real

taxation system.

property taxes based on valuations arrived at several

years ago, in disregard of the increases in the value

of real properties that have occurred since then is not

in

consonance

with

sound

tax

system.

2. Property Taxes taxes on things or

Fiscal adequacy, which is one of the characteristics of

property of a certain class within the

a sound tax system, requires that sources of revenue

jurisdiction of the taxing power.

must be adequate to meet government expenditures

Example: real estate tax

and their variations.

3. Excise Taxes charges imposed upon the
2. Administrative

Feasibility

tax

laws

should be capable of convenient, just and

performance of an act, the enjoyment of a

privilege, or the engaging in an occupation.

effective administration.
Examples: income tax, value-added tax,
3. Theoretical Justice the tax burden should
be in proportion to the taxpayers ability to
pay (ability-to-pay

principle).

The

estate tax or donors tax

As to Burden

1987

Constitution requires taxation to be equitable

1. Direct

Taxes

taxes

wherein

the incidence as well as the impact or

and uniform.

burden of the tax faces on one person.

Examples: income tax, community tax,

Note!!!!!!!
Non-observance

donors tax, estate tax

of

these

principles

will

not

necessarily render the tax imposed invalid except to

2. Indirect

Taxes

taxes

wherein

the

the extent that specific constitutional limitations are

incidence of or the liability for the payment of

violated.

the tax falls on one person, but the burden

CLASSIFICATION OF TAXES
As to Subject matter
1. Personal, capitation or poll taxes taxes
of fixed amount upon all persons of a certain

thereof can be shifted or passed to another

person.
Examples: VAT, percentage taxes, customs
duties excise taxes on certain specific
goods.

class within the jurisdiction of the taxing

power without regard to the amount of their

Note!!!!!!!!!

property or occupations or businesses in

which they may be engaged in.
Example: community tax

Impact means the point on which a tax is originally

imposed. Incidence is the point on which the tax
burden settles down. Tandaan itong mabuti. Lets take

for example the case of income tax. You earned

Issue: Whether Philippine Acetylene Co. Inc is liable

P500,000 compensation income for the year 2015.

to pay the sales tax.

Under the law, dahil ikaw ang nagearn ng income,

ikaw ang statutory taxpayer. Ikaw ang required by
law to pay income tax. Yung tax, kukunin doon sa
P500,000 income mo. Dahil ikaw ang statutory
taxpayer, nasayo ang impact; at dahil din sa kinita mo
kukunin ang tax, nasayo rin ang incidence. Ito and
direct tax, kungbaga, nasayo na ang lahat.

Held: Yes. When the consumer or end-user of a

manufacturer product is tax-exempt, such exemption
covers only those taxes for which such consumer or
end-user is directly liable. Indirect taxes are not
included. Hence, the manufacturer cannot claim
exemption from the payment of sales tax, neither can
the consumer or buyer of the product demand the

Pero iba pag dating sa indirect tax, yung impact

refund of the tax that the manufacturer might have

pwede sayo, pero yung incidence nasa ibang tao.

passed on to him.

Lets look at VAT. Ang required by law to pay VAT ay

si SELLER, pero pwede ipasa ni seller ang burden to
pay the tax kay BUYER. For example, bumili ka ng
chicken joy sa Jollibee. Dahil may benta si Jollibee,
required sya magbayad ng VAT. Si Jollibee ang
statutory taxpayer. Pero dahil pinasa ni Jollibee ang
VAT sayo, ikaw ang talagang nagbayad ng VAT. Sa
pera mo galing yung VAT na binayad ni Jollibee. Sa
papel, si Jollibee ang nagbayad, pero sa totoo, ikaw
ang nagbayad. Yung impact, na kay Jollibee. Yung
incidence naman, nasa iyo. Yan ang Indirect tax.

Maceda v Macaraig
GR No 88291, May 31, 1991
Facts: NPC was granted exemption from direct and
indirect taxes under PD 938. NPC seeks to recover
the indirect taxes passed by oil companies which
supplied bunker fuel oil to NPC.
Issue: Whether NPC is entitled to recover indirect
taxes paid by it.

Remember the following cases, madalas itanong ni

Held: Yes. When the law granting tax exemption

Atty. Yan.

specifically includes indirect taxes or when it is clearly

manifest therein that legislative intention to exempt

Philippine Acetylene Co. Inc. v CIR

embraces indirect taxes, then the buyer of the product

GR No L-19707, August 17, 1967

or service sold has a right to be reimbursed the

Facts: Philippine Acetylene Co. Inc sold its oxygen

and acetylene gases to Napocor and Voice of
America (VOA). It refused to pay sales tax on such
sales on the ground that both Napocor and Voice of
America are exempt from taxes.

amount of the taxes that the sellers passed on to him.

By the very nature of indirect taxation, the economic
burden of such taxation is expected to be passed on
through the channels of commerce to the user or
consumer of the goods sold. Because, however, the

NPC has been exempted from both direct and indirect

contractor may claim tax exemption on the

taxation, the NPC must be held exempted from

transaction.

absorbing the economic burden of indirect taxation

Sa Acetylene case, ang sabi ng SC, kapag exempt
daw si Consumer sa tax, exempt lang sya doon sa
mga tax na sya ay DIRECTLY LIABLE. Sa case na
ito, hindi directly liable si Napocor at VOA sa sales
tax. Si Philippine Acetylene Co. Inc ang directly liable.
Ganun din sa Maceda case. Dahil exempt si
consumer, hindi pwede ipasa ni seller ang tax kay

Sa case na ito, hindi liable si CONTRACTOR

(SELLER) sa tax dahil daw ang intention ay i-exempt
si WHO sa pagbayad ng tax, whether direct or
indirect. Mas mabuting i-exempt na rin si GOTAMCO
sa contractors tax para wala na itong maipasa kay
WHO. WHOs exemption from indirect taxes implies
that Gotamco is exempt from contractors tax.

consumer.
CIR v American Rubber Company

Halos pareho rin ang situation sa case ni John

GR No L-19667, November 29, 1966

Gotamco and Sons, ang exempt ay si CONSUMER,

pero sabi ni SC hindi rin liable si SELLER sa tax.

Facts: American Rubber sold its rubber products

locally and declared the same for tax purposes in
which the Commissioner accordingly assessed. The

CIR v Gotamco

company paid under protest claiming that its rubber

GR No L-31092, February 27, 1987

products were agricultural products exempt from

Facts: The contract for the construction of the building

of WHO in Manila was awarded to Gotamco. WHO
enjoys tax exemptions. WHO received an opinion
from the CIR stating that the 3% contractors tax is an

sales tax under Section 188b of the Tax Code.

Issue: whether American rubber is entitled to recover
the sales tax paid by it.

indirect tax, and thus WHO is exempt. Subsequently,

Held: Yes. When the transaction itself is the one that

the CIR reversed his opinion stating that the 3%

is tax-exempt but through error the seller pays the tax

contractors tax is not a direct or indirect tax due on

and shifts the same to the buyer, the seller gets the

WHO, but a tax primarily due from the contractor.

refund, but must hold it in trust for buyer.

Issue: Whether Gotamco is liable for the tax.

Sa case na ito, yung TRANSACTION mismo ang

Held: No. Where the exemption from indirect tax is

given to the contractee, but the evident intention is to
exempt the contractor so that such contractor may no
longer shift or pass on any tax to the contractee, the

exempt. Since exempt ang transaction, walang sales

tax.
As to Purpose

1. General/Fiscal/Revenue tax imposed for

1. Progressive Tax the rate or the amount of

the general purposes of the government, i.e.,

the tax increases as the amount of the

to raise revenues for governmental needs.

income or earning (tax base) to be taxed

increases.

Examples: income taxes, VAT, and almost all

taxes

Examples: income tax, estate tax, donors

tax

2. Special/Regulatory

tax

imposed

for

special purposes, i.e., to achieve some

2. Regressive Tax the tax rate decreases as

social or economic needs.

the amount of income or earning (tax base)

to be taxed increases. Walang regressive

Examples: Special Educational fund tax

tax sa pinas.

under Real Property Taxation. (1% ito ng

ASSESSED VALUE ng real property, just in

3. Mixed Tax tax rates are partly progressive

case na tanungin sa recit)

and partly regressive.

4. Proportionate Tax tax rates are fixed on a

As to Measure of Application

flat tax base.

1. Specific Tax tax imposed per head, unit or

Examples: real estate tax, VAT, and other

number, or by some standard of weight or

measurement

and which

requires

assessment

beyond

listing

percentage taxes

no
and

As to Scope or authority imposing the tax

classification of the subjects to be taxed.

Kunwari, piso per bottle.

1. National Tax tax imposed by the National

Government.

Examples: taxes on distilled spirits, wines,

Examples: national internal revenue taxes,

and fermented liquors

customs duties
2. Ad Valorem Tax tax based on the value of
the article or thing subject to tax. Kunwari,

2. Municipal/Local Tax tax imposed by Local

10% ng value ng property.

Government units.

Example: real property taxes, customs duties

Examples: real estate tax, professional tax

As to Rate

TAXES

DISTINGUISHED

IMPOSITIONS

FROM

OTHER

Toll vs. Tax

imposed on persons, property and excise

personal liability of the person assessed

levied only on land

not a personal liability

Toll sum of money for the use of something,

assessed, i.e. his liability

generally applied to the consideration which is paid

the land involved

based wholly on benefits

for the use of a road, bridge of the like, of a public

based on necessity as well as on benefits

nature.

received
general in application (Apostolic Prefect exceptional both as time a
vs Treas. Of Baguio, 71 Phil 547)

Tax
vs.
Toll
demand of sovereignty
demand of proprietorship
paid for the support of paid for the use of
the government
anothers property
generally, no limit as to amount depends on the
amount imposed

Important Points to Consider Regarding Special

Assessments:
1. Since special assessments are not taxes

cost of construction or

within

maintenance of the public

improvement used
imposed only by the imposed
by
government

the

constitutional

or

statutory

provisions on tax exemptions, it follows that

the

the exemption under Sec. 28(3), Art. VI of

government or private

the Constitution does not apply to special

assessments.
2. However, in view of the exempting proviso

individuals or entities

in Sec. 234 of the Local Government

Penalty vs. Tax

Code, properties which are actually, directly

Penalty any sanctions imposed as a punishment for

and exclusively used for religious, charitable

violations of law or acts deemed injurious.

and

educational

purposes

are

not

exactly exempt from real property taxes but

are exempt from the imposition of special
vs
Penalty
designed to regulate conduct
assessments as well.
imposed by the government
or private
3. The general
rule is that an exemption from

Tax
generally intended to raise revenue
imposed only by the government

individuals or entities

special assessment.

Special Assessment vs Tax

Special Assessment an enforced proportional
contribution from owners of lands especially or
peculiarly benefited by public improvements.
Tax

taxation does not include exemption from

vs

License or Permit Fee vs Tax

License or Permit fee is a charge imposed under
the police power for the purposes of regulation.

Special Assessment

Tax

vs

License/Permit Fee

enforced

contribution

assessed

vehicle
registration
fees. The money collected from
by legal compensation
or reward
of an officer

the motor vehicle registration fees are intended for

sovereign authority to defray public for specific purposes
the construction and maintenance of public roads,
expenses
for revenue purposes
for regulation purposes
streets and bridges.
an exercise of the taxing power
an exercise of the police power
generally no limit in the amount of tax to amount is limited to the necessary
Issue: Whether or not motor vehicle registration fees
be paid
expenses of inspection and regulation
are considered as taxes.
imposed also on persons and property
imposed on the right to exercise privilege
non-payment does not necessarily make non-payment makes the act or business
Held: Yes. If the purpose is primarily revenue, or if
the act or business illegal
illegal
revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax.
Importance of the distinctions between tax and

Such is the case of motor vehicle registration fees.

license fee:

The motor vehicle registration fees are actually taxes

1. Some limitations apply only to one and not to

intended for additional revenues of the government.

the other, and that exemption from taxes

Sa case na ito, ang sabi exempt si PAL sa TAXES,

may not include exemption from license

so kung titignan natin dahil ang designation ay

fees.

MOTOR VEHICLE REGISTRATION FEE, hindi

2. The power to regulate as an exercise of

exempt si PAL. Pero sabi ni SC, hindi. Tignan mo

police power does not include the power to

yung purpose nya. Kung revenue ang purpose nya.

impose fees for revenue purposes.

Tax sya kahit na tawagin mo pa sya sa kahit anong

pangalan na gusto mo. Otherwise, pwedeng maningil

Minsan nakakalito kasi ang tawag sakanya ay tax

si govt ng kung anong tax at pangalanan nalamang

pero ang purpose nya naman ay regulatory. Minsan

itong license.

ang tawag sakanya ay license o fee pero ang

purpose nya naman is to raise revenue. That is why it

Progressive Development Corporation vs Quezon

is very important to identify whether it is a tax or a

City, GR 36081, April 24, 1989

license fee.

Facts: The City Council of Quezon City adopted an

Philippine Airlines, Inc. V. Edu

ordinance imposing a supervision fee for the

G.R. No. L- 41383, August 15, 1988

regulation of privately-owned public markets equal to

5% of gross receipts on rentals of space of privatelyowned public markets in Quezon City. Progressive

Facts: Under its franchise, PAL is exempt from the

Development Corp. filed a petition for prohibition

payment

against the city on the ground that the supervision fee

of

taxes.

The

Land

Transportation

Commissioner issued a regulation requiring all tax

exempt entities, among them PAL to pay motor

is in reality a tax on income which the city cannot

impose.

GR No 125704, August 28, 1998

Facts: BIR demanded from Philex the payment of its

Issue: whether the supervision fee is a tax on income.

Held. No. The general rule is that the imposition is a
tax if its primary purpose is to generate revenue and
regulation is merely incidental; but if regulation is the
primary purpose, the fact that incidentally revenue is
also obtained does not make the imposition of a tax.
Since the supervision fee is for regulatory purpose, it
is not a tax.

tax liabilities. Philex protested the demand stating that

it has pending claims for VAT input/refund, which
should be applied against it tax liabilities.
Issue: whether legal compensation can take place.
Held: No. The government and the taxpayer are not
creditors and debtors or each other. Obligations in the
nature of debts are due to the government in its
corporate capacity, while taxes are due to the
government in its sovereign capacity.

Debt vs. Tax

Francia v Intermediate Appellate Court

Debt is based upon juridical tie, created by law,

GR No L-67649, June 28, 1988

contracts, delicts or quasi-delicts between parties for

Facts: Francia was the registered owner of a house

their private interest or resulting from their own acts or

and lot a portion of which was expropriated by the

omissions.

Republic of the Philippines. Because he was not able

to pay real property taxes from 1963 to 1977, his

vs
Debt
property was sold in a public auction. Francia
based on law
based on contracts, express or implied
contends that his tax delinquency has been
generally, cannot be assigned
assignable
generally payable in money
may be paid in kind
extinguished by legal compensation. He claims that
generally not subject to set-off or may be subject to set-off or compensation
the government owed him when a portion of his land
compensation
expropriated. of debt
imprisonment is a sanction for non- no imprisonmentwas
for non-payment
Tax

payment of tax except poll tax

Issue: whether the expropriation payment
governed by special prescriptive periods governed by the ordinary periods of
compensate for the real estate taxes due.
provided for in the Tax Code
prescriptions
does not draw interest except only when draws interest when so stipulated, or in
Held: No. There can be no offsetting of taxes against
delinquent
case of default
the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on
General Rule: Taxes are not subject to set-off or legal

the ground that the government owes him an amount

compensation.

equal to or greater than the tax being collected.

Philex Mining Corporation v CIR

The collection of a tax cannot await the results of a

law, in accordance with Article 1279 and 1290 of the

lawsuit against the government. Internal revenue

Civil Code, and both debts are extinguished to the

taxes cannot be the subject of compensation. The

concurrent amount.

Government and the taxpayer are not mutually

creditors and debtors of each other under Article 1278
of the Civil Code and a claim of taxes is not such a
debt, demand, contract or judgment as is allowed to
be set-off.

Sa case ni Garlitos, due, demandable and fully

liquidated ang claim ni estate against the government
dahil ang amount owed ni government kay estate ay
appropriated na through RA 2700. Sa case ni Francia,
wala pang appropriation ng utang ni govt. kung
meron na sana, pwede na ang legal compensation.

Exception: Where both the claims of the government

Yung appropriation law ang nagdala sa case ni

and the taxpayer against each other have already

Garlitos.

become due and demandable as well as fully

liquated.

Tax Distinguished from other Terms.

1. Subsidy a pecuniary aid directly granted

Domingo Vs Garlitos

by the government to an individual or private

G.R. NO. 18993 June 29, 1963

commercial enterprise deemed beneficial to

the public.

Facts: In Domingo vs Moscoso, the SC declared as

final and executor the order for the payment of the

2. Revenue refers to all the funds or income

estate and inheritance taxes, charges and penalties

derived by the government, whether from tax

by the estate of the of the late Walter Price. It appears

or from whatever source and whatever

that the Government is indebted to the estate of

manner.

Price. Such claim has been recognized and the

amount has been appropriated by a corresponding
law (RA 2700).

exported from or imported into a country.

Issue: whether legal compensation may take place in

the case at bar.
Held: Yes. Both the claim of the Government for
inheritance taxes and the claim of the intestate for
services rendered have already become overdue and
demandable

3. Customs Duties taxes imposed on goods

as

well

as

fully

liquidated.

Compensation, therefore, takes place by operation of

The term taxes is broader in scope as it

includes customs duties.
4. Tariff it may be used in 3 senses:
1. As a book of rates drawn usually in
alphabetical order containing the
names

of

merchandise

several
with

kinds

of
the

corresponding duties to be paid for

the same.
2. As duties payable on goods
imported or exported (PD No. 230)
3. As the system or principle of
imposing

duties

on

purpose

of promote

raising

public property

welfare

for

thru public use

revenue
regulations
AMOUNT OF EXACTION
- no limit
- limited to the - no exaction,

the

cost

importation/exportation of goods.

of compensation

regulations,

paid

by

the

issuance of the government

5. Internal Revenue refers to taxes imposed

license

by the legislative other than duties or imports

or

surveillance
BENEFITS RECEIVED
- no special or - no direct benefits - direct benefit

and exports.
6. Margin Fee a currency measure designed
to stabilize the currency.

direct benefits but

healthy results in the

received but economic

7. Tribute synonymous with tax; taxation

form

of

just

the enjoyment standard

of compensation

of

or

the society

implies tribute from the governed to some

privileges

form of sovereignty.

living in an injuria is attained

of damnum absque

organized
8. Impost in its general sense, it signifies any
tax, tribute or duty. In its limited sense, it
means a duty on imported goods and

society
NON-IMPAIRMENT OF CONTRACTS
the - contract may be - contracts may
impairment

merchandise.

impaired

rule subsist
TRANSFER OF PROPERTY RIGHTS
- taxes paid - no transfer but - property is

INHERENT POWERS OF THE STATE

become part only restraint on taken by the

1.

Police Power

of

2.

Power of Eminent Domain

funds

3.

Power of Taxation

public the exercise of govt

property
exists

SCOPE
- affects all persons,

Distinctions

affects

Police Power

Eminent

to -

taking

compensation
all - affects only
particular

and property

excise
even rights
comprehended
BASIS
public - public necessity -public

Domain
PURPOSE
- levied for the - exercised

upon

right payment of just

persons, property, the

property and privileges,

Taxation

be impaired

of

necessity

and the right of necessity,

protect the movie industry, the tax remains a valid

the state and the private

imposition.

public

to

protection

self- property

is

and taken for public

self-preservation
use
AUTHORITY WHICH EXERCISES THE POWER
- only by the - only by the - may be
government

government or its granted

to

or its political political

public service,

subdivisions

companies, or

subdivisions

public utilities

There are situations where taxation was used as

an implement of police power.

LIMITATIONS ON THE POWER OF TAXATION

Inherent Limitations or those which restrict the
power although they are not embodied in the
Constitution [P N I T E]
1.
2.
3.
4.
5.

Public Purpose of Taxes

Non-delegability of the Taxing Power
Territoriality or the Situs of Taxation
Exemption of the Government from taxes
International Comity

Tio Vs. Videogram Regulatory Board

151 SCRA 208; G.R. No. L-75697; 18 Jun 1987

Constitutional Limitations or those expressly found

in the constitution or implied from its provision

Facts: Tio assails the validity of PD 1987 entitled Act

Creating the Videogram Regulatory Board which
imposes a 30% tax on gross receipts. Tio contends
that the imposition is harsh, confiscatory, oppressive
and/or unlawfully restraints trade in violation of the
due process clause of the Constitution.
Issue: Whether PD 1987 is a valid exercise of the
power of taxation?
Held: Yes. Taxation has been made the implement of
the state's police power. The levy of the 30% tax is for
a public purpose. It was imposed primarily to answer
the need for regulating the video industry, particularly
because

of

the

rampant

film

1.
2.
3.
4.
5.
6.

Due process of law

Equal protection of law
Freedom of Speech and of the press
Non-infringement of religious freedom
Non-impairment of contracts
Non-imprisonment for debt or non-payment

of poll tax
7. Origin of Appropriation, Revenue and Tariff
Bills
8. Uniformity, Equitability and Progressitivity of
Taxation
9. Delegation of Legislative Authority to Fix
Tariff Rates, Import and Export Quotas
10. Tax Exemption of Properties Actually,

piracy,

Directly, and Exclusively used for Religious

the flagrant violation of intellectual property rights,

Charitable
11. Voting requirements in connection with the

and the proliferation of pornographic video tapes. And

while it was also an objective of the DECREE to

Legislative Grant of Tax Exemption

12. Non-impairment of the Supreme Courts

jurisdiction in Tax Cases
13. Tax exemption of Revenues and Assets,

c. A tax levied for a private purpose constitutes

a taking of property without due process of

including Grants, Endowments, Donations or

law.

Contributions to Education Institutions

d. The purposes to be accomplished by
Other

Constitutional

Provisions

related

to

taxation need not be exclusively public.

Taxation

Although private individuals are directly

benefited, the tax would still be valid

1. Subject and Title of Bills

2. Power of the President to Veto an items in
an Appropriation, Revenue or Tariff Bill
3. Necessity of an Appropriation made before

provided such benefit is only incidental.

e. The test is not as to who receives the
money, but the character of the purpose for

money
4. Appropriation of Public Money
5. Taxes Levied for Special Purposes
6. Allotment to LGC

which it is expended; not the immediate

result of the expenditure but rather the
ultimate.

INHERENT LIMITATIONS

f.

In the imposition of taxes, public purpose is

presumed.

Public Purpose of Taxes

a. If taxation is for a public purpose, the tax

Test in determining Public Purposes in tax

must be used:
1. for the support of the state or
2. for some recognized objects of
governments or
3. directly to promote the welfare of

a. Duty Test whether the thing to be

threatened by the appropriation of public
revenue is something which is the duty of the
State, as a government, to protect.

the community (taxation as an

implement of police power)

b. Promotion of General Welfare Test

whether the law providing the tax directly

b. The term public purpose is synonymous

with governmental

purpose; a

purpose

affecting the inhabitants of the state or taxing

district as a community and not merely as
individuals.

promotes the welfare of the community in

equal measure.

Pascual vs Secretary of Public Works and

Exceptions:

Communications
110 Phil. 331

a. Delegation to the President (Art.VI. Sec.

28(2) 1987 Constitution)

Facts: Pascual assailed the validity of RA 920

appropriating P85,000.00 for the construction,
reconstruction, repair, extension and improvement
Pasig feeder road terminals. He claimed that the
appropriation was actually going to be used for
private use for the terminals sought to be improved
were part of the Antonio Subdivision. The said
Subdivision is owned by Senator Jose Zulueta who
was a member of the same Senate that passed and
approved RA 920.
Issue: Whether or not the appropriation is valid.
Held: No, the appropriation is void for being an
appropriation for a private purpose. In accordance
with the rule that the taxing power must be exercised
for public purposes only, money raised by taxation
can be expanded only for public purposes and not for
the advantage of private individuals. Inasmuch as
the land on which the projected feeder roads were to

The
Congress

power

under

granted

this

to

constitutional

provision to authorize the President to

fix within specified limits and subject to
such limitations and restrictions as it
may impose, tariff rates and other duties
and imposts include tariffs rates even for
revenue purposes only. Customs duties
which are assessed at the prescribed
tariff rates are very much like taxes
which are frequently imposed for both
revenue-raising
purposes (Garcia

and

regulatory

vs

Executive

Secretary, et. al., G.R. No. 101273, July

3, 1992)
b. Delegations to the Local Government
(Art. X. Sec. 5, 1987 Constitution)

be constructed belonged then to Zulueta, the result is

It has been held that the

that said appropriation sought a private purpose, and,

general principle against the delegation

hence, was null and void.

of legislative powers as a consequence

of the theory of separation of powers is
subject

Non-delegability of Taxing Power

Rationale: Doctrine of Separation of Powers;
Taxation is purely legislative, Congress cannot
delegate the power to others.

to

one

well-established

exception, namely, that legislative power

may be delegated to local governments.
The

theory

of

non-delegation

of

legislative powers does not apply in

matters of local concern. (Pepsi-Cola

Bottling Co. of the Phil, Inc. vs City of

administration, the non-delegability rule is not

Butuan, et . al., L-22814, Aug. 28, 1968)

violated.

c. Delegation to Administrative Agencies with

respect to aspects of Taxation not
legislative in character.

Territoriality or Situs of Taxation

1. Territoriality

or

Situs

of

Taxation

means place of taxation depending on the

Limitations on Delegation

nature of taxes being imposed.

2. It is an inherent mandate that taxation shall
any

only be exercised on persons, properties,

Constitutional provisions or inherent

and excise within the territory of the taxing

1. It

shall

not

contravene

power because:

limitations of taxation;
2. The delegation is effected either by

a. Tax laws do not operate beyond a

the Constitution or by validly

enacted legislative measures or

countrys territorial limit.

b. Property which is wholly and

statute; and
3. The delegated levy power, except

exclusively within the jurisdiction of

another state receives none of the

when the delegation is by an

protection for which a tax is

express provision of Constitution

supposed to be compensation.

itself, should only be in favor of the

local legislative body of the local or
municipal government concerned.

3. However, the fundamental basis of the right

to tax is the capacity of the government to
provide benefits and protection to the object

Tax Legislation vis--vis Tax Administration

of the tax. A person may be taxed, even if he

is outside the taxing state, where there is

Every system of taxation consists of two parts:

between him and the taxing state, a privity of

relationship justifying the levy.

a. the elements that enter into the

imposition of the tax, or tax
regulation; and
b. the steps taken for its assessment

Factors to Consider in determining Situs of

Taxation

and collection or tax administration

If what is delegated is tax legislation, the
delegation is invalid; but if what is involved is only tax

1.
2.
3.
4.

kind and Classification of the Tax

location of the subject matter of the tax
domicile or residence of the person
citizenship of the person

5. source of income
6. place where the privilege, business or

1. The property of a foreign state or

government may not be taxed by another.

occupation is being exercised

2. The grounds for the above rule are:
a. sovereign equality among states
b. usage among states that when one

Exemption of the Government from Taxes

enter into the territory of another, there

Reasons for Exemptions:

is an implied understanding that the

power does not intend to degrade its

1. To levy tax upon public property would render

dignity by placing itself under the

necessary new taxes on other public property for

the payment of the tax so laid and thus, the

jurisdiction of the latter

c. foreign government may not be sued

government would be taxing itself to raise money

without its consent so that it is useless

to pay over to itself;

2. In order that the functions of the government

to assess the tax since it cannot be

collected
d. reciprocity among states

shall not be unduly impede; and

3. To reduce the amount of money that has to be
handed by the government in the course of its
operations.

CONSTITUTIONAL LIMITATIONS
Due Process of Law

Unless otherwise provided by law, the exemption

applies only to government entities through which the

Basis: Sec. 1 Art. 3 No person shall be deprived of

government immediately and directly exercises its

life, liberty or property without due process of law x x

sovereign powers (Infantry Post

x.

Exchange

vs

Posadas, 54 Phil 866). Notwithstanding the immunity,

the government may tax itself in the absence of any
constitutional

limitations.

or

distinguished from those of a particular class

controlled corporations, when performing proprietary

functions are generally subject to tax in the absence

require the intervention of the state;

2. The means employed must be reasonably

of tax exemption provisions in their charters or law

necessary to the accomplishment for the

creating them.

Government-owned

1. The interest of the public generally as

purpose and not unduly oppressive;

3. The deprivation was done under the
authority of a valid law or of the constitution;

International Comity

and

4. The deprivation was done after compliance

Basis: Sec. 28(1) Art. VI. The rule of taxation shall be

with fair and reasonable method of

uniform and equitable. The Congress shall evolve a

procedure prescribed by law.

progressive system of taxation.

In a string of cases, the Supreme Court held that

1. Uniformity (equality or equal protection of

in order that due process of law must not be done in

the laws) means all taxable articles or kinds

an arbitrary, despotic, capricious, or whimsical

or property of the same class shall be taxed

manner.

at the same rate. A tax is uniform when the

same force and effect in every place where

Equal Protection of the Law

the subject of it is found.

2. Equitable means fair, just, reasonable and

Basis: Sec.1 Art. 3 xxx Nor shall any person be

proportionate to ones ability to pay.

3. Progressive system of Taxation places

denied the equal protection of the laws.

1. Equal protection of the laws signifies that all
persons subject to legislation shall be treated
under circumstances and conditions both in
the privileges conferred and liabilities
imposed
2. This doctrine prohibits class legislation which
discriminates against some and favors
others.
Requisites for a Valid Classification
1. Must not be arbitrary
2. Must not be based upon substantial
distinctions
3. Must be germane to the purpose of law.
4. Must not be limited to existing conditions
only; and
5. Must play equally to all members of a class.

stress on direct rather than indirect taxes, or

on the taxpayers ability to pay
4. Inequality which results in singling out one
particular class for taxation or exemption
infringes no constitutional limitation. (see
Commissioner vs. Lingayen Gulf Electric,
164 SCRA 27)
5. The rule of uniformity does not call for
perfect

uniformity

or

perfect

equality,

because this is hardly attainable.

Freedom of Speech and of the Press

Basis: Sec. 4 Art. III. No law shall be passed
abridging the freedom of speech, of expression or of
the pressx x x
1. There is curtailment of press freedom and
freedom of thought if a tax is levied in order

Uniformity, Equitability and Progressivity of

to suppress the basic right of the people

Taxation

under the Constitution.

2. A business license may not be required for

1. A law which changes the terms of the

the sale or contribution of printed materials

contract by making new conditions, or

like newspaper for such would be imposing a

changing those in the contract, or dispenses

prior restraint on press freedom

3. However, an annual registration fee on all

with those expressed, impairs the obligation.

2. The non-impairment rule, however, does not

persons subject to the value-added tax does

apply to public utility franchise since a

not constitute a restraint on press freedom

franchise is subject to amendment, alteration

since it is not imposed for the exercise of a

or repeal by the Congress when the public

privilege but only for the purpose of

interest so requires.

defraying part of cost of registration.

Non-imprisonment for non-payment of poll tax
Non-infringement of Religious Freedom
Basis: Sec. 5 Art. III. No law shall be made

Basis: Sec. 20 Art. III. No person shall be

imprisoned for debt or non-payment of poll tax.

respecting an establishment of religion or prohibiting

the free exercise thereof. The free exercise and

1. The only penalty for delinquency in payment

enjoyment of religious profession and worship,

is the payment of surcharge in the form of

without discrimination or preference, shall be forever

interest at the rate of 24% per annum which

be allowed.

shall be added to the unpaid amount from

1. License fees/taxes would constitute a

restraint on the freedom of worship as they
are actually in the nature of a condition or
permit of the exercise of the right.
2. However, the Constitution or the Free
Exercise of Religion clause does not prohibit
imposing a generally applicable sales and
use tax on the sale of religious materials by

due date until it is paid. (Sec. 161, LGC)

2. The prohibition is against imprisonment for
non-payment of poll tax. Thus, a person is
subject to imprisonment for violation of the
community tax law other than for nonpayment of the tax and for non-payment of
other taxes as prescribed by law.
Origin or Revenue, Appropriation and Tariff Bills

a religious organization. (see Tolentino vs

Basis: Sec. 24 Art. VI. All appropriation, revenue or

Secretary of Finance, 235 SCRA 630)

tariff bills, bill authorizing increase of the public debt,

bills of local application, and private bills shall

Non-impairment of Contracts

originate exclusively in the House of Representatives,

but the Senate may propose or concur with

Basis: Sec. 10 Art. III. No law impairing the

amendments. Under the above provision, the

obligation of contract shall be passed.

Senators power is not only to only concur with

amendments but

also

to

propose

amendments. (Tolentino vs Sec. of Finance)

5. The constitutional exemption applies only to

property tax.

Delegation of Legislative Authority to Fix Tariff

Rates, Imports and Export Quotas

Voting Requirements in connection with the

Legislative Grant for tax exemption

Basis: Sec. 28(2) Art. VI x x x The Congress may, by

law, authorize the President to fix within specified

Basis: Sec. 28(4) Art. VI. No law granting any tax

limits, and subject to such limitations and restrictions

exemption shall be passed without the concurrence of

as it may impose, tariff rates, import and export

a majority of all the members of the Congress. The

quotas, tonnage and wharfage dues, and other duties

provision requires the concurrence of a majority not of

or imposts within the framework of the national

attendees constituting a quorum but of all members of

development program of the government.

the Congress.

Tax Exemption of Properties Actually, Directly and

Exclusively used for Religious, Charitable and
Educational Purposes

Non-impairment

of

the

Supreme

Courts

jurisdiction in Tax Cases

Basis: Sec. 5 (2) Art. VIII. The Congress shall have
the power to define, prescribe, and apportion the

Basis: Sec. 28(3) Art. VI. Charitable institutions,

jurisdiction of the various courts but may not deprive

churches and parsonages or convents appurtenant

the Supreme Court of its jurisdiction over cases

thereto, mosques, non-profit cemeteries, and all

enumerated in Sec. 5 hereof. Sec. 5 (2b) Art. VIII.

lands, building, and improvements actually, directly

The Supreme Court shall have the following powers:

and exclusively used for religious, charitable or

x x x(2) Review, revise, modify or affirm on appeal or

educational purposes shall be exempt from taxation.

certiorari x x x final judgments and orders of lower

1. Test of the tax exemption: the use and not

ownership of the property
2. To be tax-exempt, the property must be

courts in x x x all cases involving the legality of any

tax, impost, assessment, or toll or any penalty
imposed in relation thereto.

actually, directly and exclusively used for the

purposes mentioned.
3. The word exclusively means primarily.
4. The exemption is not limited to property
actually indispensable but extends to
facilities which are incidental to and
reasonably

necessary

for

accomplishment of said purposes.

the

Tax Exemptions of Revenues and Assets,

including grants, endowments, donations or
contributions to Educational Institutions
Basis: Sec. 4(4) Art. XIV. Subject to the conditions
prescribed by law, all grants, endowments, donations

or contributions used actually, directly and exclusively

for educational purposes shall be exempt from tax.

Power of the President to Veto items in an

Appropriation, Revenue or Tariff Bill (Sec. 27(2),

1. The exemption granted to non-stock, non-

Art. VI of the 1987 Constitution)

profit educational institution covers income,

The President shall have the power to veto any

property, and donors taxes, and custom

particular item or items in an Appropriation, Revenue

duties.
2. To be exempt from tax or duty, the revenue,

or Tariff bill but the veto shall not affect the item or
items to which he does not object.

assets, property or donation must be used

actually,

directly

and

exclusively

for

educational purpose.
3. In the case or religious and charitable
entities and non-profit cemeteries, the
exemption is limited to property tax.
4. The said constitutional provision granting tax
exemption

to

non-stock,

non-profit

educational institution is self-executing.

5. Tax exemptions, however, of proprietary (for
profit) educational institutions require prior
legislative

implementation.

Their

tax

Necessity of an Appropriation made before money

may be paid out of the Treasury (Sec. 29(1), Art. VI
of the 1987 Constitution)
No money shall be paid out of the Treasury except in
pursuance of an appropriation made by law.
Appropriation of Public Money for the benefit of
any Church, Sect, or System of Religion (Sec.
29(2), Art. VI of the 1987 Constitution)

exemption is not self-executing.

6. Lands, Buildings, and improvements
actually, directly, and exclusively used for
educational purposed are exempt from
property tax, whether the educational

No public money or property shall be appropriated,

applied, paid or employed, directly or indirectly for the
use,

benefit,

support

of

any

sect,

church,

denomination, sectarian institution, or system of

institution is proprietary or non-profit.

religion or of any priest, preacher, minister, or other

Other

Constitutional

Provisions

related

to

Taxation

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

Subject and Title of Bills (Sec. 26(1) 1987

government orphanage or leprosarium.

Constitution)
Taxes levied for Special Purpose (Sec. 29(3), Art.
Every Bill passed by Congress shall embrace only
one subject which shall be expressed in the title
thereof.

VI of the 1987 Constitution)

All money collected or any tax levied for a special

Persons Poll tax may be levied upon persons who

purpose shall be treated as a special fund and paid

are residents of the State.

out for such purpose only. It the purpose for which a

special fund was created has been fulfilled or

Real Property is subject to taxation in the State in

abandoned the balance, if any, shall be transferred to

which it is located whether the owner is a resident or

the general funds of the government.

non-resident, and is taxable only there

An example is the Oil Price Stabilization Fund created

Tangible Personal property taxable in the state

under P.D. 1956 to stabilize the prices of imported

where it has actual situs where it is physically

crude oil. In a decide case, it was held that where

located. Although the owner resides in another

under an executive order of the President, this special

jurisdiction.

fund is transferred from the general fund to a trust

liability account, the constitutional mandate is not

Intangible Personal Property situs or personal

violated. The OPSF, according to the court, remains

property is the domicile of the owner, in accordance

as a special fund subject to COA audit (Osmea vs

with

Orbos, et al., G.R. No. 99886, Mar. 31, 1993)

PERSONAM, said principle, however, is not

the

principle MOBILIA

SEQUUNTUR

controlling when it is inconsistent with express

Allotment to Local Governments

provisions of statute or when justice demands that it

should be, as where the property has in fact a situs

Basis: Sec. 6, Art. X of the 1987 Constitution

elsewhere. (Wells Fargo Bank v. Collector 70 PHIL

Local Government units shall have a just share,

325; Collector v. Fisher L-11622, January, 1961)

as determined by law, in the national taxes which

shall be automatically released to them.

Income properly exacted from persons who are

residents or citizens in the taxing jurisdiction and even

SITUS

OF

TAXATION

AND

DOUBLE

TAXATION

those who are neither residents nor citizens provided

the income is derived from sources within the taxing
state.

Situs of Taxation literally means the Place of

Taxation.

Business, Occupation, and Transaction power to

levy an excise tax depends upon the place where the

Basic Rule state where the subject to be taxed has

business is done, of the occupation is engaged in of

a situs may rightfully levy and collect the tax

the transaction not place.

Gratuitous Transfer of Property transmission of

Requisites:

property from donor to donee, or from a decedent to

1.
2.
3.
4.
5.
6.

his heirs may be subject to taxation in the state where

the transferor was a citizen or resident, or where the
property is located.
Multiplicity of Situs

Same property is taxed twice

Same purpose
Same taxing authority
Within the same jurisdiction
During the same taxing period
Same kind or character of tax

Permissive or Indirect Duplicate Taxation (Double

taxation in its broad sense) This is the opposite of

There is multiplicity of situs when the same subject of

taxation, like income or intangible, is subject to
taxation in several taxing jurisdictions. This happens
due to:

direct

double

taxation

and

is

not

legally

objectionable. The absence of one or more of the

foregoing requisites of the obnoxious direct tax makes
it indirect.

1. Variance in the concept of domicile for tax

purposes;
2. Multiple distinct relationship that may arise
with respect to intangible personality; and
3. The use to which the property may have
been devoted, all of which may receive the
protection of the laws of jurisdiction other
than the domicile of the owner

Instances of Double Taxation in its Broad Sense

1. A tax on the mortgage as personal property
when the mortgaged property is also taxed
at its full value as real estate;
2. A tax upon a corporation for its capital stock
as a whole and upon the shareholders for
their shares;
3. A tax upon a corporation for its capital stock

Remedy taxation jurisdiction may provide:

a. Exemption or allowance of deductions or tax
credit for foreign taxes
b. Enter into treaties with other states
Double Taxation

as a whole and upon the shareholders for

their shares;
4. A tax upon depositions in the bank for their
deposits and a tax upon the bank for their
property in which such deposits are invested
5. An excise tax upon certain use of property
and a property tax upon the same property;

Two Kinds
Obnoxious or Direct Duplicate Taxation (Double

and
6. A tax upon the same property imposed by
two different states.

taxation in its strict sense) - In the objectionable or

prohibited sense means that the same property is
taxed twice when it should be taxed only once.

Means to Reduce the Harsh Effect of Taxation

1. Tax Deduction subtraction from gross income

are imposed as first tax is different from the

in arriving a taxable income

2. Tax Credit an amount subtracted from an

second
4. Where, aside from the tax, a license fee is

individuals or entitys tax liability to arrive at the

imposed in the exercise of police power.

total tax liability

A deduction differ from a tax credit in that a
deduction reduces taxable income while credit
reduces tax liability

Exception: Double Taxation while not forbidden, is

something not favored. Such taxation, it has been
held, should, whenever possible, be avoided and
prevented.

3. Exemptions
4. Treaties with other States
5. Principle of Reciprocity

1. Doubts as to whether double taxation has

been imposed should be resolved in favor of
the taxpayer. The reason is to avoid

Constitutionality
Double Taxation in its stricter sense is undoubtedly

injustice and unfairness.

2. The taxpayer may seek relief under the
Uniformity Rule or the Equal Protection

unconstitutional but that in the broader sense is not

guarantee.

necessarily so.
General Rule: Our Constitution does not prohibit

FORMS OF ESCAPE FROM TAXATION

double taxation; hence, it may not be invoked as a

defense against the validity of tax laws.

Six Basic Forms of Escape from Taxation

1. Where a tax is imposed by the National

1.

Shifting

Government and another by the city for the

2.

Capitalization

exercise of occupation or business as the

3.

Transformation

taxes are not imposed by the same public

4.

Evasion

authority (City of Baguio vs De Leon, Oct.

5.

Avoidance

31, 1968)
2. When a Real Estate dealers tax is imposed

6.

Exemption

for engaging in the business of leasing real

Shifting

estate in addition to Real Estate Tax on the

property leased and the tax on the income

Transfer of the burden of a tax by the original payer or

desired as they are different kinds of tax

3. Tax on manufacturers products and another

the one on whom the tax was assessed or imposed to

tax on the privilege of storing exportable

copra in warehouses within a municipality

another or someone else.

Impact of taxation is the point at which a tax is

improving his process of production thereby turning

originally imposed.

out his units of products at a lower cost.

Incidence of Taxation is the point on which a tax

burden finally rests or settles down.

Tax Evasion

Relations among Shifting, Impact and Incidence

of Taxation the impact is the initial phenomenon,

The use of the taxpayer of illegal or fraudulent means

the shifting is the intermediate process, and the

to defeat or lessen the payment of a tax.

incidence is the result.

Indicia of Fraud in Taxation
Kinds of Shifting:

1. Failure to declare for taxation purposes

1. Forward Shifting the burden of tax is

true and actual income derived from

transferred from a factor of production

business for two consecutive years,

through the factors of distribution until it

and
2. Substantial underdeclaration of income

finally settles on the ultimate purchaser or

tax returns of the taxpayer for four

consumer
2. Backward Shifting effected when the

consecutive

burden of tax is transferred from the

years

coupled

with

overstatement of deduction.

consumer or purchaser through the factors

of distribution to the factor of production
3. Onward Shifting this occurs when the tax
is shifted two or more times either forward or

Evasion of the tax takes place only when there are no

proceeds. Evasion of Taxation is tantamount, fiscally
speaking, to the absence of taxation.

backward
Tax Avoidance
Capitalization
The use by the taxpayer of legally permissible
The reduction in the price of the taxed object equal to
the capitalized value of future taxes which the
purchaser expects to be called upon to pay
Transformation

alternative tax rates or method of assessing taxable

property or income in order to avoid or reduce tax
liability.
Tax Avoidance is not punishable by law, a taxpayer
has the legal right to decrease the amount of what

The method whereby the manufacturer or producer

upon whom the tax has been imposed, fearing the
loss of his market if he should add the tax to the price,
pays the tax and endeavors to recoup himself by

otherwise would be his taxes or altogether avoid by

means which the law permits.

1. May be based on a contract in which

EXEMPTION FROM TAXATION

case, the public represented by the

Tax Exemption is a grant of immunity, express or

Government is supposed to receive a full

implied, to particular persons or corporations from the

equivalent therefore.
2. May be based on some ground of public

obligations to pay taxes.

policy, such
encourage

Nature of Tax Exemption

1. It is merely a personal privilege of the
grantee
2. It is generally

revocable

by

the

government unless the exemption is

founded on a contract which is protected
from impairment, but the contract must
contain the other essential elements of
contracts, such as, for example, a valid
cause or consideration.
3. It implies a waiver on the part of the

as, for
new

example,

and

to

necessary

industries.
3. May be created in a treaty on grounds of
reciprocity or to lessen the rigors of
international double or multiple taxation
which occur where there are many taxing
jurisdictions, as in the taxation of income
and intangible personal property.
Equity, not a ground for Tax Exemption

government of its right to collect what

There is no tax exemption solely on the ground of

otherwise would be due to it, and in this

equity, but equity can be used as a basis for statutory

sense is prejudicial thereto.

4. It is not necessarily discriminatory so

exemption. At times the law authorizes condonation

long as the exemption has a reasonable

of taxes on equitable considerations. (Sec 276, 277,

Local Government Code)

foundation or rational basis.

Kinds of Tax Exemptions
Rationale of tax Exemption
As to basis
Public interest would be subserved by the

1. Constitutional Exemptions Immunities

exemption allowed which the law-making body

from taxation which originate from the

considers sufficient to offset monetary loss entailed in

the grant of the exemption. (CIR vs Bothelo Shipping
Corp.,

L-21633, June 29, 1967; CIR vs PAL, L-

Constitution
2. Statutory Exemptions

Those

which

emanate from Legislation

20960, Oct. 31, 1968)

As to form
Grounds for Tax Exemptions

1. Express Exemption Whenever expressly

granted by organic or statute of law

2. Implied

Exemption

Exist

whenever

8. Deductions for income tax purposes

particular persons, properties or excises are

partake of the nature of tax exemptions,

deemed exempt as they fall outside the

hence, they are strictly construed against

scope of the taxing provision itself

the tax payer

9. A tax amnesty, much like a tax exemption
is never favored or presumed by

As to extent

law (CIR vs CA, G.R. No. 108576, Jan.

1. Total Exemption Connotes absolute

20, 1999)
10. The rule of strict construction of tax

immunity
2. Partial Exemption One where collection

exemption should not be applied to

of a part of the tax is dispensed with

organizations

performing

strictly

religious, charitable, and educational

Principles Governing the Tax Exemption

functions

1. Exemptions from taxation are highly

disfavored by law, and he who claims an
exemption must be able to justify by the

Other Doctrines in Taxation

clearest grant of organic or statute of

law. (Asiatic Petroleum vs Llanes, 49

Prospectivity of Tax Laws

PHIL 466; Collector of Internal Revenue

vs. Manila Jockey Club, 98 PHIL 670)
2. He who claims an exemption must justify

General

Rule: Taxes

must

only

be

imposed prospectively

that the legislative intended to exempt

him

by

words

too

plain

to

be

Exception: The language of the statute clearly

mistaken. (Visayan Cebu Terminal vs

demands or express that it shall have a retroactive

CIR, L-19530, Feb. 27, 1965)

3. He who claims exemptions should
convincingly proved that he is exempt
4. Tax exemptions must be strictly
construed (Phil. Acetylene vs CIR, L19707, Aug. 17, 1967)
5. Tax
Exemptions

Important Points to Consider

1. In order to declare a tax transgressing
the

are

not

presumed. (Lealda Electric Co. vs CIR,

L-16428, Apr. 30, 1963)
6. Constitutional grants of tax exemptions
are self-executing (Opinion No. 130,
1987, Sec. Of Justice)
7. Tax exemption are personal.

effect.

due

process

clause

of

the

Constitution it must be so harsh and

oppressive

in

its

retroactive

application (Fernandez vs Fernandez, 99

PHIL934)
2. Tax laws are neither political nor penal in
nature they are deemed laws of the
occupied

territory

rather

than

the

occupying enemy. (Hilado vs Collector,

This doctrine, however, was rejected by the Supreme

100 PHIL 288)

3. Tax laws not being penal in character, the

Court, saying that it was not convinced of the wisdom

rule in the Constitution against the

passage of the ex post facto laws cannot
be

invoked, except for

the

penalty

imposed.
Imprescriptibility of Taxes
General Rule: Taxes are imprescriptible

and proprietary thereof, and that it may work to tempt

both the collecting agency and the taxpayer to delay
and neglect their respective pursuits of legal action
within the period set by law. (Collector vs UST, 104
PHIL 1062)
Taxpayers Suit
It is only when an act complained of, which may
include legislative enactment, directly involves the

Exception: When provided otherwise by the tax law

itself.

illegal disbursement of public funds derived from

taxation that the taxpayers suit may be allowed.

Example: NIRC provides for statutes of limitation

in the assessment and collection of taxes therein

Interpretation and Construction of Tax Statutes

imposed
1. On the interpretation and construction of tax
The law on prescription, being a remedial
measure, should be liberally construed to afford

statutes, legislative intention must be

considered.

protection as a corollary, the exceptions to the law on

prescription be strictly construed. (CIR vs CA. G.R.
No. 104171, Feb. 24, 1999)

2. In case of doubt, tax statutes are construed

strictly against the government and liberally
construed in favor of the taxpayer.

Doctrine of Equitable Recoupment

3. The rule of strict construction against the
It provides that a claim for refund barred by
prescription may be allowed to offset unsettled tax
liabilities should be pertinent only to taxes arising

government is not applicable where the

language of the tax law is plain and there is
no doubt as to the legislative intent.

from the same transaction on which an overpayment

is made and underpayment is due.

4. The exemptions (or equivalent provisions,

such as tax amnesty and tax condonation)

are not presumed and when granted are

c. Exemptions

strictly construed against the grantee.

Government, its political subdivisions;

d. Exemptions to traditional exemptees,

5. The exemptions, however, are construed

liberally in favor of the grantee in the
following:

in

favor

of

such as, those in favor of charitable

institutions.
6. The tax laws are presumed valid.

a. When the law so provides for such

liberal construction;
b. Exemptions from certain taxes granted
under special circumstances to special
classes of persons;

the

7. The power to tax is presumed to exist.