1
.iJune 23, 2016 - Florienne Melendrez
First part: course requirements
So on the top of the outline given by Atty. Donalvo, you will have additional
readings. You will have to read the books of De Leon and Aban. Tax 1 covers
only the principles in income taxation.
For the principles: In the book of De Leon we will take up chapter 1, A to G.
In the book of Aban, we will take up chapters 1 to 4.
I. GENERAL PRINCIPLES
Taxation has been defined as the power of the sovereign to
impose burdens or charges upon persons, property or property rights for
the use and support of the government to enable it to discharge its
functions.
So you have more or less encountered taxation in your study of
constitutional law. This is one of the inherent powers of the state. You have
police power, eminent domain and taxation. As a rule, similar to police
power and eminent domain, the power of taxation exists without any
constitutional or legislative grant because it is an inherent power of the
state. So it is called inherent power of the sovereign because once the state
is created, these three powers will rise.
Why is taxation important?
It has similar importance with police power and eminent domain because
the state could not operate without the necessary revenue or funds to drive
the government.
So, where will the government generate money so that it could pay for its
personnel, deliver services, build hospitals, build roads, pay salaries for public
school teachers, etc.?
That is placed on the power of taxation. So the revenue of the state is
derived from taxes, fees and charges. So, the revenues are not necessarily
sourced from taxation but the revenues may be sourced also from the
collection fees because in the exercise of police power, there are fees that
are imposed such as license fees, among others. So these fees are also
revenues.
And we also have charges: in the deliberate (?) services like when you secure
certified copies of a title, a birth certificate, marriage contract or the other
dealings you do with the government where they bill you for service
charges. These charges will form part of the revenue.
So taxes, fees and charges will go to the coffers of the government. So once
these revenues are generated, the government, specifically the legislative
branch will now prepare the budget. Once they have appropriated the
money, it is now the executive branch which now disburse, which will now
spend the money appropriated by congress or the law-making body.
So that is why you have taxation: because the government needs the
money. In the exercise of that power, it says that it is the power of the
sovereign. In other words, so that the government can exercise that power,
it does not need an act of legislation because it already arises once there is
an existence of the state. But in the three branches of the government,
(executive, legislative and judicial) that power is assigned to the law-making
body, the congress or the legislative branch.
Why in the legislative branch?
It is assigned to the legislative branch because once you choose or elect your
representatives, your legislators, they elected through popular votes. They
will represent the people. Since they are the official representatives of the
people then that power is assigned to them. So that’s the congress: the
Senate and the House of Representatives. Under the constitutional
provisions, you have encountered that the house is not superior to the
senate nor the senate is superior to the house. They are co-equal. Later you
will encounter which branch of congress or house is given the power to
exercise taxation.
therefore that the purpose of taxation is to raise revenues and with that
revenue, the government will be able to discharge its functions. This is Can the power of taxation go hand in hand with eminent domain? Take note
anchored on the basis of necessity. Taxes are the lifeblood of the that Eminent Domain is the taking of private property subject to a just
government. In your readings you will always encounter this principle. compensation. Is taxation a taking of property? Yes it is equal to a taking of
property but the principal purpose there is to raise revenue. in eminent
In relation to that principle, in a similar situation like an organization, a domain, when the property is taken there is just compensation like an act of
homeowners association, or a professional organization-- that organization expropriation. Now there is this principle that taxation can go hand in hand
cannot move without the funds so they impose membership fees, receive with eminent domain. So this was illustrated in the case of CIR VS CENTRAL
donations, ask for solicitations to raise funds. Because your organization, LUZON (565 SCRA 414)
despite its noble principles and objectives, can never deliver its objectives
unless you have the necessary revenue. So this money raised from taxation Case Digest
is for the use of the government so that the government can discharge its
functions.
Principally therefore, the purpose of taxation is to raise revenue.
This revenue objective also admits or comes with it the non-revenue
purposes or the incidental non-revenue purposes.
1. Taxation therefore may go hand in hand with police power because you
impose a tax and raise revenue and at the same time regulate. For example,
you have the Motor Vehicle registration fees. They are called registration
fees but they are in the nature of taxes. Owners of motor vehicles are
required to register to be allowed to use their vehicles; they go to the LTO
to register. The money raised from that registration fees goes to
government and the government will use that for other purposes. At the
same time, when that revenue is generated, there is a corresponding
regulation that it carries with it because when you fail to pay, you will be
apprehended because you don’t have the required updated sticker or the
updated license plate etc. You will be apprehended because you don’t have
business on the streets since you did not pay and you will be a hazard on the
street. Or if your vehicle is already delapidated, the LTO will deny
registration because your vehicle should not be on the streets.
2. The other non-revenue objective is that taxation is for the purpose of
promoting or strengthening a business or enterprise and protect the local
industries. Or it may be used as a bargaining (?) tool like in the tariff and
customs code in account of importation. One example is the Anti-dumping
duty which is imposed as a tax but it is being used also with a corresponding
regulatory purpose or as a bargaining tool. When an imported article is
brought into the country, however it is being sold at less than its normal
value, the result is that it injures locally produced products. As a result of
that situation, the Bureau of Customs or the DTI or the DA will recommend
the imposition of Anti-Dumping. When the article enters the country, they
pay the regular customs duties. But because the importation of that article
injured the locally produced products, then merong additional duty
ipapatong yun.
Another example to that is the Safeguard measure which will be taken up
in Tax 2. When the importation is allowed, and there is a surging importation
of that article, maraming nag-iimport, nakatambak na--- the result is that it
injures your locally produced products. But it’s not dumping because it’s not
being sold at less than its normal value. Because of that, the DTI or the DA
will now recommend the imposition of a safeguard measure so that people
will slow down in importing these articles. So it has a corresponding
additional duty.
You also have countervailing this is brought about by subsidy. On the
country of origin, the imported article enjoys a subsidy so pagdating sa
Pilipinas, mura siya. But it’s not dumping. It only enjoys subsidy or bounty
from the country of origin. So they impose an additional duty called the
countervailing.
We also have the discriminatory duty. When in the country of origin,
Philippine products are discriminated and there are products coming in from
that country then they recommend the imposition of discriminatory duty.
If that country continues to discriminate Philippine products despite the
imposition of discriminatory duty on that imported article coming from their
country then we eventually ban the importation.
3. Other than revenue measures, it may be used to reduce inequalities of
wealth and income like the imposition of progressive tax rates.
done within a reasonable time from the grant of the discounts -- cannot be
considered as just compensation. In effect, respondent is made to suffer
the consequences of being immediately deprived of its revenues while
awaiting actual receipt, through the certificate, of the equivalent amount
it needs to cope with the reduction in its revenues.
Besides, the taxation power can also be used as an implement for the
exercise of the power of eminent domain. Tax measures are but "enforced
contributions exacted on pain of penal sanctions" and "clearly imposed
for a public purpose." In recent years, the power to tax has indeed become
a most effective tool to realize social justice, public welfare, and the
equitable distribution of wealth.
While it is a declared commitment under Section 1 of RA 7432, social justice
"cannot be invoked to trample on the rights of property owners who
under our Constitution and laws are also entitled to protection. The social
justice consecrated in our [C]onstitution [is] not intended to take away
rights from a person and give them to another who is not entitled
thereto." For this reason, a just compensation for income that is taken
away from respondent becomes necessary. It is in the tax credit that our
legislators find support to realize social justice, and no administrative body
can alter that fact.
To put it differently, a private establishment that merely breaks even --
without the discounts yet -- will surely start to incur losses because of such
discounts. The same effect is expected if its mark-up is less than 20
percent, and if all its sales come from retail purchases by senior citizens.
Aside from the observation we have already raised earlier, it will also be
grossly unfair to an establishment if the discounts will be treated merely
as deductions from either its gross income or its gross sales. Operating at a
loss through no fault of its own, it will realize that the tax credit limitation
under RR 2-94 is inutile, if not improper. Worse, profit-generating
businesses will be put in a better position if they avail themselves of tax
credits denied those that are losing, because no taxes are due from the
latter.
And the case of Carlo Superdrug
Case Digest
CARLOS SUPERDURG VS DSWD
(GR 166494, 29 June 2007)
FACTS: Petitioners are domestic corporations and proprietors operating
drugstores in the Philippines.
Public respondents, on the other hand, include the DSWD, DOH, DOF,
DOJ, and the DILG which have been specifically tasked to monitor the
drugstores compliance with the law; promulgate the implementing rules
and regulations for the effective implementation of the law; and
prosecute and revoke the licenses of erring drugstore establishments.
(See *Observation)
On February 26, 2004, R.A. No. 9257, amending R.A. No. 7432, was signed
into law by President Gloria Macapagal-Arroyo and it became effective on
March 21, 2004. Section 4(a) of the Act states:
“SEC. 4. Privileges for the Senior Citizens. The senior citizens
shall be entitled to the following:
(a) the grant of twenty percent (20%) discount from all
establishments relative to the utilization of services in hotels and similar
lodging establishments, restaurants and recreation centers, and purchase
of medicines in all establishments for the exclusive use or enjoyment of
senior citizens, including funeral and burial services for the death of senior
citizens; xxx”
Petitioners assert that Section 4(a) of the law is unconstitutional because
it constitutes deprivation of private property. Compelling drugstore
owners and establishments to grant the discount will result in a loss of
profit and capital because 1) drugstores impose a mark-up of only 5% to
wholly of senior citizens. Lastly, the 32% tax rate is to be imposed on
income, not on the amount of the discount.
The issue involved here is the senior citizens’ discount. When the law then
was implemented, all senior citizens who purchased their medicines were
entitled to senior citizens’ discount. So the validity of the law was
questioned because there was a taking of property. Problema ngayon ang
kita; paano niya babawiin yung 20% discount? That discount cannot be
reimbursed from the supplier or the pharmaceutical company which
supplied the medicine to your drugstore. Under the Senior Citizen’s Law,
that reimbursement will be claimed by way of a tax credit. So iipunin nila
yung discount within the year and they will claim it as a tax credit. Later on
the law was amended, this time it’s not anymore a tax credit application, it’s
already a tax deduction because the BIR noticed na parang lugi sila. How
does eminent domain play around that senior citizens’ discount? In the
context of Eminent Domain together with taxation, you have now the
taking of the 20% discount and the just compensation is allowing the
discount to be compensated by way of tax credit. So it goes to say that
eminent domain goes hand in hand with taxation. But when the law was
amended, the discount was then decucted to the gross income of the
pharmacy. It’s not tax crediting but merely tax deduction.
You also have the case of Manila Memorial Park vs DSWD
Case Digest
MANILA MEMORIAL PARK VS DSWD
(GR. 175356)
FACTS: Petitioners Manila Memorial Park, Inc. and La Funeraria Paz-Sucat,
Inc. are domestic corporations engaged in the business of providing
funeral and burial services. They assail the constitutionality of Section 4 of
Republic Act (RA) No. 7432,as amended by RA 9257,and the implementing
rules and regulations issued by the DSWD and DOF insofar as these allow
business establishments to claim the 20% discount given to senior citizens
as a tax deduction.
Petitioners likewise seek a reversal of the ruling in Carlos Superdrug
Corporationthat the tax deduction scheme adopted by the government is
justified by police power.
Petitioners also contend that the tax deduction scheme violates Article
XV, Section and Article XIII, Section 11of the Constitution because it shifts
the State’s constitutional mandate or duty of improving the welfare of the
elderly to the private sector.Under the tax deduction scheme, the private
sector shoulders 65% of the discount because only 35% of it is actually
returned by the government.Consequently, the implementation of the tax
deduction scheme prescribed under Section 4 of RA 9257 affects the
businesses of petitioners.
Petitioners posit that the resolution of this case lies in the determination
of whether the legally mandated 20% senior citizen discount is an exercise
of police power or eminent domain. If it is police power, no just
compensation is warranted. But if it is eminent domain, the tax deduction
scheme is unconstitutional because it is not a peso for peso
reimbursement of the 20% discount given to senior citizens. Thus, it
constitutes taking of private property without payment of just
compensation.
Petitioners further argue that the Supreme Court has previously ruled in
Central Luzon Drug Corporation that the 20% discount is an exercise of the
power of eminent domain, thus, requiring the payment of just
compensation. They urge us to re-examine our ruling in Carlos Superdrug
Corporation which allegedly reversed the ruling in Central Luzon Drug
Corporation
ISSUE: WON the tax deduction scheme is a legitimate exercise of the
State’s police power
RULING: YES. The 20% senior citizen discount is an exercise of police power.
are valid exercises of police power absent a clear showing that it is arbitrary,
oppressive or confiscatory.
The 20% discount is intended to improve the welfare of senior citizens who,
at their age, are less likely to be gainfully employed, more prone to illnesses
and other disabilities, and, thus, in need of subsidy in purchasing basic
commodities. As to its nature and effects, although the regulation affects
its pricing, and hence the profitability of the private establishment, it does
not purport to appropriate or burden specific properties. In other words,
yung operation ng senior citizens discount, even though a tax deduction is
granted it is not an exercise of eminent domain but an exercise of the state’s
police power to protect the senior citizens who in the stage of their lives-- in
their twilight years, care will be extended by the government to them.
It does not purport to appropriate or burden specific properties, used in the
operation or conduct of the business of private establishments, but for the
benefit or use of the public, or senior citizens for that matter and also to
regulate the pricing of goods and services relative to, and the amount of
profits or income/gross sales that such private establishments may derive
from, senior citizens.
The State can employ police power measures to regulate the pricing of
goods and services, and, hence, the profitability of business establishments
in order to pursue legitimate State objectives for the common good,
provided that the regulation does not go too far as to amount to "taking."
So as an act of regulation, there is also a corresponding benefit that is given
to the establishment which extended the discount.
Then you have the basic principles or canons of a sound tax system:
1. Fiscal adequacy
2. Theoretical justice
3. Administrative feasibility
June 28, 2016 – Isaihlene Abad
So you have the Theory of Taxation.
- Taxation proceeds upon the theory that the existence of
government is a necessity. It brings us to the discussion that
taxes are the lifeblood of the government.
Now the basis of this power of taxation - on why taxes are the lifeblood of
the government, why taxes is a necessity- is because of that Reciprocal duty
between the subject of taxation and the state. So it gives the State the
obligation to give protection, and for the subjects of taxation, who are the
citizens of the state, their obligation to support the state, to support the
government.
Question: Should the protection to be given by the state determined on the
extent of support which the subject will give to the state? If the subject of
taxation is able to give and pay more taxes to the state, does that mean that
the state should give him more protection than the one who was not able
to give more support? Is that principle correct?
- No, it is because of the obligation of the state, regardless if the
subject has given or paid more support because of their ability to
pay, and he has more income so he paid more taxes, compared
to that wage earner who paid less.
Should there be a discrimination on when it comes to support?
Ikaw malaki tax mo pwede ka ng bigyan ng AFP guard, ikaw wage
earner ka lang di ka dapat bantayan ng pulis. No. The state has this
legal duty to give protection whether you pay more or less. The
protection to be given by the State should be the same to all
subjects of taxation.
Now, we also discussed about the nature and the power of taxation.
- The power of taxation is said to be the power of the sovereign.
So taxation is inherent in sovereignty. And that power is
legislative in character because the power to tax is given to the
law making body. For the reason that we elect and choose our
Now we go to the Principles of a Sound Tax System
In order for us to have a sound tax system it must have these three:
1. Fiscal Adequacy
2. Equality or Theoretical Justice
3. Administrative Feasibility
FISCAL ADEQUACY. What do we mean by Fiscal Adequacy?
- It tells us that the sources of revenue, taken as whole, should be
sufficient to meet the varying levels of expenditure, regardless of
business condition and problems on economic adjustment.
Remember that the State, through the law making body, has the discretion
to determine its tax system. So in determining a tax system which is sound,
the state should be able to legislate and enact sufficient tax measures,
sufficient tax laws. So that these tax laws would determine how much
would we be able to generate revenue, to generate funds to be used by the
government.
So the principle therefore tells you that the sources of revenue, which is
principally from the taxes, taken as a whole, should be able to meet the
varied levels of expenditures of government.
Ano naman ang expenses ng gobyerno? Salaries of employees, medical
services and other governmental expenditures. These expenditures of the
government, should be able to meet the economic provisions of the country
as well as problems on economic adjustment. The sources of revenue should
be sufficient to meet the varied levels of expenditure, regardless of business
condition and problems on economic adjustment. The tax system or the
prevailing tax measures that the state have should be able to expand in
response to variations in public expenditures. So the government prepares
the budget, and the budget is submitted to Congress for its proper
appropriation. And that budget would be sourced from the revenues, from
the taxes collected by the State. So regardless of the sources of revenue
therefore, it must be able to expand the contract.
Situation: So, what happens when there is a shortage in collection, like in
the enforcement of income tax there is only 20% compliance? Saan ang 80%?
In other words, the government is unable to collect because only 20%
complied? You have problems in collection, less revenue. What will Congress
do? Increase the tax rate? Is that the correct solution? So that is what fiscal
adequacy means. Problems with the collection and enforcement of the law
should not be resolved through legislating or enacting more taxes. The
state, through the executive branch in charge of tax administration, should
be able to enforce the tax laws. You should not go to Congress every now
and then, kung bakit ito lang ang nakokolekta? So increase na agad ang tax
rates? No, it defeats the purpose of fiscal policy.
So you have that case of Chavez vs. Ongpin and in your outline by Atty
Donalvo, you have the case of Abakada vs. Guro Partylist, in connection
with the VAT.
CHAVEZ VS ONGPIN
FACTS: Section 21 of PD 464 provides that every 5 years starting calendar
year 1978, there shall be a provincial or city general revision of real property
assessments, to take effect on January 1, 1979. The revised assessment shall
be the basis for the computation of real property taxes for the 5 succeeding
years. On the strength of the aforementioned law, the general revision of
assessments was completed in 1984. However, EO 1019 was issued, which
deferred the collection of real property taxes based on the 1984 values to
January 1, 1988 instead of January 1, 1985.On November 25, 1986, President
Aquino issued EO 73. It states that beginning January 1, 1987, the 1984
assessments shall be the basis of the real property collection. Thus, it
effectively repealed EO 1019.
Francisco Chavez, owner of parcels of land, challenges the constitutionality can pay online, you can pay to the bank. Now, we have the EFPS – Electronic
of EO 73. He said that the increasing real property taxes is oppressive and Filing and Payment System. Download forms and go the bank for payment.
excessive. Intervenor Realty Owners Association of the Phil (ROAP) also
challenged the constitutionality of EO 73 and EO 464. ROAP additionally Let us now go to the Classifications and Distinctions.
alleges that the General Revision of Assessments does not meet the
As a review, the burden of the charge imposed by the sovereign upon
persons, property or property rights is what we call the Tax. The power of
taxation is simply the power to enact and enforce tax.
And what are the Characteristics of a Tax?
1. It is an enforced obligation
2. Payable in money
3. Compulsory in character
4. Levied in persons, property or property rights
5. Levied by the state in its jurisdiction
6. Levied by the law making body, and;
7. Levied for public purpose.
So pabalik balik lang ito when you read all along.
We go now to Classification:
1. As to Subject Matter
a. Personal Tax – Poll or Capitation tax. Tax on the person, like the
poll tax or the cedula or community tax certificate. It is a tax
imposed on the person, including natural as well as juridical
persons, who establish residency in a particular locality and made
to pay this personal tax.
b. Property Tax – Tax imposed on the property
c. Excise Tax – Tax imposed for the exercise of a privilege - of
transferring property, entering into a business, of exercising an
occupation. It is collectively called as an excise tax.
2. As to WHO bears the burden (More important matter)
a. Direct Tax
b. Indirect Tax
What is the importance of the distinction?
In the case of a Direct tax, it is the statutory tax payer who shoulders the
liability as well as the burden of the tax. Because in taxation, there is what
we call as the burden of the tax and there is also the liability of the tax. So
when the burden and liability are with the same subject of taxation, then
that is a direct tax.
But when the burden is imposed to another person and the liability is also
carried by another person but involving the same tax, that is no longer a
direct tax but an Indirect tax. Because the statutory tax payer, the one who
is liable to the tax, is the one who shifts the burden of the tax to another
person.
Example is the VAT. This VAT is added to the price and then, the consumer
who purchase the product will pay for the total price along with the tax.
Pero sino ang nagbabayad? The seller is the statutory tax payer, the one liable
under the law. But the one who shoulders the burden is the consumer of the
products, goods or services. So that is the nature of the indirect tax.
Question: Now, can Congress legislate and prohibit that the
burden of the tax will no longer be shifted? Na hindi na pwede
ipasa, hindi na pwede ishift, na kapag ikaw ang statutory tax payer,
dapat ikaw na ang magbabayad niyan? Can Congress do that? We
may not answer it this time, you may be called to answer it next
time. So, can you legislate that the shifting or passing of burden
is now prohibited? You should be able to answer that.
3. As to Determination of Amount
a. Specific: Based on a certain or a manner of measurement; on the
basis of weight. This type of tax is peculiar to those products which are
produced or manufactured like gasoline, alcohol products, cigars and
cigarettes. Through a certain method of measurement, that is where
the tax is determined.
b. Ad Valorem: amount is determined on the value; means based on
the value of the article. It requires the intervention of assessors or
TAX VS PENALTY
Then we have the term Penalty. Penalty also operates different from a tax.
However, take note that for violating tax laws, you will be penalized.
Question: Now, is the imposition of the penalty, a tax?
- Again, no. A penalty is different from a tax, a penalty is imposed
for violations, these are sanctions, but a tax does not operate as
a sanction, it is an imposed contribution, your share as a subject
or an object of taxation, because you are required to support the
state, and the state in return will give you protection.
So, in the case of penalty, the penalty may be imposed through
imprisonment, or the payment of money or both. But such impositions,
while they may be burdens or charges, they are not in the nature of a tax,
but sanctions for the violation of a law.
Now, our tax laws, for that matter imposes penalties. But the penalties are
there not to make our tax laws criminal or penal in nature. Tax laws are not
criminal or penal in nature. But if you go to our tax laws, the NIRC or the
Tariff and Customs Code there are sanctions or penalties, such as
imprisonment or fine or both, but despite such penalties, it will not make
our tax laws criminal or penal in nature. The penalties are there to ensure
prompt payment of taxes.
TAX VS SPECIAL ASSESSMENT
Then you have the term special assessment. This special assessment or what
is known as special levy, we will tackle this when we take the local tax in Tax
2.
Now, in your principles, a special assessment is levied only on land. It cannot
be made a personal liability of the person assessed because it is imposed on
land. It is based only on benefits and it is exceptional on both as to time and
locality.
Situation. So ano ba yang special assessment or special levy? Example is in
the Local government code, where the LGU will introduce infrastructure or
public works projects, let us say in the hinterlands gawaan ng tulay, the LGU
will build a bridge connecting areas, as a result, progress came to the
hinterlands, so real properties in that area appreciated because of the roads
created. The residence therein, nakinabang sa infrastructures, so the LGU
now, to recover the project, to recover the investment, will now impose the
what we call as the special assessment or special levy, and they have to
enact a law or an ordinance for purposes of collecting the special
assessment.
This Special Levy or Special Assessment is couched only to those property
owners who were benefitted by the project. Going back to my example sa
bridges:
- those whose properties are located on either side of the road are
directly and greatly benefitted,
- then there will be those sa likod ng mga nasa gilid ng kalsada na
properties na makabenifit pa rin pero di na gaya nung nasa unahan
talaga, medyo lesser na ang benefit nila.
- There will also be those not benefitted kasi nasa foremost likod
na sila.
So, what is the system of collection now? Under the special assessment,
the collection may not be done uniformly, unlike sa tax. Pag sa tax,
regardless of your economic status, pag binili mo yan pareho ang
babayaran mo whether or not you live in the near side of the road or sa
likod. Pag bumili ng sardinas yung nasa taga gilid or yung nasa likod, parehas
lang sila ng bayaran. That is the nature of a tax. Sa special levy, hindi.
Because the state now or the law making body or the sanggunian, will
impose the special levy in such a way that the manner of collecting will be
determined proportionately on the basis of who will be benefitted. The
assessment will thus become varied. That is a feature of a special
assessment. Kaya nga it is levied on land, it cannot be made as a personal
liability and is based on who benefits. Kasi pag hindi ka nagbenefit doon,
there is no justification for the assessment.
You have the case of Physical Therapist Organization of the Phillipines vs.
Municipal Board of Manila.
Case Discussion by Dean
PHYSICAL THERAPY ORGANIZATION VS MUNICIPAL BOARD OF MANILA
Facts: This is an old case, 101 Phil 1142. Way back in the 50’s, the masahistas
compose the physical therapists organization. The city of manila passed an
ordinance imposing a license fee to all the masahistas, and this was
challenged. They contend that it was no longer covered by police power for
it has exceeded the cost of regulation, the police inspection, and
surveillance. So that imposition daw was no longer in the nature of a license
fee but is now a tax.
Issue: Is that contention correct?
Held: The SC said, No. The ordinance was upheld. There is no violation of
equal protection, no violation of the constitution. The SC court declared
that in the exercise of a lawful occupation, the license fee to be collected
should only be an amount to cover the reasonable cause of regulation, the
police inspection, and surveillance. But if what we regulate is a non-useful
occupation, like here na massage parlors na parang isang ground ng
prostitution, you will make the fees exorbitant so as to discourage people Case Discussion by Dean
to go to those kinds of occupation. The SC said that it is upheld. The fees
may be exorbitant but it will not necessarily be a tax. The 100 peso license
fee imposition remains valid.
Facts: The City of Quezon passed an ordinance imposing 5% supervision fee
Question: How do we now determine that the exaction or burden is an act to the privately-owned and operated public markets which include the
of taxation or an act of police power? Farmers Market and Shopping Center operated by the Progressive
- To determine, we use the Principal Purpose of the Exaction test. Development Corporation. Progressive Dev’t Corp challenged the validity
- If the principal or the primary purpose of the exaction is to raise of the ordinance claiming that the imposition of that 5% supervision fee,
revenue, then it is an act of taxation, even though regulation may which means 5% of the stall rentals, is no longer an act of regulation but
be incidental. more of an act of taxation.
- If the principal or primary purpose is to regulate, and there is an
incidental revenue generated, then that act is an exercise of Issue: Whether the 5% supervision fee is a tax or a license fee.
police power.
- The test or the criteria is determined by the principal or primary Ruling: The exaction is a LICENSE FEE.
purpose of the exaction. The purpose of the same is for regulation. It was imposed clearly to
supervise the operation of the public markets which is an activity involved
JUNE 30, 2016 – Jennifer Mortejo in public interest.
TAX VS LICENSE FEE (Cont.)
So we’re still with the LICENSE FEE as distinguished from the power of
TAXATION.
LICENSE FEE TAX
An act of regulation To raise revenue
An exercise of the power of
An exercise of police power
taxation
Also important in the case of the license fee is the amount to be chargeable
for purposes of the fees. There is again a limit on the amount of fees that is
to be charged. Unlike the tax where the purpose of which is to raise
revenue, the license fee is only for regulation. Therefore, the amount to be
charged is only a reasonable amount to cover the costs of inspection,
surveillance and regulation. It cannot be so much that it will be in the
context already of a tax.
Exception: The rule on reasonable amount will not be applicable when what
you will regulate is a non-useful occupation.
The State and the local government would impose a higher amount of
license fees if it is a non-useful occupation. The purpose of which is to
discourage people from going to that non-useful occupation.
Case Digest
PHYSICAL THERAPY ORG. VS MUN. BOARD OF MANILA)
Under the constitutional provisions, all appropriation, tariff and revenue
measures should emanate from the House of Representatives. So, since the
power of taxation is lodged in the house, does it make it superior to the
senate? Later on you will encounter that that is not so, they are still co-equal.
It is just a constitutional mandate that is should emanate from the house.
But once there is a pending bill in the house, that does not preclude the
senate from coming out with its own version.
*NOTE: see Article 6, Section 24 of the 1987 Constitution
Section 24. All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills hall
originate exclusively in the House of Representatives, but the Senate may
propose or concur with amendments.
So in your readings you will notice in the cases how the measure started. It
usually originates from the House then senate will have its own version. So
as you have learned under your constitutional law, you have the House
version and Senate version and then you have the Bicameral conference.
The bicam will thresh out what will be the final draft. From that final draft as
consolidated by the two houses, the bicam will have that final draft which
will be presented to the two houses for voting in which the senate and the
house will vote separately. Once they have the required majority vote, that
bill is presented to the president. The president then either signs or vetoes
that revenue measure. That is similar to the other groups or non-revenue
measure. OR, the president will not act on the measure and that measure
becomes a law after the lapse of 30 days. Then it will be implemented
through the executive branch.
Who is the executive branch?
The Department of Finance. But within that Department of Finance, it is the
BIR. When you deal with internal revenue laws, it is the BIR who will be in
charge in the implementation or enforcement of the law. That is what you
call tax administration. But in the implementation of what are the taxes that
have to be imposed or what is called tax policy or fiscal policy, then that is
given to the law-making body.
The BIR will now make the corresponding revenue regulations. This is the
counterpart which we call the IRR or the Implementing Rules and
Regulations. But if it involves imported articles then it will be the Bureau of
Customs. You have the Customs Modernization Act which was signed
recently. In so far as to the implementation of that law, it will be the Bureau
of Customs. The BIR takes care of internal revenue collection while the
Bureau of customs takes care of the import duties or the tariff and customs
duties.
Going back, taxation is the power of the sovereign to impose burdens or
charges. Those burdens or charges are what we call taxes.
Why do we call them burdens or charges?
Because taxes are enforced contributions. They are imposed upon the
inhabitants, upon the individuals, upon the subjects of taxation. They are
not voluntary. They are imposed upon the state so that it will have the
necessary revenues. So they are in the nature of burdens or charges.
Who are the subjects of taxation?
1. Persons - The subjects of taxation are persons. So those whore 18
and above are required to secure a community tax certificate. Or
the taxpayers, individual or corporate who will be earning income
are required to file and declare their income tax and file an
income tax return.
2. Property- there are also taxes upon property like the real
property tax. When you own real properties, then these
properties will be subject to real property tax.
3. Property rights – it can also be imposed upon real property rights
like an occupation tax. So in the exercise of a profession, you are
required to pay.
These revenues imposed upon these subjects will be for the use and support
of government. With that money raised from taxation, you have principle
CIR VS CENTRAL LUZON
(565 SCRA 414)
FACTS: Respondent (Central Luzon Drug Corporation) is a domestic
corporation primarily engaged in retailing of medicines and other
pharmaceutical products. In 1996, it operated six (6) drugstores under the
business name and style ‘Mercury Drug.’
From January to December 1996, respondent, Central Luzon Drug
Corporation (Drugstore: Mercury Drug), which is engaged in retailing of
medicines and other pharmaceutical products, granted twenty (20%)
percent sales discount to qualified senior citizens on their purchases of
medicines pursuant to Republic Act No. [R.A.] 7432 and its Implementing
Rules and Regulations.
On April 15, 1997, respondent filed its Annual Income Tax Return for
taxable year 1996 declaring therein that it incurred net losses from its
operations.
On January 16, 1998, respondent filed with petitioner, Commissioner of
Internal Revenue a claim for tax refund/credit in the amount of
P904,769.00 allegedly arising from the 20% sales discount granted by
respondent to qualified senior citizens in compliance with [R.A.] 7432.
Unable to obtain affirmative response from petitioner, respondent
elevated its claim to the Court of Tax Appeals which was also denied.
However, through a MFR, CTA ordered the issuance of a tax credit
certificate in favor of respondent.
Note: tax credit generally refers to an amount that is "subtracted directly
from one’s total tax liability." It is an "allowance against the tax itself" or
"a deduction from what is owed" by a taxpayer to the government.
ISSUE: Under what inherent power of the State is the tax credit being
exercised in this case?
RULING: Tax Credit Benefit Deemed Just Compensation
Sections 2.i and 4 of RR 2-94 deny the exercise by the State of its power of
eminent domain. Be it stressed that the privilege enjoyed by senior
citizens does not come directly from the State, but rather from the private
establishments concerned. Accordingly, the tax credit benefit granted to
these establishments can be deemed as their just compensation for private
property taken by the State for public use.
The concept of public use is no longer confined to the traditional notion of
use by the public, but held synonymous with public interest, public benefit,
public welfare, and public convenience. The discount privilege to which our
senior citizens are entitled is actually a benefit enjoyed by the general
public to which these citizens belong. The discounts given would have
entered the coffers and formed part of the gross sales of the private
establishments concerned, were it not for RA 7432. The permanent
reduction in their total revenues is a forced subsidy corresponding to the
taking of private property for public use or benefit.
As a result of the 20 percent discount imposed by RA 7432, respondent
becomes entitled to a just compensation. This term refers not only to the
issuance of a tax credit certificate indicating the correct amount of the
discounts given, but also to the promptness in its release. Equivalent to
the payment of property taken by the State, such issuance -- when not
10% on branded medicines; and 2) the law failed to provide a scheme
whereby drugstores will be justly compensated for the discount.
Examining petitioners’ arguments, it is apparent that what petitioners are
ultimately questioning is the validity of the tax deduction scheme as a
reimbursement mechanism for the twenty percent (20%) discount that
they extend to senior citizens.
ISSUE: Whether the State, in promoting the health and welfare of a special
group of citizens, can impose upon private establishments the burden of
partly subsidizing a government program
RULING: YES
The Senior Citizens Act was enacted primarily to maximize the
contribution of senior citizens to nation-building, and to grant benefits
and privileges to them for their improvement and well-being as the State
considers them an integral part of our society.
As a form of reimbursement, the law provides that business
establishments extending the twenty percent discount to senior citizens
may claim the discount as a tax deduction.
The law is a legitimate exercise of police power which, similar to the power
of eminent domain, has general welfare for its object. Police power is not
capable of an exact definition, but has been purposely veiled in general
terms to underscore its comprehensiveness to meet all exigencies and
provide enough room for an efficient and flexible response to conditions
and circumstances, thus assuring the greatest benefits. Accordingly, it has
been described as the most essential, insistent and the least limitable of
powers, extending as it does to all the great public needs. It is [t]he power
vested in the legislature by the constitution to make, ordain, and establish
all manner of wholesome and reasonable laws, statutes, and ordinances,
either with penalties or without, not repugnant to the constitution, as
they shall judge to be for the good and welfare of the commonwealth, and
of the subjects of the same.
For this reason, when the conditions so demand as determined by the
legislature, property rights must bow to the primacy of police power
because property rights, though sheltered by due process, must yield to
general welfare.
Police power as an attribute to promote the common good would be
diluted considerably if on the mere plea of petitioners that they will suffer
loss of earnings and capital, the questioned provision is invalidated.
Moreover, in the absence of evidence demonstrating the alleged
confiscatory effect of the provision in question, there is no basis for its
nullification in view of the presumption of validity which every law has in
its favor.
Given these, it is incorrect for petitioners to insist that the grant of the
senior citizen discount is unduly oppressive to their business, because
petitioners 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 tax deduction scheme really works greatly to their
disadvantage.
In treating the discount as a tax deduction, petitioners insist that they will
incur losses because, referring to the DOF Opinion, for every P1.00 senior
citizen discount that petitioners would give, P0.68 will be shouldered by
them as only P0.32 will be refunded by the government by way of a tax
deduction.
Petitioners’ computation is flawed. Here, petitioners tried to show a loss
on a per transaction basis, which should not be the case. An income
statement, showing an accounting of petitioners’ sales, expenses, and net
profit (or loss) for a given period could have accurately reflected the effect
of the discount on their income. Absent any financial statement,
petitioners cannot substantiate their claim that they will be operating at a
loss should they give the discount. In addition, the computation was
erroneously based on the assumption that their customers consisted
The 20% discount is intended to improve the welfare of senior citizens
who, at their age, are less likely to be gainfully employed, more prone to
illnesses and other disabilities, and, thus, in need of subsidy in purchasing
basic commodities. As to its nature and effects, the 20% discount is a
regulation affecting the ability of private establishments to price their
products and services relative to a special class of individuals, senior
citizens, for which the Constitution affords preferential concern.
In turn, this affects the amount of profits or income/gross sales that a
private establishment can derive from senior citizens. In other words, the
subject regulation affects the pricing, and, hence, the profitability of a
private establishment. However, it does not purport to appropriate or
burden specific properties, used in the operation or conduct of the
business of private establishments, for the use or benefit of the public, or
senior citizens for that matter, but merely regulates the pricing of goods
and services relative to, and the amount of profits or income/gross sales
that such private establishments may derive from, senior citizens. The
subject regulation may be said to be similar to, but with substantial
distinctions from, price control or rate of return on investment control
laws which are traditionally regarded as police power measures.
The obiter in Central Luzon Drug Corporation, however, describes the 20%
discount as an exercise of the power of eminent domain and the tax
credit, equivalent to the amount of discount given as the just
compensation therefor. The reason is that (1) the discount would have
formed part of the gross sales of the establishment were it not for the law
prescribing the 20% discount, and (2) the permanent reduction in total
revenues is a forced subsidy corresponding to the taking of private
property for public use or benefit.
The flaw in this reasoning is in its premise. It presupposes that the subject
regulation, which impacts the pricing and, hence, the profitability of a
private establishment, automatically amounts to a deprivation of property
without due process of law. If this were so, then all price and rate of return
on investment control laws would have to be invalidated because they
impact, at some level, the regulated establishment’s profits or
income/gross sales, yet there is no provision for payment of just
compensation.
It would also mean that government cannot set price or rate of return on
investment limits, which reduce the profits or income/gross sales of
private establishments, if no just compensation is paid even if the measure
is not confiscatory. The obiter is, thus, at odds with the settled doctrine
that the State can employ police power measures to regulate the pricing
of goods and services, and, hence, the profitability of business
establishments in order to pursue legitimate State objectives for the
common good, provided that the regulation does not go too far as to
amount to "taking."
There is no compelling reason has been proffered to overturn,
modify or abandon the ruling in Carlos Superdrug Corporation.
We note that the above-quoted disquisition on eminent domain in Central
Luzon Drug Corporationis obiter dicta and, thus, not binding precedent. A
fair reading of Carlos Superdrug Corporationwould show that we
categorically ruled therein that the 20% discount is a valid exercise of
police power. Thus, even if the current law, through its tax deduction
scheme (which abandoned the tax credit scheme under the previous law),
does not provide for a peso for peso reimbursement of the 20% discount
given by private establishments, no constitutional infirmity obtains
because, being a valid exercise of police power, payment of just
compensation is not warranted. We have carefully reviewed the basis of
our ruling in Carlos Superdrug Corporation and we find no cogent reason
to overturn, modify or abandon it.
In this case they said eminent domain is not anymore applicable. It is now
police power. But still the principle is the same. The discount is still applied
as a deduction. The 20% senior citizens discount and tax reduction scheme
members of the congress or the law-making body. We elect them
and they represent the people.
Another principle related to this power of taxation is that, while the power
to tax is comprehensive to the extent that it is unlimited, this tells us also
that the power of taxation is subject to limitations.
- Limitations are there to provide safeguards and policies, so you
have inherent and constitutional limitations.
Then you have the Aspects of Taxation:
1. LEVY
2. ASSESSMENT AND COLLECTION
3. PAYMENT of the tax.
In other authors, it is classified as Levy and Collection, dalawa
lang. Ang iba tatlo which now includes payment of the tax.
LEVY. Now, on the aspect of the levy, that is not executive nor judicial. The
levying dictates the fiscal policy of the state. So when it involves the fiscal
policy, then that is legislative in character. But the determination of the
assessment of the tax to be imposed, the determination of the rate, of who
will be the subjects, the manner, means of collection is given to the law
making body because that is what we call as the Fiscal policy.
ASSESSMENT & COLLECTION. On the aspects of Assessment and Collection,
including Payment of the taxes, this is more or less, Executive or
administrative in character and this is what we call as the tax administration.
- So levying determines the state’s fiscal policy. It is dictated by the
law making body. But matters of tax administration involving the
manner of assessment is to be made, the determination, we have
already the law – the law is now implemented. So the agency, the
BIR or the BOC will now make an assessment of the duties or the
taxes that you are to pay. They are going to collect and then the
tax payer is going to pay, and that involves tax administration.
That is not anymore legislative in character.
So, when you have the law now. The BIR or in the case of the Tariff and
Customs code, this government agencies, the BIR or BOC will make the
necessary regulations in the enforcement and implementation of the law.
That rule making power- the power to make regulations – that is not
legislative, that is as the aspect of tax administration.
Question: So, can one go to court to question congress or the law making
body of which the purpose and intention of that levy. Can you question the
intent or motive in enacting such law? Can you now question them, let us
say, saying that it is a regressive tax and it defeats the principle of a
progressive system?
- Answer: NO, because such determination is left to the law
making body. Courts therefore cannot question the motive of the
legislature for the imposition, on the exercise of their power.
Question: Where do you campaign to question?
- You can question when it is now a law. When it is already
approved by Congress, signed by the executive, you can now
question the validity, constitutionality, or legality of the law.
POWER TO TAX – POWER TO DESTROY
By reason of the power to tax being comprehensive and unlimited, it brings
us to the principle that the power to tax is the power to destroy. Therefore,
the power should not be used as a power to destroy. In the event that
situation happens, then you could now go to court to question the validity
or constitutionality of the law. Not on the basis of its power to destroy, but
on the basis of violation of inherent and constitutional limitations.
We discussed also the purpose of taxation is for revenue but it may admit
also non-revenue objectives.
requirements of due process as regards publication, notice of hearing,
opportunity to be heard.
ISSUE: WON EO 73 imposes unreasonable increase in real property taxes,
thus, should be declared unconstitutional.
HELD: NO
The attack on Executive Order No. 73 has no legal basis as the general
revision of assessments is a continuing process mandated by Section 21 of
P.D. No. 464. If at all, it is P.D. No. 464 which should be challenged as
constitutionally infirm. However, Chavez failed to raise any objection
against said decree. It was ROAP, the intervenor, which questioned the
constitutionality thereof.
To continue collecting real 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 a sound tax
system. Fiscal adequacy, which is one of the characteristics of a sound tax
system, requires that sources of revenues must be adequate to meet
government expenditures and their variations.
Dean: In the case of Chavez vs. Ongpin, this include the EO 73 of then
President Cory Aquino during the revolutionary government, wherein she
allowed the valuation of the real property taxes. The EO 73 was challenged
by Atty Frank Chavez. So the issue is w/n it was a valid law? The SC said Yes.
EO 73 is an exercise of fiscal adequacy. Without EO 73, the basis for the
collection of real property taxes would still be the 1978 provision, it was
already from 1936 to EDSA. It was already the year 1986 and the basis for
the property tax valuation was still the 1978 one. In other words, the
property valuation was no longer realistic, it was no longer updated. So Cory
came up with these EO 73 to adjust the valuation which the SC upheld. To
continue collecting taxes based on the valuation from several years ago is in
disregard of the increases in the value of real estate properties, is not in
consonance with a sound tax system. The sources of revenue must be
adequate to meet government expenditures.
Ganoon din yung explanation ng SC in the case of Abakada Guro Partylist.
When the VAT was increased from 10 to 12%, the Abakada Guro questioned
it. The SC upheld the validity of the law that there is a basis for the increase,
allowing the President to increase it through the criteria to be determined
by Congress. So the Congress determines the criteria and not the President
since the President has no power of taxation but to the law making body.
Increasing the VAT from 10 to 12 under a set of conditions determined by
Congress. When these conditions happen, then the President has no choice
but to increase the VAT from 10 to 12. And the condition indeed happened
so the increase was proper. It was allowed on the basis of fiscal adequacy,
that the sources of revenue should be sufficient to meet the varying levels
of expenditure, regardless of business condition and problems on economic
adjustment.
THEORETICAL JUSTICE. Then you have theoretical justice, it is simply the
ability to pay. So when the taxes are levied, or the Congress exercises its
power to tax, it must be made on the basis of the ability to pay. Those who
are able to pay more should be taxed more because of this principle.
ADMINISTRATIVE FEASIBILITY. You have then Administrative Feasibility.
This tells that the administrative agencies of the government be in charge
with the collection of taxes for the government. It must be convenient as to
time as well as to the manner of payment. The enforcement of the tax law
should not be burdensome or discouraging to tax payers. Because taxes are
burdens and if you make the enforcement, collection and payment
burdensome, then you are adding to the tax payer’s burden.
Administrative feasibility should provide that the manner of assessment,
manner of collection, manner of payment should be one that is convenient
to the tax payer. In fact, we don’t need to go anymore to the BIR to pay. You
appraisers to estimate the value of such property; it simply means
literally as “ according to value”
4. As to Purpose
a. General – also known as fiscal or revenue. The purpose is principally
to raise revenue.
b. Special – also known as regulatory. While the purpose is to raise
revenue, it carries an incidental or special or regulatory purpose like
for regulatory power or as basis for just compensation (in the case of
the tax credit that will be availed by the senior citizens’ discount)
And you have so on and so forth for these classifications. Just read.
Progressive System and Regressive System of Taxation
What is important is the concept of the Progressive system and Regressive
System of Taxation. Now, the progressive rates are different from the
regressive rates. The progressive rates are also different from the
progressive system. And the regressive rates are also different from the
regressive system of taxation.
Question: So what is the difference between a Progressive and Regressive
System of taxation?
- These are systems of taxation within a state. This is what we call
as the fiscal policy or the tax policy. So the state therefore will
have a combination of the prevailing taxes within the system. It
will have direct taxes, it will have indirect taxes, direct taxes with
progressive rates, indirect taxes with regressive rates, etc. That
is for Congress to design the tax system.
- Now, we say that there is a Progressive System when the
prevailing taxes are more direct taxes than indirect. So this
system of taxation is one where you have more direct taxes than
indirect. We know that in direct tax, the statutory tax payer is not
allowed to shift. He is the statutory tax payer as well as the same
person who shoulders the liability and the burden of the tax.
- What is the Regressive System? It is the opposite, one where you
have more indirect than direct taxes. The prevailing tax system,
puro VAT, it is a pass on to consumers.
Then we go to these distinctions.
Now, in our definition in the power of taxation, it being the power of the
sovereign to impose burdens or charges, and the burdens or charges are
what we call as taxes.
When we say burdens or charges, there are impositions which operate or
would be treated like a burden or a charge, but they are not really a tax. For
example, Toll.
TAX VS TOLL
A TOLL is the consideration paid for the use of a property. So, merong
private road diyaan, you want to pass in that road and there is a gate keeper,
the gate keeper will not allow you to pass until magbayad ka ng toll fee.
Now, is the imposition in connection with the toll fee, a tax? We go now to
the distinction.
A TAX, as we go back to the definition and characteristic is etc, you know
that already and a toll is defined as the consideration paid for the use of the
property.
*From the book of De Leon:
TOLL TAX
Demand of proprietorship Demand of sovereignty
Paid for the use of another’s Paid for the support of the
property government
Amount depends upon the cost of Generally, no limit on the amount of
construction or maintenance of the tax that may be imposed
improvement
May be imposed by the government Imposed only by the government
or private individuals or entities
Then we have this that the special assessment is exceptional both as to time
and locality. Unlike tax, the tax will continue regardless of business
conditions, but in the case of special assessment, there is a period of time
within which to collect which usually in 10 years’ time. Because again, the
purpose is to recover the project, once na recover mo na, the collection
stops. In tax, the collection will not stop, that even those that you will leave
behind the moment you die will still be subject of estate tax.
There is a period of collection, once it is achieved, then the collection stops.
Unlike tax, once it is still there, the collection or assessment will continue
until repealed.
TAX VS LICENSE FEE
Then you have the term License fee. Now, the license fee and the tax are 2
different terms.
- Tax is an exercise of the power of taxation with the purpose of
raising revenue. While the license fee is an exercise of police
power and the purpose is to regulate.
- As to source of power, as to purpose, as to amount, the license
fees cannot exceed the reasonable costs for regulation, while
taxes are not so regulated.
- License fee can only be imposed on those lawful businesses, but
taxes can be imposed whether it illegal or legal activities. Even if
you are engaged in trafficking, you may still be taxed, but you
cannot be issued a license fee, basically, because it is only for
lawful businesses.
Now, take note that failure to pay the license fee makes the business illegal,
while failure to pay the tax does not make the business illegal. That is
precisely the reason why taxes may be made whether that is illegal or legal.
Di ka makabayad ng business permit mo, ng license fees to the local
government, then pwede ka masubpoena kasi illegal na yang business mo. But
whether it is legal or not, you can still be charged of taxes.
- Now, a major distinction between a tax and a license fee is on the
amount that is collected. In the case of a license fee, the cost
should be one which is limited to the necessary expenses of
inspection and regulation. In the case of the tax, the amount that
will be collected will be unlimited.
In the context of this distinction, there are 3 kinds of license fees:
1. The license tax
2. A license fee to regulate useful occupations
3. A license fee to regulate non useful occupations
1. LICENSE TAX. In the case of a license tax, that is an exercise of the power
of taxation, and therefore the purpose is to raise revenue. Like yung Motor
Vehicles Registration fees, that is in the nature of a license tax kasi dalawa
yung purpose niya, to raise the revenue and regulatory.
But in the case of a license fee to regulate useful occupations and a license
fee to regulate non useful occupations, there is now a distinction in so far as
the fees that is to be collected.
2. LICENSE FEE TO REGULATE USEFUL OCCUPATION. So when what is to be
regulated is a useful occupation, then it should conform to the requirements
of reasonableness. The fees should not exceed the reasonable cause of
regulation, the police inspection, and surveillance.
3. LICENSE FEE TO REGULATE NON-USEFUL OCCUPATION. But if what you
will regulate is a non-useful occupation, like, when prostitution now
becomes lawful, what is the extent of regulation? So when what you will
regulate is a non-useful occupation, the reasonableness becomes now an
exception. We do not apply anymore the principle that the fees to be
collected should cover only the cost of regulation, police inspection, and
surveillance. Meaning the amount that would be collected would be so
much but will not make it a tax.
Facts: Physical Therapy Organization, an association of registered
massagists and licensed operators of massage clinics in the City of Manila
and other parts of the country, questioned the validity of Municipal
Ordinance No. 3659, promulgated by the Municipal Board and approved by
the City Mayor of Manila, requiring them to pay P100 license fees for the
operation of their clinics. They are also contending that the license fee is
unreasonable, nay, unconscionable.
Ruling: The amount of the fee or charge is properly considered in
determining whether it is a tax or an exercise of the police power. The
amount may be so large as to itself show that the purpose was to raise
revenue and not to regulate, but in regard to this matter there is a marked
distinction between license fees imposed upon useful and beneficial
occupations which the sovereign wishes to regulate but not restrict, and
those which are inimical and dangerous to public health, morals or safety.
In the latter case the fee may be very large without necessarily being a tax.
Evidently, the Manila Municipal Board considered the practice of hygienic
and aesthetic massage not as a useful and beneficial occupation which will
promote and is conducive to public morals, and consequently, imposed the
said permit fee for its regulation.
PROGRESSIVE DEV’T CORP. VS QUEZON CITY
(172 SCRA 629)
Corollary Issue: Is the 5% fee on stall rentals a reasonable amount to cover
the costs of inspection, regulation and surveillance?
Ruling: YES
There is a reasonable relation between the amount collected (5% on stall
rentals) and the probable cause of regulation and supervision. Because
ordinarily, the higher the amount of stall rentals, then the higher the
aggregate volume of foodstuffs and related items sold in petitioner's
privately owned market; and the higher the volume of goods sold in such
private market, the greater the extent and frequency of inspection and
supervision that may be reasonably required in the interest of the buying
public.
So, in other words, pag malaki yung rental then malaki yung supervision fee.
If the rental is P10,000 per month, then 5% of that will only be about P500.
If the rental is P100,000/month, then malaki din yung 5%. So there is a
reasonable relation kasi the reason why you are paying a large rental and
you are being charged a higher supervision fee is because obviously malaki
yung lease premises mo. So pag maliit yung binabayaran mo na rental, then
it follows na maliit yung space na you are renting. The lesser would be the
lease premises or the rental space, then the lesser would be the extent of
supervision and regulation, then maliit lang yung amount na icha-charge.
The equivalent 5% would be less.
The Supreme Court further made an illustration of the distinction between
the tax and the license fee. The term "tax" applies to all kinds of exactions
of monies which become public funds. It is often loosely used to include
levies for revenue as well as levies for regulatory purposes such that license

fees are frequently called taxes although license fee is a legal concept
distinguishable from tax: the former is imposed in the exercise of police
power primarily for purposes of regulation, while the latter is imposed
under the taxing power primarily for purposes of raising revenues. Thus, if
the generating of revenue is the primary purpose and regulation is merely
incidental, the imposition is a tax; but if regulation is the primary purpose,
the fact that incidentally revenue is also obtained does not make the
imposition a tax.
In determining whether the burden of the exaction is a tax or an act of
police power, it is determined on the principal or primary purpose of the
exaction.
Same rule has been laid down in that case of GEROCHI VS DEPARTMENT OF
ENERGY.
TAX VS DEBT
There is a great divide between the TAX and the DEBT.
DEBT TAX
Arises from contract, express or
Created by law
implied
If there is non-payment, it will not Non-payment = there can be
result to imprisonment imprisonment
Can be subject to set-off or Cannot be subject to set-off or
compensation compensation
The last one is the most important distinction between the two. The reason
why the taxes cannot be subject to set-off or compensation is that there is
no debtor-creditor relationship between the Government and taxpayer and
that the taxes are not debts. The only exception here came out in that case
of DOMINGO VS GARLITOS (8 SCRA 443) where the Supreme Court allowed
the set-off and compensation to take place. (Pangita-a lang ang case
discussion sa sunod na pages )
Now, in the case of REPUBLIC VS MAMBULAO, you have there the
distinctions between the tax and the debt.
Case discussion by Dean
REPUBLIC VS MAMBULAO
(4 SCRA 622)
Facts: Mambulao Lumbers, being engaged in the exploitation of natural
resources by its logging operations, was subject to forestry charges and
was required under its logging grant or timber license agreement to
undertake reforestation. Mambulao was allowed to seek reimbursement
from the Government for the expenses to be incurred for reforestation.
Since Mambulao had a liability for forest charges and there is a collectible
by way of reimbursement from the Government on the reforestation
expenses, it is now asking for set-off or compensation.
Issue: Whether set-off can be allowed in this case
Ruling: NO.
The Supreme Court disallowed the set-off in this case because of the
distinctions between taxes and debts. There is no debtor-creditor
relationship between the Government and Mambulao and taxes are not
debts where the set-off or compensation could be granted.
Same ruling was reiterated in that case of REPUBLIC VS ERICTA (172 SCRA
623) and you also have that case of FRANCIA VS IAC (162 SCRA 753).
Case Discussion by Dean
FRANCIA VS IAC
(162 SCRA 753)
Facts: The land of Francia in Pasay City was subjected to expropriation
proceedings. Under Eminent Domain, meron yang just compensation.
Francia was also assessed for real property tax by the City of Pasay. So
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meron siyang utang by way of real property tax to the City of Pasay. Since
the Government will be liable to Francia for the just compensation and then
si Francia may utang din sa City of Pasay, Francia now asks for set-off na
lang.
Issue: Whether set-off can be allowed in this case
Ruling: NO.
Again, the Supreme Court reiterated the ruling in Mambulao. The Supreme
Court said No on the same basis that again, there is no debtor-creditor
relationship between the Government and the taxpayer. Taxes are not
debts which could be subject to set-off or compensation. One peculiar
distinction then in this case which also disallowed compensation is yung
utang for just compensation is utang ng National Government tapos yung
collectible ng Government by way of the real property tax against Francia
is a collectible by the local government of the City of Pasay. So di rin pwede
yung compensation.
We also have that case of CALTEX PHILIPPINES VS COA (28 SCRA 727).
Case Discussion by Dean
CALTEX PHIL VS COA
(28 SCRA 727)
Facts: There was this Oil Price Stabilization Fund (OPSF) wherein the oil
products then were regulated by the Government and the prices of the said
oil products were also regulated. Unlike ngayon na deregulated na. So the
gasoline was only sold at a regulated price imposed by the Government.
Hindi sila pwedeng mag-increase so much by reason of the increase of the
oil price in the World Market. The OPSF was set up to answer the losses of
the oil companies. Kasi yung presyo pagbenta nila is regulated and pagbili
nila ng oil products ay mahal. So in other words, lugi yung pagbenta nila
nitong mga refined oil or manufactured oil products or gasoline. So the
OPSF was used to recover the losses of the oil companies. Their losses were
to be reimbursed through the OPSF. So may collectibles sila sa Gobyerno
through the OPSF to recover their losses and then meron silang liability for
the taxes on their oil products. So, set-off na lang.
Issue: Whether set-off can be allowed in this case
Ruling. NO.
Following the ruling in Mambulao, taxes are not debts which could be
subject to set-off or compensation.
You also have that ruling reiterated in the case of SAN CARLOS MILLING VS
CIR (228 SCRA 135). The more recent case is that of PHILEX MINING VS CIR
(294 SCRA 687) decided in 1998.
Case Discussion by Dean
PHILEX MINING VS CIR
(294 SCRA 687)
Facts: Philex Mining had a liability for VAT in their mining operations. Philex
has applied for a tax refund for excessive or overpayment of their taxes.
They filed an application for a tax refund and since meron silang babayaran
for their taxes, Philex now asks for a set-off or compensation.
Ruling: The ruling, following that case of Mambulao, is hindi pwede ang set-
off. Because again, you have no debtor-creditor relationship and that the
same principle that taxes are not debts.
One peculiar circumstance in this case, if you’ll analyze further the case of
Philex and posing the question that “Had the tax refund been approved,
and then they had been issued a tax credit certificate, can they now ask
for set-off or compensation?” The answer now would be YES. Kasi the tax
credit certificate could be used to pay for the payment of internal revenue
taxes. So pwede yun. But it was not applicable then in the case of Philex
kasi application pa lang. So moving further, had that tax refund application
been approved, and then there is now an order for the issuance of a tax
credit certificate, then set-off or compensation therefore will be allowed.

The only case where the set-off and compensation was allowed by the
Supreme Court was in that case of DOMINGO VS GARLITOS.
Case Discussion by Dean
DOMINGO VS GARLITOS
(8 SCRA 443)
There was an unpaid claim by the deceased who died, during his lifetime
meron siyang unpaid claim against the Government. And then may utang
for taxes ang estate. Since the unpaid claim was approved already by the
Government and was ready for disbursement, in that situation the set-off
and compensation was allowed by the Supreme Court.
Where the claims of the Government for taxes and taxpayer for services
rendered have already become due and demandable, as well as fully
liquidated, then compensation takes place by operation of law in
accordance with the provisions of Articles 1279 and 1290 of the Civil Code,
and both debts are extinguished to the concurrent amount.
TAX VS CUSTOMS DUTIES/TARIFF
Customs duties/Tariffs are synonymous to the term “taxes”. Taxes, in its
generic sense may refer to internal revenue taxes collected under the NIRC
(National Internal Revenue Code) or the taxes collected by the Bureau of
Customs which we call Customs Duties or Tariff.
II. LIMITATIONS ON THE POWER OF TAXATION
The limitations are what we call the restrictions on the power of taxation.
The power of taxation is comprehensive and unlimited, and to that extent,
the power to tax may involve the power to destroy. So as not the power to
tax will be used as a power to destroy, then the power is subject to several
restrictions or limitations.
Classification of the limitations:
1) Inherent – limitations which spring from its own power
2) Constitutional – provided by the Constitution
Inherent limitations:
1) Taxes must be levied for a public purpose
2) Non-delegation of the legislative’s power of taxation
3) Taxes are subject or limited only to its territorial jurisdiction
4) International Comity
5) Immunity of the Government from the tax
1) PUBLIC PURPOSE REQUIREMENT
One inherent and important limitation on the power of taxation is the
requirement of public purpose. Taxation should not be for the benefit of a
private person but should be for the benefit of the public. So you have that
essential and most important requirement or limitation which is public
purpose.
What do we understand by “public purpose”?
Public purpose is a very broad concept as a limitation. It is traditionally
similar to governmental purpose. Under the modern concept of the relation
between the government and the society, public purpose means anything
that is for the common good or for the benefit of the community, not merely
as individuals.
The requirement of public purpose was more expanded in that case of PPI
VS FERTIPHIL (548 SCRA 425) decided in 2008.
Case Discussion by Dean
PLANTERS PRODUCTS INC (PPI) VS FERTIPHIL CORP
(548 SCRA 425)
Facts: PPI and Fertilizers Philippines Corporations are private and domestic after the approval of the law.
corporations engaged in the importation and distribution of fertilizers,
pesticides and agri-chemicals. In 1985, prior to EDSA, Marcos issued a Letter
of Instruction (LOI) directing the Fertilizers and Pesticides Authority (FPA) JULY 05, 2016 – Shahata Tagtagan
to impose a 10-peso levy for every bag of fertilizers sold as capital recovery
11
component on the sale of fertilizers. The proceeds of the levy will go to PPI
as capital contribution until adequate capital is raised to make PPI viable.
Fertiphil, who was engaged in the business of buying and selling fertilizers,
paid 10-pesos per bag for every sale of fertilizers to the FPA. Later, FPA
remitted the amounts to PPI. After the 1986 EDSA Revolution, FPA stopped
the imposition of that levy. Fertiphil demanded from PPI the refund of the
amount it paid under that LOI. Fertiphil is claiming an amount of P6,689,144
it had paid then so far, claiming that it was illegal and unconsititutional. PPI
refused to refund.
Issue: Whether the 10-peso levy under that LOI was a valid tax imposition
(Remember that Marcos at that time was exercising both executive and
legislative powers: Constitutional authoritarianism)
Ruling: NO.
The levy was not a valid tax imposition nor was it imposed validly for a
regulatory purpose. It was clearly unconstitutional. The imposition was not
for public purpose. Sino ba yung nakinabang? PPI only, which was a private
and domestic corporation.
The SC said that the 10-peso levy was unconstitutional because it was not
for a public purpose. It was imposed to give undue benefit to PPI or for a
private purpose. Taxation should be used for a public purpose, otherwise, it
would be a robbery for the State to tax its citizens and use the funds
generated for a private purpose. The SC expanded the concept of what is
public purpose and what has been the traditional view on public purpose. It
defined public purpose beyond its traditional view.
SC said that public purpose is the heart of a tax law. It is an elastic concept
that can be hammered to fit modern standards. It does not only pertain to
those purposes which are traditionally viewed as essentially government
functions, such as building roads and delivery of basic services, but also
includes those purposes designed to promote social justice. Thus, public
money may now be used for the relocation of illegal settlers, low-cost
housing and urban or agrarian reform. Kasi dati, there was a traditional view
of governmental purpose. Ang Gobyerno hindi nanghihimasok then on low-
cost housing, unlike with the expanded role of Government. The
Government now gets involved to the promotion of the common good,
social justice (i.e. relocating squatters, providing low-cost housing, urban
reform or agrarian reform). So what may constitute a public purpose is
continually expanding in light of the expansion of government functions but
the inherent requirement that taxes can only be exacted for a public purpose
still stands. In other words, regardless na nag-expand yung view ng
governmental purpose, public purpose meaning has remained.
It is also utterly repulsive that a tax law would expressly name a private
company as the ultimate beneficiary of the taxes to be levied from the
public. It is a clear case of what then was called, prior to EDSA, the principle
of crony capitalism. The LOI was not even an exercise of police power
because it would still be invalid since it did not promote public interest.
In the traditional view, you have the earlier case of LUTZ VS ARANETA (98
PHIL 148) where there was an imposition of the Sugar Adjustment Act. The
taxes imposed were for the benefit of the sugar industry. Though it was the
sugar industry that was benefitted, we could not say that it was for a private
purpose, because protection of the sugar industry was a national concern.
Then you also have that case of PASCUAL VS SECRETARY OF PUBLIC
WORKS where the money that was appropriated was to improve or
construct a private road within a private subdivision. When they learned that
medyo malabo, they have it donated to the Government. Will that donation
cure the defect? The answer is NO. A law appropriating public funds for
construction of feeder’s roads owned by private persons is illegal being for a
private purpose. The fact that the roads were then donated to the
Government would not render the law valid since the donation was made

Limitations on the power of taxation (Cont). The limitations operate as
distinctions and safeguards on the power to tax.
Reasons why the power to tax is subject to these limitations: 1) to provide a
system of check and balance, and 2) to check abuses in the exercise of that
power,.
We classify the limitations into INHERENT and CONSTITUTIONAL
limitations.
We mentioned the requirement of public purpose (limitation #1). The power
to tax is restricted and limited by the requirements of public purpose. It
means anything that is synonymous to governmental purpose, or one that
is for the common good. There is ongoing expansion and liberalization of
what public purpose is all about. Concern for the poor is also a requirement
of public purpose.
Case discussion by Dean
BINAY VS. DOMINGO (21 SCRA 528).
This is an earlier case, unlike in the case of Planters Product vs. Fertiphil
(March 14, 2008), where the public purpose was also illustrated.
FACTS: Then Mayor Binay was the mayor of the Municipality of Makati.
There was this pauper burial assistance program. Yung mga mahihirap sa
Makita whose loved one died would go to the munisipyo and ask for the
pauper burial assistance. These expenses were ongoing and reached COA.
When it reached COA, the latter instructed the municipality na hindi pwede
ang expenses na ito, kasi hindi man ito public purpose. Kasi ang
nagbebenefit nyan, private persons. The matter went to the SC, because the
COA declared that this was illegal expenditure of public funds, a violation of1)
public purpose. 2)
ISSUE: Is this an illegal expenditure of public funds?
HELD: NO, because concern for the poor is public purpose. That’s the
principle in the case of Binay vs. Domingo.
When your local government will provide for assistance (like in our case the
Lingap program of the local government); yung mga mahihirap na kailangan
ng tulong and they cannot afford, they go to City Hall, and City Hall will
indorse them to the Lingap program to SBMC (?), and City Hall foots the bill.
Is that an illegal expenditure of public funds?
Following the case of Binay, that would not be, because concern for the
poor is public purpose. Take note that in the Binay case, there is a caveat:
the ruling is not a precedent. Just because the Court ruled this way, it does
not mean that subsequent program, which other local government may
follow [will be treated the same way] because that may be used for election
purposes. Gagamitin nila para bobotohin ka uli next election. So the SC said
in the event that LGUs will follow a similar program, that that will not
preclude anyone from questioning the validity of that program. The Binay
case is not necessarily a precedent. It can be reviewed on a case to case
basis.
Another limitation is the requirement that the power to tax cannot be
delegated (limitation #2). We have that principle that the power of taxation
is legislative in character, and therefore cannot be delegated. The power
of taxation is lodged principally to the law-making body, and cannot be
shared with the judiciary nor with the executive branch. However, this non-
delegation of the legislative’s power to tax admits exceptions.
1) One of the exceptions is Article 6, Section 28 (2) of the 1987 Constitution
- power of the President, delegating to him to fix tariff rates, import and
export quotas, tonnage and wharfage dues and other duties or impost. This
power is an exception to the non-delegation because it gives that taxing
power to the President. This is illustrated in the provision of Tariff and
Customs Code. The Tariff and Customs Code is the legislative enactment
that grants the flexible tariff clause. The President, under certain economic
conditions, has been authorized to fix tariff rates, import and export quotas,
12
etc. These are revenue raising and acts of taxation which is normally given
to the legislative branch. However, by way of exception, it gives the power
to the President. But there is a law that will provide the parameters of that
power of the President, and that is the flexible tariff clause under the Tariff
and Customs Code.
Related to this exception is the case of
Case Discussion by Dean
GARCIA VS. EXECUTIVE SECRETARY (211 SCRA 219)
FACTS: Congressman Garcia was then representative of the Zambales.
There was an Executive Order increasing the import duty. The adjustment
on the import levy is an act of taxation. Normally, that should not be
exercised by the President, but by the legislative branch. So Garcia
questioned that EO adjusting the import levy.
HELD: The SC ruled against Garcia, because that power to increase or make
adjustments in the import levy on the basis of the economic conditions
provided in the Tariff and Customs Code is allowed to the President. You
have that taxing power allowed under Article 6, Section 28 (2). Therefore,
that EO is valid.
There is also the power of taxation of LGUs. We have Article 10, Section 5,
the delegation the LGUs to create their own sources of revenue, levy taxes,
fees and charges. The LGU shall have a just share in the national taxes, which
shall be automatically released to them. Take note that LGUs’ taxing power
is not inherent.
Since the taxing power of LGUs is not inherent, how is the power granted?
There are two ways within which LGU can exercise the power:
By a constitutional grant; or
By a legislative grant.
In our jurisdiction, the power to tax given to the LGU is through the
Constitution. That is Article 10, Section 5. Anong role ngayon ng Congress?
Congress now will enact a law to provide the limits of the power. Hindi sila
maga-grant ng power, because the power is already given by the
Constitution. Congress will enact a law to define the limits of the power.
What is the law? The Local Government Code. This is the enabling act, not
granting the taxing power to Congress, but providing the scope and limits
of that power. In other words, ididefine ng Congress kung anong taxes ang
pwedeng iimpose ng brgy, municipalities, provinces and cities.
2) Another exception to the non-delegation is the delegation to
administrative agencies and bodies. The administrative agencies and bodies
do not have the power to tax. What is given to them is only the delegation,
e.g. BIR, Bureau of Customs, Department of Finance. Sila yung agencies and
bodies in charge of tax administration. They will make proper revenue
regulations or implementing regulations in the enforcement of the tax law.
So when they promulgate or enact rules and regulations, those are not acts
of taxation but simply the enforcement of the tax law.
3) Another exception is the people’s initiative and referendum. You have
these under the Constitution; that the people through their initiative and by
way of referendum can legislate. They could amend, promulgate and enact,
revise, modify any law, including revenue measures. This is similar to what
we call signature campaign. Through the people’s initiative, they collect
signature, like if there’s a proposal. The proposal is that, the value-added tax
will be reduced from 12% to 10%. Then they will gather signatures on all
legislative districts. RA 6735 is the law that defines how people’s initiative
and referendum will operate. And when this minimum requirement is met
(the gathering of signatures), that is presented to COMELEC. COMELEC will
now check kung tama ba yung pirma, the minimum under RA 9735 is met.
When that is complied, then COMELEC will call for the referendum. In the
referendum, the electorate will come out and cast their votes; if they are in
favor of reducing the VAT from 12%-10%. When the YES votes win, it becomes
a law. It will amend the tax law. If it’s a non-revenue measure, then it will
also amend that rule. This exception cannot be found in the principles.

Then we have territorial jurisdiction (limitation #4). The power of taxation
is limited only within the territory or boundary of the State. That the State
does not have extra territorial power. It means that the subject or object of
taxation should be found in the territory of the State where such subject or
object is found. The State cannot enact that all real properties of Filipino
citizens will be subject to Philippine real property tax regardless of where
they’re found. That is not a valid law. Because the real properties found
outside Phil cannot be subject to Phil real property tax because it is not
found in the territory.
However, extra territoriality admits an exception: when the State
exercises personal jurisdiction.
How is this done?
Prior to the exception of income earned by OFWs, the Philippines used to
tax the income of non-resident Filipinos working abroad. Kung dun ka
gatrabaho sa ibang bansa, your income there should be recorded here in
Phil. You should pay Phil income tax, on top of the income tax imposed upon
you in that other country. Is that possible? Yes, because the State by way of
exception can exercise personal jurisdiction. Unlike if you will tax a real
property from a Filipino where the real property is found abroad, iba din yun.
In that situation, may territorial jurisdiction. Sa income, wala, because the
State can invoke personal jurisdiction by saying that is my subject! While he
is there in America, he is still a citizen of my country, hindi nga lang sya
residente meanwhile. But again, that is by way of exception. Still, follow the
principle of territorial jurisdiction.
Another inherent limitation is international comity (limitation #5).
International comity, by way of exception, you find this in the Constitution.
That the Philippines adheres to the principles of international law as part of
the law of the land. Why? Because since taxation is the power of the
sovereign, the question is, can the sovereign tax another sovereign? That’s
when international comity comes in; that the state sovereign can’t tax
another sovereign because they’re co-equal. The sovereign equality of
states gives that exception. Or you have that usage among states under the
principles of international law; that you cannot tax another sovereign
because you exercise that principle of courtesy or international diplomacy
that you don’t impose taxes on coequal state. There is also the principle that
state can’t be sued without its consent (nonsueability of sovereign states).
Another limitation is the immunity of government from taxes (limitation
#3). State doesn’t tax itself.
Why a limitation? Why can’t it tax itself?
Because it’s impractical. Tax is a self-imposed practical limit, kasi saan
kukuha ng pera ang State to pay itself when it has to raise money for
taxation? So for practical consideration, and also dictated as a matter of
public policy. In the context that the State does not tax itself, the activity
which gives the immunity is when the government exercises governmental
or sovereign function. When this is exercised, the immunity arises. But if
exercising proprietary function, engaging in business, operate
MRT/railways, or engages in livelihood activities, lending operations, GOCCs
etc, then it engages in proprietary activity therefore immunity will not
apply. The exemption of the immunity will not apply, unless the law/charter
grants the exemption. In the __ of that exemption, the immunity of the
government from tax, then immunity applies when government exercise
governmental function. But if government exercises proprietary function,
then taxation is the rule, and the immunity is an exception when the law of
the charter grants the immunity.
SUMMARY OF INHERENT LIMITATIONS:
1) Levy must be for PUBLIC PURPOSE;
2) NON-DELEGATION OF THE LEGISLATIVE POWER TO TAX;
3) IMMUNITY OF GOVERNMENT AND GOVERNMENT ENTITIES
FROM TAXES
4) TERRITORIAL JURISDICTION
5) INTERNATIONAL COMITY
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CONSTITUTIONAL LIMITS. You have a long list of these limits.
The requirement of due process (Section 1, Article 3) – No person shall be
deprived of life, liberty or property without due process of law.
This provision does not say anything about taxation, yet it is being use as a
limitation of the power. Why?
Because taxation is an enforced contribution to raise revenue. Since
enforced/burden/charged/, then there must be a basis for the taking of the
property. Eh kinukunan ka na for tax purposes, hindi pwede yung sisingilin
ka lang without basis. There must be a basis, meaning that due process of
law. There must be a revenue measure or tax law that requires imposition,
otherwise, that law is unconstitutional. The taking becomes
unconstitutional. So due process requires that deprivation is done under
authority of a valid law or the Constitution, after compliance with fair and
reasonable methods of procedure prescribed by law. It is not only that there
is a law or substantive due process, but there must be a procedure. When
you want to challenge the manner your property was taken for tax
purposes, then remedies should be provided on how you will protest, on
how you will ask for reconsideration or reinvestigation of the assessment.
Sabi ng BIR, eto yung babayran mo. If you want to protest, then there must
be a procedure within which the taxpayer is given a venue and avenue to
lodge the complaint. So there must be substantive and procedural due
process.
When a tax law is made to operate outside jurisdiction of taxing authority,
it violates the principle of territorial jurisdiction. Likewise it also violates the
constitutional right of due process, because there’s no basis why you will
tax a property not found in the territory. It is found outside. So in such case,
there are two violations.
Another is public purpose. If not for public purpose, then taking violates due
process. It violates public purpose and due process.
Retroactivity. As a rule, tax laws, including regulations, are to be applied
prospectively. That is inherent to all other laws. If applied retroactively,
there is violation of due process. However, by way of exception,
retroactivity is allowed when the same is not harsh and oppressive. No
violation of due process then. This is illustrated in Castro vs. CIR (4 SCRA 119)
in connection with an old law when Congress enacted War Profits tax law.
This was enacted after WW2. Naniningil ng taxes sa lahat ng taong kumita
sa panahon ng hapon. So Maria Castro challenged its validity, claiming
retroactivity. There was. However, War Profts tax law was declared valid
and constitutional. It did not violate due process because the retroactivity
was not harsh and oppressive. it was right for the government that taxes be
paid by those who profited during the war.
Another exception on retroactivity, are the cases of Umali vs Estanislao and
Gorospe vs CIR (209 SCRA 206). The SC allowed retroactive application
because that was the language/intent of the law. What happened was, the
personal exemption was increased and took effect, say, in Feb 2016. It
(personal tax exemption) increased to P80,000. Under the income tax law,
the individual taxpayers are entitled to claim a deduction by way of personal
exemption. The deadline for income tax return for tax year 2015 is up to April
15, 2016. The question is, in the filing of income tax return for 2015, can you
avail of the benefits of the new law, which took effect on February, when
the income that you’re going to report is for the income of the previous
year? Can you now claim a deduction equivalent to P80,000? A higher
amount to your income tax which will cover a return of the previous year.
SC in Umali said YES. When the law allows retroactivity because it is the
legislative intent, then retroactivity will apply. But when the law doesn’t say
that such is the legislative intent, then prospective ang application. If
prospective ang application, you do not avail new exemption. You can avail
it in 2016. While the deadline nga is 2016, pero hindi pa man yan income for
the year. That was the income of 2015. So kung iapply mo prospectively,

then hindi pwede yung new exemption. But since that was the legislative
intent, you can avail now of the new exemption, by reason of principle of
legislative intent.
July 7, 2016 - April Liz Parreño
Continuation of Constitutional Limitations
A) Section 1, Article III
No person shall be denied of life, liberty, property without due process and
that no person shall be denied of the equal protection of the laws.
You have the limitation on equality on taxation. This principle of equal
protection, in the exercise of the state of power of taxation, follows the
requirement of equal protection, of equality in taxation.
This provision is read together with Article VI, Section 28 (1) that the law on
taxation shall be uniform, and that Congress shall be uniform and that
Congress shall evolve a progressive system. So it is only this time under Art
VI, Sec 28 (1) that we encounter a constitutional provision which directly
speaks about taxation.
Unlike in Sec 1, Art III it tells us about due process, but it does not speak
directly about taxation, as well as equal protection. But nevertheless, the
limitations on due process and equal protection are used also as restrictions
or limitations in the power to tax.
As regards equal protection, this is simply that in the exercise of that power,
when the State now, thru the law making body determines who are the
subjects or objects of taxation, there should be no discrimination or
favoritism in determining the objects or subjects to be taxed. And in
determining also the objects or subjects to be exempted, that requirement
of equal protection is also followed.
So how do we connect equal protection with the requirement of uniformity in
Art VI, Sec 28(1) that the law on taxation shall be uniform and equitable?
Equal protection, traditionally, means that all person subject of legislation2)
shall be treated alike under like circumstances and conditions, both in
3)
privileges conferred and liabilities imposed.
In the case of uniformity, taxable articles or properties, subjects and objects
to be taxed of the same class shall be taxed at the same way. Different
articles at different rates, provided that the rate, not necessarily the
amount, is uniform on the same class everywhere or wherever they are. It
requires therefore uniform application and operation, without
discrimination.
REQUISITES FOR A VALID AND REASONABLE CLASSIFICATION:
1) The classification must be based on substantial distinctions which make real
differences.
It means that in determining the subject or object to be taxed, there must
be a substantial difference and the differentiation must be real. So that
there is basis why the subjects or objects are taxed and the others are not.
The power of taxation, therefore, could not be used to tax subjects or
objects on an arbitrary basis, you could not use taxation or exercise that
power, like those who are ugly will be taxed more(lol), those who are
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handsome would be subject to a lesser tax. Or the basis of height? Yung mga
matatangkad should be taxed more,yung mga maliliit should be taxed less
kasi they occupy less space. Is that a valid classification? It cannot be. Or tax
on the basis of gender? Cannot be.
Case discussion by Dean
MANILA RACE HORSES TRAINERS ASSOCIATION VS. DELA FUENTE
FACTS: The owners of the race horses were subjected to that ordinance,
while the owners of non-race horses, yung mga kabayong ginagamit sa
karetela, were not subject to tax. So the Manial Race Horses Association
questioned the validity of that ordinance. Bakit sila tina-tax, pero yung mga
kabayong di ginagamit pang karera ay hindi, when all of them are the same.
Pareha silang kabayo.
ISSUE: Is there a substantial distinction?
HELD: Yes. They are subject to tax because it is earning income, ginagamit
sa karera, where those horses not used for karera are not earning income.
Kahit yung ginagamit sa karetela as mode of transportation , they earn but
marginalized yan sila.
So in this case, the ordinance which imposed tax on the stables depending
on the number of race horses kept or maintained is not discriminatory on
the alleged ground that it does not apply to stables of non-race horses
because it taxes all of the same class. Ano yung of the same class? Not
because they are all horses, but in a way that all of them are race horses.
They belong to the same class.
Case discussion by Dean
ASSOCIATION OF CUSTOMS BROKERS VS. MUNICIPAL BOARD OF MANILA
(95 PHIL 107)
FACTS: There is this ordinance in Manila imposing road user’s tax. And this
is only imposed to those motor vehicles’ owners registered in the city of
Manila. So the association of Custom’s brokers questioned the validity of
the ordinance claiming that there is discrimination kasi yung kalsada ng
Maynila, hindi lang yung owners of registered vehicles of Manila are using
the street pati yung mga owners of motor vehicles registered in Pasay,
Caloocan, etc.
ISSUE: Is the Road User’s Tax invalid?
HELD: Yes.
The road user’s tax was declared invalid because there is no substantial
distinction which makes real differences.
It must be germane to the purpose of legislation
It must apply not only to present conditions but also to future conditions
substantially identical to those of the present.
This is illustrated in the case of Shell vs. Vano.
Case discussion by Dean
SHELL vs. VANO (94 Phil 389)
FACTS: The Municipality of Cordova in Cebu had this ordinance imposing an
occupation tax on the installation engineer. At that time, there was only one
person who was exercising in that occupation, who was working at Shell. So
Shell questioned the validity of the ordinance, that it discriminated the
employee/engineer.
ISSUE: Is that contention correct?
HELD: No. No violation of equal protection because that ordinance applies
not only to present conditions but also to future conditions substantially
identical to those of the present.
In other words, while at that time, there is only person covered by the
ordinance doing that kind of occupation, then it applies also in the future,

when the number of individuals engaged in that occupation increases, then
similarly, they will be subject to the occupation tax.
Case discussion by Dean
Ormoc Sugar vs. Treasurer of Ormoc (February 17, 1968)
FACTS: The ordinance is entitled “An ordinance imposing on any and all
productions of centrifugal sugar milled at Ormoc Sugar Company Inc., a
municipal tax of 1% per export sale to USA and other foreign countries”.
ISSUE: Is the ordinance violative of equal protection clause?
HELD: YES. From the title itself, you already see that it is discriminatory
because it taxes only Ormoc Sugar Company Inc.) The court gave a
requirement that it must apply to all who belong to the same class wherever
it may be found within the jurisdiction of the taxing authority. Regardless
where the subject or object is found, that tax rate or tax law will apply to
him or to them equally to those who belong to the same class.
The ordinance taxes Ormoc Sugar Company and none other. Although it is
true that it was the only sugar central in the city, the classification to be
reasonable should be in terms applicable to future conditions as well.
Equality and uniformity are used synonymously. They are the same.
Case discussion by dean
SISON vs. ANCHRETA (130 SCRA 654)
FACTS: This pertains to the modified gross income tax wherein theB)
individuals who are purely compensation income earner were subject to a
set of graduated and progressive rates. Individuals who are self-employed,
professionals are engaged in business were also taxed on graduated rates.
But the rates for these individuals were higher compared to the rates of
individuals who are purely compensation earners. So the tax law was
questioned claiming there was discrimination or violation of equality, that it
was not based on substantial distinction which makes real differences
because they are the same tax payers, earning income.
ISSUE: WON the tax law is arbitrary and violates equality?
HELD: NO. The SC ruled that the law is valid. There was no violation of
equality or uniformity in taxation. The individuals who are purely
compensation earners are subject to a lower tax rate whereas those
individuals who are professionals or engaged in business are subject to a
higher rates because these individuals in deriving their taxable income, are
entitled to deductions.
Unlike individuals who are purely compensation income earners, these
individuals do not claim deductions because they use their labor and they
derive compensation income. In deriving income, wala naman silang pina-
sweswelduhan na empleyado, they don’t pay rent for the office they use,
they don’t incur business expenses, etc.
So unlike individuals who are engaged in business or practice profession,
meron silang mga tauhang siniswelduhan, they acquire equipments in the
course of trade of business or exercise of profession, they pay rent for the
office space they use. Unlike the individuals who are purely compensationA)
earners, they don’t incur such expenses.
SC: There is real distinction between professionals and fixed income tax
earners. For the professionals and businessmen, there is no uniformity in the
costs or expenses necessary to produce their income. For the fixed income
earners, there is practically no overhead expense; these taxpayers are not
entitled to make deductions for income tax purposes because they are in
the same situation more or less.
Taxation shall be uniform and equitable so when we talk about equity in
taxation that is simply on the basis of ability to pay. Then that requires that
Congress shall evolve a progressive system of taxation, it means that when
you have a progressive system of taxation, there should be more direct
taxes than indirect.
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What is the constitutional provision? Congress shall evolve a progressive
system of taxation. The question is, is that mandatory on Congress? Can you
go to Court and compel Congress to evolve a progressive system of Taxation?
So this is what happened in the case of Tolentino vs. Secretary of Finance.
There are issues raised regarding EVAT, that expansion of the VAT covering
more transactions, violated the constitution under Section 28 because
Congress was no longer enacting towards a progressive system.
Is that correct? No.
Regressivity is not a negative standard for courts to enforce. To evolve a
progressive system of taxation is directive to Congress. It is not required or
mandated upon Congress, and therefore you could not compel Congress to
evolve, you could only direct or persuade Congress to evolve a progressive
system.
This is directive to Congress similar to the directive to enact laws of human
dignity, laws on social justice, economic and political equalities or quality
education, etc. They are in the Constitution as moral incentives to
legislation, not as a judicially enforceable right, so that provision there that
congress shall evolve a progressive system is not a judicially enforceable
right.
The tax policy or the motive of tax enactment is purely a discretion given to
the graduating body.
ARTICLE III, SECTION 10
“No law impairing the obligations of contracts shall be passed.”
The taxing power, therefore, is inferior to the non-impairment clause.
Taxing powers cannot alter or revoke existing rights and obligations under
a valid contract.
Case discussion by Dean
CASSANOVA vs. HORD ( 8 Phil 125)
FACTS: In the course of exploitation and exploration of natural resources, it
was granted a tax exemption privilege.
ISSUE: If later on, Congress will make that activity a taxable activity, can that
grantee, who was given a privilege of tax exemption, is he protected from
the non-impairment clause?
HELD: That grantee can invoke the non-impairment clause. That will impair
the obligation on contacts. So the taxing power should not and cannot alter
or revoke existing rights and obligations under a valid contract.
Under the principle of contractual tax exemptions, the state surrenders
what it is obliged to do: to tax. Since the State now surrendered that
privilege and gave an exemption, it could not later on make a similar activity
taxable, in making that grantee now subject to tax.
What are the exemptions?
Section 11, Article 12 in the case of franchises.
Franchises, whether it grants an exemption or whether it gives a reduced
tax rate or a preferential tax rate, the non-impairment clause is not
applicable. Why? By the provision itself.
As to franchises to operate public utilities, they are always subject to
amendments, alteration, or repeal by Congress when public interest so
requires. In the case of a franchise, the grantee’s privilege under that law
wherein a franchise was given to him, and he was entitled to a preferential
tax rate, much reduced than the regular rates. In the event, the rates will be
increased, then he could not invoke the non-impairment clause.
The franchise is subject to an amendment, alteration or repeal by Congress
when public interest so requires.
Going back to the case of Tolentino vs. Sec of Finance.
Case discussion by Dean

TOLENTINO VS. SECRETARY OF FINANCE (AUGUST 25, 1994)
FACTS: One of the petitioners there questioning the coverage of the VAT
was Phil Airlines. Phil Airlines under its franchise, was given a preferential
tax rate. When the VAT or RA 7716 took effect, the sale of tickets was subject
to or itong mag airlines were now subject to the 10% VAT which is a higher
rate than the franchise given to Phil Airlines. Phil Airlines invoked the non-
impairment clause.
ISSUE: Can Phil Airlines invoke the non-impairment clause?
HELD: NO. SC said you cannot invoke the non-impairment clause because
the provision under Section10, Art III is not applicable in the case of
franchises.
In other words, later on, when there is a law that subjects you to a higher
tax rate, then ma-aamend, alter na yung grant mo and will be subject to a
new legislation or to a new tax rate or tax law. Because that is subject to the
constitutional limitation.
B) When a buyer and a seller enter into a supply purchase
agreement
Wherein the seller will supply the buyer for the next 20 years of this material
at the rate, let’s say of P 1.00 plus 12% VAT equals the price. So he will be
paying under that contract between the buyer and seller. The seller will
supply to the buyer the items on the next 20 years at this price. On the 10th
year of that contract, Congress increased the VAT rate from 12% to 15%. Ang
ginawa ngayon ng seller he changed also the price to 15%. The buyer now
complained that you could not bill me a higher rate than 12% because may
kontrata tayo and invoked now the non-impairment clause.
Is that applicable? No.
The imposition of a tax which affects an existing contract so as to increase
the debt of one party or lessen the security of the other or impose additional
burdens to one class and release the burden of the other, does not impair
the obligation of contracts.
In other words, you cannot invoke the non-impairment clause because it is
not applicable in that relationship of a user or seller under private
agreements.
July 12, 2016 – Jennifer Lim
RECAP
We have taken so far the constitutional limitation on the non-impairment
clause. That taxation or the power to tax is inferior to the non-impairment
clause. Inversely, the non-impairment clause is superior to the power of
taxation.
LECTURE
Art. III. Section 20. No person shall be imprisoned for debt or non-payment
of a poll tax.
This is a direct provision related to taxation simply because we know that
no person shall be imprisoned for non-payment of debt. This article is
specifically with regard the cedula or the community tax certificate for the
poll tax. In case of late payment, you will be subject to penalties and
surcharges, but not imprisonment.
Article 6, Section 28 (3) Charitable institutions, churches and personages or
convents appurtenant thereto, mosques, non-profit cemeteries, and all
lands, buildings, and improvements, actually, directly, and exclusively used
16
for religious, charitable, or educational purposes shall be exempt from
taxation.
This is another provision dealing with exemption but the scope of the
exemption deals only with real properties. The coverage are lands,
buildings, and improvements. Real properties may be exempted from real
property tax.
How is the exemption determined?
As the provision itself, the exemption will cover only the use, not the
ownership. The usage or use of the real property.
What is the use?
They are directly, actually and exclusively used for is religious, charitable or
educational purposes. Therefore, all real properties- lands, buildings and
improvements, which are used for charitable, educational or religious
purposes will be exempted from the tax.
Does this include those incidental purposes?
Yes, the scope of the exemption is not only those actually, directly or
exclusively used but shall include those incidental to the purpose.
Case discussion by Dean
Abra Valley vs. Aquino
FACTS: The ground floor was used for commercial purposes, the second
floor was used as the residence of the school director, the 3rd and upper
floors were used as classrooms.
ISSUES: Is the real property subject to real property tax? Can you determine
which property is taxable and which is not?
HELD: YES, because you determine the area. Ano ba yung area ng ground
floor, second floor, and subsequent floors, so you could determine the
scope of the exemption in terms of the usage and in terms of the width and
space of the area covered by the exemption.
In this case, the ground floor was obviously subject to tax because it was
not used for educational purposes. The 3rd and subsequent classrooms
were obviously covered by the exemption because they were for
educational purposes. The second floor used as a residence of the school
director was also exempt because the floor while used as residence of the
school director, it was incidental on the educational purpose.
San Juan de Dios vs. Pasay City 16 SCRA 226 and Herrera vs. Quezon City
Board of Appeals, those cases were discussed whether they were used for
educational or chartitable or religious purposes which were incidental.
In the San Juan de Dios, it was not subject of real property tax since it was a
charitable institution. The issue here was whether or not the facilities given
to the staff were exempt-- the sleeping quarters or recreational facilities
(pool, tennis court or gym). SC said YES because the charitable purpose
covers those which are incidental to the purpose. For as long as the use is
related or incidental to educational, religious or charitable purposes, then it
will be covered by the scope of the exemption.
Case discussion by Dean
National Lung Center vs. Quezon City
FACTS: Portions there were used as clinics of the doctors who were doing
medical work for the Lung Center. The Lung Center was assessed by the
Quezon City for the property tax, but the LC invoked the exemption.
However, the exemption covered only those actually, directly and
exclusively used for the charitable purpose of the Lung Center. Now the
clinics of the doctors accepted patients from the outside, not necessarily
patients of the Lung Center,
ISSUE: Will they still be covered by the exemption?
HELD: Hindi na kasi they were not incidental to the purpose.

This deals with the requirement for legislative confirmation of tax
exemption and statutes. You have a specific provision on what would be the
specific requirement in connection with tax exemptions. Under this article,
no law granting tax exemption shall be granted without the concurrence of
a majority of all members of the Congress.
The ratification requirement is the majority of all members of congress.
Our congress has two houses - Senate and House of Representatives. The
majority is taken from the members voting separately, majority of the
Senate and majority of the House, to have a valid ratification. But this
ratification deals only with tax exemption laws.
If a law is not about tax exemption but just a revenue measure, then Article
6 Sec 28(4) is not applicable. The rule on simple majority will apply wherein
there is a quorum. Then that quorum could do business on legislative
requirements. In so far as bills on measures in the House or Senate, regular
voting applies. The strict requirement applies in so far as tax exemption.
The strict requirement exists because it involves a monetary loss. Malugi ang
gobyerno. There will be a monetary loss if there is tax exemption. The
purpose of taxation is to raise revenue so may corresponding loss or
monetary loss. That is why there is a need for a strict requirement for
purposes of legislation.
Art. VIII. Section 5. The Supreme Court shall have the following powers: x x
x religious materials by religious organizations without violating freedom of
(2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the
law or the Rules of Court may provide, final judgments and orders of lower
courts in: x x x
b. All cases involving the legality of any tax, impost, assessment, or toll, or
any penalty imposed in relation
thereto.
In all matters involving tax cases, whether the issue involves the legality or
constitutionality of tax law or measure, involving protests on tax cases
raised by our government agencies or by tax payers themselves. When they
were assessed on the tax and they pursue or protested on the assessment
or the findings of the tax against them. In other words, they pursue to go
and elevate these cases to the SC. Supreme Court being the final arbiter to
have the final word to review, revise, reverse, modify or affirm.
Can this power be reduced opr restricted?
No, because the final arbiter of all these tax cases is the Supreme Court. If
Congress will enact a law that the decision of the BIR of all tax cases under
its jurisdiction shall be final and executor, it is still a valid law but you can go
on certiorari. In final and executory judgments, you can still go up and ask
for review under Rule 65 or certiorari. If the law provides that the decision
of the BIR is final and executory and could no longer be reviewed, reversed
or modified, then that is an encroachment. The provision under Article 8 Sec
5 includes those on appeal or certiorari. Pag tinanggal mo ang certiorari,
then that is an encroachment on that constitutional auhtority given to the
SC.
Art. III. Section 5. No law shall be made respecting an establishment of
religion, or prohibiting the free exercise thereof. The free exercise and
enjoyment of religious profession and worship, without discrimination or
preference, shall forever be allowed. No religious test shall be required for
the exercise of civil or political rights.
This provides for the freedom of religion in relation to the power to tax. Free
exercise of religion and worship, with proscription or preference shall
17
forever be allowed. The freedom of religion is superior to the power of
taxation.
We still follow the rule in the old case of American Bible Society vs. City of
Manila 101 PR 386, the sale of bibles and other forms of literature by religious
organizations, although for little profit cannot be considered a business. To
tax such would be violative of the tax exemption which is the freedom of
religious profession and worship.
Case discussion by Dean
Tolentino vs Secretary of Finance
FACTS: The sale of religious articles by the Philippine Bible Society was
subject to VAT. The Philippine Bible society was one of those which
questioned the legality or constitutionality of RA7716 or the law expanding
the imposition of the VAT. PBS contends that the imposition of the vat on
these articles is a violation of the freedom of religion protected under Article
3 Section 5.
HELD: The SC departed from the ruling of that case (American Bible). The
withdrawal of the exemption did not also violate the freedom of religion as
in the case of the Philippine Bible Society. The free exercise of religion clause
does not prohibit the imposition of tax on the sale of religious materials in a
religious organization.
As held by the US Supreme Court in the case of Jimmy Swaggart Ministires
vs. Board of Equalization(1990), the Court ruled that you could tax sale of
religion. Therefore, the sale of religious articles by the Philippine Bible
Society, does not violate the freedom of religion in imposing the vat.
Take note that later on, the imposition of tax on books and religious articles
were eventually withdrawn. There is now a separate law in connection with
the sale of books in so far as taxation is concerned because in RA 7716
congress made several amendments which withdrew the sale of books,
periodicals from the VAT.
Article 6, Section 29 (2) No public money or property shall be appropriated,
applied, paid, or employed, directly or indirectly, for the use, benefit, or
support of any sect, church, denomination, sectarian institution, or system
of religion, or of any priest, preacher, minister, or other religious teacher, or
dignitary as such, except when such priest, preacher, minister, or dignitary
is assigned to the armed forces, or to any penal institution, or government
orphanage or leprosarium.
On the prohibition on appropriation for religious purpose, the State could
not appropriate or set aside money for religious purposes because you have
the separation of the church and state. In the separation of the church and
the state, the state is prohibited by the Constitution to appropriate or set
aside money in favor of a certain religion except to those religious who are
with the government like in the armed forces, in the penal colonies, in the
PNP, etc. In these instances, there is no violation because the compensation
that the state provides is in payment of services rendered. We have religious
who are in the military service, in the PNP or in the penal colonies, in
leposariums and other government institutions. Such will not be a violation
of this provision because the appropriation or money given to them are not
for religious purposes but a compensation for the services rendered.
Art. XIV. Sec. 4 (3) All revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and exclusively for
educational purposes shall be exempt from taxes and duties. Upon the
dissolution or cessation of the corporate existence of such institutions, their
assets shall be disposed of in the manner provided by law.

Proprietary educational institutions, including those cooperatively owned,
may likewise be entitled to such
exemptions, subject to the limitations provided by law, including
restrictions on dividends and provisions for reinvestment.
This provides for the prohibition against taxation of non-stock non-profit
religious organization. Under this article, the poll revenues and assets of
non-stock non-profit educational institutions are exempted from tax. But
take note, the exemption covers only direct taxes, not indirect.
In so far as non-stock non-profit educational institution, they have a wider
scope of exemption. They are exempted from real property taxes and
exempted from taxes on their revenues and assets. The tuition income
earned are exempted from taxes based on this constitutional provision.
They are also exempted when they import educational materials or
constructing of building and import steel bars and materials from abroad or
tiles to construct the building. The transportation cost is also exempted
from taxes on customs duties because they are for educational purposes.
Also, when these institutions have bank deposits and interests are earned,
they are likewise exempted because they are for educational purposes.
What about the non-tuition income like the income from rentals from
operations and income from investments?
They make investments in the stock markets or money market placement
which make income. They are exempted for as long as they are flowed back
to educational purposes. But if they are not used for educational purposes
insofar as non-tuition income is concerned, then taxation will come in. The
exemption from tax could be invoked for educational purposes only of
these non-tuition income.
Article 6 Section 24. All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills shall
originate exclusively in the House of Representatives, but the Senate may
propose or concur with amendments.
The appropriation of revenue and tariff bills originates in the House of
Representatives. This is a requirement under the Constitution on revenue
measures: that appropriations bill must originate from the House of
Representatives. This provision does not make the House superior to the
Senate. The House is still co-equal to the Senate.
Why does the Constitution require that this revenue and tariff bills must
originate from the House?
Because the members of the House are those elected by the greater
majority. They, more or less, represent the constituents or the Filipino
constituency. They are elected on the basis of their legislative districts. A
senator is elected by the people at large. He may not have votes in a certain
region, but he won in the northern part so he has substantial number of
votes. He may, nevertheless, win unlike a congressman if he does not get
the votes then he will not win. That certain congressman will be the
representative of that certain electorate in the legislative district.
In the case of Tolentino vs. Secretary of Finance, one of the issues raised
that in the enacment of the RA 7716 on the EVAT. Tolentino argued that the
law was third wheel. How did that happen was because the Congress
introduced the bill called the expanded added value tax while the Senate
introduced its own version. In the bicameral senate conference committee,
it was different from the house version and the senate version. The
consolidated bill nag iba ang histura from the senate and house versions.
The version which came out from the bicam was a result of the votation of
the two houses and it got the substantial majority of both. Nung pumasa it
was now questioned before the SC which allegedly violated the requirement
under section 24 of article 6.
SC said NO. kase ang lumabas na different version, the bicam version. SC
ruled that Congress has complied with the requirement under Section 24
18
Article 6. A bill originating in the House of Representatives may undergo
such extensive changes in the senate that the result may be a rewriting of
the whole. As a result of the senate action, a distinct bill will be produced.
To insist that the substitute must be the same as the house bill will violate
the senate's power to concur with amendments and to propose
amendments. It would be violative of the co-equality on the legislative
power of the two houses. Otherwise, it would make the house superior to
the senate.
There is no basis in comparing the powers of both houses. Legislative power
is vested in congress and in the senate and not in any particular chamber.
There is really no difference in the senate preserving the house bill up to the
enacting clause and writing its own version following the enacting clause,
or on the other hand, separately preserving a bill of its own on the same
subject matter. In either case, therefore the result are two enacting bills on
the same subject for as long as it originated in the house (the senate had a
different version but the two bills are on the same subject), it therefore
satisfies the constitutional requirement.
It would have been different if the bill originated in the senate then
sumunod lang ang house then that becomes a violation. The constitution
simply means that the initiative must come from the house in filling a
revenue or tax bill authorizing the increase of the public debt, bills of local
application must come from the house. It does not prohibit the filling of the
senate of the substitute bill or its participation in the bill of the house. What
is important therefore is that there must be a bill that will originate from the
house. It is no longer important that the senate will have a separate version.
The senate may adopt the house version or in the bicameral conference, you
can make a totally different one but still on the same subject matter, then
there is no violation. The important thing here is that the initiative emanated
from the house of representatives.
OTHER CONSTITUTIONAL PROVISIONS
Article 6 SECTION 25. (4) A special appropriations bill shall specify the
purpose for which it is intended, and shall be supported by funds actually
available as certified by the National Treasurer, or to be raised by a
corresponding revenue proposed therein.
Article 6, Section 27 (2). The President shall have the power to veto any
particular item or items in an appropriation, revenue, or tariff bill, but the
veto shall not affect the item or items to which he does not object
Take note that all Congressional measures once ratified, the President has
30 days to approve. If the President, after the lapse of 30 days does not act
upon it, then the measure becomes a law. That includes revenue contracts
and bills and other tax measures.
Article 6, Section 29 (3). All money collected on any tax levied for a special
purpose shall be treated as a special fund and paid out for such purpose
only. If the purpose for which a special fund was created has been fulfilled
or abandoned, the balance, if any, shall be transferred to the general funds
of the Government.
Tax money collected for a special purpose is treated as a special bond. So
there are tax laws where the revenue collected are for a special purpose.
For example, in the NIRC where the house said on top of that revenue or
measure of tobacco, half of that will go to the maintenance of the Cultural
Center of the Philippines. Another is in the case of sin taxes, that a portion
will go to the medical treatment of the smokers inflicted with lung cancer.
SITUS OF TAXATION

Situs of taxation refers to the place of taxation; the place where the state
has jurisdiction to impose tax on persons, property, or property rights.
It is the law making body or the congress which determines the subjects or
objects of tax. The subjects or objects which will be taxed may vary because
the objects or subjects may be persons, property or property rights. These
subjects or objects will have different situs or place of taxation.
• When subjects or objects to be taxed are persons then the situs of taxation
is the residence of the person.
• When the subjects or objects to be taxed are real properties then the situs
of taxation is the place where the real property is situated or located. Follow
the rule on lex rei sitei. Place where the property is located or situated such
that when the property is located outside the territory then we could not
tax the property.
• In case of tangible personal properties, personal properties which have
existence. Taxation falls upon the place where the tangible property is
found, following the rule on lex rei sitei.
• In intangible personal property which are personal properties which have
no physical existence like shares of stocks. May makita ka na stock
certificate which a personal property that represents or a document proving
your ownership to the stock, but the shares of stock itself di mo nakikita.
We used to follow the rule Mobilia sequntur personam ( the movable
follows the owner). Thus, personal properties are taxed where the owner
resides.
Case discussion by Dean
Wells Fargo Bank vs. CIR
FACTS: There was this alien decedent who died in the US. One of the
properties left behind were shares of stocks from a Philippine Corporation.
From the point of view of Philippine taxation, he was a non-resident
decedent.
ISSUE: whether ot not the shares are taxable in the philippines.
HELD: Under foreign tax laws, the state could subject the estate to the
estate tax law of the country where he was a resident including his
citizenship. In Philippine tax laws, SC said tax laws are under the rule of the
place where the right is exercised. The right pertains to rights and
obligations over these shares of stocks are here in the Philippines as it was
issues by a Philippine Corporation. The rights are exercisable in the
Philippines because this is the place where the rights are made and
exercised. The shares of stocks owned by an alien non-resident who died
abroad are still subject to Philippine estate tax laws following the principle
that the intangible personal property is determined by the place where the
right is exercised. Even you follow the rule on mobilia personam, it is still
taxable. We follow the more extensive principle where the place of the right
is exercised as a situs of taxing intangible personal properties
July 14, 2016 – Jose Gerfel Geralde
SITUS ON INCOME
In the case of income, the situs is divided into:
a) Citizenship
b) Residence and
c) Source of income
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So if you are a citizen of the Philippines, your income is subject to Philippine
income tax. If you are a resident of the Philippines and you are an alien, still
you are subject to Philippine income tax.
Now if you are a non resident Alien or if you are a non resident Alien at the
same time not a citizen of the Philippines, your income will still be subject to
Philippines income tax if the source of income is from the Philippines.
In so far therefor as the situs of or the place of taxation of income, it will be
determined by (a) the basis of residence and (b) source of income.
SITUS ON BUSINESS, OCCUPATION AND TAXABLE TRANSACTIONS
In the case of business, occupation and taxable transactions, the situs is
determined by the place of business, occupation, transaction where it is
conducted.
So if the business is located outside country, the situs is the place where the
business is conducted and if the transaction is done within the Philippines
then it can be subjected to Philippine Income tax laws.
GRATUITOUS TRANSFERS
In our tax laws, we have two taxable gratuitous transfers:
1) On the ground of succession brought about by the account of
death; and the
2) Transfer by way of donation or gift.
So these transfers are taxable even though they are gratuitous transfers,
even without consideration. The situs insofar as gratuitous transfer is
determined by the citizenship, residence and location of the property. If the
donor is a citizen of the Philippines, whether he made a donation in the
Philippines or made a donation abroad it will still be subject to Philippine
donors tax because on the basis of citizenship.
Then we talk about a decedent citizen who left behind properties found in
the Philippines and abroad.
Is the estate subject to Philippine estate tax?
(This is about a decedent citizen who died whether in the Philippine or
abroad)
YES. For as long as he is a citizen in the Philippines, whether he left
properties in the Philippines or abroad, these would be subject to the
Philippine estate tax because of the decedent’s citizenship. The same rule
also applies when the donor makes a donation whether here or abroad by
reason of the donor’s citizenship.
RESIDENCE AS SITUS
The other situs is the residence. If a resident alien makes a donation in the
Philippines, he will still be subject to Philippine donors tax by reason of his
residence. If this resident alien dies and leaves behind properties in the
Philippines and his estate will be settled, then the estate will still be subject
to the Philippine estate tax even though he is an alien because of his
residence. Meaning the residence of the Philippines, the properties left
behind will be subject to the Philippine estate tax by reason of his residence.
LOCATION OF THE PROPERTY
Another rule is the location of the property. In gratuitous transfers, this
would apply if the decedent is a non-resident decedent or a donor is a non-
resident donor.
If a non-resident alien donor makes a donation in the Philippines on a property
found in the Philippines, is the donation taxable in the Philippines?
YES, because of the location of the property; the property can be found in
the Philippines even though the donor is a non-resident alien. The donation

of a property found in the Philippines will be subject to the Philippine donors
tax.
The same thing goes to a non resident alien decedent. This decedent who is
not a citizen and at the same time not a resident of the Philippines would
leave behind properties found in the Philippines. The same will still be
subject to the Philippine estate tax because of the situs of the properties
which are in the Philippines.
. as a deductible amount against the overall or worldwide gross income. Tax
The determination of the situs is determined by the lawmaking body on the
basis of nature of the tax, and protection and benefits afforded for the
effectivity of the tax. The subject and object of taxation therefor will be
subject to what we call one or more situs. As the subject or object may be
subject of multiple taxation, they may be taxable here in the Philippines and
at the same time abroad. For example, a resident citizen who makes income
here in Philippines and abroad, the income earned by the resident citizen in
the Philippines is taxable in the Philippines. His income abroad will be taxed
also in the country where the income was earned.
Can the Philippines still tax the income of that resident citizen abroad?
YES, by reason of his citizenship and residence. In other words, a resident
citizen will be taxed on his income wherever it may be. The income in the
Philippines, as well as income abroad, will be consolidated in the Philippines
and pays (? Nay nag ubo di madunggan) the Philippine income tax on these
two sources of income: the Philippines and abroad, yet the income abroad
was already taxed by that country where the income was earned. The
foreign income therefor was subject to two situs: in the Philippines and
abroad. Abroad because he is a non-resident alien there but the source of
the income is found there, and at the same time that income was taxed in
the Philippines even though it was abroad by reason of his citizenship.
Taxes bring(?) burden, so foreign source income will be subject to multiple
situs. The state therefor should provide protection such that the taxpayer
will not be more burdened to taxes already imposed. He pays to taxes to
two jurisdictions on the same income. The state, to reduce the effect of
what we call multiple situs, should provide protection to the citizens where
the object and subject of taxation has been subject to several and multiple
situs and what are the remedies over which the state may provide.
One is tax exemptions, so we usually extend the exemption through
RECIPROCITY, as in the case of income of OFW’s: their income is subject to
the tax laws where the income was earned. We used to tax the foreign
income of the non-resident citizen, but beginning in 1998, we stopped
taxing the foreign income of the non-resident citizen, so we grant tax
exemption. We do not anymore tax that foreign income of OFW. We tax
now the income of the OFW here in the Philippines. For example, meron
siyang bahay dito pinaparentahan niya, then the rental income is subject to
tax because it is found in the Philippines.
When they would make remittance here, they have foreign currency here in
the Philippines, the interest income earned will likewise be tax exempted.
The law likewise grants tax exemption on the income earned by the OFW’s
to their Philippine bank deposits.
Another is when we go to estate and donors taxation. In case of intangible
personal properties where we grant an exemption, we do not tax the
donation or we do not tax the intangible property in so far as the non
resident alien is concered. Yung mga properties ng non-resident alien here
sa Philippines. Then meron naman non resident Filipinos who also have
properties in that foreign country. When that foreign country grants as an
exemption to such type of property by way of estate tax or donation, then
the Philippines will grant similar exemption by way of reciprocity.
Another remedy is by way of tax deduction. Tax deduction simply means
that the tax that was paid by the Filipino in that foreign country will be
allowed to claim tax deduction in the Philippines. The foreign income will be
20
reported to the Philippines subject to the Philippine tax laws but the foreign
income tax is a deductible tax against the income, so that will be claimed as
a deduction in the Philippines. The foreign income tax paid, yun ang
deductible. This is distinguished from crediting. Yung tax credit naman is a
reduction of the tax due; in other words the foreign income tax paid by, lets
say a Filipino on the foreign income earned abroad, will be credited and
deducted against the total tax due payable in the Philippines. The same
effect if the tax deduction where the foreign income tax paid will be treated
crediting also is reducing the amount in tax due; the tax deduction is
reducing the taxable income.
The other one is entering into treaties, on the basis of reciprocity. You enter
into a tax treaty with a foreign government and agree that the tax on this
item will be exempted and that foreign state will grant the exemption.
In connection with the tax treaty, what is the effect of the treaty entered into
by the Philippines in another foreign country? Will this require what we call the
senate ratification? Because under the Constitution, treaties entered by the
Philippines need to be ratified by the Senate. Tax treaties do not require
senate or legislative ratification, because tax treaties are executive
agreements entered into by a tax head or the secretary of finance entering
with his counterpart in that foreign country, as alter ego they enter the so
called executive agreement.
Now we go to the rule on DOUBLE TAXATION.
In the case of double taxation, there is such as thing as multiple taxation,
but in the real sense they are actually double taxation.
Double taxation means
a) taxing twice;
b) by the same taxing authority;
c) within the same jurisdiction;
d) for the same purpose;
e) for the same year or taxing period;
f) on the same property in the territory.
For the sake that there is double taxation, all these elements must be
present, absent one element then there is no double taxation. In your
readings you encountered direct double or indirect double or direct
duplicate or indirect duplicate.
Absent one element makes it an indirect, but take note: for the purposes of
double taxation all these elements must be present. If the taxation is made
by the same taxing authority, but for a different purpose, you do not have
double taxation. For example, in the deed of sale of a real property, you pay
a tax in the BIR within the same taxing jurisdiction, on the same territory, on
the same year or period. However, the deed of sale is subject to two taxes:
(1) the Capital Gains Tax 6% of FMV or selling price, whichever is higher; and
(2) the Documentary Stamp tax. So taxing twice by the BIR, same territory,
same period, yet there is no double taxation. These two taxes are of
different purpose: the Capital gains tax is tax on income while the
documentary stamp tax is the tax on the document.
The same deed of sale will be subject to Notary Tax or the transfer fee.
Therefore, that same deed of sale will be taxed twice: with the BIR and with
the LGU, so 3 (or 2?) taxing authority.
Is there double or multiple taxation?
None, because these taxes are of different purposes. Therefore, in order
that there will be double taxation, all elements must be present.
Now the next issue on double taxation is constitutionality.
Is double taxation unconstitutional?
Double taxation as a rule is NOT prohibited. The Constitution does not
prohibit double taxation. In other words if double taxation will result, you
do not challenge the statute on the basis of double taxation itself because
you cannot find provision in the constitution that prohibits double taxation.

How will you challenge now the constitutionality?
You may attack it on the basis of:
(a) inherent or constitutional limitation or
(b) due process or equal protection.
FORMS OF ESCAPE
The forms of escape are remedies which the tax payer may also resort to or
even the state may allow under certain conditions for purposes of reducing
the burden.
Forms of escape:
1.) Shifting
2.) Capitalization
3.) Transformation
4.) Evasion
5.) Avoidance
6.) Exemption, or you may have
7.) Tax amnesty
SHIFTING is the transfer of the tax burden from one person to another
person. So shifting is transferring the tax burden. The tax where shifting is
allowed are indirect taxes; that is the only tax when shifting is allowed.
Unlike indirect taxes, direct taxes cannot be shifted, because the person
liable to the tax is the one who also shoulders the burden, like income tax.
In the case of income taxation, you are a salaried employee: you earn
income, wages and salaries. Then you will be taxed based on that.
Can you shift the tax to another?
NO you cannot because the burden is direct on the subject or object of tax.
You have also donors tax.
Can you shift or pass on the burden to the donee?
NO because this is direct tax.
In shifting the burden in indirect taxes, the first one liable on the tax whom
we call statutory taxpayer is the person liable under the law. He is allowed
to shift or pass on the burden of the tax to another person like the
transaction of buyer and seller. Here, the buyer purchases an item from the
seller. The price of that item already includes the tax, yet the tax liability is
on the store but the store is allowed to add the tax as part of the purchase
price because of the shifting.
Can you claim that the tax is not allowed?
NO, because indirect taxes are inherently allowed to be shifted.
Can Congress enact a law that all indirect taxes could not be shifted, like VAT?
NO, Congress cannot legislate, because it is inherent from the nature of
indirect tax to be shifted.
In the case of shifting, we have 3 types or forms of shifting:
1) Forward shifting,
2) Backward shifting and
3) Onward shifting.
The forward shifting is the transfer of tax from factors of production to
factors of distribution. That is from the buyer and to the seller.
The onward shifting, (dean’s drawing) here you have buyer and the seller,
you have here the manufacturer or producer then you have the distributor.
The buyer shifts the tax burden to the seller then the seller to the distributor
to the manufacturer or producer that is a form of onward shifting. When it
is the buyer(maybe dean means seller?) who absorbs the tax, then that’s
called a backward shifting.
The seller now passes upon or shifts the burden of tax from the producer,
distributor and finally to the buyer. When the buyer now becomes the new
21
seller, the seller can shift to another buyer: this is also another forward
shifting. Take note the taxes added (referring to deans drawing) so this is
sold at P12.00 plus VAT. The distributor could no longer expect to sell the
same price, so item cost will be P12.00 plus another markup. The wholesaler
can now sell that at P16.00 plus tax pa, so that thing now upon passing to
retailer is sold at P22.00. The seller who is now the retailer will not sell that
at P22.00. He will add another markup plus tax to the final buyer, so that
thing which was sold from the factors of production will shift the burden to
the final buyer, so here there are four taxpayers at 3 tax shifts, so the burden
will pass on until finally the final consumer will carry the burden of tax shift.
Onward shifting occurs when the tax is shifted two or more times either
forward or backward shifting. In this chain (dean’s drawing) there are
several shifts until it ends to the consumer and you have a series of forward
shifting then that is called onward shifting. Either shifted forward or
backward for a series of several onward shifting.
Another form of escape is CAPITALIZATION.
It is a form of backward shifting in a sense that this form of escape is not
applicable to all types of transactions; it applies or is peculiar only in a
[certain] transaction or if a person would consider buying a piece of
property, or transactions involving acquisition, because as a principle,
capitalization is a form of (backward shift? Sorry may nagubo) whereby
future taxes on the property sold are capitalize at the time of purchase and
deducted in lump sum from the selling price. It is a form of backward shifting
whereby future taxes contemplate on transactions involving sale.
For example, you are engaged in business and expanding. You now decide
to buy a property and budgeted P20 million, and there is a piece of property
sold for P20 million. Then you would negotiate na P15 million na lang. The
seller said P19 million, until you end up fixing the price at 16 million.
Now from P20M bumaba ng P16M, what is your savings? You were able to save
4 million.
While you have the money to pay P20 million, you were able to reduce the
price to P16M. Now that P4 million is your savings to address future taxes
on the property. When you own a real property meron kang real property
[taxes] na babayaran. However, in the meantime, you would not source
from other money to pay the real property tax because naka save ka na ng
P4 million, so the price that you were able to save will be used to address
future taxes on the property, and capitalize at the time of the purchase and
deducted lump sum from the selling price. The P4 million will be capitalized
for a period of time to pay the taxes in that real property. It benefited you,
by reason that you will not look for another money to pay for future taxes.
Another is TRANSFORMATION.
This is effected through the process of production. Iba naman yung
application of transformation. Principle: in transformation, the producer on
whom the tax imposed, feeling the loss of his market if he adds a tax to the
price, pays now the tax and pays additional expense by improving his
methods of production thereby turning out units at less cost, hence the tax
is transferred to a gain through the medium of production. The cost of the
effects that the producer will tax to the price, he would want a lesser market
share because his products will be sold at a higher price. So that he will be
able to absorb even the tax by not allowing the tax be added to the price,
but it will absorb the impact of the tax. The burden that is shouldered is
recovered by improving the methods of production.
How do you improve the method of production?
One, improve technology and other ways of improving your means of
production by modernizing machines. Example: the use of palm oil than
coconut oil, because palm oil costs less compared to coconut oil. You will be
able to produce products at lesser cost and the tax is transformed into a
gain through a medium of production. Also, by acquiring new machinery as
well as equipment to improve the methods of production, as a result of that
acquisition, you will be able to produce more products at a lesser cost, since
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the cost is less then you can absorb, the tax is likewise transformed into a
gain through the method of production. That is the peculiarity when you talk
about transformation, essentially it is effected through the process of
production.
Then we go to the common ones, we have TAX EVASION. Asked in the bar
is the DISTINCTION BETWEEN TAX EVASION AND TAX AVOIDANCE.
(From de Leon book)
Evasion should be applied to the escape from taxation accomplished by
breaking the letter of the tax law – deliberate omission to report taxable
item, for example
Avoidance, on the other hand, covers escape accomplished by legal
procedures or means which may be contrary to the intent of the sponsors
of the tax law but nevertheless do not violate the letter of the law.
Tax evader breaks the law; tax avoider sidesteps it.
You may also contemplate what we call estate planning. So consider
testamentary disposition or donation? Will the transferor have tax savings if
the transfer is upon his death or alive? There are factors to be considered in
estate planning. So when you transfer it now, when the value of property is
low, donation is the cheapest mode of transfer. When you choose donation
as a mode of transfer, do not fast tract or donate in bulk or in one time. You
have to program it kasi the range is progressive, the range is from 2 or 5 to
15%. So in other words, eto yung set of properties to be donated, next year
eto naman. Do not do it in one time, you play around with tax brackets.
The capital gains tax is 6% and the lowest in donors tax is 2% to 5%. When you
are hit by the higher bracket, you may go to the sale as another mode. That
is when you will try to figure out computations. Going back to the process,
do not donate all properties one time, program mo yan sya lets say 5 to 6
years.
Then you have exemption, we will discuss next meeting. QUIZ ta karon?
(quiz bai)

Tax evasion is the use of unlawful or illegal means to lessen the payment of
tax (i.e. “tax dodging”). Tax evasion is punishable. How do you distinguish
that it is a tax evasion? As to the price in the deed of sale, if you do not
declare the proper amount for purposes of VAT or business tax, then it is
illegal means to lessen tax liability. In one case, (dean cites a case, not
audible at mahina din boses ni dean dito na part “greater insurance vs BIR”),

Case discussion by Dean

Greater Insurance vs BIR
FACTS: The insurance company was selling an insurance policy. There is an
automatic increase in coverage, so the time when the policy was confronted
by the person to be covered, that insurance coverage was only P1 million.
After 5 years, there will be an automatic increase in coverage from P1 million
to P2 million. When this was learned by the BIR, the BIR assessed (?) the
insurance company for the documentary stamp tax. The documentary
stamp tax will be based on the coverage, likewise, the premiums would also
be subject to the documentary stamp tax. The BIR assessed the tax. Greater
insurance protested that they should not be liable to the additional tax
because di naman kami nag issue ng bagong policy; for every policy that
they will issue that is a taxable issuance. So the automatic increase in
coverage there is no new policy.

ISSUE: Is there tax evasion?

HELD: YES, because even though there was no new insurance policy issued
by reason of the automatic increase coverage, the insurance company is
liable on the tax by reason of the increase in coverage, because if that will
be allowed then that will be a case of tax evasion. Kasi there was a
circumvention of the law that for every policy issued, there will be payment
of documentary stamp tax. So when they have automatic increase of
coverage in insurance policy, and BIR by not collecting the tax and [going
with] Greater Insurance’s defense that there is no new policy issued, then
that is a case of tax evasion. That is an unlawful means to lessen the tax
liability.

What about TAX AVOIDANCE?

It is the use of lawful, or legally permissible methods to reduce tax liability.
(i.e. “tax minimization”).

How do you use tax minimization?

When you contemplate transferring properties to your children, you may
have two options: (1) you may go through a sale or (2) through a donation.
For as long as there is degree of relationship (4th civil? Between the
transferor or transferee), you will compute the savings to donate or sell,
again that is a form of tax minimization.