taxation for exam
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Taxation 1: Manresa3/2013[Jeremiah 29:11]Kay Frin Chez
June 18, 2013
Taxation has been defined as the power of the sovereign to impose burdens
or charges upon persons, properties or property rights for the use and
support of the government for it to be able to discharge.
-“inherent power of the state to demand enforced contributions for public
purposes.”
Taxation is also the power to create revenue to defray necessary
governmental expenses.
TAXES: are enforced proportional and pecuniary contribution from persons
and property levied by the law-making body of the state having jurisdiction
over the subject of the burden for the support of the government and all
public needs.
Attributes of Taxation
1. I t is an inherent power of the sovereign –it exists and
independent from the Constitution; it exist independent from any
act of legislation. In other words, taxation exists when there is
government or of a state. Taxation as a power emanates from
the people.
2. It is legislative in character- because this power is given to the
legislature or the law-making body. WHY? Because from the very
beginning, taxation is a power of the sovereign ad who is the
sovereign? The people. And when the people exercise this power
it is done through their representatives and who are the
representatives of the people? You have the legislature.
3. It is subject to Inherent and Constitutional Limitations- Since thepower of taxation is so comprehensive and unlimited –The power
to tax involves the power to destroy-this power is so
comprehensive in scope therefore, it should be subjected to
limitations. These limitations are divided into two: Inherent
Limitations and Constitutional Limitations.
PURPOSE & SCOPE
Then taxation the power to impose burdens or charges upon persons,
properties, or property rights for the use and support of the government to
support and to enable the government to discharge its functions. This tells usthe purpose of taxation. The purpose of taxation is that these charges and
burdens that will be imposed upon the subjects of the tax so the money that
will be raised from taxation will be used for the support of the government.
Therefore, REVENUE is the PRINICIPAL OBJECTIVE OF TAXATION.
“on the part of the government: to provide funds w/ w/c to promote the
general welfare and protection of its citizens; may also be exercised to attain
various social and economic (non-revenue) objectives”
There are three inherent powers of the State:
1. Police Power
2. Eminent Domain
3. Power to Tax.
SOURCES OF REVENUE OF THE GOVERNMENT- Charges, taxes and
fees.
Theory of Taxation: Taxes proceed from the theory of the existence of the
government is a necessity. This is the principle which states that TAXES
ARE THE LIFEBLOOD OF THE GOVERNMENT. That the existence of the
government is a necessity because the government will not be able to
discharge its functions without taxes/ cannot continue without the means to
pay its expenses, thus it has the right to compel all its citizens and property
w/n the limits to contribute (NECESSITY THEORY.)
It is a necessary burden to preserve the State’s sovereignty and a
means to give the citizenry an army to resist an aggression, a navy to
defend its shores from invasion, a corps of civil servants to serve, public
improvements designed for the enjoyment of the citizenry and those which
come within the State’s territory and facilities and protection w/c a gov’t is
supposed to provide
The other basis would be the PROTECTION-BENEFIT
PRINCIPLE (Basis of taxation) - The reciprocal obligation or the symbiotic
obligation between the State and the citizens. The obligation of the State is
to extend protection to the citizens and on the other hand the obligation of
the citizens is to support the government by paying their taxes.
- This is a standard of equity/fairness often advanced in
evaluating tax laws. It calls for the tax burdens to be
apportioned in the same proportions as the benefits derived
by taxpayers from gov’t spending of tax revenues
Under this principle, if a citizen pays more taxes, is there an
obligation on the part of the State to afford more protection to the said
citizen? No. Whether you pay more or less the government shall give similar
protection and benefits among its citizens. This is based on the othe
principle of taxation which is the ABILITY TO PAY.
- Reason: protection in the enjoyment of his rights is a duty
owed by the State to every citizen.
- From the contribution received, the gov’t renders no special/
commensurate benefit to any particular property/person.
- A tax is a compulsory payment to the gov’t in return for
which the taxpayer gets no definite, specific
commodity/service.
- The only benefit to which a taxpayer is entitled is tha
derived from his enjoyment of the privileges of living in an
organized society established and safeguarded by the
devotion of taxes to public purposes.
- What matters is that it is for public purpose
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Aspects or Phases of Taxation:
1. Levying or the assessment stage- It is the exercise of the power
of taxation through its legislative body. The Congress does not
implement the tax law.
2. Collection and payment of taxes-TAX ADMINISTRATION-
Executive in character. The executive shall implement the taxlaws.
What is the extent of the Power of the Law-making body with regards to
taxation?
1. Determination of what would be the subject of tax.
- A state is free to select the subject of taxation and it has
been repeatedly held that the inequalities w/c result from a
singling out of one particular class for taxation/ exemption is
reasonable and not arbitrary.
- Power to tax carries with it the power to grant tax exemption
- LGUs, there must be a law; no power on real property tax
2. Determination of the purpose for the said tax so long as it is for
public purpose.
-its determination is not conclusive, courts can inquire WON the
purpose is really public/private
-but once settled that it is for public purpose, courts can no longer
inquire into the objective of the legislature in imposing a
tax/wisdom, advisability/ expediency of the tax.
-judicial action is limited only where it involves: 1) determinationof the validity of the tax in relation to constitutional precepts or
provisions; 2) determination of the application of the tax law
3. Determination of the tax amount or rate.
-if taxes are oppressive/unjust, the only remedy is the ballot box
and the election of new representatives
“McCulloch vs. Maryland: the power to tax is the power to destroy
is to describe not the purpose for which the taxing power may be
used but the extent to which it may be employed in order to raise
revenues.”
- Even if a tax should destroy a business, such fact could not
invalidate the tax.
- As long as exercised w/n the bounds of constitutional
limitations, a tax cannot be invalid merely because the
power which is manifested by its imposition may involve the
power to destroy
4. Determination of the manner, the means agencies of the
collection of tax.
Can one go to the Court and question the motive of the legislature on the
levy?
In one case, a certain person filed before the RTC of Manila
questioning on the imposition of tax under the NIRC on the jewelleryindustry. Because according to him the jewellers from Thailand, Vietnam
and other Asian countries are taxed less how come they are taxed with a
higher rate. Going back to the question, can one go to the Court and
question the motive of the legislature on the levy? The answer is NO!
Because the wisdom upon determining the subject of tax is upon the
legislature for as long as it is for public purpose.
However, if the question involves the inherent or constitutional limitations o
the tax law then you go to the Court.
“Power to Tax involves the Power to Destroy”-This principle came ou
because of the extent of the power of the State which is very comprehensive
and unlimited BUT the said principle was debunked when another principlecame out- “Power to tax is not the Power to Destroy while the Supreme
Court sits.”
Non-Revenue Objectives of Taxation:
1. Taxation can be used as a device for Regulation- Taxation may
go hand with hand with the police power. Police power could be
used to exercise the power of taxation.
****Lutz vs Araneta- It involves the imposition of CA 567 or the SugaAdjustment Act. It was questioned how come such act was only imposedupon the sugar industry when the purpose of taxation is public purposeAccording the SC, the Sugar Adjustment Act , the tax which will be collected
is a tax levied with a regulatory purpose, to provide means for therehabilitation and stabilization of the threatened sugar industry. In othe words, the act is primarily an exercise of the police power. The protectionand promotion of the sugar industry is a matter of public concern, it followsthat the Legislature may determine within reasonable bounds what isnecessary for its protection and expedient for its promotion. Here, thelegislative discretion must be allowed fully play, subject only to the test oreasonableness; and it is not contended that the means provided in section 6of the law (above quoted) bear no relation to the objective pursued or areoppressive in character. If objective and methods are alike constitutionallyvalid, no reason is seen why the state may not levy taxes to raise funds fotheir prosecution and attainment. Taxation may be made the implement othe state's police power. So CA 567 is a tax measure in aid and in supporfor the Sugar Industry. So if a tax law is addressed only for the benefit of aparticular industry it does not mean that it will violate public purpose because
tax power may go hand with hand with police power.
****Tio vs VRB- This is prior to the Optical Media Board, the video industry was taxed under PD 1987 or An Act Creating the Videogram RegulatoryBoard" with broad powers to regulate and supervise the videogram industrySo it was asked in that case whether taxing the video industry was a tax or aregulatory measure. The SC said that taxing the video industry is both a taxand a regulatory and revenue measure. Likewise, the imposition is also fopublic purpose. The taxation the video industry is to regulate and rationalizethe uncontrolled distribution of videograms. PD 1987 is not only a regulatorymeasure but also a revenue measure prompted to realize earnings fromvideograms establishment around 600 million per annum which was nosubject to tax which deprived the government of additional sources o
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- tax laws should close up loopholes for tax evasion and deter theunscrupulous officials from committing frauds in the assessment and collection of taxes, otherwise, they become an invitation tobreak the law/ much of the revenue the system produces must bespent in the collection process.
“non-observance of the above principles will not necessarily render thetax imposed invalid except to the extent that specific constitutional limitations are violated.”
TAX- The burdens or charges imposed by the State. It is an enforcedproportional burden from person or property levied by the law-making bodyof the Sate by virtue of its sovereignty for the support of the government andfor public needs.
Characteristics of Tax:
1. It is an enforced contribution: not a voluntary payment/donation
2. It is generally payable in money: unless qualified by law (back pay certificates under sec. 2 RA 304)
3. It is proportionate in character: based on ability to pay
4. It is levied upon person, property or property rights.: ONLY APERSON PAYS TAX; property is resorted to for the purpose of ascertaining the amount of tax that must be paid and of enforcing payment in case of default of the taxpayer
5. It is levied by the law-making body: only CONGRESS canexercise through the enactment of tax statutes; obligation is astatutory liability
LGUs, have direct authority pursuant to Constitutionsubject to such guidelines and limitations as may be provided by law.
6. It is levied by the State which has jurisdiction: in order that the tax can be enforced; taxing power stops at the state boundary lines
7. It is levied for public purpose.: the support of the government,administration of the law and payment of public expenses; such isimplied in the levy of tax
Classifications:
a. Subject-matter
1. Poll Tax/ Personal Tax
2. Property Tax
3. Excise Tax
b. Who bears the burden
1. Direct Tax-Whereby the statutory taxpayer pays the tax andshoulders burden of tax like income tax etc.
2. Indirect Tax- Where the statutory tax payer, the person whois liable to pay the tax s allowed to pass or shift the burdenof tax to another like VAT
CLASSIFICATIONS AND DISTINCTIONS: San Beda reviewer
Classification of Taxes
A. As to Subject matter
1. Personal, capitation or poll taxes – taxes of fixed amount upon
all persons of a certain class within the jurisdiction of the taxingpower without regard to the amount of their property or occupationsor businesses in which they may be engaged in.
example: community tax
-taxes of specified amount imposed upon each person
performing a certain act or engaging in certain business or
profession are not poll taxes
2. Property Taxes – taxes on things or property of a certain class within the jurisdiction of the taxing power.; whether real or personal
example: real estate tax
- Obligation to pay the tax is absolute and unavoidableand not based upon voluntary action of the person
assessed.
3. Excise Taxes – charges imposed upon the performance of anact, the enjoyment of a privilege, or the engaging in an occupation.
examples: income tax, value-added tax, estate tax o
donor’s tax
-the obligation to pay this tax is based on the voluntary
action of the person taxed in performing the act/ engaging in the
activity which is subject to the excise.
-synonymous with “privilege tax”
- note: not to be confused w/ excise tax imposed on certain
specified articles manufactured/produced in, or imported into the
Philippines, “for domestic sale/consumption/ for any other
disposition.”
B. As to Burden
1. Direct Taxes – taxes wherein both the “incidence” as well as the“impact” or burden of the tax faces on one person.
- Demanded and exacted from the very person whoalso shoulders the burden of the tax - Taxpayer is directly liable/ which he cannot shift to
another examples: income tax, community tax, donor’s tax, estate
tax, corporate and individual income taxes
2. Indirect Taxes – taxes wherein the incidence of or the liability forthe payment of the tax falls on one person, but the burden thereofcan be shifted or passed to another person.
- Tax imposed upon goods before they reach theconsumer who ultimately pays for it not as a tax but
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as part of the purchase price of goods sold/servicesrendered.
- Practically, all business taxes are indirect examples: VAT, percentage taxes, customs duties excise
taxes on certain specific goods, excise taxes on certain specific
goods (differs from EXCISE TAX)
Important Points to Consider regarding Indirect Taxes:
1. When the consumer or end-user of a manufacturer product istax-exempt, such exemption covers only those taxes for which suchconsumer or end-user is directly liable. Indirect taxes are notincluded. Hence, the manufacturer cannot claim exemption from thepayment of sales tax, neither can the consumer or buyer of theproduct demand the refund of the tax that the manufacturer mighthave passed on to him. (Phil. Acetylene Co. inc. vs Commissioner of Internal Revenue et. al., L-19707, Aug.17, 1987)
2. When the transaction itself is the one that is tax-exempt butthrough error the seller pays the tax and shifts the same to the buyer,
the seller gets the refund, but must hold it in trust for buyer.(American Rubber Co. case, L-10963, April 30, 1963)
3. Where the exemption from indirect tax is given to the contractee,but the evident intention is to exempt the contractor so that suchcontractor may no longer shift or pass on any tax to the contractee,the contractor may claim tax exemption on the transaction(Commissioner of Internal Revenue vs John Gotamco and Sons,Inc., et.al., L-31092, Feb. 27, 1987)
4. When the law granting tax exemption specifically includes
indirect taxes or when it is clearly manifest therein that legislativeintention to exempt embraces indirect taxes, then the buyer of theproduct or service sold has a right to be reimbursed the amount ofthe taxes that the sellers passed on to him. (Maceda vsMacaraig,supra)
C. As to Purpose
1. General/Fiscal/Revenue – tax imposed for the general purposesof the government, i.e., to raise revenues for governmental needs.
Examples: income taxes, VAT, and almost all taxes
2. Special/Regulatory – tax imposed for special purposes, i.e., toachieve some social or economic needs., irrespective of whether revenue is actually raised or not
Examples: educational fund tax under Real Property
Taxation, protective tariffs/ customs duties on imported goods to
enable similar products manufactured locally to compete w/ such
imports in the domestic market.
D. As to Measure of Application
1. Specific Tax – tax imposed per head, unit or number, or bysome standard of weight or measurement and which requires noassessment beyond a listing and classification of the subjects to betaxed.
Examples: taxes on distilled spirits, wines, and fermented
liquors
2. Ad Valorem Tax – (according to value) tax based on the value othe article or thing subject to tax.; requires the intervention oassessors/ appraisers to estimate the value of such property beforethe amount due from each taxpayer can be achieved.
example: real property taxes, customs duties
E. As to Date
1. Progressive Tax – the rate or the amount of the tax increases asthe amount of the income or earning (tax base) to be taxedincreases.
examples: income tax, estate tax, donor’s tax
2. Regressive Tax – the tax rate decreases as the amount ofincome or earning (tax base) to be taxed increases.
Note: We have no regressive taxes (this is according to De
Leon)
3. Mixed Tax – tax rates are partly progressive and partlyregressive.
4. Proportionate Tax – tax rates are fixed on a flat tax base.examples: real estate tax, VAT, and other percentage
taxes
F. As to Scope or authority imposing the tax
1. National Tax – tax imposed by the National Government.examples: national internal revenue taxes, customs duties
2. Municipal/Local Tax – tax imposed by Local Government units.examples: real estate tax, professional tax
• Regressive System of Taxation vis-à-vis Regressive Tax
A regressive tax, must not be confused with regressive
system of taxation.
Regressive Tax: tax the rate of which decreases as the
tax base increases.
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Regressive System of Taxation: focuses on indirect
taxes, it exists when there are more indirect taxes imposed than
direct taxes.
Taxes distinguished from other Impositions
a. Toll vs Tax
Toll – sum of money for the use of something, generally
applied to the consideration which is paid for the use of a road,
bridge of the like, of a public nature.
Tax vs Toll
1. demand of sovereignty 1. demand of proprietorship
2. paid for the support of thegovernment
2. paid for the use of another’sproperty
3. generally, no limit as toamount imposed
3. amount depends on the costof construction or maintenanceof the public improvement used
4. imposed only by thegovernment
4. imposed by the governmentor private individuals or entities
b. Penalty vs TaxPenalty – any sanctions imposed as a punishment for
violations of law or acts deemed injurious.
Tax vs Penalty
1. generally intended to raiserevenue
1. designed to regulate conduct
2. imposed only by thegovernment
2. imposed by the governmentor private individuals or entities
c. Special Assessment vs Tax
Special Assessment – an enforced proportionalcontribution from owners of lands especially or peculiarly benefited
by public improvements.
Tax vs Special Assessment
1. imposed on persons,property and excise
1. levied only on land
2. personal liability of theperson assessed
2. not a personal liability of theperson assessed, i.e. his liability
is limited only to the landinvolved
3. based on necessity as wellas on benefits received
3. based wholly on benefits
4. general application (seeApostolic Prefect vs Treas. OfBaguio, 71 Phil 547)
4. exceptional both as time andplace
Important Points to Consider Regarding Specia
Assessments:
1. Since special assessments are not taxes within the constitutionaor statutory provisions on tax exemptions, it follows that theexemption under Sec. 28(3), Art. VI of the Constitution does notapply to special assessments.2. However, in view of the exempting proviso in Sec. 234 of theLocal Government Code, properties which are actually, directly andexclusively used for religious, charitable and educational purposesare not exactly exempt from real property taxes but are exempt from
the imposition of special assessments as well.( see Aban)3 .The general rule is that an exemption from taxation does not
include exemption from special assessment.
d. License or Permit Fee vs TaxLicense or Permit fee – is a charge imposed under the
police power for the purposes of regulation.
Tax vs License/Permit Fee
1. enforced contributionassessed by sovereign authorityto defray public expenses
1. legal compensation oreward of an officer for specificpurposes
2. for revenue purposes 2. for regulation purposes
3. an exercise of the taxingpower
3. an exercise of the policepower
4. generally no l imit in theamount of tax to be paid
4. amount is l imited to thenecessary expenses oinspection and regulation
5. imposed also on personsand property
5. imposed on the right toexercise privilege
6. non-payment does not
necessarily make the act orbusiness illegal
6. non-payment makes the ac
or business illegal
Three kinds of licenses are recognized in the law:
1. Licenses for the regulation of useful occupations.2. Licenses for the regulation or restriction of non-usefuoccupations or enterprises3. Licenses for revenue only
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Importance of the distinctions between tax and license
fee:
1. Some limitations apply only to one and not to the other, and thatexemption from taxes may not include exemption from license fees.2. The power to regulate as an exercise of police power does notinclude the power to impose fees for revenue purposes. (see
American Mail Line vs City of Butuan, L-12647, May 31, 1967 and related cases)3. An extraction, however, maybe considered both a tax and alicense fee.4. But a tax may have only a regulatory purpose.5. The general rule is that the imposition is a tax if its primarypurpose is to generate revenue and regulation is merely incidental;but if regulation is the primary purpose, the fact that incidentallyrevenue is also obtained does not make the imposition of a tax. (seeProgressive Development Corp. vs Quezon City, 172 SCRA 629)
e. Debt vs Tax
Debt is based upon juridical tie, created by law, contracts,delicts or quasi-delicts between parties for their private interest or
resulting from their own acts or omissions.
Tax vs Debt
1. based on law 1. based on contracts, expressor implied
2. generally, cannot beassigned
2. assignable
3. generally payable in money 3. may be paid in kind
4. generally not subject to set-off or compensation
4. may be subject to set-off orcompensation
5. imprisonment is a sanctionfor non-payment of tax exceptpoll tax
5. no imprisonment for non-payment of debt
6. governed by specialprescriptive periods provided forin the Tax Code
6. governed by the ordinaryperiods of prescriptions
7. does not draw interestexcept only when delinquent
7. draws interest when sostipulated, or in case of default
General Rule: Taxes are not subject to set-off or legal
compensation. The government and the taxpayer are not creditors
and debtors or each other. Obligations in the nature of debts are due
to the government in its corporate capacity, while taxes are due to
the government in its sovereign capacity (Philex Mining Corp. vs
CIR, 294 SCRA 687; Republic vs Mambulao Lumber Co., 6 SCRA
622)
Exception: Where both the claims of the government and the
taxpayer against each other have already become due and
demandable as well as fully liquated. (see Domingo vs Garlitos, L-
18904, June 29, 1963)
Pertinent Case:
Philex Mining Corp. vs Commissioner of Internal Revenue
G.R. No. 125704, Aug. 28, 1998
The Supreme Court held that: “We have consistently ruled
that there can be no offsetting of taxes against the claims that the
taxpayer may have against the government. A person cannot refuse
to pay a tax on the ground that the government owes him an amount
equal to or greater than the tax being collected. The collection of a
tax cannot await the results of a lawsuit against the government.”
f. Tax Distinguished from other Terms.
1. Subsidy – a pecuniary aid directly granted by the government toan individual or private commercial enterprise deemed beneficial tothe public.
2. Revenue – refers to all the funds or income derived by thegovernment, whether from tax or from whatever source and whateve
manner.
3. Customs Duties – taxes imposed on goods exported from oimported into a country. The term taxes is broader in scope as iincludes customs duties.
4. Tariff – it may be used in 3 senses:a. As a book of rates drawn usually in alphabetical orde
containing the names of several kinds of merchandise with thecorresponding duties to be paid for the same.
b. As duties payable on goods imported or exported (PD No. 230)
c. As the system or principle of imposing duties on theimportation/exportation of goods.
5. Internal Revenue – refers to taxes imposed by the legislativeother than duties or imports and exports.
6. Margin Fee – a currency measure designed to stabilize thecurrency.
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7. Tribute – synonymous with tax; taxation implies tribute from thegoverned to some form of sovereignty.
8. Impost – in its general sense, it signifies any tax, tribute or duty.In its limited sense, it means a duty on imported goods andmerchandise.
Inherent Powers of the State
1. Police Power2. Power of Eminent Domain3. Power of Taxation
Distinctions among the Three Powers
Taxation Police Power Eminent Domain
PURPOSE
- levied for the
purpose of
raising revenue
- exercised to
promote public
welfare thru
regulations
- taking of property for
public use
AMOUNT OF EXACTION
- no limit - limited to the
cost of
regulations,issuance of the
license or
surveillance
- no exaction,
compensation paid by
the government
BENEFITS RECEIVED
- no special or
direct benefits
received but the
enjoyment of
the privileges of
living in anorganized
society
- no direct
benefits but a
healthy economic
standard of
society or
“damnumabsque injuria” is
attained
- direct benefit results
in the form of just
compensation
NON-IMPAIRMENT OF CONTRACTS
- the impairment
rule subsist
- contract may be
impaired
- contracts may be
impaired
TRANSFER OF PROPERTY RIGHTS
- taxes paid - no transfer but - property is taken by
become part of
public funds
only restraint on
the exercise of
property right
exists
the gov’t upon
payment of just
compensation
SCOPE
- affects all
persons,
property and
excise
- affects all
persons,
property,
privileges, and
even rights
- affects only the
particular property
comprehended
BASIS
- public
necessity
- public necessity
and the right of
the state and the
public to self-
protection andself-preservation
-public necessity,
private property is
taken for public use
AUTHORITY WHICH EXERCISES THE POWER
- only by the
government or
its political
subdivisions
- only by the
government or its
political
subdivisions
- may be granted to
public service,
companies, or public
utilities
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June 25, 2013
LIMITATIONS OF THE POWER OF TAXATION
Remember that the power of taxation or the power to tax is inherent in the
sovereign. That this power is legislative in character but the power to tax is
subject to limitations. Where the power to tax has a comprehensive scope
and far-reaching still having said the power to tax is subject to limitations. We
can classify these limitations into:
1. Inherent
2. Constitutional
So these limitations posed restrictions in the exercise of that power. So we
go back to that principle that the power to tax involves the power to destroy
To safeguard the exercise of this power it was subject to some limitations.
So what are the INHERENT LIMITATIONS?
1. You have the requirement of PUBLIC PURPOSE. This means
that taxes must be levied for public purpose. So when the powe
of taxation is exercised for public purpose. The requirement o
public purpose is the heart and soul of the power to tax. So if the
power to tax is exercised for public purpose then whatever will be
enacted that would be the inherent limitation.
So what is this concept of public purpose? Anything that is related to
governmental purpose; a purpose affecting the inhabitants of the state o
taxing district as a community and not merely as individuals. Because the
concept of purpose is very broad we could dissect this through decisions
which would determine whether or not such law complies with the
requirement of public purpose.
***Lutz vs. Araneta-This case involves the enactment of CA 567
or the Sugar Adjustment Act. The taxes imposed under CA 567
are funds collected which are used for the rehabilitation and
stabilization of the Sugar Industry. The purpose of the exaction is
for public purpose. Although such law was enacted for the Suga
industry it does not violate the idea of public purpose because i
was enacted for the rehabilitation and stabilization of the Suga
Industry which is also a national concern.
We also have the case of Gaston vs Republic Planters Bank.
***Gaston vs Republic Planters Bank- This time it is about the fee
collected by the Planters Bank from the millers. And the issue
that was brought is whether or not such fee is for public purpose
It is for public purpose since the stabilization fees in question are
levied by the State upon sugar millers, planters and producers fo
a special purpose — that of "financing the growth and
development of the sugar industry and all its components
stabilization of the domestic market including the foreign marke
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the fact that the State has taken possession of moneys pursuant
to law is sufficient to constitute them state funds, even though
they are held for a special purpose. The tax collected is not in a
pure exercise of the taxing power. It is levied with a regulatory
purpose, to provide means for the stabilization of the sugar
industry. The levy is primarily in the exercise of the police power
of the State.
***Citizens Alliance vs ERB-The issue of this case is whether or
not the establishment of the Oil Price Stabilization Fund is for
public purpose. And what is the justification for it? The
establishment of the OPSF is within the pervasive power of the
government and its responsibility to secure to secure the
of the community. That comprehensive sovereign
authority may designate . The reduction of the
price of the petroleum, crude oil etc. clearly critical in importance
considering among other things the continuing dependence to
such commodity as a public purpose. Now if it benefited the oil
companies because of the continuing high level of dependence ofthe country to crude oil then it does not mean that the OPSF was
not created for public purpose (Please read the full text of the
case because the recording for this part is not that audible) .
***COCOFED vs. PCGG- Are the COCO levy funds public funds?
In this case, the PCGG wants to sequester the funds of
COCOFED but the COCOFED contends that such funds they
have were private funds. So the issue here is whether or not the
COCO levy funds are public funds. The Nature of the COCO levy
funds are in the nature of public funds. The proper management
of the COCO levy funds are within the government they werecollected through the police and taxing power of the State. It
cannot be denied that it is the welfare of the entire nation which is
one of the main factors of the imposition of the COCO levy fund. It
could not be denied that the Coconut industry is one of the major
industries supporting the national economy. It is not only a
livelihood of a significant segment of the population but also the
export earnings which is one of the imperatives of economic
stability which clearly affects the public industry. The Court ruled
that the COCO levy funds are subject to sequestration
proceedings (Please read the full text of the case for more details
on the ruling because the recording for this part is not that
audible).
***Planters Product Inc. & Fertifil vs. (548
SCRA 485)- Planters Products Inc and Fertifil are private
corporations which import pesticides, fertilizers and the like.
Marcos came out with a Letter of Instruction directing the FPA
(Fertilizers and Pesticides Authority) to impose a 10-peso levy for
every bag of fertilizer being sold. The proceeds of such levy will
go to PPI. Fertifil pays 10 pesos per bag for every sale of
fertilizer. The FPA will give the amount (10 peso levy) to PPI. Now
after the 1986 EDSA, Fertifil now demanded the return of the
amount it paid to PPI under the LOI but PPI refused. So the issue
here is whether or not the 10-peso levy under the LOI was a valid
tax collection? Remember now that you will go back to the basics
that no matter whether the president has the taxing power like in
the case of Marcos it must be remembered that in the imposition
of tax it should always be for public purpose. So the 10-peso levy
was not a valid tax imposition nor was it regulatory (Please read
the full text of the case for more details on the ruling because the
recording for this part is not that audible).
The Supreme Court said that public purpose is the heart of tax law. It is the
consent that can be hammered to fit the modern standards and it does no
only pertain to purposes which are traditionally considered as governmenta
functions such as construction of roads delivery of public services etc. but i
also includes social justice like for the use of the relocation of squatters, you
have low-cost housing and urban housing as well as agrarian reform. Wha
constitutes public purpose is in the light of the expansion of governmenta
functions. The meaning of public purpose continually evolves. The meaningcontinues to expand. So it does not only refer to governmental functions. So
this brings us to the case of Binay vs. Domingo.
***Binay vs. Domingo-Then the Mayor of Makati Jejomar Binay
has this pauper burial assistance kung saan kapag namatayan ay
covered ng burial assistance. This generous effort was put into
question. COA co-objected with such expenditure claiming that i
was an illegal exaction of government funds and this was not fo
public purpose. So the matter went to the Supreme Court
Whether or not the pauper burial assistance program was a valid
program which is for public purpose. According to the SupremeCourt it is a valid program within the scope of public purpose
(Please read the full text for the reason of the ruling of SC
However, there is a caveat for the pauper burial assistance
program of Makati to be within the scope of public purpose-i
should only be applicable to the Municipality of Makati.
“Justice Isagani Cruz, public purpose is embracing not merely
public benefit/advantage but also indirect public benefit.”
- It is the purpose which determines the public character of
the law, not the number of persons benefited, as long as theultimate result favors the welfare of the public in general
- Cases for public purpose:
• Public improvement
• Unemployment relief
• Buildings and roads/infrastructure
• Local police forces (subsidies) under RA 6141
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• Industries classified as indispensible under PD
1987
• Construction of home sites
• Promotion of science and invention
• Upliftment of the underprivileged
• Rehabilitation of sugar industry
• Pensions to deserving retirees
• Oil industry’s protection
• Socialized housing
• Educational subsidy
“the rule is that, if the public advantage/benefit is merely
incidental in the promotion of a particular enterprise, such defect
shall render the law invalid. On the other hand, if what is
incidental is the promotion of a private enterprise, the tax law
shall be deemed for a public purpose.”
2. The second limitat ion is the NON-DELEGATION OF THE
LEGISLATIVE POWER OF TAXATION-In other words the power
of taxation is exclusively legislative.
So remember that this limitation is subject to some exceptions:
a. Under the Constitution: Congress may expressly authorize
the President to fix within specified limits, and subject to
such limitations and restrictions as it may impose, tariff
rates, import and export quotas, tonnage and wharfage
dues, and other duties or imposts within the framework of
the national development program of the Government (Sec.
28 (2), Article VI, 1987 Constitution)
***In the case of Garcia vs. Executive Secretary-
Congressman Garcia questioned the Executive Order on
importation levy implemented by its either President Ramos
or Aquino. Garcia claimed that the President has no taxing
power because power of taxation is legislative in character.
So this was brought before the SC. The SC said that the
President has taxing powers under Article VI of the 1987
Constitution.
The Tariff and Customs Code also provides the mechanism
of the exercise of this taxing power. Which is reflected by
the flexible tariff laws. Under this the Congress may
increase tariffs or decrease customs duties.
b. Another exception is in the case of the local taxing power
The Constitution on this point states: “Each loca
government unit shall have the power to create its ownsources of revenues and to levy taxes, fees and charges
subject to such guidelines and limitations as the Congress
may provide, consistent with the basic policy of loca
autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local government (Sec. 5, Article X, 1987
Constitution)-The LGUs has the power to tax through a
Constitutional grant. There are two ways of granting the
local government units the power of taxation either:
I. Constitutional Grant
II. Legislative Grant.
In our jurisdiction the power of taxation is granted to the LGUs by
Constitutional Grant. This is found in Article X, Section 5 of the
987 Constitution.
So remember that tax laws are legislative in character once it is enacted the
executive shall implement the said tax laws. Moreover, it is also the duty o
the executive to promulgate Implementing Rules and Regulations regarding
such law. So there is a need for tax laws to enacted by the legislative bodyso the initiative should come from the Congress however there is anothe
exception with this general rule that the Congress has the sole power to
initiate tax laws is the People’s Initiative and Referendum or RA 6735. Unde
RA 6753 there are two ways whereby citizens can initiate laws particularly
tax laws without violating the non-delegation of the taxing power. When we
talk about RA 6735 when we proposed people’s initiative and referendum
initially we have to gather signatures, now when it is enacted either revenue
or a non-revenue measure it is not merely taxation puwede other initiatives
So whether you propose, you may amend or repeal a law through people’s
initiative and referendum. So first you gather the needed signatures then
you go to the COMELEC after that if the signatures were able to reach the
required number by the COMELEC then the COMELC will have a plebiscite
So the proposal now is given to the electorate then there will be voting o
whether they are in favour or not and if there’s yes vote that would become
people’s initiative and referendum. However, there is also another mean
provided by the same law however this one is not that popular, the indirect
initiative whereby there is this certain group of people (Petitioners) who wil
file a petition for indirect initiative with the House of Representatives then
such initiative bill will undergo the normal legislative measure but it will not
be the Congressman who will be the sponsor of the said initiative bill but the
petitioners who submitted such petition. So these are the two modes
under RA 6735.
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3. TERRITORIALITY OR SITUS OF TAXATION-Which the power to
tax is limited only within the territory or boundary of jurisdiction to
tax. In other words, the State has no extra-territorial jurisdiction
because we go back to the rule that it is the law-making body
which has the discretion in determining the situs of taxation.
However, this limitation admits an exception the personal tax. TheOFWs in 1998, we do not tax anymore the income of the OFWs
because they are already classified as non-residents Filipinos
since they are in abroad and it was stated in the new law that the
State shall not tax the income of non-residents so this is an
example when the state exercises jurisdiction. So even if the
subject or object of tax is outside State, the State can pursue or
exercise personal jurisdiction over that subject even if that subject
is outside the territory the State shall afford to it similar protection
and it should also have similar benefits. So this is how the state
exercises jurisdiction.
RULE: irrespective of owner, donor’s tax/ estate tax can be
imposed upon these properties
EXCEPT: where the foreign country grants exemption or does not
impose taxes on intangible properties of Filipino citizens
4. INTERNATIONAL COMITY- This is in accordance with the
principle that a sovereign cannot tax another sovereign. Now Sec.
12 Art. II of our Constitution declares that the Philippines “adopts
the generally accepted principles on international law as part of
the law of the land and adherence to the policy of peace, equality, justice, freedom, cooperation and amity with all nations”. Since
the power of tax is inherent among States then we could not tax
other sovereign. Moreover, there is also the principle common
usage among states that when one enters the territory of another,
there is an implied understanding that the former does not intend
to degrade its dignity by placing itself under the jurisdiction of the
latter and there is also the principle of the non-suability of states
where it is useless to assess tax. This is a self -imposed limitation
due to public policy and for practical consideration. So yung mga
income ng diplomatic corps at dahil sa US-RP Agreement yung
mga income ng service men sa Subic are not taxable.
“Par in parem non habet imperium; where even the strongest
state cannot assume jurisdiction over another state, no matter how weak/
question the validity of its acts in so far as they are made to take effect
w/n its own territory. All states, including smallest and least influential, are
also entited to their dignity and the protection of their honor and
reputation.”
5. EXEMPTION OF THE GOVERNMENT AGENCIES OR
INSTRUMENTALITIES- In other words, the State does tax itself
This is a self-imposed limitation by reason of public policy and
some practical considerations. While there is no law or prohibition
that the State may not tax itself, it is absurd and impractical for the
State to tax itself so there is this self-imposed limitation. This
immunity from taxation only applies for the governmenta
functions whereby an agency exercises governmental o
sovereign functions. But when an agency exercises proprietary
functions like the GOCCs operates public utilities and the charte
of such GOCC provides for a tax exemption then it has an
immunity from taxation but if the charter of any GOCCs which has
proprietary function does not provide for tax exemption then such
agency or instrumentality does not have any immunity from
paying taxes.
GOCCs perform proprietary functions, are subject to taxation
however, certain corporations have been granted exemption
under Section 27(c) of RA 8424 as amended by RA 9337 whichtook effect on July 1, 2005:
• GSIS
• SSS
• PHIC
• PCSO
- Instrumentality of the national government is exempt fromlocal taxation (MIAA vs. CA: real properties are owned by
RP, thus exempt from real estate taxes.)
- Exemption from taxation is not favoured and exemptions in
tax statues are never presumed.
- Exemption from taxation are construed strictly against the
taxpayer and liberally in favour of taxing authority.
ONLY JULY 2, 2013, MISSING JULY 3 & JUNE 26
Constitutional Limitations
(Refer to ABAN for cases p.66)
1. Due Process of Law
a. Basis: Sec. 1 Art. 3 “No person shall be deprived of life,liberty or property without due process of law x x x.”
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Requisites :
1. The interest of the public generally asdistinguished from those of a particular class require the interventionof the state;
2. The means employed must be reasonablynecessary to the accomplishment for the purpose and not undulyoppressive;
3. The deprivation was done under the authority ofa valid law or of the constitution; and
4. The deprivation was done after compliance withfair and reasonable method of procedure prescribed by law.
In a string of cases, the Supreme Court held that in
order that due process of law must not be done in an arbitrary,
despotic, capricious, or whimsical manner.
“when the constitutionality of a legislative taxing act is
questioned on the ground that there is denial of due process, an
actual case or controversy must first exist before the courts can be
called upon to rule on the said issue.”
“when a tax turns out to be confiscatory in nature,
such imposition could very well be considered as being violative of
the due process principle.”
“classification for taxation must not be prompted by a
reason of hostility/ discrimination that finds no support in reason.”
2. Equal Protection of the Law
a. Basis: Sec.1 Art. 3 “ xxx Nor shall any person be denied the equal protection of the laws.Important Points to Consider:
1. Equal protection of the laws signifies that all
persons subject to legislation shall be treated under circumstances
and conditions both in the privileges conferred and liabilities imposed
2. This doctrine prohibits class legislation which
discriminates against some and favors others.
b. Requisites for a Valid Classification1. Must not be arbitrary
2. Must not be based upon substantial distinctions
3. Must be germane to the purpose of law.
4. Must not be limited to exiting conditions only; and
5. Must play equally to all members of a class.
“classification must be based upon real and substantia
differences between the person, property or privileges and those not
taxed must be bear some reasonable relation to the object/ purpose
of legislation/ to some permissible governmental policy/ legitimate
end of governmental action.”
- Congress can make distinctions and classifications.
- “preferential tax rates are no longer applicable on
income of non-resident citizens abroad. Under the TAX REFORM
ACT of 1997, non-resident citizens are taxable only on income
derived from sources w/n the Philippines. Hence, beginning Jan. 1,
1998, income of non-resident citizens from foreign sources are not
subject to Philippine tax.”
3. Uniformity, Equitability and Progressivity of Taxation
a. Basis: Sec. 28(1) Art. VI. The rule of taxation shall beuniform and equitable. The Congress shall evolve aprogressive system of taxation.b. Important Points to Consider:
1. Uniformity (equality or equal protection of the laws)
means all taxable articles or kinds or property of the same class shal
be taxed at the same rate. A tax is uniform when the same force and
effect in every place where the subject of it is found.
“different articles may be taxed at different amounts provided
that the rate is uniform on the same class everywhere with all people
at all times.”
2. Equitable means fair, just, reasonable and
proportionate to one’s ability to pay.
3. Progressive system of Taxation places stress on
direct rather than indirect taxes, or on the taxpayers’ ability to pay
4. Inequality which results in singling out one particula
class for taxation or exemption infringes no constitutional limitation
(see Commissioner vs. Lingayen Gulf Electric, 164 SCRA 27)
5. The rule of uniformity does not call for perfec
uniformity or perfect equality, because this is hardly attainable.
4. Freedom of Speech and of the Press
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a. Basis: Sec. 4 Art. III. No law shall be passed abridging thefreedom of speech, of expression or of the pressx x x “b. Important Points to Consider:
1. There is curtailment of press freedom and
freedom of thought if a tax is levied in order to suppress the basic
right of the people under the Constitution.
2. A business license may not be required for the
sale or contribution of printed materials like newspaper for such
would be imposing a prior restraint on press freedom
3. However, an annual registration fee on all
persons subject to the value-added tax does not constitute a restraint
on press freedom since it is not imposed for the exercise of a
privilege but only for the purpose of defraying part of cost of
registration.
5. Non-infringement of Religious Freedom
a. Basis: Sec. 5 Art. III. “No law shall be made respecting anestablishment of religion or prohibiting the free exercisethereof. The free exercise and enjoyment of religiousprofession and worship, without discrimination or preference,shall be forever be allowed. x x x”
You have also Section 5 (2b) Article 8. This is the power of
the Supreme Court in connection with tax cases including other
cases. This defines the extent of the power given by the
Constitution the Supreme Court under Article 8 Section 5 (2b).Now in this provision the Supreme Court shall have the power
to review, revise, reverse, modify, or affirm on appeal or
certiorari, as the law or the Rules of Court may provide, final
judgements and orders of lower courts in all cases involving
the legality of any tax, imposts, assessment, or toll, or penalty
imposed in relation thereto. In other words, in connection with
tax cases it is still the Supreme Court which is the final arbiter.
All tax cases whether it emanates administratively through the
executive branches or through the executive part of the
government then it is brought from exhaustion of administrative
remedies to the judicial action still the final say will be given to
the Supreme Court. Because they have that power to review,
revise, reverse, modify, or affirm on appeal or certiorari as thelaw or the Rules of Court may provide, final judgements and
orders of lower courts all final judgement in all cases so this
include tax cases legality of any tax, imposts, assessment, or
toll, or penalty imposed in relation thereto. So all these matters
should be brought before the Supreme Court for its final
adjudication unless the party did not bring it, it will attain its
finality as law but nevertheless anyone who bring it up ad
pursue his cause for further remedies the Supreme Court will
have the final say. In other words, for the purposes of
assessment and collection of the payment of the tax Congress
therefore cannot legislate that whatever the decision of the BIR
in so far as in assessing how much tax will be paid by the
taxpayer it will not legislate that the decision of the BIR will be
final and executory and no longer could not be appealed o
even review for certiorari because that will be an
encroachment of Section 5 (2b) Article 8 of the Constitution. In
other words, the Supreme Court could not be deprived of that
power otherwise if you allowed that the executive that their
decision involving tax would be final and could not be longe
appealed, review before the Supreme Court that is null and
void because that is unconstitutional. A violation of tha
provision.
Now other Constitutional limitation is Article 3 Section
5.xxxxxxxxxxxxxxx. The free exercise and enjoyment o
religious profession and worship, without discrimination or
preference, shall forever be allowed . xxxxxxxxxxxxxxxxx . In
other words as ruled in American Bible Society vs. City o
Manila (101 PHIL 386) the power of taxation yields to the free
exercise of the religious profession and worship. So freedom o
religion is superior to the power of taxation. Now in the
American Bible Society case the sale of Bibles and othe
religious literature by religious organizations although have a
little profit could not be consider taxable transaction for it wil
be violative of the Constitutional provision which guarantees to
freedom of religious profession and worship. Now when you
relate the American Bible Society case to Tolentino vs
Secretary of Finance (235 SCRA 613) and the ruling for the
MR is 249 SCRA 628. One of the petitioners in the case of
Tolentino because there are 9 consolidated cases yung title
lang is Tolentino vs. Secretary of Finance. These were also
decided and related. So one of the petitioners there was the
Philippine Bible Society and under RA 7716 in the expansion
of the Value Added Tax one of the transactions which wherein
it covered the taxation on the imposition of the VAT on the sale
of publications, published works and articles, magazines and
newspapers and etc. together with the Philippine Bible Society
we also have the Philippine Press Club which questioned the
taxation or the imposition of the VAT on the sale o
newspapers which will encroach upon the freedom of speech
Now the case of Philippine Bible Society the tax imposition on
the sales of the Bibles will now violate the Constitutiona
provision on the freedom of religion against taxation. The ruling
rendered in that case of Tolentino, it abandoned the decision o
the American Bible Society case. Because this time the VAT
now is imposed upon the sale of publications, articlesmagazines including the Bibles. See this now is a violation of
the freedom of religion thus, you may now abandon the
American Bible Society case. The Court said no while it is
directly not saying that we abandon the American Bible Society
case is still a valid ruling. In other words, there was no
abandonment of the ruling of American Bible Society case bu
can we still tax without abandoning the American Bible Society
case, can the government still tax the sale of the Bibles by
PBS without violating the freedom of religion? Now how did
the Court rule on this? Now the withdrawal of the exemption
did not violate freedom of religion so when the VAT now under
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RA 7716 included the VAT on the sale of books, articles,
including the Bibles such withdrawal of exemption did not
violate the freedom of religion. As in the case of the Philippine
Bible Society on religious articles as the free exercise of the
free religion clause does not prohibit imposing generally
applicable sale of tax in the sale of religious materials by
religious organization as held by the US Supreme Court in the
case of Jimmy Swaggart Ministries vs. Court of
Equalization because in 1990 the US Supreme Court ruled
that the religious organizations in the US would be subject to
tax as held by the US Supreme Court in the case of Jimmy
Swaggart Ministries vs. Court of Equalization. So you could tax
them without violating freedom of religion because imposing a
generally applicable sale or use of tax of the sale of religious
articles by religious organization is not violating the free
exercise of religious laws so it will not result to a prohibition
following that US ruling. Now the VAT registration fee did not
constitute censorship of such freedom of press and freedom of
religion as held in the American Bible Society case. The fee is
mere administrative fee and not imposed on the exercise of
privilege much less as a Constitutional right but for the purpose
of mere cause of registration which is a requirement and
central picture of the VAT system so as to provide tax records,
tax credits because when you are under the VAT system the
VAT taxpayers are required to register and they are made to
pay a registration fee so it was the contention by the Philippine
Bible Society that the VAT registration fee aside from the tax
would also result for the violation of the freedom of religion but
imposing upon them the VAT registration fee which would
render a violation of the free exercise of religion guaranteed by
the Constitution again the Supreme Court ruled otherwise that
the registration fee does not constitute censorship to such
freedom. The fee is a mere administrative fee and not imposedon the exercise of freedom much less a Constitutional right but
for the purpose of praying cause of registration and a
requirement of the VAT system. Now, however, after this ruling
the Congress reviewed insofar as the VAT on books,
newspapers and other publications noh reviewed and removed
from the VAT system the taxation on the sale of books instead
they came out with another legislation on the treatment on the
treatment of so far books and other publications, newspapers,
printing and publication of books etc. so they were taken out
from the VAT system.
b. Important Points to Consider:1. License fees/taxes would constitute a restraint on the
freedom of worship as they are actually in the nature of a condition or
permit of the exercise of the right.
2. However, the Constitution or the Free Exercise of
Religion clause does not prohibit imposing a generally applicable
sales and use tax on the sale of religious materials by a religious
organization. (see Tolentino vs Secretary of Finance, 235 SCRA
630)
6. Non-impairment of Contracts
a. Basis: Sec. 10 Art. III. “No law impairing the obligation ocontract shall be passed.”
b. Important Points to Consider:1. A law which changes the terms of the contract by
making new conditions, or changing those in the contract, o
dispenses with those expressed, impairs the obligation.
2. The non-impairment rule, however, does not apply to
public utility franchise since a franchise is subject to amendment
alteration or repeal by the Congress when the public interest so
requires.
-“to impair is to alter/ change the terms or effect of the contractand thus in contemplation of law, to weaken the position or
rights of one or all of the parties to it.” - it is not important that the impairment is slight, if it exists atall, if there is any impairment, the provision of the Constitutionis violated and the courts will interfere.- not applicable to public utility franchises, since a franchise issubject to amendment, alteration/ repeal by the Congresswhen public interest so requires.
We are still on the limitations on the power to tax. We have
taken so far the constitutional limitations on due process, the
limitation on equal protection for requiring taxation, togethe
with this limitation on the rule of uniformity and equity o
taxation and that directive that upon Congress to evolve a
progressive system of taxation. We also covered the non
impairment clause-this limitation is superior to the power o
taxation meaning the non-impairment clause yields or the
taxation laws yield to the non-impairment clause but no
applicable in the case of franchise because franchise is subjec
to amendment, alteration by Congress on other words we
could not invoke the non-impairment clause when it involves
franchises. Then you have also the limitation on the non
payment of poll tax that no person will be imprisoned for the
non-payment of poll tax.
7. Non-imprisonment for non-payment of poll tax
a. Basis: Sec. 20 Art. III. “No person shall be imprisoned fodebt or non-payment of poll tax.”
“the prohibition is dictated by a sense of humanity and sympathyfor the plight of the poorer elements of the population whocannot even afford to pay their cedula/poll tax. ”
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b. Important Points to Consider:1. The only penalty for delinquency in payment is
the payment of surcharge in the form of interest at the rate of 24%
per annum which shall be added to the unpaid amount from due date
until it is paid. (Sec. 161, LGC)
2. The prohibition is against “imprisonment” for“non-payment of poll tax”. Thus, a person is subject to imprisonment
for violation of the community tax law other than for non-payment of
the tax and for non-payment of other taxes as prescribed by law.
8. Origin or Revenue, Appropriation and Tariff Bills
a. Basis: Sec. 24 Art. VI. “All appropriation, revenue or tariffbills, bill authorizing increase of the public debt, bills of localapplication, and private bills shall originate exclusively in the
House of Representatives, but the Senate may propose orconcur with amendments.”b. Under the above provision, the Senator’s power is not only
to “only concur with amendments” but also “to proposeamendments”. (Tolentino vs Sec. of Finance, supra)
9. Delegation of Legislative Authority to Fix Tariff Rates,Imports and Export Quotas
a. Basis: Sec. 28(2) Art. VI “x x x The Congress may, by law,authorize the President to fix within specified limits, and subjectto such limitations and restrictions as it may impose, tariff rates,import and export quotas, tonnage and wharfage dues, andother duties or imposts within the framework of the nationaldevelopment program of the government.
-“the president may increase tariff rates as authorized by law even for revenue purposes only.”
10. Tax Exemption of Properties Actually, Directly andExclusively used for Religious, Charitable and EducationalPurposes
a. Basis: Sec. 28(3) Art. VI. “Charitable institutions, churchesand parsonages or convents appurtenant thereto, mosques,non-profit cemeteries, and all lands, building, andimprovements actually, directly and exclusively used forreligious, charitable or educational purposes shall be exemptfrom taxation.”
Now to cover other Constitutional limitations you have Article
6 Section 28 (3) of the Constitution provides that charitable
institutions, churches and parsonages or convents appurtenant
thereto, mosques, non-profit cemeteries, and all lands,
buildings, and improvements, actually, directly, and exclusively
used for religious, charitable, or educational purposes shall be
exempt from taxation. ***So this time we have a direc
provision in the Constitution in connection in taxation however
this time the provision, it grants tax-exemptions. Now, when
you dissect the provision you have here an enumeration of
properties and you could notice that these properties, in its
generic sense are real properties because it involves lands
buildings and improvements. Now the concept of rea
properties as provided in the Constitution is the same as to
your property. In the study of property you have the
enumeration of what are immovables, what are the kinds o
real properties. So what is the grant of exemption here is the
tax on the property but what is the nature of the exemption?
The property that would be exempted from tax, when will it be
used? Actually, directly and exclusively one for religious
second for charitable purpose and for educational purpose. In
other words, the grant of tax exemption refers to property tax
exemption. The property tax on these immovables but the
exemption may come in when they will be used for these
purposes either for religious, charitable or educational so tha
is the nature of the tax exemption. Now remember while the
power to tax is inherent that power involves also the power to
grant tax exemptions. Now in the Constitution there is a grant
of tax exemption. So what is the nature of tax exemption grant
in the Constitution? This does not need what we call an
enabling law; there is no need for legislation. Tax exemptions
in the Constitution are self-executory. You don’t have to go to
Congress for them to have an enabling act of legislation to
grant the exemption because the Constitution already grants
the exemption but take note of the restrictions of the limit of the
exemptions. In other words, in connection with this exemption
it is not the ownership that determines the exemption so even ithe building is owned by the Archdiocese but it is being rented
to others for a lease or for a rental or for a fee then that
property despite ownership is by the religious is not covered by
the tax exemption because the use is not for religious it is
being rented for commercial use so it will be not given an
exemption. In the same way that a non-stock, non-profi
educational institution owning a piece of building but some
portions of the building are being rented for fees and lessees
pay rentals for the use so even though owned by a non-stock
non-profit institution educational institution which is engaged
for educational purposes still that property would not be
covered by the exemption because of the use it was no
actually, directly and exclusively use for educational purpose, iis not then covered by the exemption.
Now take note also, the grant of exemption while they are or
covers actually, directly and exclusively use for religious
charitable or educational purposes the exemption extends to
those incidental to the purpose.
***You have that case of Abra Valley College vs. Aquino
(162 SCRA 106) where it has been asked in the bar. Where
the ground floor is being rented, the second floor is being used
as residence of the School Director, the third and the uppe
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floors were used as classrooms so the question is the property
exempted from real property tax? In so far as to the third and
the upper floors they are covered by the tax exemption
because the use is for educational. In so far as the second
floor being used as the residence of the school director the
Court said that it is still covered by the exemption because it
includes those which are incidental to the purpose while being
used as residence the or that residential use is inclusive or
incidental to the educational purpose of the institution so it is
still covered by the exemption. You also have the ground floor;
the ground floor will not be exempted because it is not
educational nor even incidental for the educational purpose. So
it will be taxable. The same with the cases of Herrera vs.
Quezon City Board of Assessment (3 SCRA 186)
And the case of Hospital de San de Dios vs. Pasay City
(16 SCRA 226) wherein you have the charitable hospital or
institution which provides for living quarters, recreational
facilities for their doctors, nurses including the medical staff so
for their, for their goodwill of the hospital of the medical staff of
the hospital they provide playing facilities like swimming pool,
living quarters so it was whether these facilities were covered
by the exemption. The Supreme Court said yes they are
because they are incidental to the purpose.
Now in the recent case of Lung Center where the Quezon City
assessed the Lung Center for real property tax and within the
Lung Center, you have the facilities of the hospital and portions
of the buildings were being rented to the doctors of the hospital
so they have their clinics there and they pay rent to the
institution so Quezon City assessed the Lung Center for real
property tax so the Lung Center claimed for the exemption
under Section 28 (3) in the template the clinics, the portions
being occupied are being used by the doctors as their clinics
are still covered by this section. The Supreme Court said no
because the use of the clinics are for the charitable purpose of
the hospital and they are clinics being rented by the doctors so
they are subject to real property tax. They are not covered by
the exemption.
We also have the case of YMCA. Wherein the YMCA a
charitable institution allows the non-member of YMCA to use
the parking lot for a fee and it also grant lease to those
interested lessees to rent out some portions of the YMCA
building so the fees and the rentals were collected and they
claim the exemption so when this matter reached the Supreme
Court, the Supreme Court said that they are not covered by the
exemption and they are not use for the purpose so they are
subject to tax.
Now take note that the exemption again while the scope of
property tax exemption covers those actually, directly and
exclusively use for religious, charitable or educational
purposes the extension of the exemption includes those that
are incidental to the purpose.
b. Important Points to Consider:1. Lest of the tax exemption: the use and no
ownership of the property
2. To be tax-exempt, the property must be actually
directly and exclusively used for the purposes mentioned.
3. The word “exclusively” means “primarily’.
4. The exemption is not limited to property actually
indispensable but extends to facilities which are incidental to and
reasonably necessary for the accomplishment of said purposes.
5. The constitutional exemption applies only to
property tax.
6. However, it would seem that under existing law
gifts made in favor or religious charitable and educationa
organizations would nevertheless qualify for donor’s gift tax
exemption. (Sec. 101(9)(3), NIRC)
- applicable only to PROPERTY and REALTY TAXES
- tax exemption privilege is also granted to donations made by a non-
resident who is not a citizen of the Philippines (Sec. 94 (b)(2), now
sec. 10 [B] [2], 1997 NIRC)
-the purpose of tax exemption “use” overrides “ownership” such that
if property, although actually owned by a religious, charitable or
educational institution, is actually used for a non-exempt purpose,
the exemption from tax of said property vanishes.
11. Voting Requirements in connection with the LegislativeGrant for tax exemption
a. Basis: Sec. 28(4) Art. VI. “No law granting any taxexemption shall be passed without the concurrence of amajority of all the members of the Congress.”b. The above provision requires the concurrence of a majoritynot of attendees constituting a quorum but of all members othe Congress.
Now another grant of exemption but a constitutiona
limitation, you have Article 6 28 (4) which provides that no law
granting any tax exemption shall be passed without the
concurrence of a majority of all the Members of the Congress.
***This pertains now to the enactment of a tax exemption
statute, this the ratification requires upon Congress. Now the
set-up in our case is that you have two houses, the Senate and
the House of the Representatives so what is the Constitutiona
requirement for ratification? In the event that a tax exemption is
passed the voting requirement is the concurrence of the
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majority of all Members of Congress. To determine the
majority, you don’t have to add all the members of the Senate
and the House and determine the concurrence of the majority
vote of all. In other words, we are not talking about the majority
of the quorum but the majority of all the members of Congress.
Now if you did not construe the concurrence of the majority of
the members by adding the members of the Senate and the
House of Representatives but the two houses voting
separately. So there must be a concurrence of all the majority
members of the House of the Representatives as well as the
concurrence of all the majority members of the Senate. To
have this tax exemption statute to be allowed or to be passed
otherwise, it will not become a law. It will not be apply because
of that requirement. So that is the voting for tax exemption.
Now if it is just a regular revenue measure you do not require
anymore of the concurrence of the majority members of the
Congress but the majority of the members constituting its
quorum because when the 2 houses meet there is a quorum
then if there is a quorum then it will do business. And it will
pass that piece of bill or legislation for approval it will require
the majority of the vote unlike a tax exemption.
Now other Constitutional limitation is Section 19 Article 7 the
power of the President. Except in cases of impeachment, or as
otherwise provided in this Constitution, the President may
grant reprieves, commutations, and pardons, and remit fines
and forfeitures, after the conviction of final judgment. He shall
also have the power to grant amnesty with the concurrence of
the majority of all the Members of the Congress. ***So a grant
of amnesty may be done through executive action or if the
executive asks permission under Section 19 Article 7 of the
Constitution.
12. Non-impairment of the Supreme Courts’ jurisdiction inTax Cases
a. Basis: Sec. 5 (2) Art. VIII. “The Congress shall have thepower to define, prescribe, and apportion the jurisdiction of thevarious courts but may not deprive the Supreme Court of its
jurisdiction over cases enumerated in Sec. 5 hereof.”Sec. 5 (2b) Art. VIII. “The Supreme Court shall have
the following powers: x x x(2) Review, revise, modify or affirm
on appeal or certiorari x x x final judgments and orders of lower
courts in x x x all cases involving the legality of any tax, impost,
assessment, or toll or any penalty imposed in relation thereto.”
13. Tax Exemptions of Revenues and Assets, includinggrants, endowments, donations or contributions to EducationalInstitutions
a. Basis: Sec. 4(4) Art. XIV. “Subject to the conditionsprescribed by law, all grants, endowments, donations ocontributions used actually, directly and exclusively foeducational purposes shall be exempt from tax.”b. Important Points to Consider:
1. The exemption granted to non-stock, non-profit educationa
institution covers income, property, and donor’s taxes, and custom
duties.
2. To be exempt from tax or duty, the revenue, assets, property
or donation must be used actually, directly and exclusively fo
educational purpose.
3. In the case or religious and charitable entities and non-profi
cemeteries, the exemption is limited to property tax.
4. The said constitutional provision granting tax exemption to
non-stock, non-profit educational institution is self-executing.
5. Tax exemptions, however, of proprietary (for profiteducational institutions require prior legislative implementation. Their
tax exemption is not self-executing.
6. Lands, Buildings, and improvements actually, directly, and
exclusively used for educational purposed are exempt from property
tax, whether the educational institution is proprietary or non-profit.
c. Department of Finance Order No. 137-87, dated Dec. 161987
The following are some of the highlights of the DOF orde
governing the tax exemption of non-stock, non-profit educationa
institutions:
1. The tax exemption is not only limited to revenues and
assets derived from strictly school operations like income from tuition
and other miscellaneous feed such as matriculation, library, ROTC
etc. fees, but it also extends to incidental income derived from
canteen, bookstore and dormitory facilities.
2. In the case, however, of incidental income, the facilities
mentioned must not only be owned and operated by the school itselbut such facilities must be located inside the school campus
Canteens operated by mere concessionaires are taxable.
3. Income which is unrelated to school operations like income
from bank deposits, trust fund and similar arrangements, royalties
dividends and rental income are taxable.
4. The use of the school’s income or assets must be in
consonance with the purposes for which the school is created; in
short, use must be school-related, like the grant of scholarships
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faculty development, and establishment of professional chairs,
school building expansion, library and school facilities.
Other Constitutional Provisions related to Taxation
1. Subject and Title of Bills (Sec. 26(1) 1987 Constitution)
“Every Bill passed by Congress shall embrace only
one subject which shall be expressed in the title thereof.”
→ in the Tolentino E-VAT case, supra, the E-vat, or the
Expanded Value Added Tax Law (RA 7716) was also questionedon the ground that the constitutional requirement on the title of abill was not followed.
2. Power of the President to Veto items in an Appropriation,Revenue or Tariff Bill (Sec. 27(2), Art. VI of the 1987Constitution)
“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.”
3. Necessity of an Appropriation made before money maybe paid out of the Treasury (Sec. 29(1), Art. VI of the 1987Constitution)
“No money shall be paid out of the Treasury except in
pursuance of an appropriation made by law.”
4. Appropriation of Public Money for the benefit of anyChurch, Sect, or System of Religion (Sec. 29(2), Art. VI of the1987 Constitution)
”No public money or property shall be appropriated,
applied, paid or employed, directly or indirectly for the use, benefit,
support of any sect, church, denomination, sectarian institution, or
system of 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.”
Another Constitutional limitation is Section 29 (2) Article 6 o
the Constitution which provides for the prohibition o
appropriation for religious purposes. So cause for the
separation between the Church and the State, the State
therefore could not appropriate money or set aside money fo
religious purposes because that would be unconstitutional so
there is a prohibition against appropriation for religious
purposes however not in cases to those employed in the
Armed Forces, to the leprosariums, and other governmen
facilities and institution. What about the payment of the wages
does this now infringe upon the Constitutional provision? The
Supreme Court said no. Because the payment of wages to the
religious kasi nga may mga pari sa Armed Forces, may mga
pari sa mga penal colonies, sa mga leprosariums and other
government facilities and institutions so may suweldo sila so
money is appropriated para bayaran sila and that is not withinthe context of the prohibition under Section 29 (2) because
they are in payment for services rendered without violating the
prohibition. And of course, you have to pay their wages, thei
food, their shelter, their clothing so they are payment fo
services rendered.
5. Taxes levied for Special Purpose (Sec. 29(3), Art. VI othe 1987 Constitution)
“All money collected or any tax levied for a specia
purpose shall be treated as a special fund and paid out for such
purpose only. It 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.”
→ An example is the Oil Price Stabilization Fund created unde
P.D. 1956 to stabilize the prices of imported crude oil. In a decidecase, it was held that where under an executive order of the
President, this special fund is transferred from the general fund toa “trust liability account,” the constitutional mandate is noviolated. The OPSF, according to the court, remains as a speciafund subject to COA audit (Osmeňa vs Orbos, et al., G.R. No.99886, Mar. 31, 1993)
6. Allotment to Local Governments
→ Basis: Sec. 6, Art. X of the 1987 Constitution
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“Local Government units shall have a just share, as
determined by law, in the national taxes which shall be
automatically released to them.”
So you have also Section 4 (3) and (4) Article 14 of the
Constitution. The prohibition against taxation of non-stock,
non-profit educational institutions. Now that is under Article 14
the exemption of non-stock, non-profit institutions now under
Section 4 (3) of Article 14, all revenues and assets of all non-
stock, non-profit institutions use actually, directly, and
exclusively for educational purposes shall be exempt from
taxes and duties. Upon the dissolution or cessation o]f the
corporate existence of such institutions, their assets shall be
disposed of n the manner provided by law. The first paragraph
deals with the non-stock, non-profit educational institution and
it grants exemption from tax on their revenues and assets and
duties which are use actually, directly, and exclusively for
education purposes. This is a grant of tax exemption for non-
stock, non-profit educational institutions. Question: Is the grant
of tax exemption under this article or does this grant more
exemption than the grant of exemption under Article 6 Section
28 (3) on property tax on educational institutions? Now, if
educational institutions are removed from Section 28 (3) Article
6 do they still enjoy property tax exemption under Section 4(3)
of Article 14? Now, in so far as the scope of exemption Section
4 (3) of Article 14 grants more exemptions in so far as non-
stock, non-profit educational institutions. Unlike in Section 28
(3) of Article 6 yung exemption diyan is property tax lang pero
yung grant ng non-stock, non-profit educational institutions
grants more kaysa yung nasa Article 6 Section 28 (3). Now,
yung exemptions cover all revenues so what are these assets?
Mga properyt ng mga non-stock, non-profit institutions if they
are use for educational purposes exempted in other words,
even if they were excluded insofar as educational institutions in
Section 28 (3) Article 6 maski wala sila doon meron din naman
sila dito sa Section 4 (3) they are entitled for property tax
exemptions and more pa. It includes income tax and others for
long as the revenues and assets are used for educational
purposes. So does this include indirect tax? So when a non-
stock, non-profit educational institution would purchase
materials for the construction of building while they may be
removed from the VAT? The answer is no they are still coveredby the VAT because that is an indirect tax, it would be charged
and pass on to them. But not in the case of direct tax, insofar
as direct taxes that is their exemption. For direct taxes they are
covered by the exemptions but not for the indirect. Now, what
about importation, when they are made to pay customs duties
still it includes the generic for taxes so their exemption covers
as well as tariffs and customs duties so when they import for
as long as they are for educational purposes that is covered by
the exemptions. Now the grant of exemption here, granted by
the Constitution is automatic even if you don’t have any action
of legislation to grant exemption but to avail of the exemption
you could not just go and invoke, “I am invoking Article 14
Section 4 (3) and I should be exempted.” No! But to apply for a
tax ruling you write to the Secretary of Finance, let us say the
school for their buildings instead of buying steels locally we
would like to import steels from abroad so their imports came
from abroad they will write now to the Department of Finance
and ask for a tax ruling that they are importing as this much
and they will ask for exemptions, the DOF will reply of course
the school will invoke Section 4 (3) Article 14 because this
section refers to all revenues and assets for the exemption o
taxes and duties so whenever you import like for example
bakal hindi naman yan for educational purpose yes, but we are
putting up a building which is for educational purposes and tha
is covered by the exemptions the DOF would grant the tax
ruling given the tax exemption so what they import now and if
there is tax ruling then hindi na kayo i-aasess for tax duties
The same way also what about for income tax noh so you have
now a building the ground floor and the second floor are used
lease, pinaparentahan, pinapaupahan, incomes are earned, is
their income taxable? So now, what is the grant of exemption?
The grant of exemption refers to all revenues and assets which
to be used for educational purposes. So yung kita nila from
commercial spaces and they are brought in back to the
institution and used for scholarships, used to purchase buses
used to construct classrooms then it will be covered by the
educational purpose then it will be exempted but if the income
will not be used for educational purposes then it will be
covered, it will be now taxable. Now in the YMCA case the
Supreme Court laid down the 2 requisites for the grant of
exemption under Article 14 Section 4 (3):
1. It is a non-stock, non-profit educationa
institution.
2. The income, the revenues and assets were used
for educational purposes.
So having been utilized for education purposes then it is
covered by the exemption. Now tuition fees collected or even
rentals generated for its commercial activities co-mingled and
deposited in the bank and earned interests, that interes
income will also be covered by the tax exemption because the
scope is very comprehensive, all the revenues and assets it
includes therefor its interests income from bank deposits, when
it uses their incomes to provide for its needs, buy shares of
stocks and they have their money market and income is
earned and the income is still use for educational purpose then
it is tax exempted because the key there is ano ang utilization
ng lahat ng kita, if the utilization or the use is for educationa
purposes then it is covered according to this section otherwise
if it is for other use then it will be taxable. At the end of the
school year insofar as non-stock, non-profit educationa
institutions they are, as part of their reportorial requirements
when they file income tax returns of course they are exempted
but they still have to file information return because when you
are exempted from tax it does not follow that you are exempted
from filing an information return. When we go to the
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exemptions you will learn that exemptions are construed
strictly so if exempted ka sa tax, yun lang ang exemption mo, it
does not cover filing for the requirements. So you have still to
file a return unless the law gives you that exemption from filing
tax returns so they file tax returns but they don’t pay the tax
because the utilization of all the income that they have derived
from educational and non-educational income and if they are
used for educational purposes then it will be covered by tax
exemption. So that is the scope of tax exemption. Now big
schools are assessed by BIR for income tax, for VAT, for etc.
kasali yata ang Ateneo, there were cases but all of these cases
were dismissed because the schools were able to show the
utilization even if you have earned income from your non-
educational activity, you have commercial spaces being rented
by others for as long as the income is utilized for educational
purposes then it satisfies the Constitutional grant of tax
exemption.
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