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TAXATION DEFINITION
 Taxation is an inherent power of the state, exercised through the legislature to impose burdens and objects within its
jurisdiction for the purpose of Raising revenues to carry out the legitimate objects of the government.
Taxes
 are enforced proportional contribution for persons and property levied by the lawmaking body of the state by
virtue of his sovereignty for the support of the government and public needs.

THREE (3) BASIC CONCEPTS OF TAXATION

1. Taxation is a POWER.
 It is a power wielded by the State, to collect money, so that they have to spend something for public
purposes.
 power wielded by the State, to collect money, so that they have to spend something for public purposes.

2. Taxation is a PROCESS. It’s basically a process.

 From the time the Tax law is being made, is being enforced, form the time it is collected, it is a whole
process that all of us encounter.
 Government will follow a set of rules or process before it can enact tax laws and implement these tax laws.
 it is also a process on the part of the taxpayers on how they're going to pay their taxes

3. Taxation is a MEANS. It is a means of survival. T

 It is a way for the State to endure and survive.
 a means of generating income for the government to defray its own expenses.

The two-fold nature:

INHERENT POWER and LEGISLATIVE POWER

INHERENT POWER
 The power to tax is one of the inherent powers of the government. the three powers, again, the police power, the
eminent domain, and the power of taxation.
 The fact that it is inherent, I would like you to take note of these basic principles on taxation.
1. First, the power to tax is inherent in the state such that you don't even need the Constitution for it to
exist. The purpose of the Constitution is merely to limit and regulate the power of taxation.

Pepsi Cola vs. Municipality of Tanauan: ―The power of taxation is an essential and inherent
attribute of sovereignty belonging as a matter of right to every independent government,
without being expressly conferred by the people.‖

2. The power to tax is tend to be the most powerful among the inherent powers of the state.
I. It is plenary, all encompassing, and unlimited.
i. Taxation practically covers everything.
ii. The mere fact that the tax measure is harsh by itself does not mean make it
unconstitutional.

Tio v. Videogram Regulatory Board: A tax does not cease to be valid merely because it
regulates, discourages, or even definitely deters the activities taxed. The power to impose
taxes is one so unlimited in force and so searching in extent, that the courts scarcely venture to
declare that it is subject to any restrictions whatever, except such as rest in the discretion of the
authority which exercises it. ―

In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient
security against erroneous and oppressive taxation.

The public purpose of a tax may legally exist even if the motive which impelled the legislature
to impose the tax was to favor one industry over another.

It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has
been repeatedly held that "inequities which result from a singling out of one particular class for
taxation or exemption infringe no constitutional limitation".

Taxation has been made the implement of the state's police power.

3. MARSHALL DOCTRINE: The power to tax is the power to destroy

I. Since it is believed that taxation "is an attribute of sovereignty. It is the strongest of all the
powers of government."
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II. May be construed to mean that the power to tax includes the power to regulate even to the
extent of prohibition or destruction, since the inherent power to tax vested in the legislature
includes the power to determine who to tax, what to tax and how much tax is to be imposed.
III. It may involve the power to destroy business

4. HOLMES DOTRINE: The power to tax is NOT the power to destroy while the court sits.
I. the power to tax, even if it is so strong, even if it is the power to destroy, it still is subject to
limitations
a) Inherent limitations; and
b) Constitutional limitations;
II. An invalid tax law may be struck down by the courts as long as it is invalid

5. GOLDEN EGG PRINCIPLE: The power to tax involves the power to destroy, so it must be exercised with
great caution
I. As a general rule, the mere fact that a tax is oppressive does not automatically follows that it is
invalid or unconstitutional.
II. But since the power to tax is so strong, plenary, and all-encompassing, it must be exercised
fairly, uniformly, and equally.

PHIL HEALTH CARE V. COMMISSION: ―As a general rule, the power to tax is an incident of
sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that security
against its abuse is to be found only in the responsibility of the legislature which imposes the tax on
the constituency who is to pay it. So potent indeed is the power that it was once opined that "the
power to tax involves the power to destroy."

―The power of taxation is sometimes called also the power to destroy. Therefore it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg."

HOW DO WE RECONCILE THE TWO PRINCIPLES?

 Marshall Doctrine applies to VALID TAX LAWS.
o As long as the tax law is valid and constitutional, the courts can't do anything about it

 Holmes Doctrine applies to INVALLID TAXES

o If the tax law is illegal and highly oppressive that it violates the Constitution, then the tax law may be
declared invalid by the courts.

LIFEBLOOD THEORY
 Taxes are the lifeblood of the state, without which the government cannot endure or survive

What are the manifestations of this theory?

1) NO INJUNCTION PRINCIPLE
a. GR: The collection of national taxes cannot be enjoined.

REPUBLIC v CAGUIOA: The taxing power of the State is unlimited, plenary, comprehensive and
supreme. The power to impose taxes is one so unlimited in force and so searching in extent, it is
subject only to restrictions which rest on the discretion of the authority exercising it.

The power to tax emanates from necessity; without taxes, government cannot fulfil its mandate of
promoting the general welfare and well-being of the people.

b. EXCPTN:
i. CTA Law: ,Jeopardy to the taxpayer and/or to the interest of the State
ii. Local Taxes can be enjoined by the courts.
 The no-injunction rule only applies to national taxes
 In the case of Angeles v. Angeles, the Court ruled that there is no express prohibition in the
LGC that prohibits courts from issuing an injunction to restrain local governments from
collecting taxes.

2) STRICT CONSTRUCTION OF TAX EXEMPTION LAWS.

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TAXATION v. POLICE POWER

 Taxing power can be used as an implement of police power.
 The main guiding principle to determine, whether a particular imposition is in the exercise of police power or the power
to tax, is to look at the purpose of imposition.
 If a primary purpose is to raise revenue, even if it incidentally involves regulation – POWER OF TAXATION
 If the thrust of imposition is for regulatory purposes, even if there is income collected – POLICE POWER

GEROCHI V. DEPT. OF ENERGY: EXACTION OF UNIVERSAL CHARGE IS AN EXERCISE OF STATE’S POLICE POWER
particularly its regulatory dimension because its primary purpose is to ensure the viability of electricity power supply
for public welfare.

In resolving the constitutionality of the assailed Universal Charge of the EPIRA, the Supreme Court looked at the very
provision of the law, its declaration of policy, to pinpoint the purpose of the universal charge. It even goes far in
defining and explaining the distinction between the State’s exercise of power of taxation and taxation as an
implement of police power.

Power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so
that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the
constituency that is to pay it. It is based on the principle that taxes are the lifeblood of the government, and their
prompt and certain availability is an imperious need.

Police power is the power of the state to promote public welfare by restraining and regulating the use of liberty and
property. It is the most pervasive, the least limitable, and the most demanding of the three fundamental powers of
the State. As an inherent attribute of sovereignty which virtually extends to all public needs, police power grants a
wide panoply of instruments through which the State, as parens patriae, gives effect to a host of its regulatory
powers

The conservative and pivotal distinction between these two powers rests in the purpose for which the charge is
made. If generation 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 revenue is incidentally raised does not make the imposition a
tax.

To resolve the constitutionality and nature of the imposition, THE Supreme Court looked at the very provision of the
law, its declaration of policy, to pinpoint the purpose of the universal charge. It was the found that is in exacting the
assailed Universal Charge through Sec. 34 of the EPIRA, the State's police power, particularly its regulatory
dimension, is invoked i.e. to ensure the viability of electricity for the purpose of public welfare.

CHEVRON PHILIPPINES, INC. vs. BASES CONVERSION DEVELOPMENT AUTHORITY and CLARK DEVELOPMENT CORP.:
SUBJECT ROYALTY FEE IS NOT A TAX BUT AN EXERCISE OF POLICE POWER. It can be gleaned from the statement of
policy of the CDC i.e. to maintain and developlark Special Economic Zone (CSEZ) as a highly secured zone free
from threats of any kind, which could possibly endanger the lives and properties of locators, would-be investors,
visitors, and employees According to SC, oil industry is greatly imbued with public interest as it vitally affects the
general welfare. And so in addition, the fuel is a highly combustible product, which if left unchecked, poses a
serious threat to life and property.

There is also a reasonable relation between the post on a per-liter basis and the regulation sought to be obtained.
The higher the volume of fuel entering the Clark Special Economic Zone, the greater the extent and the frequency
of supervision and inspection is needed to ensure safety, security, and order within the Clark Special Economic
Zone

CITY OF CAGAYAN DE ORO v. CAGAYAN ELECTRIC POWER & LIGHT CO., INC.: MAYOR'S PERMIT FEE IS IN THE
EXERCISE OF POLICE POWER because based on the ordinance, it is mainly to regulate the construction and
maintenance of the electric post of the telecommunications posts within the city of Cagayan de Oro.

MUNICIPALITY OF SAN MATEO, ISABELA VS SMART COMMUNICATIONS INC.: IMPOSITION IS REGULATORY IN NATURE.
Fees imposed by the subject ordinance is not a tax but a regulatory fee imposed to regulate the construction of
special projects of placing, stringing, attaching, installing, repair and construction of communication towers and
cell satellites and provide for the correction, condemnation or removal of the same when found to be dangerous,
defective or otherwise hazardous to the welfare of the inhabitants.

Although the ordinance was silent as to its purpose, the Supreme Court, based on the ―WHERE AS‖ clauses of the
ordinance. It is very apparent that the primary purpose of the ordinance is to ensure the safety of the operations.
Citizens ban on the so-called towers. So this is to regulate the installation, the maintenance of the communication
facilities erected within the municipality of San Mateo, Isabela.
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NOTE: If the law or ordinance is silent, but there is the taking of money and said fees is paid to the government as to the
purpose of the exaction, that will be resolved as a tax because of the lifeblood theory which posits that taxes is the lifeblood
of the government and the state cannot survive or defray its expense.

POWER TO TAX v. POWER OF EMINENT DOMAIN

Eminent Domain
 is the inherent power of the State to take private property for public use after payment of just compensation.

REQUISTES FOR THE VALID EXERCISE OF POWER OF EMINENT DOMAIN:

1. The taking of private property
2. For public purpose
3. Just compensation must be paid to the property owner.

Can the power to tax be used as an implement of the power of eminent domain?
 YES. Power of taxation can be used in conjunction of the power of eminent domain.

20% SENIOR CITIZEN DISCOUNT

Among the three cases, which of the three is considered senior citizen discount as a tax credit?
CIR v. CENTRAL LUZON: THE NATURE OF THE 20% SENIOR CITIZEN DISCOUNT IS A TAX CREDIT AND AN EXERCISE OF POWER
OF EMINENT DOMAIN. The tax treatment of the 20% senior citizen discount granted by an establishment is claimed as tax
credit and is deemed as just compensation.

A tax credit is a peso for peso deduction for tax liabilities. Although the term is not specifically defined in our Tax Code,
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.‖ Tax credit should be
understood in relation to other tax concepts.
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One of these is tax deduction -- defined as a subtraction "from income for tax purposes," or an amount that is "allowed
by law to reduce income prior to [the] application of the tax rate to compute the amount of tax which is due." An
example of a tax deduction is any of the allowable deductions enumerated in Section 34 of the Tax Code.

A tax credit differs from a tax deduction.

“Tax credit which reduces the tax liability is different from a tax deduction which merely reduces the tax base.” A tax
credit is issued only after the tax has been computed; a tax deduction, before.

What is now the classification, the nature of the senior citizen discount? Is it still a tax credit?
MANILA MEMORIAL VS. DSWD: 20% SENIOR CITIZEN DISCOUNT IS NOW TREATED AS TAX DEDUCTION AND AN EXERCISE OF
POLICE POWER. This discount shall be considered as a deductible expense from gross income and no longer as tax
credit that is deductible directly from the tax due.

LEGILATIVE IN NATURE
 It is legislative in character. It is the Congress, the Senate and House of Representatives, they are the one task creating
our tax laws.

How are tax laws passed?

1) Taxes and revenue bills should emanate from the House of Representative; then
2) it is submitted to the Congress and the latter will make amendments and propose its amendments and then Senate
and then that’s it the rest is history.

Is it true that the BIR has the power to create tax laws?
 NO. BIR is under the executive department and the power to tax is legislative in nature.
 The function of the BIR as part of the executive branch of the government is to implement tax laws and not to
create laws.

NON-DELEGATION PRINCIPLE
GENERAL RULE: PEPSI COLA V. MUNICIPALITY OF TANUAN: POWER OF TAXATION IS PURELY LEGISLATIVE and which the central
legislative body cannot delegate either to the executive or to the judicial department of the government.

EXCPTN: ABAKADA VS. ERMITA

1. Delegation to the LGU
2. Delegation to the President
3. Delegation to the administrative agencies
4. Delegation to the people at large
5. Emergency powers of the President Legislative powers may be delegated to local governments.

EXCEPTION TO NON-DELEGATION
1. DELEGATION TO LGUS
SEC. 5, ART. 10, CONSTI:
Each LGU shall have the power to create its own sources of revenues and to levy taxed, and fees and charges
subject to such guidelines and limitations as Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees and charges shall accrue exclusively to the local governments.

PEPSI COLA V. MUNICIPALITY OF TANUAN: Legislative powers may be delegated to local governments in respect of
matters of local concern. By necessary implication, the legislative power to create political corporations for
purposes of local self-government carries with it the power to confer on such local governmental agencies the
power to tax.

Under the New Constitution, local governments are granted the autonomous authority to create their own sources
of revenue and to levy taxes.
Section 5, Article XI provides: ―Each local government unit shall have the power to create its sources of revenue
and to levy taxes, subject to such limitations as may be provided by law.‖

Does the LGU have the inherent power to tax?

 NO An LGU does not have an inherent power to tax.
 Only the national government has the inherent power to tax.
 An LGU is a municipal corporation, created by law with special functions and purpose. It is merely a part and a
parcel of the national government.
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 Hence, it do not have an inherent power to tax.

what is the nature of the LGU’s power to tax? Is it merely a delegated power or is it a direct grant from the Constitution?
MANILA ELECTRIC CORPORATION V. PROVINCE OF LAGUNA: MERELY DELEGATED.
Under Article X of the 1987 Constitution, a general delegation of that power has been given in favor of local government units to ensure autonomy to
local governments and the objective of the LGC that they enjoy genuine and meaningful local autonomy to enable them to attain their fullest
development as self-reliant communities and make them effective partners in the attainment of national goals.

The power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities if local government units for the
delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people.

BATANGAS POWER V. BATANGAS: DIRECT GRANT BY THE CONSITUTITON

Local legislative bodies are now given DIRECT AUTHORITY to levy taxes, fees and other charges pursuant to Article X, section 5 of the 1987
Constitution.

The 1987 Constitution mandates Congress to enact a local government code that will, consistent with the basic policy of local autonomy, set the
guidelines and limitations to this grant of taxing powers.

The LGC is the most revolutionary piece of legislation on local autonomy, the LGC effectively deals with the fiscal constraints faced by LGUs. It
widens the tax base of LGUs to include taxes which were prohibited by previous law.

To reconcile, if the question is:

Does LGU have inherent power to tax?
ANS: No, because only the national government has the inherent power to tx. LGU is a municipal
corporation created by law, it is not a government but merely a part of the government. Hence, it has no
inherent power to tax.

What is the nature of delegation of the power to tax to the LGU?

ANS: It is a DIRECT GRANT by the constitution. Although it may be deemed as merely delegated since
without the Constitution the LGU’s will not have the power to tax. Nonetheless, it is a direct grant by the
Constitution.

The express provision SEC. 5,ART.10 of the Constitution provides that the LGU’s have the power to tax
without having to wait for an executing law.

2. DELEGATION TO THE PRESIDENT

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

2 REQUIREMENTS FOR THE VALID EXERCISE OF THE PRESIDENT OF THE POWER TO TAX:
1) There must be a law promulgated by Congress authorizing the President to do such thing.
2) The exercise must be within the limits set forth in the law

GARCIA V. EXECUTIVE SECRETARY: The President is vested with authority by law to increase tariff rates, even for
revenue purposes only. Article VI, Section 8(2) of the Constitution expressly grants permission to Congress to
authorize the President "to fix within specified limits and subject to such limitations and restrictions as it may impose,
tariff rates xxx and other duties and imposts xxx."

Custom duties which are assessed at the prescribed tariff rates are very much like taxes which are imposed for
both revenue raising and regulatory purpose

What is the law that authorizes the President to adjust/remove the rates?
 The CUSTOMS MODERNIZATION AND TARIFF ACT.

PRINCIPLES:
 The power of taxation that is being delegated to the president only pertains to tariff rates, export and import.
REASON: Imports and exports have international correlation and it is the President that represents the country when
it comes to international relations.

 It is the Congress that grants the President the power to fix (not create, so taman ra adjust, increase or decrease) within
specified limits and subject to such limitations and restrictions as it may impose the tariff rates, import expert quotas,
tonnage, warpage, juice, as mentioned in Sec. 28 (2), Art. 6 of Consti.

 The authorization granted to the president must be in a form of a law,

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 The President merely has LIMITED POWER TO TAX.

o Limited by the law that the Congress enacted and
o Limited only to imports and exports.

 The president cannot enact revenue appropriation bills because his power is limited only to fix, adjust, remove, increase
or decrease tariff, import & export taxes.

3. DELEGATION GIVEN TO THE ADMINISTRATIVE BODIES

SUBORDINATE LEGISLATION
TWO TESTS INVOLVED:
1. COMPLETENESS TEST
 The law must be complete in all its terms and conditions when it leaves the legislature such that when it
reaches the delegate, the only thing he will have to do is to enforce it.

2. SUFFICIENCY OF STANDARDS TEST

 There must be an adequate guidelines or limitations in the law to determine the boundaries of the
delegate's authority and prevent the delegation from running riot.‖

Both tests are intended to prevent a total transference of legislative authority to the delegate, who is not allowed to
step into the shoes of the legislature and exercise a power essentially legislative.

What is basic principle when we talk about delegation to administrative bodies?

 The rules and regulations issued by administrative bodies must conform to the law which it seeks to implement.
 Administrative regulations must be in harmony with the provisions of the law.
 It can neither expand nor constrict what is written in the red letter of the law

ABAKADA v. ERMITA: THERE IS NO UNDUE DELEGATION OF LEGISLATIVE POWER BY GRANTING THE EPRESIDENT STAND-BY
AUTHORITY TO INCREASE THE VAT TAX.

The legislature may delegate to executive officers or bodies the power to determine certain facts or conditions, or the
happening of contingencies, on which the operation of a statute is, by its terms, made to depend, but the legislature must
prescribe sufficient standards, policies or limitations on their authority.

What is delegated here is merely the discretion as to the execution of a law. This is constitutionally permissible. Congress
does not abdicate its functions or unduly delegate power when it describes what job must be done, who must do it, and
what is the scope of his authority; in our complex economy that is frequently the only way in which the legislative process
can go forward.

In this case, Congress did not delegate the power to tax but the mere implementation of the law. The intent and will to
increase the VAT rate to 12% came from Congress and the task of the President is to simply execute the legislative policy.
What exists is simply a delegation of ascertainment of facts upon which enforcement and administration of the increase rate
under the law is contingent.

The law leaves the entire operation or nonoperation of the 12% rate upon factual matters outside of the control of the
executive. No discretion would be exercised by the President.

CIR V FORTUNE TOBACCO: RR WAS RENDERED INVALID BECAUSE IT EXCEEDED THE PROVISIONS OF LAW.
An administrative agency issuing regulations may not enlarge, alter or restrict the provisions of the law it administers, and it
cannot engraft additional requirements not contemplated by the legislature.

Administrative regulations must always be in harmony with the provisions of the law because any resulting discrepancy
between the two will always be resolved in favor of the basic law.

The law did not provide for any mandatory floor. However, the RR added a mandatory ceiling of the tax to be paid, which
should not decrease or less than the previous year.

4. DELEGATION TO THE PEOPLE AT LARGE

PEOPLE’S INITIATIVE AND REFERENDUM UNDER RA 6735
Anchored under the Constitutional provision that: Sovereignty resides to the people and all power emanates from them.
Therefore, the people may exercise the initiative and referendum.

In case, the Congress will not be doing its job, then the people can take back the power.
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Initiative and referendum as outlined in RA 6735 is for purposes of legislation only. All laws can be subject to it not just tax
laws. So, it has to comply with the same requirements of collective signatures of certain percentage in each and every
legislative district. So once the signatures have been verified with a COMLEC and validated.

Once validated, COMELEC will call for plebesite to porpose and for the people to vote.

JURISDICTION
 The government or the taxing authority can only tax subjects or objects within its territorial jurisdiction.

GR: ―POWER TO TAX IS JURISDICTIONAL.‖

EXCPTN: When there is PRIVITY of relationship between the taxing authority and the tax subject.
 There is a privity of relationship between the taxing authority and the tax subject or object if
the taxing authority can afford protection to the tax subject or object.
 To determine if the government can afford protection to the tax subject or object, the
following factors are to be considered:
1. CITIZENSHIP
2. RESIDENCE OR LOCATION of tax subject or object
3. SOURCE

SITUS OF TAXATION – place of authority that has the right to impose and collect tax

TYPES OF TAX SUBJECTS

DIFFERENT TYPES OF TAX SUBJECTS:
1. INCOME TAX 2. PROPERTY TAX 3. EXCISE TAX

INCOME TAX:
There are three considerations:
1. CITIZENSHIP of the taxpayer;
2. RESIDENCE or LOCATION of the taxpayer; and
3. SOURCE of the income

CIR v. BOAC: The absence of flight operations to and from the Philippines is not determinative of the source of
income or the site of income taxation. Admittedly, BOAC was an off-line international airline at the time pertinent to
this case.

The test of taxability is the "source"; and the source of an income is that activity which produced the income. The
source of an income is the property, activity or service that produced the income. For the source of income to be
considered as coming from the Philippines, it is sufficient that the income is derived from activity within the
Philippines.

PROPERTY TAX
KINDS OF PROPERTY UNDER PROPERTY LAW:
1) Real Properties – situs is where the property is located; The LGC governs the real property tax and it
is the LGUs that imposes RPT within its territorial jurisdiction.

2) Personal Properties
 if tangible - situs is the place where it is located;
 if intangible - the general rule is "―he thing follows its owner‖ and the exception to the rule
is when the law specifically provides for the situs of the personal property

EXCISE OR PRIVILEGE TAXES – tax on the enjoyment of the privilege

GR: the situs is where the act is performed, where the occupation is engaged in or where the business is done.

ILOILO BOTTLERS vs. CITY OF ILOILO: IT WAS RULED THAT ILOILO BUTLER IS SUBJECT TO EXCISE TAX IMPOSED BY ILOILO
CITY’s ORDINANCE EVEN IF THEY NO LONGER HAVE A PHYSICAL STORE OR MANUFACTURING SITE LOCATED IN SAID
MUNICIPALITY. Sales transactions with customers were entered into and sales were perfected and consummated
by route salesmen. Truck sales were made independently of transactions in the main office. They served as selling
units. They were what were called, until recently, "rolling stores".

Accordingly, The delivery trucks were therefore much the same as the stores and warehouses, thus, falls under the
2nd catergory of marketing system i.e corporation was engaged in the separate business of selling or distributing
soft-drinks, independently of its business of bottling them.
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Hence, since act of selling was perfomed and consummated within the respondent’s territorial jurisdiction, it is the
situs of taxation and therefore, petitioner is covered by the excise tax imposed by the ordinance.
xxxx
To determine whether an entity engaged in the principal business of manufacturing, is likewise engaged in the separate business of selling, its
marketing system or sales operations must be looked into.

Under the first system, the manufacturer enters into sales transactions and invoices the sales at its main office where purchase orders are received
and approved before delivery orders are sent to the company's warehouses, where in turn actual deliveries are made. No warehouse sales are
made; nor are separate stores maintained where products may be sold independently from the main office. The warehouses only serve as storage
sites and delivery points of the products earlier sold at the main office.

Under the second system, sales transactions are entered into and perfected at stores or warehouses maintained by the company. Any one who
desires to purchase the product may go to the store or warehouse and there purchase the merchandise. The stores and warehouses serve as selling
centers.

Entities operating under the first system are NOT considered engaged in the separate business of selling or dealing in their products, independent of
their manufacturing business. Entities operating under the second system are considered engaged in the separate business of selling.

INHERENT LIMITATION
1. Public Purpose
2. Inherently Legislative
3. Territorial
4. International Comity
5. Exception of Government Entities

PRMARY PUSPOSE OF TAXATION

PLANTERS PRODUCTS VS FERTIPHIL: An inherent limitation on the power of taxation is public purpose. Taxes are exacted only
for a public purpose. They cannot be used for purely private purposes or for the exclusive benefit of private persons. The
power to tax exists for the general welfare; hence, implicit in its power is the limitation that it should be used only for a public
purpose.

Jurisprudence states that "public purpose" should be given a broad interpretation. 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

Public purpose is the heart of a tax law. When a tax law is only a mask to exact funds from the public when its true intent is
to give undue benefit and advantage to a private enterprise, that law will not satisfy the requirement of "public purpose.

It would be a robbery for the State to tax its citizens and use the funds generated for a private purpose. As an old United
States case bluntly put it: "To lay with one hand, the power of the government on the property of the citizen, and with the
other to bestow it upon favored individuals to aid private enterprises and build up private fortunes, is nonetheless a robbery
because it is done under the forms of law and is called taxation

what is the nature of a tax law?

 Civil in nature because it involves an obligation to pay.
 It is not criminal in nature because it does not define a crime. the main purpose of these is for the collection or
raising income and not to penalize someone, although the Congress is not precluded to put penal laws in the tax
laws in case of violation.
 It is also not political.

Why is it not contractual?

 it is an obligation not created by contracts but an obligation created by law.

EXCEPTIONS OF THE GOVERNMENT FROM TAXATION

GR: Government and its agencies are exempt from taxation because of public policy.

EXCPTN: Not all are exempted due to laws enacted divesting them the right of exemption from tax. Ex. PAGCOR was tax
exempt but due to the enactment of the 1997 NIRC, it no longer exempted from tax.

16.PRINCIPLES OF SOUND TAX SYSTEM

1. FISCAL ADEQUACY 2. ADMINISTRATIVE FEASIBILITY 3. THEORETICAL JUSTICE

FISCAL ADEQUACY (ADEQUATE)

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 It means the TAX SYSTEM must be adequate or sufficient to provide submission revenues in order to meet the legitimate
needs of the government.

CHAVEZ v. ONGPIN: 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.

Without EO No. 73, the basis for collection of real property taxes will still be the 1978 revision of property values.
Certainly, 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. *****

Hence, it is necessary for the government to adjust the value of the land for real property purposes. It therefore
follows that EO No. 73 is constitutional, it does not impose new taxes nor increase taxes. The general revision of
assessments is a continuing process mandated by Section 21 of PD No. 464.

ABAKADA V ERMITA: RA 9337 is compliant of ―fiscal adequacy requirement. Fiscal adequacy dictated the need for
a raise in revenue. The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe. The
image portrayed is chilling. Even if there is a good VAT collection, fiscal adequacy would entail that there is a need
to raise the income of the Philippine government because we are always at a deficit.

Congress passed the law hoping for rescue from an inevitable catastrophe. Whether the law is indeed sufficient to
answer the state’s economic dilemma is not for the Court to judge.

ADMINISTRATIVE FEASIBILITY (CONVENIENCE)

 FEASIBLE meaning doable. A tax measure should be easily implemented in order to assure the smooth flow into the
treasury the fiscally adequate amounts.
 tax system should be capable of being effectively administered and enforced with the least inconvenience to the
taxpayer

DIAZ V SEC OF FINANCE: Administrative feasibility simply means that the tax system should be capable of being
effectively administered and enforced with the least inconvenience to the taxpayer. However, Non-observance of the
canon, however, will not render a tax imposition invalid "except to the extent that specific constitutional or statutory
limitations are impaired."

Thus, even if the imposition of VAT on tollway operations may seem burdensome to implement, it is not necessarily
invalid unless some aspect of it is shown to violate any law or the Constitution. Here, it remains to be seen how the
taxing authority will actually implement the VAT on tollway operations. Any declaration by the Court that the manner of
its implementation is illegal or unconstitutional would be premature.

THEORETICAL JUSTICE (ABILITY TO PAY)

 Tax system must be based on the taxpayer’s ability to pay. Those who have more shall pay more and those who have
less shall pay less. It must not be so burdensome.

THEORY AND BASIS OF TAXATION

1) Lifeblood/ Necessity Theory (THEORY) 2.) Reciprocal/ Benefit-Protection Theory (BASIS)

LIFEBLOOD THEORY - *refer nalang above*

CONCEPTS THAT FLOAT IN THE LIFEBLOOD THEORY
(1) The collection of taxes may not be enjoined
(2) by an injunction, as a general rule. (Noinjunction Rule)
(3) The taxes cannot be subject of a
(4) compensation or set-off
(5) The power to tax is unlimited and plenary
(6) The power to tax may also involve the power
(7) to destroy.

RECIPROCAL/ BENEFIT-PROTECTION THEORY

 Speaks of the duty between the state and the citizens or the inhabitants.
 The obligation of the state is to provide protection, and to have an orderly society
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 The citizens, on the other hand, have the duty to support the state by paying taxes or through the process of
taxation.
 When the government has that money raised from taxation, then the state will be able to provide the necessary
protection to the citizens.

DOCTRINE OF TAXATION
1. PROSPECTIVITY 2. IMPRESCRIPTIBILITY OF TAXATION 3. DOUBLE TAXATION

PROSPECTIVITY
GR: Tax laws is prospective and do not have retroactive application.
 To give retroactive effect to tax laws will violate the right of the tax payer to due process. A taxpayer should always
know when to pay his obligations. How should a taxpayer pay his dues when he doesn’t know of it?

EXCPTN: Tax laws have retroactive application only when the law explicitly says so.
 What if before the repeal of a tax law there was an assessment made by the government? You did not pay the
assessment not even after there was a repeal. This is the case of

COMMISSIONER VS. ACOSTA: Tax laws are prospective in operation, unless the language of the statute clearly
provides otherwise.

Revenue statutes are substantive laws and in no sense must their application be equated with that of remedial laws.
revenue laws are not intended to be liberally construed. (Simply put, substantial compliance is not allowed)
Considering that taxes are the lifeblood of the government and in Holmes’s memorable metaphor, the price we pay
for civilization, tax laws must be faithfully and strictly implemented

2. IMPRESCRIPTIBILITY OF TAXATION
GR: The right of the government to collect taxes is imprescriptible.
 Without any law which provides for a prescriptive period for the collection of taxes, the government will have an
unlimited time to collect the taxes from the taxpayer. Hence the law itself can provide for rules on prescription.

3. DOUBLE TAXATION
 Not all forms of double taxation is actually illegal. Double taxation is not illegal per se. it only becomes illegalwhen it
violates the Constitution or any existing laws.

TWO (2) FORMS OF DOUBLE TAXATION:

a. DIRECT - illegal
b. INDIRECT

REQUISITES: (SPT-JTK)
1) For the same subject matter;
2) For the same purpose;
3) For the same taxing authority;
4) Within the sae jurisdiction;
5) During the same taxing period;
6) taxes are of the same kind and character

CITY OF MANILA VS COCA-COLA: Double taxation means taxing the same property twice when it should be taxed only
once; that is, "taxing the same person twice by the same jurisdiction for the same thing."

The ordinance constituted double taxation because it violated the LGC which provides that: where a city or
municipality has already imposed a business tax on manufacturers under section 143A, the said city or municipality can
no longer subject the said manufacturers to the same tax. The City of Manila is imposing two business taxes, one for
manufacturer and the other one is for distribution, it’s still in the same nature.

The Court finds that there is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and
21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the same subject matter – the privilege of doing
business in the City of Manila; (2) for the same purpose – to make persons conducting business within the City of Manila
contribute tocity revenues; (3) by the same taxing authority – petitioner Cityof Manila; (4) within the same taxing
jurisdiction – within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods – per calendar year;
and (6) of the same kind or character – a local business tax imposed on gross sales or receipts of the business.‖
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WAYS OF ELIMINATING DOUBLE TAXATION:

how to eliminate double taxation? (TCDR)
1. TAX TREATIES 2. TAX CREDITS 3. TAX DEDUCTION 4. TAX REDUCTION

TAX TREATIES – mainly entered into by the nation, to avoid international double taxation.
 international Double Taxation takes place when a person who is a resident of a contracting state and derives income
from, or own capital in another contracting state and both states impose tax on the income or capital

PURPOSE: (CIR vs SC JOHNSON)

o to reconcile the fiscal legislations of different countries
o The elimination of international juridical double taxation;
o To encourage the free-flow of goods and services movement of capital and technology between the two
countries.

TAX CREDIT- directly deductible from the tax due

TAX DEDUCTION – subtracted from gross income
TAX REDUCTION – tax exemptions

19.CONSTITUTIONAL LIMITATIONS
1) DUE PROCESS
2) EQUAL PROTECTION
3) UNIFORMITY AND EQUITY OF TAXATION
4) PROGRESSIVE SYSTEM OF TAXATION
5) PROHIBITION AGAINST IMPAIRMENT OF OBLIGATION OF CONTRACTS
6) PROHIBITION AGAINST IMPRISONMENT FOR NON-PAYMENT OF POLL TAX

DUE PROCESS
ART. 3, Section 1. No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be
denied the equal protection of the laws.

Tax laws and their enforcement must comply with substantive and procedural due process.
SUBSTANTIVE – Valid law
o There must be a valid law imposing such tax. You also have to consider the inherent limitation of taxation. If the
inherent limitation of taxation is violated in making such tax laws, in levying taxes against persons or property,
then that law may be struck down as an invalid law. It is a violation of the substantive due process
o the law must be reasonable and must be for public purpose

PROCEDURAL – Valid procedure

o there must be a manner of taking
o there must be no arbitrariness in the assessment and collection; the prescribed rules must be followed before
assessment and collection

CASTRO VS. COLLECTOR: The War Profits Tax Law is declared valid and constitutional by the Supreme Court. The
War Profits Tax Law although effective retroactively, it is not harsh or oppressive. It is both wise and just, and
therefore it is not unconstitutional.

EQUAL PROTECTION
Art. 3, Sec.1, CONSTI: No person shall be deprived of life, liberty, or property without due process of law, nor shall any person
be denied the equal protection of the laws.
ART. 6, Sec.28 (1), CONSTI: The rule of taxation shall be uniform and equitable. The Congress shall develop a progressive
system of taxation.

EQUAL PROTECTION CLAUSE - that all persons, all persons subject of legislation shall be treated alike under like
circumstances and conditions both in privileges conferred and liabilities imposed

REASONABLE & VALID CLASSSIFICATION: (SP-E)

1) SUBSTANTIAL distinctions, which make real differences
2) GERMANE to the purpose of the law or of the legislation.
3) PRESENT & FUTURE CONDITIONS substantially identical to those present.
4) EQUALLY to all members of the same class

LUTZ VS. ARANETA: SUBSTANTIAL DISTINCTIONS, WHICH MAKE REAL DIFFERENCES& GERMANE TO THE PURPOSE OF THE LAW
OR OF THE LEGISLATION.
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The State is free to select the subjects of taxation, and the Court has repeatedly held that inequalities which result from
a singling out of one particular class for taxation or exemption infringe no constitutional limitation.

As the protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may
determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the
legislative discretion must be allowed fully play, subject only to the test of reasonableness. The tax under said Act is
levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar
industry. Since sugar production is one of the great industries of our nation, its promotion, protection, and
advancement, therefore redounds greatly to the general welfare. Hence, said objectives of the Act is a public concern
and is therefore constitutional.

SHELL VS. VANO: PRESENT & FUTURE CONDITIONS substantially identical to those present
The fact that there is no other person in the locality who exercises such a "designation" or calling does not make the
ordinance discriminatory and hostile, inasmuch as it is and will be applicable to any person or firm who exercises such
calling or occupation named or designated as "installation manager." Hence, no violation of equality and uniformity in
taxation.

MANILA RACE HORSE OWNERS ASSOCIATION VS. DELA FUENTE: There was a substantial distinction between horses for
racing and horses which are not for racing. There is equality and uniformity in taxation if all articles or kinds of property
of the same class are taxed at the same rate

The owners of boarding stables for race horses and, for that matter, the race horse owners themselves, who in the
scheme of shifting may carry the taxation burden, are a class by themselves and appropriately taxed where owners of
other kinds of horses are taxed less or not at all, considering that equity in taxation is generally conceived in terms of
ABILITY TO PAY in relation to the benefits received by the taxpayer and by the PUBLIC from the business or property
taxed. Race horses are devoted to gambling if legalized, their owners derive fat income and the public hardly any
profit from horse racing, and this business demands relatively heavy police supervision

From the context of Ordinance No. 3065, the intent to tax or license stables and not horses is clearly manifest. The tax is
assessed not on the owners of the horses but on the owners of the stables, It is also plain from the text of the whole
ordinance that the number of horses is used in the assessment purely as a method of fixing an equitable and practical
distribution of the burden imposed by the measure. Far from being obnoxious, the method is fair and just. It is but fair
and just that for a boarding stable where only one horse is maintained proportionately less amount should be exacted
than for a stable where more horses are kept and from which greater income is derived.

ASSOCIATION OF CUSTOMS BROKERS VS. MUNICIPAL BOARD OF MANILA: The tax ordinance was void. There is no
pretense that the ordinance equally applies to motor vehicles who come to Manila for a temporary stay or for short
errands, and it cannot be denied that they contribute in no small degree to the deterioration of the streets and public
highway. The fact that they are benefited by their use they should also be made to share the corresponding burden.
And yet such is not the case.

This is an inequality which we find in the ordinance, and which renders it offensive to the Constitution.

The ordinance exacts the tax upon all motor vehicles operating within the City of Manila. It does not distinguish
between a motor vehicle for hire and one which is purely for private use. Neither does it distinguish between a motor
vehicle registered in the City of Manila and one registered in another place but occasionally comes to Manila and uses
its streets and public highways. The distinction is important if we note that the ordinance intends to burden with the tax
only those registered in the City of Manila as may be inferred from the word "operating" used therein.

ORMOC SUGAR VS. TREASURER OF ORMOC: The questioned ordinance does not meet the requisites for a reasonable
classification. To be reasonable, it should be applicable to future conditions as well. The taxing ordinance should not be
singular and exclusive as to exclude any subsequently established sugar central, of the same class as plaintiff, for the
coverage of the tax.

The ordinace taxes only centrifugal sugar produced and exported by the Ormoc Sugar Company, Inc. and none other.
At the time of the taxing ordinance’s enactment, Ormoc Sugar Company, Inc., it is true, was the only sugar central in
the city of Ormoc.. As it is now, even if later a similar company is set up, it cannot be subject to the tax because the
ordinance expressly points only to Ormoc City Sugar Company, Inc. as the entity to be levied upon.
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SISON VS. ANCHETA: The rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly
attainable. Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall
be taxed at the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation.

In the case of the gross income taxation embodied in BP 135, the discernible basis of classification is the susceptibility
of the income. Taxpayers who are recipients of compensation income are set apart as a class. As there is practically no
overhead expense, these taxpayers are not entitled to make deductions for income tax purposes.

On the other hand, in the case of professionals in the practice of their calling and businessmen, there is no uniformity in
the costs or expenses necessary to produce their income. It would not be just then to disregard the disparities by giving
all of them zero deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income.

UNIFORMITY AND EQUITY OF TAXATION/ PROGRESSIVE TAXATION SYSTEM

ART. 6, Sec.28 (1), CONSTI: The rule of taxation shall be uniform and equitable. The Congress shall develop a progressive
system of taxation.

UNIFOMITY - implies that all taxable articles or all properties of the same class shall be taxed at the same rate wherever they
may be filed

 Requirement of uniformity of taxation is the same requirement in the Equal Protection Clause.
 The rule in uniformity and equity is that there should be no discrimination in the treatment and determining the subjects
or the objects of taxation. Hence, for purposes that a tax law conforms to this requirement of uniformity and equality,
the law therefore must comply with the requisites of a reasonable and valid classification.

PROGRESIVE TAXATION SYSTEM

 Directory not mandatory
 When you say progressive system of taxation, more direct taxes than indirect taxes. When we say direct taxes, an
example of that is income tax. When we say direct taxes, meaning there is no shifting of tax burden

TOLENTINO VS. SECRETARY OF FINANCE:THE MANDATE OF THE CONSTITUTE FOR THE CONGRESS TO DEVELOP A
PROGRESSIVE TAX SYSTEM IS MERELY DIRECTORY AND NOT MANDATORY. The Constitution does not really prohibit the
imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall "evolve a
progressive system of taxation." The constitutional provision has been interpreted to mean simply that "direct taxes are
to be preferred [and] as much as possible, indirect taxes should be minimized."

Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid
them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the
regressive effects of this imposition by providing for zero rating of certain transactions, while granting exemptions to
other transactions

PROHIBITION AGAINST IMPAIRMENT OF OBLIGATION OF CONTRACTS

 The non-impairment clause is superior to the power of taxation because if the tax law would violate or encroach upon
obligations entered by the state, contractual tax exemptions, the non-impairment clause can be invoke.
 The non-impairment clause will only cover agreements or contracts entered into by the state, it is not applicable to
regular contractual obligations.

CASSANOVA VS. HORD: The new law taxing the activity as to the exploration of natural resources, which the decree
granted an exemption, is a violation of non-impairment clause. The grantee therefore, can invoke the non-impairment
clause because he is entitled to that.

The deeds granted by the Spanish government to the plaintiff constituted a contract between the two. Said decree
expressly declares that no other taxes shall be imposed upon these mines. The grant vested the petitioner, a
contractual exemption in engagement in natural resources business, exploits, quarries, and whatever, during the time of
tax exempt activity.

TOLENTINO v SEC. OF FINANCE: Under ART. 12, SEC. 11, CONSTI: Franchises are always subject to amendment, repeal or
alteration by the Congress. Since what was granted to PAL is not a contractual tax exemption, then non-impairment
clause cannot be invoked.

PROHIBITION AGAINST IMPRISONMENT FOR NON-PAYMENT OF POLL TAX

ART. 3, SEC. 20, CONSTI: No person shall be imprisoned for debt or non-payment of a poll tax.
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G. ARTICLE VIII, SECTION 5 (2, B): JUDICIAL POWER TO REVIEW LEGALITY OF TAX
ARTICLE VIII, SECTION 5. The Supreme Court shall have the following powers:
(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:
(b) All cases involving the legality of any tax, impost, assessment, or toll, or any penalty imposed in relation thereto.

H. ARTICLE III, SECTION 5

ARTICLE 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.

AMERICAN BIBLE SOCIETY V. CITY OF MANILA: The local tax imposed to selling of bible is unconstitutional. Freedom of
religion is powerful than the power of taxation. The constitutional guaranty of the free exercise and enjoyment of
religious profession and worship carries with it the right to disseminate religious information. Any restraint of such right
can only be justified like other restraints of freedom of expression on the grounds that there is a clear and present
danger of any substantive evil which the State has the right to prevent.‖

The power to tax the exercise of a privilege is the power to control or suppress its enjoyment. Those who can tax the
exercise of this religious practice can make its exercise so costly as to deprive it of the resources necessary for its
maintenance.

Hence, the sale of the Bibles and other religious articles by American Bible Society and other religious organizations,
although at a profit, cannot be considered a business and as such cannot be subject to tax. Otherwise, it will violate
the Constitution.

TOLENTINO VS. SECRETARY OF FINANCE: The Supreme Court without abandoning the American Bible Society ruling, the
Supreme Court said that the freedom of religion does not prohibit imposing a generally applicable sales tax.

The VAT is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed on
the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of
properties purely for revenue purposes.

The registration requirement is a central feature of the VAT system. It is designed to provide a record of tax credits
because any person who is subject to the payment of the VAT pays an input tax, even as he collects an output tax on
sales made or services rendered. The registration fee is thus a mere administrative fee, one not imposed on the
exercise of a privilege, much less a constitutional right.

ART. 6, SEC. 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.

Pope John Paul II before visited the Philippines, and the Philippines made preparations and spent money for the state visit of
the Pope. Is that a violation of this constitutional prohibition or provision?
 Although the Pope is the head of the Roman Catholic Church, still he is the head of the Vatican. And Vatican is a
separate and sovereign state.
 The Pope’s visit may be considered as a state visit and not for or in favour of a religious denomination.
 The preparation made was in consonance of the principles of international law, where we extend as a sovereign
state courtesy to another sovereign state when the head of that state would come to visit the Philippines.

CONSTITUTIONAL EXEMPTION FROM TAXATION

j. Article VI, Section 28 (3)s (REAL PROPERTY TAX)
(3) 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.

BASIS OF RPT EXEMPTION: ACTUAL, DIRECT & EXCLUSIVE USE OF PROPERTY, NOT BY OWNESHIP
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ABRA VALLEY COLLEGE, INC. VS. AQUINO: INCINDENTAL USE: The exemption in favor of property used exclusively for
charitable or educational purposes is 'not limited to property actually indispensable' therefor, but extends to facilities
which are incidental to and reasonably necessary for the accomplishment of said purposes.

The use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus,
while the use of the second floor of the main building in the case at bar for residential purposes of the Director and his
family, may find justification under the concept of incidental use, which is complimentary to the main or primary
purpose—educational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of
the imagination be considered incidental to the purpose of education.

HOSPITAL DE SAN JUAN DE DIOS VS. PASAY: The facilities provided by the hospitals or charitable institutions such as
quarters for the medical staff, for the nurses, cafeteria, mess hall, other support facilities for the recreation of the medical
staff are covered by REAL PROPERTY TAX EXEMPTION because they are incidental to the primary purpose for which the
establishment or institution is organized.

LUNG CENTER VS QUEZON CITY: In the legal sense, a CHARITY may be fully defined as a gift, to be applied consistently
with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds and hearts under the
influence of education or religion, by assisting them to establish themselves in life or otherwise lessening the burden of
government. It may be applied to almost anything that tend to promote the well-doing and well-being of social man. It
embraces the improvement and promotion of the happiness of man. The word "charitable" is not restricted to relief of the
poor or sick.

The test whether an enterprise is charitable or not is, whether it exists to carry out a purpose recognized in law as
charitable or whether it is maintained for gain, profit, or private advantage. To determine the nature and purpose of the
petitioner institution, the court looked into the documentary evidence i.e. the ARTICLES OF INCORPORATION.

The making of profit does not destroy the tax exemption of a charitable, benevolent or educational institution.

The general rule is that a charitable institution does not lose its charitable character and its consequent exemption from
taxation merely because recipients of its benefits who are able to pay are required to do so, where funds derived in this
manner are devoted to the charitable purposes of the institution, applies to hospitals.

RE: SUBSIDIARY PETITIONER RECEIVED

The petitioner does not lose its character as a charitable institution simply because the gift or donation is in the form of
subsidies granted by the government.Government subsidy payments are provided to the project. those payments are
like a gift or donation of any other kind except they come from the government. In this case, the petitioner adduced
substantial evidence that it spent its income, including the subsidies from the government for its patients and for the
operation of the hospital. It even incurred a net loss in 1991 and 1992 from its operations.

CIR VS ST. LUKE’S MEDICAL CENTER: Even if the charitable institution must be "organized and operated exclusively" for
charitable purposes, it is nevertheless allowed to engage in "activities conducted for profit" without losing its tax exempt
status for its not-forprofit activities. The only consequence is that Such income from for-profit activities is merely subject to
income tax,

Hence, St. Luke is not exempted from payment of income taxes because it is not "operated exclusively" for charitable or
social welfare purposes insofar as its revenues from paying patients are concerned.

k. Article XIV, Section 4 (3) & (4) (TAX DUES EDUCATIONAL INSTITUTIONS)
(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.

(4) Subject to conditions prescribed by law, all grants, endowments, donations, or contributions used actually, directly, and
exclusively for educational purposes shall be exempt from tax.

CIR VS DLSU: The tax exemption granted by the Constitution to non-stock, non-profit educational institutions is conditioned
only on the actual, direct, and exclusive use of their assets, revenues, and income for educational purposes.
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the Court laid down the requisites for availing the tax exemption under Article XIV, Section 4 (3), namely:
(1) the taxpayer falls under the classification non-stock, non-profit educational institution; and
(2) the income it seeks to be exempted from taxation is used actually, directly and exclusively for educational
purposes

A plain reading of the Constitution would show that Article XIV, Section 4 (3) does not require that the revenues and income
must have also been sourced from educational activities or activities related to the purposes of an educational institution.
Thus, so long as the revenues and income are used actually, directly and exclusively for educational purposes, then said
revenues and income shall be exempt from taxes and duties

KIM HENARES VS ST. PAUL COLLEGE OF MAKATI,: for the constitutional exemption to be enjoyed, jurisprudence and tax
rulings affirm the doctrinal rule that there are only TWO REQUISITES:
(1) The school must be non-stock and non-profit; and
(2) The income is actually, directly and exclusively
(3) used for educational purposes.

There are no other conditions and limitations

DLSU-COLLEGE OF ST. BENILDE VS CIR: a non-profit institution will not be considered profit driven simply because of
generating profits.

Every responsible organization must be so run as to, at least insure its existence by operating within the limits of its own
resources, especially its regular income. In other words, it should always strive, whenever possible, to have a surplus.

A profit on the part of an educational institution will ensure liquidity on the part of the institution and will ensure that they
have enough resources to improve and develop quality education. The tax exemption will redound to the benefit of the
students, without tax exemption students will be charged unreasonable tuition fees.

Tax privilege granted by the Constitution itself to non-stock non-profit educational institution is necessary to promote quality
and affordable education in the country.

l. Article VI, Section 28 (4) (RATIFICATION REQUIREMENT ON TAX EXEMPTIONS)

(4) No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the
Congress.

I. JOHN HAY VS LIM: It is the legislature, unless limited by a provision of the state constitution, that has full power to
exempt any person or corporation or class of property from taxation, its power to exempt being as broad as its
power to tax.

Other than Congress, the Constitution may itself provide for specific tax exemptions, or local governments may pass
ordinances on exemption only from local taxes.

Tax exemptions must be expressly granted in a statute stated in a language too clear to be mistaken. Tax
exemption cannot be implied as it must be categorically and unmistakably expressed.

m. Article VI, Section 24 (TAX MEASURE; Bicameral Conference)

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

TOLENTINO VS. SECRETARY OF FINANCE: it is not the law — but the revenue bill — which is required by the Constitution to
"originate exclusively" in the House of Representatives. It is important to emphasize this, because a bill originating in the
House may undergo such extensive changes in the Senate that the result may be a rewriting of the whole.

The Senate has the power to propose amendments. The Senate can propose its own version even with respect to bills which
are required by the Constitution to originate in the House. This follows from the coequality of the two chambers of Congress.

In this case, there is substantial compliance. According to the Court, As long as it involves the same title, the same subject,
then it satisfies Article 6, Section 24.

N. ARTICLE VI, SECTION 29 (3)

Article VI, 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.
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20. TAXPAYER’S SUIT

It is more of a constitutional law concept which is related to the judicial review aspect.

THE POWER OF JUDICIAL REVIEW - the power of the Supreme Court to declare a treaty, international or executive
agreement, law, etc. unconstitutional not just the law but also the application of the law.

ELEMENTS OF JUDICIAL REVIEW: (ALE-I)

1) There must be an actual case or controversy;
2) There must be a locus standi;
3) The issue must be raised on the earliest opportunity; and
4) The issue must be the very lis mota of the case

ANTI-GRAFT LEAGUE VS SAN JUAN: To constitute a taxpayer’s suit, the following requisites must be present:
1. Public funds are disbursed by a political subdivision or instrumentality, and in doing so, a law is violated or
irregularity committed, and
2. The petitioner is directly affected by the act

In this case, the 1st requisite was absent. The disbursement of public funds was only made in 1975 when the Province
bought the lands from Ortigas at P110.00 per square meter in line with the objectives of P.D. 674.

As a taxpayer, petitioner would somehow be adversely affected by an illegal use of public money. However, when
there is no unlawful spending was shown, petitioner even if a taxpayer, cannot question the transaction validly
executed by the Province and Ortigas for the simple reason that it is not a privy to the contract. Succinctly put, the
petitioner has absolutely no cause of action, and consequently no locus standi.

PLARIDEL ABAYA VS EBDANE: The Supreme Court took a more liberal stance as to the requidite of ―directly affected by
the act‖. The prevailing doctrine in taxpayer’s suits is to allow taxpayers to question contracts entered into by the
national government or government- owned or controlled corporations allegedly in contravention of law
A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed, or that public money is
being deflected to any improper purpose, or that there is a wastage of public funds through the enforcement of an
invalid or unconstitutional law. Significantly, a taxpayer need not be a party to the contract to challenge its validity.
Locus standi, is merely a matter of procedure

Locus standi is "a right of appearance in a court of justice on a given question." More particularly, it is a party’s personal
and substantial interest in a case such that he has sustained or will sustain direct injury as a result of the governmental
act being challenged. It calls for more than just a generalized grievance.

The term "interest" means a material interest, an interest in issue affected by the decree, as distinguished from mere
interest in the question involved, or a mere incidental interest.

21. Escape from Taxation

ESCAPE FROM TAXATION TAX EXEMPTION
 Employed by taxpayer  These are the laws promulgated by the Congress

 any means regardless of its legality to reduce or to  wherein the taxpayer will not suffer the burden of
altogether avoid the payment of taxes taxation

THREE (3) WAYS TO AVOID THE PAYMENT OF TAXES:

1. Tax Shifting
2. Tax Avoidance
3. Tax Evasion
4. Tax exemption

a. Tax Shifting
 the transfer of the burden of tax by the original payer OR THE ONE WHOM ORIGINALLY ASSESSED TO PAY to another or
someone else without violating the law.

WAYS OF SHIFTING THE TAXATION:

a. Including the tax in the purchase price; or
 Ex. Attorneys Fee 100,000 already included in it is the 3% Percentage Tax
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b. Adding the tax on your selling price

 Ex. Bill it separately; magbill ako ng 100,000 patungan ko pa ng 3% In either of way the burden of taxation
will always be on the part of the person paying my services, however not all taxes can be shifted.
NOTE:
 Only indirect taxes may be shifted.
 In case of direct taxes, the shifting of burden can only be made by contractual provision.

Why is it that in Indirect Taxes the burden can be shifted to another person?
 It is because in indirect taxes the impact and the incidence of taxation may be split.
 While in Direct Taxation, the impact and incidence of taxation will always fall upon one person only.

I. IMPACT AND INCIDENCE OF TAXATION

IMPACT OF TAXATION INCIDENCE OF TAXATION
AS TO DEFINITION
It refers to the statutory liability to pay the tax; it falls on t is the economic cost of tax; it is also known as burden
the person originally assessed with a particular tax of taxation

AS TO ITS NATURE
It is the imposition of tax (liability) It is the payment of tax (burden)

AS TO WHOM IT IS IMPOSED
It is on the seller upon whom the tax has been imposed It is on the final consumer, the place at which the tax
comes to rest

DIAGEO PHILIPPINES VS COMMISSIONER: STATUTORY TAX PAYER. The proper party to question, or seek a refund of an
indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he
shifts the burden thereof to another.

EXCISE TAXES partake of the nature of indirect taxes when it is passed on to the subsequent purchaser. INDIRECT TAXES
are those wherein the liability for the payment of the tax falls on one person but the burden thereof can be shifted to
another person.

Therefore, Diageo cannot claim for refund of excise taxes it paid because he only bears the burden of tax and not the
liability of the tax.

III. SILKAIR VS CIR

B. TAX AVOIDANCE
 the exploitation by the taxpayer of legally permissible scheme or methods of assessing taxable property or income in
order to reduce not entirely in order avoid the payment of tax liability.

To put it simply the taxpayer merely exploits a legal loophole in order for him to avoid the payment of taxes

c. Tax Evasion
 llegal means to reduce and avoid the payment of taxes. This is no longer exploiting a legal loophole but you are
actually defeating the payment of taxes

what are the factors to be considered?

1. The ends to be achieved
2. Intent or the state of mind
3. Action or inaction which is unlawful

d. Tax Exemption
 It is an express immunity from the obligation to pay taxes granted to a person or corporation by the State
 in the nature of a waiver of the state. Hence, this is strictly construed against the taxpayer and evenly in favor of the
government. It is granted only upon the clear intention which should not exist by mere implication. What are the
PRINCIPLES ONE MUST REMEMBER ABOUT TAX EXEMPTION

PRINCIPLES ONE MUST REMEMBER ABOUT TAX EXEMPTIONS:

1. Not presumed
a. It is highly disfavoured since taxes are the lifeblood of the state
2. Strictly construed against the tax payer and liberally in favour of the government
3. Tax payer should prove his entitlement to the tax exemption
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4. May only be conferred when it is express and there is a law granting it

22. Compensation / Set-off of taxes

Art. 1278, NCC: Compensation or set-off shall take place when two persons, in their own right, are creditors and debtors of
each other

GR: No set-off is admissible against the demands for taxes levied for general or local governmental purposes.
1. Government and tax payer are not creditor and debtor of each other
2. Obligation to pay taxes do not arise from a contract but it emanates or created by law.
3. Lifeblood Theory

EXCPTN: Where both the claims of the government and the taxpayer against each other have already become due,
demandable, and fully liquidated, compensation takes place by operation of law and both obligations are extinguished to
their concurrent amounts.

In the case of the taxpayer’s claim against the government, the government must have appropriated the amount thereto.

A. REPUBLIC VS MAMBULAO LUMBER

B. REPUBLIC VS ERICTA: LEGAL COMPENSATION arises as a matter of law. When the requisites of legal compensation are
complied with, the compensation will automatically take place even the parties are unaware of it.

The requisites of a legal compensation under Article of 1279 of the New Civil Code are:
a. The obligors are principally bound as creditors and debtors of each other;
b. Both debts consist of some of money or consumable goods
c. Both debts must be due
d. Both debts are liquidated and demandable
e. That over neither of them there be any retention or controversy.

C. FRANCIA VS IAC: 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.Public policy is better subserved if the integrity and independence of taxes be maintained under the Lifeblood
Doctrine.

D. PHILEX MINING VS CIR: No set-off is admissible against the demands for taxes levied for general or local governmental
purposes. Taxes cannot be subject to compensation because the government and the taxpayer are not creditors and
debtors of each other.

23.DOCTRINE OF EQUITABLE RECOUPMENT

 where the refund of a tax illegally or erroneously corrected or overpaid by a taxpayer, is barred by prescription, a tax
presently being assessed against taxpayer may be recouped or set-off against the tax already barred by prescription.
 Under the doctrine of equitable recoupment, even if the taxpayer’s claim of refund is already prescribed, he can still
setoff the taxes.
 Does not apply in our jurisdiction because we have law prescribing for prescription.

24. Tax Pyramiding

 Practice of imposing a tax upon another tax. It is illegal and unconstitutional,

Is a VAT a tax pyramiding?

 No, although it may appears as such, what makes VAT takes out from pyramiding scheme is the concept of input VAT.
o The VAT is a tax on consumption, an indirect tax that the provider of goods or services may pass on to his
customers. Under the VAT method of taxation, which is invoice-based, an entity can subtract from the VAT
charged on its sales or outputs the VAT it paid on its purchases, inputs and imports.
 EX. when a seller charges VAT on its sale, it issues an invoice to the buyer, indicating the amount of VAT
he charged. For his part, if the buyer is also a seller subjected to the payment of VAT on his sales, he
can use the invoice issued to him by his supplier to get a reduction of his own VAT liability. The
difference in tax shown on invoices passed and invoices received is the tax paid to the government. In
case the tax on invoices received exceeds that on invoices passed, a tax refund may be claimed.
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25. Construction and Interpretation of Taxes

A. TAX LAWS
If the law is clear, there’s no need to interpret it; all that has to be done is to apply in in the cases which fall under its terms

However, when there is doubt in the interpretation:

GR:
1. Tax statutes must be construed strictly against the government and liberally in favor of the taxpayer
a. Taxes are burdens on the taxpayer, and should not be unduly imposed or presumed beyond what the
statutes expressly and clearly import
2. The imposition of a tax cannot be presumed.
EX: The rule that, in case of doubt of legislative intent, the doubt must be liberally construed in favor of taxpayer does not
extend to cases involving the issue of the validity of the tax law itself which, in every case, is presumed valid.

B. TAX EXEMPTIONS
.GR: Absence of doubt apply verbal legis and it cannot be presumed
EX:
 In case of doubt, Statutes granting tax exemptions are construed in strictissimi juris against the taxpayers and liberally in
favor of the taxing authority
EXCEPTION:
1. rule on strict interpretation does not apply in the case of exemptions in favor of a government
political subdivision or instrumentality.

SORIANO VS SEC OF FINANCE: RA 9504 does not distinguish between the income earned prior to the effectivity of the
amendment (from 1 January 2008 to 5 July 2008) and that earned thereafter (from 6 July 2008 to 31 December 2008). The
principle that the courts should not distinguish when the law itself does not distinguish squarely app1ies to this case.

Workrs who receive the statutory minimum wage as their basic pay will remain MWEs and their receipt of other income
during the year does not disqualify them as MWEs. They remain MWEs entitled to exemption as such, but the taxable
income they may receive in excess of the statutory minimum wage may be subject to appropriate taxes

c. Tax refunds
 Tax refunds are in the nature of tax exemptions which are construed in strictissimi juris against the taxpayer and liberally
in favor of the government

I. PANASONIC VS CIR: SUBSTANTIAL COMPLIANCE IS NOT SUFFICIENT. Tax refunds in relation to the VAT are in the nature of
such exemptions. The general rule is that claimants of tax refunds bear the burden of proving the factual basis of their
claims. Taxes are the lifeblood of the nation. Therefore, statutes that allow exemptions are construed strictly against the
grantee and liberally in favor of the government.

The ground for denial of petitioner Panasonic’s claim for tax refund—the absence of the word "zero-rated" on its invoices—is
one which is specifically and precisely included in the law.

II. CIR VS FORTUNE TOBACCO: The Supreme Court in this case explained that there are two types of tax refunds: Tax refund
based on law, and 2. Tax refund for wrongfully or illegally collected taxes. Indeed,Tax exemption is a result of legislative
grace. In this case, the rule of strict interpretation against the taxpayer is applicable as the claim for refund partakes of the
nature of an exemption. However, tax refunds (or tax credits) in this case is not founded principally on legislative grant but
on the legal principle of solutio indebiti, the government cannot unjustly enrich itself at the expense of the taxpayers.

In the present case, Fortune Tobacco’s claim for refund is premised on its erroneous payment of the tax, or the government’s
exaction in the absence of a law.The Government is not exempt from the application of Solutio indebiti. Indeed, the
taxpayer expects fair dealing from the Government, and the latter has the duty to refund without any unreasonable delay
what it has erroneously collected

iii. SMART COMMUNICATIONS VS CITY OF DAVAO: Aside from the national franchise tax, the franchisee is still liable to pay the
local franchise tax, unless it is expressly and unequivocally exempted from the payment thereof under its legislative
franchise.

The "in lieu of all taxes" clause in a legislative franchise should categorically state that the exemption applies to both local
and national taxes; otherwise, the exemption claimed should be strictly construed against the taxpayer and liberally in
favor of the taxing authority. In addition, If Congress intended the ―in lieu of all taxes‖ clause in Smart’s franchise to also
apply to local taxes, Congress would have expressly mentioned the exemption from municipal and provincial taxes. The
clear intent is for the ―in lieu of all taxes‖ clause to apply only to taxes under the National Internal Revenue Code and not to
local taxes. Thus, the doubt must be resolved in favor of the City of Davao.
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iv. AGUSAN WOOD INDUSTRIES INC. VS SEC. OF DENR: The nature of forest charges are internal revenue taxes.
But while considered as internal revenue taxes, the jurisdiction as regards collection and invoicing of forest charges is
vested upon the Forest Management Bureau under the DENR. This is supported by E.O. No. 273 itself as it was stated that the
transfer was implemented for tax administration purposes only, particularly tax collection. Considering that only tax
collection and invoicing of forest charges were deputized to FBM, other tax administration matters, such as refund and
credit, provisions of NIRC are applicable.

To reiterate settled jurisprudence, tax refunds or credits - just like tax exemptions - are strictly construed against taxpayers,
the latter have the burden to prove strict compliance with the conditions for the grant of the tax refund or credit.

In this case, AWII paid for forest charges on December 29, 1995. However, its claim for refund and/or tax credit for erroneous
payment was filed only on October 29, 1998 before the DENR Secretary. Not only was the claim filed out of time, but also it
was lodged before the wrong agency. As it stands, AWII failed to discharge the burden of proving strict compliance. Hence,
its claim for refund and/or tax credit is forever barred.

v. PILIPINAS SHELL PETROLEUM CORP VS CIR:

d. Tax amnesty
 a general pardon to taxpayers or the intentional overlooking by the State of its authority to impose penalties on persons
otherwise guilty of violating a tax law
 in nature tax exemption

CIR VS TRANSFIELD PHILS. INC: The taxpayer can still avail of the tax amnesty despite of the pending case before the
Supreme Court, as long as she/he is qualified. It remains undisputed that Transfield complied with all the requirements
pertaining to its application for tax amnesty.

A tax amnesty operates as a general pardon or intentional overlooking by the State of its authority to impose penalties on
persons otherwise guilty of evasion or violation of a revenue or tax law. It is an absolute forgiveness or waiver by the
government of its right to collect what is due it and to give tax evaders who wish to relent a chance to start with a clean
slate.

A tax amnesty, much like a tax exemption, is never favored nor presumed in law. The grant of a tax amnesty is akin to a tax
exemption. Thus, it must be construed strictly against the taxpayer and liberally in favor of the taxing authority.

It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes
all others as expressed in the maxim Expressio unius est exclusio alterius.In implementing tax amnesty laws, the CIR cannot
now insert an exception where there is none under the law

ii. Asian International Auctioneers vs CIR

e. Tax Incentives
i. CIR vs JP Morgan Chase Bank, 887 SCRA 292 (2018)

f. Rules and regulationsg. Revenue Memorandum Circulars

h. Tax rulings
i. Penal provisions of tax laws
j. Prescriptive period of offenses
k. Retroactivity
l. Mandatory and Directory tax provisions
i. CIR vs Migrant Pagbilao, 2016
ii. Pelizloy vs Benguet: Under the principle of ejusdem generis, "where a general word or phrase follows an enumeration of
particular and specific words of the same class or where the latter follow the former, the general word or phrase is to be
construed to include, or to be restricted to persons, things or cases akin to, resembling, or of the same kind or class as those
specifically mentioned."

The purpose of the rule on ejusdem generis is to give effect to both the particular and general words, by treating the
particular words as indicating the class and the general words as including all that is embraced in said class, although not
specifically named by the particular words.

26. Stages or aspects of taxation (overview)

a. LEVY – imposition of tax per se; legislative in nature
b. ASSESSMENT / COLLECTION – collection or payment
1. PROCESS –process of ascertaining tax liability of the taxpayer – self-assessment
2. FIGURE
c. Payment
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d. Refund
27. Definition, nature and characteristics of tax
28. Kinds of tax
Taxes are enforced proportional contribution for persons and property levied by the lawmaking body of the state by virtue
of his sovereignty for the support of the government and public needs.

a. As to Object
i. Personal
ii. Property
iii. Excise / privilege tax
b. As to burden or incidence
i. Direct
ii. Indirect
c. As to tax rates
i. Specific
ii. Ad valorem – means ―according to value‖; , a tax upon the value of an article
EX. A. There shall be assessment and collection of ad valorem tax on cigarettes, okay, cigarettes, based on the net
price, so based on value.
iii. Mixed
d. As to purpose
i. General
ii. Specific
e. As to scope
i. National
ii. Local
f. As to graduation
i. Progressive
ii. Regressive
iii. Proportionate
G. TAX VS OTHER EXACTIONS
I. TOLL FEES 2. LICENSE TAX 3. SPECIAL ASSESSMENT
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iv. Debt v. Compromise vi. Penalty