INHERENT LIMITATIONS ON THE TAXING POWER:

They proceed from the very nature of the taxing power itself.
1.
2.
3.
4.
5.

Public Purpose of taxes;

Non-delegability of the taxing power;
Territoriality or situs of taxation;
Tax exemption of the Government;
International Comity.

A.PUBLIC PURPOSE OF TAXES:

Public purpose is important because of all the powers of
government, that of taxation is said to be the strongest as it
can be readily employed against one class of individuals in
favor of another so as to ruin one class and give unlimited
wealth and property to another, if there is no implied
limitation on the uses for which such taxing power may be
exercised.
Test for determining the public purpose in a tax:
1. DUTY TEST- whether the thing to be furthered by the
appropriation of public revenue is something which is duty of
the State, as a government, to provide.
2. PROMOTION OF GENERAL WELFARE TEST- whether the
proceeds of the tax will directly promote the welfare of the
community in equal measure. The right to tax depends upon
the ultimate use, purpose and object for which the fund is
raised.
In the imposition of taxes, public purpose is presumed.
Under the LGC, one limitation on the taxing power of local
government units is to the effect that the collection of local
taxes, fees, charges and other impositions shall in no case
be let to any private person. (Sec. 130 [c] , LGC).

B. NON-DELEGABILITY OF THE TAXING POWER:

The power of taxation is exclusively legislative.
Consequently, the taxing power as a general rule may not be
delegated.
Exceptions:
1. Flexible Tariff Clause 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].
Art.VI, Constitution).
2. Local Taxing Power- Each local government unit shall have
the power to create its own sources 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 local autonomy. Such taxes, fees and charges
shall accrue exclusively to the local governments. (Sec.5,
Art. X, Constitution).
Delegation of legislative taxing power to local governments
is justified by the necessary implication that the power to
create political corporations for purposes of local selfgovernment carries with it the power to confer on such local
government agencies the authority to tax. (Pepsi-Cola vs
Municipality of Tanauan, Leyte)
If what is delegated is tax legislation delegation is
INVALID
If what is delegated is only tax administration- delegation is
valid.
Non-delegable legislative powers:

1. Selection of the property to be taxed;

2. Determination of the purposes for which taxes shall be
levied;
3. Fixing of the rate of taxation; and
4. Rules of taxation in general.

property is the domicile of the owner. This is merely a fiction

of law intended for convenience and not to be controlling
where justice does not demand it. As stated aptly, the
doctrine is not allowed to stand in the way of taxation of
personalty in the place where it has actual situs and the
requisite legislative jurisdiction exists.

Delegable powers which are not legislative:

1. The power to value property taxation in pursuance of fixed
rules;
2. The equalization of assessments by a central body; and
3. Collection of taxes.
C. TERRITORIALITY OR THE SITUS OF TAXATION:
However broad the power of taxation may be as to its
character and no matter how searching it is in its extent,
such power is necessarily limited only to persons, property
or businesses within its jurisdiction.
Some Basic Considerations Affecting Situs of Taxation
1) Protection a legal situs cannot be given to property for the
purpose of taxation where neither the property nor the
person is within the protection of the taxing state.
Citizenship and residence are factors that
justify the taxing situs even assuming that
the property is situated outside the taxing
jurisdiction.
2) Double Taxation and Situs Limitation- Double taxation is
never invalid where it is imposed by different states. In
determining situs, it is of no importance that the property has
already been taxed or is subject to tax in another state.
o

3) Maxim of Mobilia Sequuntur Personam and Situs of Taxation

(Movables follow the principal) The situs of personal

4) Legislative Power to Fix Situs- If no constitutional provisions

are violated, the power of the legislature to fix situs is
undoubted.
Factors that could interplay in a given legal situation where situs or
territoriality is the focal question:
1.
2.
3.
4.
5.
6.

Kind or classification of the tax being levied;

Situs of the thing or property taxed;
Domicile or residence of the person taxed;
Citizenship or nationality of the person taxed;
Source of the income taxed; and
Situs of the exercise, privilege, business or occupation being
taxed.

Property:
In considering the place at which property is taxable and the
governmental unit which may rightfully levy and collect the
property tax, the basic factor is the SITUS OF THE
PROPERTY IN QUESTION.
Applies whether such property is owned by the residents of
the taxing state or by non-residents thereof.
Principle applies both with respect to real property and
personal property.
Persons:
A state may levy a personal tax upon persons subject to the
jurisdiction of its sovereignty.

Income Tax:
In general, the crucial factors that go into the situs problem
in taxation when it involves income tax are (1) Nationality or
citizenship, (2) his residence or domicile, and (3) source of
the income.
The kind of tax imposed is sometimes a crucial factor in
determining the situs of taxation.
Excise or Privilege Taxes:
The situs of taxation is the place in which the act is
performed or where the occupation is engaged in.
Sales tax imposed by a city government, it is the place
where the sale is perfected and consummated that
determines the situs of taxation.
The legislative power to fix the situs of taxation includes the
power to fix the place of taxation between different places in
the same state.
In local taxation, the situs of the sale or transaction (where
the sale takes place) IS NOT necessarily the situs of
taxation, UNLESS in the situs of the sale the taxpayer
maintains a BRANCH OFFICE in which event, 100% of the
sale is taxable by the city or municipality where the branch is
located. (Sec. 150, LGC).
If the situs of the sale is one where NO BRANCH OFFICE is
maintained, then 30% of the sale goes to the local
government unit where the taxpayers PRINCIPAL OFFICE
is located and the remaining 70% is taxed by the local
government unit where the taxpayer maintain its FACTORY.
D. EXEMPTION OF THE GOVERNMENT FROM TAXES:
As a matter of public policy, property of the State and of its
municipal subdivisions devoted to government uses and

purposes is generally deemed to be exempt from taxation

although no express provision in the law is made therefor.
Example:
1.) Income derived from any PUBLIC UTILITY or from the
exercise of any essential government function accruing
to the Government or any political subdivision is exempt
from income tax. (NIRC)
2.) Real property owned by the Government or any of its
political subdivisions is exempt from real property tax
unless the beneficial use thereof is granted for
consideration or otherwise to a taxable person. (LGC)
Notwithstanding the immunity of the Government from taxes,
the principle is also well recognized that the Government
may tax itself.
E. INTERNATIONAL COMITY
States find it mutually advantageous for themselves to
create self-imposed restraints on the taxing powers
especially with reference to the properties of foreign
governments within their territorial domain.
International obligations concomitant with our acceptance of
the principles of international law as part of our law demand
that certain representatives of foreign states stationed and
property of such foreign states found within our territory be
exempted from taxation.

CONSTITUTIONAL LIMITATIONS ON THE TAXING POWER:

1. Due process clause, whether it be substantive or procedural
(Sec.1, Art. III);
2. Equal Protection of the laws (Sec. 1, Art III);

3. Freedom of Speech and of the Press (Sec. 4, Art III);

4. Non-infringement of Religious Freedom and Worship (Sec.
5, Art. III);
5. Non-impairment of Contracts (Sec. 10, Art. III);
6. Non-imprisonment for non-payment of poll tax (Sec. 20, Art
III);
7. Rule requiring that appropriations, revenue and tariff bills
shall
originate
exclusively
from
the
House
of
Representatives (Sec. 24, Art. VI);
8. Uniformity, equitability and progressivity of taxation (Sec.
28[1], Art. VI);
9. Limitations on the congressional power to delegate to the
President the authority to fix tariff rates, import and export
quotas etc. (Sec. 28[2], Art. VI);
10. Tax exemption of properties actually, directly and exclusively
used for religious, charitable and educational purposes.
(Sec. 28[3], Art. VI);
11. Voting requirement in connection with the legislative grant of
tax exemption (Sec. 18[4], Art.VI);
12. Non-impairment of the jurisdiction of Supreme Court in tax
cases. (Secs. 2 and 5, Art. VIII); and
13. Exemption from taxes of the revenues and assets of
educational institutions, including grants, endowments,
donations and contributions (Sec. 4 [3], and [4], Art. XIV).
A. Due Process of Law
Sec. 1, Art. III of the Constitution provides in part that no
person shall be deprived of life, liberty, or property without
due process of law.
When the constitutionality of a legislative taxing act is
questioned on the ground that there is a denial of due
process, an actual case or controversy must first exist before
the courts can be called upon to rule on said issue.
When a tax turns out to be of a confiscatory nature, such an
imposition could very well be considered as being violative of
the due process principle.

B. Equal Protection of the Law

Sec. 1, Art. III of the Constitution, nor shall any person be
denied the equal protection of the laws.
The power of the State to make reasonable and natural
classifications for the purpose of taxation is unquestioned
and such classifications may relate to the subject of taxation,
the kind of property, the rates to be levied or the amount to
be raised, and the methods of assessment, valuation and
collection.
The classification must be based upon real and substantial
differences between the persons, property or privileges and
those not taxed must bear some reasonable relation to the
object or purpose of legislation or to some permissible
governmental policy or legitimate end of governmental
action.
C. Freedom of Speech and of the Press
Sec.4, Art. III provides: No law shall be passed abridging
the freedom of speech, of expression, or of the press, or the
right of the people peaceably to assemble and petition the
government for redress of grievances.
There is curtailment of press freedom and freedom of
thought and expression if a tax is levied in order to suppress
this basic right of the people.
D. Non-Infringement of Religious Freedom
Section 5. Art.III: 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.

 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.
The NIRC exempts from the income on non-stock
corporation organized and operated exclusively for religious,
charitable, scientific, athletic or cultural and social welfare
purposes, no part of the income of which inures to the
benefit of any member, organizer or any specific person.
However, notwithstanding said exemption, the income of
such organizations from any activity conducted for profit or
from any of their property, real or personal, regardless of the
disposition made of such income, is subject to tax under the
Tax Code.
The statute as now amended has restricted the tax
exemption of religious and other organizations therein
specified only to the extent of withdrawing the exemption
with respect to the income realized from (a) the productive
use of their properties, real or personal, e.g. rents, dividends
or interests; and (b) from profitable business pursuits which
properties or businesses are not essential to or necessarily
connected with their religious, charitable or educational
purposes, as the case may be.
The BIR has consistently ruled that passive investment
income such as interest income from any currency bank
deposit and yield or any other monetary benefit from deposit
substitutes, trust funds and similar arrangements of religious
corporations and other organizations enumerated in Sec. 30
of NIRC, are subject to 20% final withholding tax imposed.
E. Non-Impairment of Contracts
Section 10. Art. III: No law impairing the obligation of
contracts shall be passed.
To impair is to weaken- to deprive of strength. Hence, to
impair the obligation of a contract is to alter or change the
terms or effect of the contract, and thus in contemplation of

law, to weaken the position or rights of one or all of the

parties to it. A law, which changes the terms of the contract
by making new conditions, or changing those in the contract,
or dispenses with those expressed impairs its obligations. It
is not important that the impairment is but slight, if it exists at
all, if there is any impairment, the provision of the
Constitution is violated and the courts will interfere.
The non-impairment may not be invoked in the case of a
public utility franchise grantee. This is so because under
Sec. 11, Art. XII of the Constitution, the legislature can impair
a grantees franchise since a franchise is subject to
amendment, alteration or repeal by the Congress when the
public interest so requires. (Cagayan Electric Power vs CIR).
F. Non-Impairment for Debt or Non-Payment of Poll Tax
Section 20. Art.III: No person shall be imprisoned for debt or
non-payment of a poll tax.
The prohibition against imprisonment for debt was brought
about by force of public opinion which looked with
abhorrence on statutes permitting the cruel imprisonment of
debtors. The Constitution seeks to prevent the use of the
power of the State to coerce the payment of debts. One
should not be punished on account of his poverty. Moreover,
the Government is not a proper party to private disputes.
(Ganaway vs Quintin)
The prohibition against imprisonment for non-payment of poll
tax is dictated by a sense of humanity and sympathy for the
plight of the poorer elements of the population who cannot
even afford to pay their cedula or poll tax.
G. Origin of Appropriation, Revenue and Tariff Bills
Section 24. Art, VI: 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.
H. Uniformity, Equitability and Progressivity of Taxation
Section 28. Art. VI: The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive system
of taxation.
UNIFORMITY IN TAXATION means that all taxable articles
or kinds of property of the same class shall be taxed at the
same rate. It does not mean that lands, chattels, securities,
income, occupations, franchises, privileges, necessities and
luxuries shall be assessed at the same rate. Different rates
may be taxed at different amounts provided that the rate is
uniform on the same class everywhere with all people at all
times.
A tax is uniform when it operates with the same force and
effect in every place where the subject of it is found.
Uniformity in taxation means that all property belonging to
the same class shall be taxed alike.
Uniformity of taxation, like the kindred concept of equal
protection, merely requires that all subjects or objects of
taxation, similarly situated are to be treated alike both in
privileges and liabilities.
Uniformity in taxation, which means geographical uniformity
only, is also underscored in the realm of local taxation. The
uniformity required (in local taxation) is only within the
territorial jurisdiction of a province, city, municipality or
barangay. Taxation is said to be equitable when its burden
falls on those better able to pay.
PROGRESSIVITY OF TAXATION is also mandated in the
Constitution, it is built on the principle of the taxpayers ability

to pay. Taxation is progressive when its rate goes up

depending on the resources of the person affected.
Regressivity is not a negative standard for courts to enforce.
What Congress is required by the Constitution to do is to
evolve a progressive system of taxation. This is a directive
to Congress.
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.
I.

Delegation of Legislative Authority to Fix Tariff Rates,

Import and Export Quotas, etc.

Sec. 28(2), Art. VI : 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.
J. Tax Exemption of Properties Actually, Directly and
Exclusively Used for Religious, Charitable and
Educational Purposes.
Sec. 28(3), Art. VI: Charitable institutions, churches and
personages or convents appurtenant thereto, mosques, nonprofit cemeteries, and all lands, buildings, and
improvements, actually, directly, and exclusively used for
religious, charitable, or educational purposes shall be
exempt from taxation.
Tax exemption applies only to property or realty taxes
assessed on such properties used directly, actually and
exclusively for religious, charitable and educational
purposes.

 Gifts made in favor of religious, charitable or educational

organizations would nevertheless qualify for donors gift tax
exemption in light of the 1997 Tax Code:

K. Voting Requirement in Connection with the Legislative

Grant of Tax Exemptions

SEC. 101. Exemption of Certain Gifts. - The following gifts or

donations shall be exempt from the tax provided for in this
Chapter:
(A) In the Case of Gifts Made by a Resident.(3) Gifts in favor of an educational and/or charitable, religious,
cultural or social welfare corporation, institution, accredited
nongovernment organization, trust or philanthropic organization
or research institution or organization: Provided, however, That
not more than thirty percent (30%) of said gifts shall be used by
such donee for administration purposes.
For the purpose of the exemption, a 'non-profit educational
and/or
charitable
corporation,
institution,
accredited
nongovernment organization, trust or philanthropic organization
and/or research institution or organization' is a school, college or
university
and/or
charitable
corporation,
accredited
nongovernment organization, trust or philanthropic organization
and/or research institution or organization, incorporated as a
nonstock entity, paying no dividends, governed by trustees who
receive no compensation, and devoting all its income, whether
students' fees or gifts, donation, subsidies or other forms of
philanthropy, to the accomplishment and promotion of the
purposes enumerated in its Articles of Incorporation.

For purposes of tax exemption, use overrides ownership

such that if property, although actually owned by a religious,
charitable for a non-exempt purpose, the exemption from tax
of said property vanishes.
The term exclusively used is not limited to total or absolute
use for religious, charitable or educational purposes. If a
property is INCIDENTALLY used for the aforementioned
purposes, it is clear from decided cases that exemption may
still subsist.

Sec. 28(4), Art. VI: No law granting any tax exemption shall
be passed without the concurrence of a majority of all the
Members of the Congress.

L. Non-Impairment of the Supreme Courts Jurisdiction in

Tax Cases
Section 2. , Art. VIII: The Congress shall have the power to
define, prescribe, and apportion the jurisdiction of the
various courts but may not deprive the Supreme Court of its
jurisdiction over cases enumerated in Section 5 hereof.
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.
M. Tax Exemption of Revenues and Assets, Including Grants,
Endowments, Donations or Contributions to Educational
Institutions

Sec. 4(3), Art. XIV: 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.
Sec. 4(4), Art. XIV: 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.
Non-stock and non-profit educational institutions and
government educational institutions are exempt from income
tax under the Tax Code. Notwithstanding the exemption, the
law provides that income of whatever kind of character of
said organizations from any of their properties, real or
personal, or from any of their activities conducted for profit,
regardless of the disposition made of such income, shall be
subject to tax imposed under the Tax Code.
Proprietary educational institutions cannot be categorized as
tax exempt under the Tax Code, and their tax-exempt status
will have to be based only on the Constitution.
Tax exemptions of proprietary educational institutions require
prior legislative implementation since the use of the
permissive term may in the provision gives Congress
discretion to determine whether or not assets and revenues

of proprietary educational institutions should likewise enjoy

exemptions from taxes.
The exemption is not only limited to revenues and assets
derived from strictly school operations but it also extends to
incidental income.
Income which is unrelated to school operations, like income
from bank deposits, trust funds and similar arrangements,
royalties, dividends and rental income are taxable.
Supposing income from tuition is invested for an unrelated purpose
like placements in the money market, is the invested income
taxable? The INVESTED INCOME is NOT TAXABLE, but the
EARNING realized therefrom is the one that is TAXABLE.