LAW ON TAXATION

I. General Principles of Taxation

A. Definition and concept of taxation

Taxation is the power by which the sovereign raises revenue to defray the necessary expenses
of the government. It is merely a way of apportioning the cost of government among those
who in some measure are privileged to enjoy its benefits and must bear its burdens. It includes,
in its broadest and most general sense, every charge or burden imposed by the sovereign
power upon persons, property, or property rights for the use and support of the government
and to enable it to discharge its appropriate functions, and in that broad definition there is
included a proportionate levy upon persons or property and all the various other methods and
devices by which revenue is exacted from persons and property for public purposes. (51 Am.
Jur 34-35)
Taxation is described as a destructive power which interferes with the personal and property
rights of the people and takes from them a portion of their property for the support of the
government. (Paseo Realty & Development Corporation v. Court of Appeals, GR No. 119286,
October 13, 2004)

Essential elements of a tax

1. It is an enforced contribution.

2. It is generally payable in money.

3. It is proportionate in character.

4. It is levied on persons, property, or the exercise of a right or privilege.

5. It is levied by the State which has jurisdiction over the subject or object of taxation.

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

7. It is levied for public purpose or purposes.

Purposes of taxation

1. Revenue or fiscal: The primary purpose of taxation on the part of the government is to
provide funds or property with which to promote the general welfare and the protection of its
citizens and to enable it to finance its multifarious activities.

2. Non-revenue or regulatory: Taxation may also be employed for purposes of

regulation or control.

a) Imposition of tariffs on imported goods to protect local industries.

 b) The adoption of progressively higher tax rates to reduce inequalities in wealth
and income.

c) The increase or decrease of taxes to prevent inflation or ward off depression.

B. Nature of taxation

Taxation is inherent in nature, being an attribute of sovereignty. (Chamber of Real Estate and
Builders Association, Inc. v. Romulo, 614 SCRA 605 (2010))

As an incident of sovereignty, the power to tax has been described as 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 are to pay
it. (Mactan Cebu International Airport Authority v. Marcos, 261 SCRA 667 (1996))

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. (Pepsi-Cola Bottling Company of the Phil. V. Mun. of Tanauan, Leyte, 69 SCRA 460)

The power to tax is inherent in the State, such power being inherently legislative, based on the
principle that taxes are a grant of the people who are taxed, and the grant must be made by
the immediate representative of the people, and where the people have laid the power, there it
must remain and be exercised. (Commissioner of Internal Revenue v. Fortune Tobacco
Corporation, 559 SCRA 160 (2008))

The power of taxation is essentially a legislative function. The power to tax includes the
authority to:
(1) determine the
(a) nature (kind);
(b) object (purpose);
(c) extent (amount of rate);
(d) coverage (subjects and objects);
(e) apportionment of the tax (general or limited application);
(f) situs (place) of the imposition; and
(g) method of collection;

(2) grant tax exemptions or condonations; and

(3) specify or provide for the administrative as well as judicial remedies that either the
government or the taxpayer may avail themselves in the proper implementation of the tax
measure. (Petron v. Pililla, GR No. 158881, April 16, 2008)

In other words, the legislature wields the power to define what tax shall be imposed, why it
should be imposed, how much tax shall be imposed, against whom (or what) it shall be
imposed and where it shall be imposed. (Chamber of Real Estate and Builders Association, Inc.
v. Romulo, 614 SCRA 605 (2010))
C. Characteristics of taxation

As a principal attribute of sovereignty, the exercise of taxing power derives its source from the
very existence of the state whose social contract with its citizens obliges it to promote public
interest and common good. (National Power Corporation v. City of Cabanatuan, GR No. 149110,
April 9, 2003)

The power to tax is so unlimited in force and so searching in extent, that 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. (Tio v. Videogram Regulatory Board et al., 151
SCRA 213)

It is a settled principle that the power of taxation by the state is plenary. Comprehensive and
supreme, the principal check upon its abuse resting in the responsibility of the members of the
legislature to their constituents. (PLANTERS PRODUCTS, INC. v. FERTIPHIL CORPORATION,
G.R. No. 166006, March 14, 2008)

Taxes being the lifeblood of the government that should be collected without unnecessary
hindrance, every precaution must be taken not to unduly suppress it. (Republic v. Caguioa, 536
SCRA 193 (2007))

The power to tax is sometimes called the power to destroy. Therefore, it should be exercised
with caution to minimize injury to the proprietary rights of the taxpayer. It must be exercised
fairly, equally and uniformly, lest the tax collector kills the hen that lays the golden egg.
(Commissioner of Internal Revenue v. SM Prime Holdings, Inc., 613 SCRA 774 (2010))

In order to maintain the general publics trust and confidence in the government, this power
must be used justly and not treacherously. (Roxas y Cia v. Court of Tax Appeals, 23 SCRA 276)

Tax laws are prospective in operation, unless the language of the statute clearly provides
otherwise. (Commissioner of Internal Revenue v. Acosta, 529 SCRA 177 (2007))

D. Power of taxation compared with other powers

1. Police power

Police Power is the power to make, ordain and establish all manner of wholesome and
reasonable laws, statutes and ordinances whether with penalties or without, not repugnant to
the Constitution, the good and welfare of the commonwealth, and for the subjects of the same.
(Metropolitan Manila Development Authority v. Garin, GR No. 130230, April 15, 2005)

The main purpose of police power is the regulation of a behavior or conduct, while taxation is
revenue generation. The "lawful subjects" and "lawful means" tests are used to determine the
validity of a law enacted under the police power. The power of taxation, on the other hand, is
circumscribed by inherent and constitutional limitations. (PLANTERS PRODUCTS, INC. v.
FERTIPHIL CORPORATION, G.R. No. 166006, March 14, 2008)
The motivation behind many taxation measures is the implementation of police power goals.
Progressive income taxes alleviate the margin between rich and poor; the so-called sin taxes
on alcohol and tobacco manufacturers help dissuade the consumers from excessive intake of
these potentially harmful products. (SOUTHERN CROSS CEMENT CORPORATION v. CEMENT
MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R. No. 158540, August 3, 2005)

Taxation is distinguishable from police power as to the means employed to implement these
public good goals. Those doctrines that are unique to taxation arose from peculiar
considerations such as those especially punitive effects of taxation, and the belief that taxes are
the lifeblood of the state yet at the same time, it has been recognized that taxation may be
made the implement of the states police power. (SOUTHERN CROSS CEMENT CORPORATION
v. CEMENT MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R. No. 158540, August
3, 2005)

Unlike ordinary revenue laws, R.A. 6260 and P.D. 276 did not raise money to boost the
governments general funds but to provide means for the rehabilitation and stabilization of a
threatened industry, the coconut industry, which is so affected with public interest as to be
within the police power of the State. The subject laws are akin to the sugar liens imposed by
Sec. 7(b) of P.D. 388, and the oil price stabilization funds under P.D. 1956, as amended by E.O.
137. (PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA
NIYUGAN v. EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)

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. (GEROCHI v. DEPARTMENT OF ENERGY, 527 SCRA
696 (2007))

While it is true that the power of taxation can be used as an implement of police power, the
primary purpose of the levy is revenue generation. If the purpose is primarily revenue, or if
revenue is, at least, one of the real and substantial purposes, then the exaction is properly
called a tax. (PLANTERS PRODUCTS, INC. v. FERTIPHIL CORPORATION, G.R. No. 166006,
March 14, 2008)

It has been the settled law that municipal license fees could be classified into those imposed for
regulating occupations or regular enterprises, for the regulation or restriction of non-useful
occupations or enterprises and for revenue purposes only. Licenses for non-useful occupations
are also incidental to the police power and the right to exact a fee may be implied from the
power to license and regulate, but in fixing the amount of the license fees the municipal
corporations are allowed a much wider discretion in this class of cases. (ERMITA-MALATE
HOTEL AND MOTEL OPERATORS ASSOCIATION, INC., HOTEL DEL MAR INC. and GO CHIU v.
THE HONORABLE CITY MAYOR OF MANILA, G.R. No. L-24693, July 31, 1967)

2. Power of eminent domain

Be it stressed that the privilege enjoyed by senior citizens does not come directly from the
State, but rather from the private establishments concerned. Accordingly, the tax credit benefit
granted to these establishments can be deemed as their just compensation for private property
taken by the State for public use. (COMMISSIONER OF INTERNAL REVENUE v. CENTRAL
LUZON DRUG CORPORATION G.R. No. 159647 April 15, 2005)

Besides, the taxation power can also be used as an implement for the exercise of the power of
eminent domain. Tax measures are but "enforced contributions exacted on pain of penal
sanctions" and "clearly imposed for a public purpose." In recent years, the power to tax has
indeed become a most effective tool to realize social justice, public welfare, and the equitable
distribution of wealth. (COMMISSIONER OF INTERNAL REVENUE v. CENTRAL LUZON DRUG
CORPORATION G.R. No. 159647 April 15, 2005)

E. Purpose of taxation
1. Revenue-raising
2. Non-revenue/special or regulatory

The Court was satisfied that the coco-levy funds were raised pursuant to law to support a
proper governmental purpose. They were raised with the use of the police and taxing powers of
the State for the benefit of the coconut industry and its farmers in general. (PAMBANSANG
KOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGAN v. EXECUTIVE
SECRETARY G.R. Nos. 147036-37 April 10, 2012)

In relation to the regulatory purpose of the imposed fees, the imposition questioned must
relate to an occupation or activity that so engages the public interest, morals, safety and
development as to require regulation for the protection and promotion of such public interest;
the imposition must also bear a reasonable relation to the probable expenses of regulation,
taking into account not only the costs of direct regulation, but also its incidental consequences
as well. (CHEVRON PHILIPPINES, INC. v. BASES CONVERSION DEVELOPMENT AUTHORITY,
630 SCRA 519 (2010))

As an elementary principle of law, license taxation must not be so onerous to show a purpose
to prohibit a business which is not injurious to health or morals. (TERMINAL FACILITIES AND
SERVICES CORPORATION v. PHILIPPINE PORTS AUTHORITY, 378 SCRA 82 (2002))

It is a police power measure. The objectives behind its enactment are: "(1) To be able to
impose payment of the license fee for engaging in the business of massage clinic (2) in order to
forestall possible immorality which might grow out of the construction of separate rooms for
massage of customers." (TOMAS VELASCO v. HON. ANTONIO J. VILLEGAS, G.R. No. L-24153,
February 14, 1983)

F. Principles of sound tax system

1. Fiscal adequacy

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. 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. (FRANCISCO I. CHAVEZ v. JAIME B.
ONGPIN, G.R. No. 76778, June 6, 1990)
G. Theory and basis of taxation

Theory and basis of taxation

The power of taxation proceeds upon the theory that the existence of government is a
necessity; that it cannot continue without means to pay its expenses; and that for these
means, it has a right to compel all its citizens and property within its limits to contribute.

The basis of taxation is found in the reciprocal duties of protection and support
between the State and its inhabitants. In return for his contribution, the taxpayer
received benefits and protection from the government. This is the so-called benefits
received principle.

1. Lifeblood theory

As well said in a prior case, revenue laws are not intended to be liberally construed. Considering
that taxes are the lifeblood of the government and in Holmess memorable metaphor, the price
we pay for civilization, tax laws must be faithfully and strictly implemented. (COMMISSIONER
OF INTERNAL REVENUE v. ROSEMARIE ACOSTA G.R. No. 154068 August 3, 2007)

Taxes being the lifeblood of the government should be collected promptly. No court shall have
the authority to grant an injunction to restrain the collection of any internal revenue tax, fee or
charge imposed by the National Internal Revenue Code. (ANGELES CITY v. ANGELES ELECTRIC
COOPERATION, 622 SCRA 43 (2010))

We are not unaware of the doctrine that taxes are the lifeblood of the government, without
which it can not properly perform its functions; and that appeal shall not suspend the collection
of realty taxes. However, there is an exception to the foregoing rule, i.e., where the taxpayer
has shown a clear and unmistakable right to refuse or to hold in abeyance the payment of
taxes. (EMERLINDA S. TALENTO vs. HON. REMIGIO M. ESCALADA, JR., G.R. No. 180884, June
27, 2008)

2. Necessity theory

The theory behind the exercise of the power to tax emanates from necessity, without taxes,
government cannot fulfill its mandate of promoting the general welfare and well being of the
people. (GEROCHI v. DEPARTMENT OF ENERGY, 527 SCRA 696 (2007))

3. Benefits-protection theory (Symbiotic relationship)

Despite the natural reluctance to surrender part of one's hard earned income to the taxing
authorities, every person who is able to must contribute his share in the running of the
government. The government for its part is expected to respond in the form of tangible and
intangible benefits intended to improve the lives of the people and enhance their moral and
material values. This symbiotic relationship is the rationale of taxation and should dispel the
erroneous notion that it is an arbitrary method of exaction by those in the seat of power.
(COMMISSIONER OF INTERNAL REVENUE v. ALGUE, INC., and THE COURT OF TAX APPEALS,
G.R. No. L-28896, February 17, 1988)

The expenses of government, having for their object the interest of all, should be borne by
everyone, and the more man enjoys the advantages of society, the more he ought to hold
himself honored in contributing to those expenses. (ABAKADA GURO PARTY LIST (Formerly
AASJAS) OFFICERS SAMSON S. ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE
EXECUTIVE SECRETARY EDUARDO ERMITA, G.R. No. 168056, September 1, 2005)

H. Doctrines in taxation
1. Prospectivity of tax laws

Note that the issue on the retroactivity of Section 204(c) of the 1997 NIRC arose because the
last paragraph of Section 204(c) was not found in Section 230 of the old Code. After a thorough
consideration of this matter, we find that we cannot give retroactive application to Section
204(c) abovecited. We have to stress that tax laws are prospective in operation, unless the
language of the statute clearly provides otherwise. (COMMISSIONER OF INTERNAL REVENUE v.
ROSEMARIE ACOSTA G.R. No. 154068 August 3, 2007)

3. Double taxation
a) Strict sense

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." It is obnoxious
when the taxpayer is taxed twice, when it should be but once. Otherwise described as "direct
duplicate taxation," the two taxes must be imposed on the same subject matter, for the same
purpose, by the same taxing authority, within the same jurisdiction, during the same taxing
period; and they must be of the same kind or character. (COMMISSIONER OF INTERNAL
REVENUE v. SOLIDBANK CORPORATION G.R. No. 148191 November 25, 2003)

b) Broad sense

Subjecting interest income to a 20% FWT and including it in the computation of the 5% GRT is
clearly not double taxation: First, the taxes herein are imposed on two different subject
matters; Second, although both taxes are national in scope because they are imposed by the
same taxing authority -- the national government under the Tax Code -- and operate within the
same Philippine jurisdiction for the same purpose of raising revenues, the taxing periods they
affect are different; Third, these two taxes are of different kinds or characters.
(COMMISSIONER OF INTERNAL REVENUE v. SOLIDBANK CORPORATION G.R. No. 148191
November 25, 2003)

Regulation and taxation are two different things, the first being an exercise of police power,
whereas the latter involves the exercise of the power of taxation. While R.A. 2264 provides that
no city may impose taxes on forest products and although lumber is a forest product, the tax in
question is imposed not on the lumber but upon its sale; thus, there is no double taxation and
even if there was, it is not prohibited. (SERAFICA v. CITY TREASURER OF ORMOC, G.R. No. L-
24813, April 28, 1968)
Both a license fee and a tax may be imposed on the same business or occupation, or for selling
the same article. This is not being in violation of the rule against double taxation. (COMPANIA
GENERAL DE TABACOS DE FILIPINAS v. CITY OF MANILA, 8 SCRA 367)

c) Constitutionality of double taxation

Unlike the United States Constitution, double taxation is not specially prohibited in the Philippine
Constitution. (Manufacturers Life v. Meer, 89 Phil 210)

d) Modes of eliminating double taxation

Double taxation usually takes place when a person is resident of a contracting state and derives
income from, or owns capital in the other contracting state and both states impose tax on that
income or capital. In order to eliminate double taxation, a tax treaty resorts to several
methods.

First, it sets out the respective rights to tax of the state of source or situs and of the state of
residence with regard to certain classes of income or capital. In some cases, an exclusive right
to tax is conferred on one of the contracting states; however, for other items of income or
capital, both states are given the right to tax, although the amount of tax that may be imposed
by the state of source is limited.

The second method for the elimination of double taxation applies whenever the state of source
is given a full or limited right to tax together with the state of residence. In this case, the
treaties make it incumbent upon the state of residence to allow relief in order to avoid double
taxation. There are two methods of relief- the exemption method and the credit method. In
the exemption method, the income or capital which is taxable in the state of source or situs is
exempted in the state of residence, although in some instances it may be taken into account in
determining the rate of tax applicable to the taxpayers remaining income or capital. On the
other hand, in the credit method, although the income or capital which is taxed in the state of
source is still taxable in the state of residence, the tax paid in the former is credited against the
tax levied in the latter. The basic difference between the two methods is that in the exemption
method, the focus is on the income or capital itself, whereas the credit method focuses upon
the tax. (COMMISSIONER OF INTERNAL REVENUE v. S.C. JOHNSON AND SON, INC. G.R. No.
127105 June 25, 1999)

In negotiating tax treaties, the underlying rationale for reducing the tax rate is that the
Philippines will give up a part of the tax in the expectation that the tax given up for this
particular investment is not taxed by the other country. Thus, if the rates of tax are lowered by
the state of source, in this case, by the Philippines, there should be a concomitant commitment
on the part of the state of residence to grant some form of tax relief, whether this be in the
form of a tax credit or exemption. (COMMISSIONER OF INTERNAL REVENUE v. S.C. JOHNSON
AND SON, INC. G.R. No. 127105 June 25, 1999)

4. Escape from taxation

a) Shifting of tax burden
Section 135(a) should be construed as prohibiting the shifting of the burden of the excise tax to
the international carriers who buy petroleum products from the local manufacturers. Said
international carriers are thus allowed to purchase the petroleum products without the excise
tax component which otherwise would have been added to the cost or price fixed by the local
manufacturers or distributors/sellers. (COMMISSIONER OF INTERNAL REVENUE v. PILIPINAS
SHELL PETROLEUM CORPORATION, G.R. No. 188497, February 19, 2014)

(i) Ways of shifting the tax burden

It may indeed be that the economic burden of the tax finally falls on the purchaser; when it
does the tax becomes a part of the price which the purchaser must pay. It does not matter that
an additional amount is billed as tax to the purchaser. The method of listing the price and the
tax separately and defining taxable gross receipts as the amount received less the amount of
the tax added, merely avoids payment by the seller of a tax on the amount of the tax.
(PHILIPPINE ACETYLENE CO., INC. v. COMMISSIONER OF INTERNAL REVENUE, G.R. No. L-
19707, August 17, 1967)

(ii) Taxes that can be shifted

(iii) Meaning of impact and incidence of taxation

In indirect taxation, a distinction is made between the liability for the tax and burden of the tax:
The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods,
properties or services to the buyer. In such a case, what is transferred is not the seller's liability
but merely the burden of the VAT. (RENATO V. DIAZ and AURORA MA. F. TIMBOL v. THE
SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)

b) Tax avoidance

Tax avoidance is the tax saving device within the means sanctioned by law. This method should
be used by the taxpayer in good faith and at arms length. (COMMISSIONER OF INTERNAL
REVENUE v. THE ESTATE OF BENIGNO P. TODA, JR. G.R. No. 147188 September 14, 2004)

c) Tax evasion

Tax evasion, on the other hand, is a scheme used outside of those lawful means and when
availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities.
(COMMISSIONER OF INTERNAL REVENUE v. THE ESTATE OF BENIGNO P. TODA, JR. G.R. No.
147188 September 14, 2004)

Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the
payment of less than that known by the taxpayer to be legally due, or the non-payment of tax
when it is shown that a tax is due; (2) an accompanying state of mind which is described as
being "evil," in "bad faith," "willfull," or "deliberate and not accidental"; and (3) a course of
action or failure of action which is unlawful. (COMMISSIONER OF INTERNAL REVENUE v. THE
ESTATE OF BENIGNO P. TODA, JR. G.R. No. 147188 September 14, 2004)

Here, it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to
be paid especially that the transfer from him to RMI would then subject the income to only 5%
individual capital gains tax, and not the 35% corporate income tax. Altonagas sole purpose of
acquiring and transferring title of the subject properties on the same day was to create a tax
shelter. (COMMISSIONER OF INTERNAL REVENUE v. THE ESTATE OF BENIGNO P. TODA, JR.
G.R. No. 147188 September 14, 2004)

5. Exemption from taxation

a) Meaning of exemption from taxation

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. (JOHN HAY PEOPLES ALTERNATIVE COALITION, et al. v. VICTOR LIM, et al., G. R.
No. 119775, October 24, 2003)

b) Nature of tax exemption

Taxation is the rule and exemption is the exception. (FELS ENERGY, INC. v. PROVINCE OF
BATANGAS, 516 SCRA 186 (2007))

Since the power to tax includes the power to exempt thereof which is essentially a legislative
prerogative, it follows that a municipal mayor who is an executive officer may not unilaterally
withdraw such an expression of a policy thru the enactment of a tax. (PHILIPPINE PETROLEUM
CORPORATION v. MUNICIPALITY OF PILILLA, G.R. No. 90776, June 3, 1991)

A tax exemption being enjoyed by the buyer cannot be the basis of a claim for tax exemption
by the manufacturer or seller of the goods for any tax due to it as the manufacturer or seller.
The excise tax imposed on petroleum products under Section 148 is the direct liability of the
manufacturer who cannot thus invoke the excise tax exemption granted to its buyers who are
international carriers; nevertheless, the manufacturer, as the statutory taxpayer who is directly
liable to pay the excise tax on its petroleum products, is entitled to a refund or credit of the
excise taxes it paid for petroleum products sold to international carriers (COMMISSIONER OF
INTERNAL REVENUE v. PILIPINAS SHELL PETROLEUM CORPORATION, G.R. No. 188497,
February 19, 2014)

c) Kinds of tax exemption

(i) Express
(ii) Implied

It bears repeating that the law looks with disfavor on tax exemptions and he who would seek to
be thus privileged must justify it by words too plain to be mistaken and too categorical to be
misinterpreted. (WESTERN MINOLCO CORPORATION v. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. L-61632, August 16, 1983)

(iii) Contractual
Nevertheless, since taxation is the rule and exemption therefrom the exception, the exemption
may thus be withdrawn at the pleasure of the taxing authority. The only exception to this rule is
where the exemption was granted to private parties based on material consideration of a
mutual nature, which then becomes contractual and is thus covered by the non-impairment
clause of the Constitution. (MCIAA v. Marcos, G.R. No. 120082 September 11, 1996)

d) Rationale/grounds for exemption

In recent years, the increasing social challenges of the times expanded the scope of state
activity, and taxation has become a tool to realize social justice and the equitable distribution of
wealth, economic progress and the protection of local industries as well as public welfare and
similar objectives. Taxation assumes even greater significance with the ratification of the 1987
Constitution. (BATANGAS POWER CORPORATION v. BATANGAS CITY and NATIONAL POWER
CORPORATION, G.R. No. 152675, April 28, 2004)

The PPI says that the discriminatory treatment of the press is highlighted by the fact that
transactions, which are profit oriented, continue to enjoy exemption under R.A. No. 7716 but an
enumeration of some of these transactions will suffice to show that by and large this is not so
and that the exemptions are granted for a purpose. As the Solicitor General says, such
exemptions are granted, in some cases, to encourage agricultural production and, in other
cases, for the personal benefit of the end-user rather than for profit. (ARTURO M. TOLENTINO
v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, G.R. No.
115455, October 30, 1995)

e) Revocation of tax exemption

Since the law granted the press a privilege, the law could take back the privilege anytime
without offense to the Constitution. The reason is simple: by granting exemptions, the State
does not forever waive the exercise of its sovereign prerogative; indeed, in withdrawing the
exemption, the law merely subjects the press to the same tax burden to which other businesses
have long ago been subject. (ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and
THE COMMISSIONER OF INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)

The rule is that a special and local statute applicable to a particular case is not repealed by a
later statute which is general in its terms, provisions and application even if the terms of the
general act are broad enough to include the cases in the special law unless there is manifest
intent to repeal or alter the special law. (THE PROVINCE OF MISAMIS ORIENTAL, represented
by its PROVINCIAL TREASURER v. CAGAYAN ELECTRIC POWER AND LIGHT COMPANY, INC.,
G.R. No. L-45355, January 12, 1990)

This Court recognized the removal of the blanket exclusion of government instrumentalities
from local taxation as one of the most significant provisions of the 1991 LGC. Specifically, we
stressed that Section 193 of the LGC, an express and general repeal of all statutes granting
exemptions from local taxes, withdrew the sweeping tax privileges previously enjoyed by the
NPC under its Charter. (BATANGAS POWER CORPORATION v. BATANGAS CITY and NATIONAL
POWER CORPORATION, G.R. No. 152675, April 28, 2004)
Erroneous application and enforcement of the law by public officers do not preclude subsequent
correct application of the statute, and the government is never estopped by the mistake or
error on the part of its agents. (PHILIPPINE BASKETBALL ASSOCIATION v. COURT OF
APPEALS, 337 SCRA 358)

6. Compensation and set-off

Taxes cannot be the subject of set-off or compensation for the following reasons: (1) taxes are
of distinct kind, essence and nature, and these impositions cannot be classed in the same
category as ordinary obligations; (2) the applicable laws and principles governing each are
peculiar, not necessarily common to each; and (3) public policy is better subscribed if the
integrity and independence of taxes are maintained. (REPUBLIC v. MAMBULAO LUMBER
COMPANY, 4 SCRA 622 (1962))

Taxes cannot be subject to compensation for the simple reason that the Government and the
taxpayers are not creditors and debtors of each other, debts are due to the Government in its
corporate capacity, while taxes are due to the Government in its sovereign capacity. (SOUTH
AFRICAN AIRWAYS v. COMMISSIONER OF INTERNAL REVENUE, 612 SCRA 665 (2010))

However, if the obligation to pay taxes and the taxpayers claim against the government are
both overdue, demandable, as well as fully liquidated, compensation takes place by operation of
law and both obligations are extinguished to their concurrent amounts. (DOMINGO v.
GARLITOS, 8 SCRA 443 (1963))

8. Tax amnesty
a) Definition

A tax amnesty is a general pardon or the intentional overlooking by the State of its authority to
impose penalties on persons otherwise guilty of violating a tax law. It partakes of an absolute
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. (ASIA INTERNATIONAL AUCTIONEERS, INC. v.
COMMISSIONER OF INTERNAL REVENUE G.R. No. 179115 September 26, 2012)

A tax amnesty, much like a tax exemption, is never favored or presumed in law. The grant of a
tax amnesty, similar to a tax exemption, must be construed strictly against the taxpayer and
liberally in favor of the taxing authority. (ASIA INTERNATIONAL AUCTIONEERS, INC. v.
COMMISSIONER OF INTERNAL REVENUE G.R. No. 179115 September 26, 2012)

9. Construction and interpretation of:

a) Tax laws
(i) General rule

Verily, taxation is a destructive power which interferes with the personal and property for the
support of the government. Accordingly, tax statutes must be construed strictly against the
government and liberally in favor of the taxpayer. (MCIAA v. Marcos, G.R. No. 120082
September 11, 1996)
The rule that tax exemptions should be construed strictly against the taxpayer presupposes that
the taxpayer is clearly subject to the tax being levied against him. Unless a statute imposes a
tax clearly, expressly and unambiguously, what applies is the equally well-settled rule that the
imposition of a tax cannot be presumed. This is because taxes are burdens on the taxpayer,
and should not be unduly imposed or presumed beyond what the statutes expressly and clearly
import. (COMMISSIONER OF INTERNAL REVENUE v. THE PHILIPPINE AMERICAN ACCIDENT
INSURANCE COMPANY, INC. G.R. No. 141658 March 18, 2005)

b) Tax exemption and exclusion

(i) General rule

But since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law
frowns against exemptions from taxation and statutes granting tax exemptions are thus
construed in strictissimi juris against the taxpayers and liberally in favor of the taxing
authority. (MCIAA v. Marcos, G.R. No. 120082 September 11, 1996)

Entrenched in our jurisprudence is the principle that 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. As tax refunds involve a return of revenue from the government, the claimant
must show indubitably the specific provision of law from which her right arises; it cannot be
allowed to exist upon a mere vague implication or inference nor can it be extended beyond the
ordinary and reasonable intendment of the language actually used by the legislature in granting
the refund. (COMMISSIONER OF INTERNAL REVENUE v. ROSEMARIE ACOSTA G.R. No. 154068
August 3, 2007)

Well-settled in this jurisdiction is the fact that actions for tax refund, as in this case, are in the
nature of a claim for exemption and the law is construed in strictissimi juris against the
taxpayer. The pieces of evidence presented entitling a taxpayer to an exemption are
also strictissimi scrutinized and must be duly proven. (KEPCO PHILIPPINES CORPORATION v.
COMMISSIONER OF INTERNAL REVENUE G.R. No. 179961 January 31, 2011)

The legislative intent, as shown by the discussions in the Bicameral Conference Meeting, is to
require PAGCOR to pay corporate income tax; hence, the omission or removal of PAGCOR from
exemption from the payment of corporate income tax. 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 familiar maxim expressio unius est exclusio alterius. (PHILIPPINE
AMUSEMENT AND GAMING CORPORATION (PAGCOR) v. THE BUREAU OF INTERNAL REVENUE
G.R. No. 172087 March 15, 2011)

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 familiar maxim expressio unius est
exclusio alterius. Not being a local water district, a cooperative registered under R.A. No. 6938,
or a non-stock and non-profit hospital or educational institution, petitioner clearly does not
belong to the exception and it is therefore incumbent upon it to point to some provisions of the
LGC that expressly grant its exemption from local taxes. (NATIONAL POWER CORPORATION v.
CITY OF CABANATUAN G.R. No. 149110 April 9, 2003)
Definitely, the taxability of a party cannot be blandly glossed over on the basis of a supposed
"broad, pragmatic analysis" alone without substantial supportive evidence, lest governmental
operations suffer due to diminution of much needed funds. While international comity is invoked
in this case on the nebulous representation that the funds involved in the loans are those of a
foreign government, scrupulous care must be taken to avoid opening the floodgates to the
violation of our tax laws. (COMMISSIONER OF INTERNAL REVENUE v. MITSUBISHI METAL
CORPORATION G.R. No. L-54908 January 22, 1990)

The claimed statutory exemption of the John Hay SEZ from taxation should be manifest and
unmistakable from the language of the law on which it is based; it must be expressly granted in
a statute stated in a language too clear to be mistaken. If it were the intent of the legislature to
grant to the John Hay SEZ the same tax exemption and incentives given to the Subic SEZ, it
would have so expressly provided in the R.A. No. 7227. (JOHN HAY PEOPLES ALTERNATIVE
COALITION, et al. v. VICTOR LIM, et al., G. R. No. 119775, October 24, 2003)

The Court in PLDT v. City of Davao, held that in approving Section 23 of RA No. 7925, Congress
did not intend it to operate as a blanket tax exemption to all telecommunications entities. The
Court also clarified the meaning of the word "exemption" in Section 23 of RA 7925: that the
word "exemption" as used in the statute refers or pertains merely to an exemption from
regulatory or reporting requirements of the Department of Transportation and Communication
or the National Transmission Corporation and not to an exemption from the grantees tax
liability. (SMART COMMUNICATIONS, INC. v.THE CITY OF DAVAO, G.R. No. 155491, July 21,
2009)

In Philippine Long Distance Telephone Company (PLDT) v. Province of Laguna, the issue that
the Court had to resolve was whether PLDT was liable to pay franchise tax to the Province of
Laguna in view of the "in lieu of all taxes" clause in its franchise and Section 23 of RA 7925.
Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts
are resolved in favor of municipal corporations in interpreting statutory provisions on municipal
taxing powers, the Court held that Section 23 of RA 7925 could not be considered as having
amended petitioner's franchise so as to entitle it to exemption from the imposition of local
franchise taxes. (SMART COMMUNICATIONS, INC. v.THE CITY OF DAVAO, G.R. No. 155491,
July 21, 2009)

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. (SMART
COMMUNICATIONS, INC. v.THE CITY OF DAVAO, G.R. No. 155491, July 21, 2009)

PLDTs contention that the in-lieu-of-all-taxes clause does not refer to tax exemption but to
tax exclusion and hence, the strictissimi juris rule does not apply. The Supreme Court explains
that these two terms actually mean the same thing, such that the rule that tax exemption
should be applied in strictissimi juris against the taxpayer and liberally in favor of the
government applies equally to tax exclusions (PHILIPPINE LONG DISTANCE TELEPHONE
COMPANY vs PROVINCE OF LAGUNA G.R. No. 151899, August 16, 2005)
(ii) Exception

However, if the grantee of the exemption is a political subdivision or instrumentality, the rigid
rule of construction does not apply because the practical effect of the exemption is merely to
reduce the amount of money that has to be handled by the government in the course of its
operations. (MCIAA v. Marcos, G.R. No. 120082, September 11, 1996)

There is parity between tax refund and tax exemption only when the former is based either on
a tax exemption statute or a tax refund statute. Obviously, that is not the situation here since
Fortune Tobaccos claim for refund is premised on its erroneous payment of the tax, or better
still, the governments exaction in the absence of a law. (COMMISSIONER OF INTERNAL
REVENUE v. FORTUNE TOBACCO CORPORATION, G.R. Nos. 167274-75, July 21, 2008)

A claim for tax refund may be based on statutes granting tax exemption or tax refund and in
such case, the rule of strict interpretation against the taxpayer is applicable as the claim for
refund partakes of the nature of an exemption, a legislative grace, which cannot be allowed
unless granted in the most explicit and categorical language. Tax refunds (or tax credits), on
the other hand, are not founded principally on legislative grace but on the legal principle which
underlies all quasi-contracts abhorring a persons unjust enrichment at the expense of another.
(COMMISSIONER OF INTERNAL REVENUE v. FORTUNE TOBACCO CORPORATION, G.R. Nos.
167274-75, July 21, 2008)

As a necessary corollary, when the taxpayers entitlement to a refund stands undisputed, the
State should not misuse technicalities and legalisms, however exalted, to keep money not
belonging to it. The government is not exempt from the application of solutio indebiti, a basic
postulate proscribing one, including the State, from enriching himself or herself at the expense
of another. (COMMISSIONER OF INTERNAL REVENUE v. FORTUNE TOBACCO CORPORATION,
G.R. Nos. 167274-75, September 11, 2013)

c) Tax rules and regulations

(i) General rule only

While administrative agencies, such as the Bureau of Internal Revenue, may issue regulations
to implement statutes, they are without authority to limit the scope of the statute to less than
what it provides, or extend or expand the statute beyond its terms, or in any way modify
explicit provisions of the law. Hence, in case of discrepancy between the basic law and an
interpretative or administrative ruling, the basic law prevails. (FORT BONIFACIO DEVELOPMENT
CORPORATION v. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 173425, September 4,
2012)

Revenue Memorandum Circulars (RMCs) must not override, supplant, or modify the law, but
must remain consistent and in harmony with the law they seek to apply and implement.
(COMMISSIONER OF INTERNAL REVENUE v. SM PRIME HOLDINGS, INC. 613 SCRA 774 (2010))

Admittedly the government is not estopped from collecting taxes legally due because of
mistakes or errors of its agents. But like other principles of law, this admits of exceptions in the
interest of justice and fair play, as where injustice will result to the taxpayer. (COMMISSIONER
OF INTERNAL REVENUE v. COURT OF APPEALS, G.R. No. 117982, February 6, 1997)
"When a statute is susceptible of the meaning placed upon it by a ruling of the government
agency charged with its enforcement and the [l]egislature thereafter [reenacts] the provisions
[without] substantial change, such action is to some extent confirmatory that the ruling carries
out the legislative purpose." (COMMISSIONER OF INTERNAL REVENUE v. AMERICAN EXPRESS
INTERNATIONAL, INC. (PHILIPPINE BRANCH), G.R. No. 152609, June 29, 2005)

BIR Ruling No. DA-489-03 is a general interpretative rule because it is a response to a query
made, not by a particular taxpayer, but by a government agency tasked with processing tax
refunds and credits. Thus, all taxpayers can rely on BIR Ruling No. DA-489-03 from the time of
its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010,
where this Court held that the 120+30 day periods are mandatory and jurisdictional. (TEAM
ENERGY CORPORATION (Formerly MIRANT PAGBILAO CORPORATION) v. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 197760, January 13, 2014)

d) Penal provisions of tax laws

In criminal cases, statutes of limitations are acts of grace, a surrendering by the sovereign of its
right to prosecute. They receive strict construction in favour of the Government and limitations
in such cases will not be presumed in the absence of clear legislation. (LIM, et al. v. COURT OF
APPEALS, G.R. No. 48134-37, October 18, 1990)

e) Non-retroactive application to taxpayers

Revenue statutes are substantive laws and in no sense must their application be equated with
that of remedial laws. As well said in a prior case, revenue laws are not intended to be liberally
construed. (COMMISSIONER OF INTERNAL REVENUE v. ROSEMARIE ACOSTA, G.R. No.
154068, August 3, 2007)

(i) Exceptions

While it is a settled principle that rulings, circulars, rules and regulations promulgated by the
BIR have no retroactive application if to so apply them would be prejudicial to the taxpayers,
this rule does not apply: (a) where the taxpayer deliberately misstates or omits material facts
from his return or in any document required of him by the Bureau of Internal Revenue; (b)
where the facts subsequently gathered by the Bureau of Internal Revenue are materially
different from the facts on which the ruling is based; or (c) where the taxpayer acted in bad
faith. Not being the taxpayer who, in the first instance, sought a ruling from the CIR, however,
FDC cannot invoke the foregoing principle on non-retroactivity of BIR rulings. (COMMISSIONER
OF INTERNAL REVENUE v. FILINVEST DEVELOPMENT CORPORATION, G.R. No. 163653, July
19, 2011)

I. Scope and limitation of taxation

Constitutional limitations

1. Due process of law

2. Equal protection of laws

3. Rule of uniformity and equity in taxation

4. Prohibition against imprisonment for non-payment of poll tax

5. Prohibition against impairment of obligation of contracts

6. Prohibition against infringement of religious freedom

7. Prohibition against appropriation of proceeds of taxation for the use, benefit, or support
of any church

8. Prohibition against taxation of religious, charitable and educational entities

9. Prohibition against taxation of non-stock, non-profit educational institutions

10. Others

a. Grant of tax exemption

b. Veto of appropriation, revenue, tariff bills by the President
c. Non-impairment of the SC jurisdiction
d. Revenue bills shall originate exclusively from the House of Representatives
e. Infringement of press freedom
f. Grant of franchise

1. Inherent limitations
a) Public purpose

Section 2 of P.D. 755, Article III, Section 5 of P.D. 961, and Article III, Section 5 of P.D. 1468
completely ignore the fact that coco-levy funds are public funds raised through taxation. And
since taxes could be exacted only for a public purpose, they cannot be declared private
properties of individuals although such individuals fall within a distinct group of persons.
(PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGAN
v. EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)

The Court of course grants that there is no hard-and-fast rule for determining what constitutes
public purpose. But the assailed provisions, which removed the coco-levy funds from the
general funds of the government and declared them private properties of coconut farmers, do
not appear to have a color of social justice for their purpose. (PAMBANSANG KOALISYON NG
MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGAN v. EXECUTIVE SECRETARY G.R.
Nos. 147036-37 April 10, 2012)

It would be a robbery for the State to tax its citizens and use the funds generated for a private
purpose. 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." (PLANTERS PRODUCTS, INC. v. FERTIPHIL CORPORATION,
G.R. No. 166006, March 14, 2008)

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. (PLANTERS PRODUCTS, INC. v. FERTIPHIL
CORPORATION, G.R. No. 166006, March 14, 2008)

b) Inherently legislative
(i) General rule

The power to tax is purely legislative, and which the central legislative body cannot delegate
either to the executive or judicial department of the government without infringing upon the
theory of separation of powers. ((Pepsi-Cola Bottling Company of the Phil. V. Mun. of Tanauan,
Leyte, 69 SCRA 460)

The powers which Congress is prohibited from delegating are those which are strictly, or
inherently and exclusively, legislative. Purely legislative power, which can never be delegated,
has been described as the authority to make a complete law complete as to the time when it
shall take effect and as to whom it shall be applicable and to determine the expediency of its
enactment. (ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.
ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE EXECUTIVE SECRETARY G.R.
No. 168056 September 1, 2005)

(ii) Exceptions
(a) Delegation to local governments

The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be
exercised by local legislative bodies, no longer merely by virtue of a valid delegation as before,
but pursuant to direct authority conferred by Section 5, Article X of the Constitution. (MCIAA v.
Marcos, G.R. No. 120082 September 11, 1996)

The power to tax is the most effective instrument to raise needed revenues to finance and
support myriad activities of local government units. It may also be relevant to recall that the
original reasons for the withdrawal of tax exemption privileges granted to government-owned
and controlled corporations and all other units of government were that such privilege resulted
in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises.
(MCIAA v. Marcos, G.R. No. 120082 September 11, 1996)

Taxation assumes even greater significance with the ratification of the 1987 Constitution.
Thenceforth, the power to tax is no longer vested exclusively on Congress; 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. (NATIONAL POWER CORPORATION v. CITY OF
CABANATUAN G.R. No. 149110 April 9, 2003)
Clearly then, while a new slant on the subject of local taxation now prevails in the sense that
the former doctrine of local government units delegated power to tax had been effectively
modified with Article X, Section 5 of the 1987 Constitution now in place, the basic doctrine on
local taxation remains essentially the same. For as the Court stressed in Mactan, "the power to
tax is [still] primarily vested in the Congress." (QUEZON CITY, et al. v. ABS-CBN
BROADCASTING CORPORATION, G.R. No. 162015, March 6, 2006)

Section 5, Article X of the Constitution does not change the doctrine that municipal corporations
do not possess inherent powers of taxation; what it does is to confer municipal corporations a
general power to levy taxes and otherwise create sources of revenue and they no longer have
to wait for a statutory grant of these powers and the power of the legislative authority relative
to the fiscal powers of local governments has been reduced to the authority to impose
limitations on municipal powers. The important legal effect of Section 5 is thus to reverse the
principle that doubts are resolved against municipal corporations; henceforth, in interpreting
statutory provisions on municipal fiscal powers, doubts will be resolved in favor of municipal
corporations. (QUEZON CITY, et al. v. ABS-CBN BROADCASTING CORPORATION, G.R. No.
162015, March 6, 2006)

(b) Delegation to the President

Assuming that Section 28(2) Article VI did not exist, the enactment of the SMA [Safeguard
Measure Act] by Congress would be voided on the ground that it would constitute an undue
delegation of the legislative power to tax. The constitutional provision shields such delegation
from constitutional infirmity, and should be recognized as an exceptional grant of legislative
power to the President, rather than the affirmation of an inherent executive power. (SOUTHERN
CROSS CEMENT CORPORATION v. CEMENT MANUFACTURERS ASSOCIATION OF THE
PHILIPPINES, G.R. No. 158540, August 3, 2005)

When Congress tasks the President or his/her alter egos to impose safeguard measures under
the delineated conditions, the President or the alter egos may be properly deemed as agents of
Congress to perform an act that inherently belongs as a matter of right to the legislature. It is
basic agency law that the agent may not act beyond the specifically delegated powers or
disregard the restrictions imposed by the principal. (SOUTHERN CROSS CEMENT
CORPORATION v. CEMENT MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R. No.
158540, August 3, 2005)

Delegation of legislative powers to the President is permitted in Sections 23 (2) and 28 (2) of
Article VI of the Constitution. By virtue of a valid delegation of legislative power, it may also be
exercised by the President and administrative boards, as well as the lawmaking bodies of all
municipal levels, including the barangay. (Camarines North Electric Cooperative v. Torres, GR
No. 127249, February 27, 1998)

(c) Delegation to administrative agencies

Clearly, 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. While the power to tax cannot be delegated to
executive agencies, details as to the enforcement and administration of an exercise of such
power may be left to them, including the power to determine the existence of facts on which its
operation depends. (ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.
ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE EXECUTIVE SECRETARY G.R.
No. 168056 September 1, 2005)

In the present case, in making his recommendation to the President on the existence of either
of the two conditions, the Secretary of Finance is not acting as the alter ego of the President or
even her subordinate; he is acting as the agent of the legislative department, to determine and
declare the event upon which its expressed will is to take effect. Thus, being the agent of
Congress and not of the President, the President cannot alter or modify or nullify, or set aside
the findings of the Secretary of Finance and to substitute the judgment of the former for that of
the latter. (ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA
and ED VINCENT S. ALBANO v. THE HONORABLE EXECUTIVE SECRETARY G.R. No. 168056
September 1, 2005)

c) Territorial

The important factor therefore which determines the source of income of personal services is
not the residence of the payor, or the place where the contract for service is entered into, or
the place of payment, but the place where the services were actually rendered.
(COMMISSIONER OF INTERNAL REVENUE v. JULIANE BAIER-NICKEL, G.R. No. 153793, August
29, 2006)

(1) From sources within the Philippines

The reinsurance premiums remitted to appellants by virtue of the reinsurance contracts,

accordingly, had for their source the undertaking to indemnify Commonwealth Insurance Co.
against liability. Said undertaking is the activity that produced the reinsurance premiums, and
the same took place in the Philippines. (Alexander Howden & Co., Ltd. v. Collector of Internal
Revenue as cited in COMMISSIONER OF INTERNAL REVENUE v. JULIANE BAIER-NICKEL, G.R.
No. 153793, August 29, 2006)

The "sale of tickets" in the Philippines is the "activity" that produced the income and therefore
BOAC should pay income tax in the Philippines because it undertook an income producing
activity in the country. The tickets exchanged hands here and payments for fares were also
made here in Philippine currency; thus, the situs of the source of payments is the Philippines.
(Commissioner of Internal Revenue v. British Overseas Airways Corporation (BOAC) as cited in
COMMISSIONER OF INTERNAL REVENUE v. JULIANE BAIER-NICKEL, G.R. No. 153793, August
29, 2006)

For the source of income to be considered as coming from the Philippines, it is sufficient that
the income is derived from activities within this country regardless of the absence of flight
operations within Philippine territory. Indeed, the sale of tickets is the very lifeblood of the
airline business, the generation of sales being the paramount objective. (COMMISSIONER OF
INTERNAL REVENUE v. JAPAN AIR LINES, INC., G.R. No. 60714, March 6, 1991)

(d) Situs of excise tax

Since it partakes of the nature of an excise tax, the situs of taxation is the place where the
privilege is exercised, in this case in the City of Iriga, where CASURECO III has its principal
office and from where it operates, regardless of the place where its services or products are
delivered. (CITY OF IRIGA v. CAMARINES SUR III ELECTRIC COOPERATIVE, INC., G.R. No.
192945, September 5, 2012)

(2) Sale of personal property

It is not the place where the contract was perfected, but the place of delivery which determines
the taxable situs of the property sought to be taxed. In the cases of Soriano y Cia. v. Collector
of Internal Revenue, 51 O.G. 4548; Vegetable Oil Corporation v. Trinidad, 45 Phil. 822;
and Earnshaw Docks and Honolulu Iron Works vs. Collector of Internal Revenue, 54 Phil. 696, it
has been ruled that for a sale to be taxed in the Philippines it must be consummated there;
thus indicating that the place of consummation (associated with the delivery of the things
subject matter of the contract) is the accepted criterion in determining the situs of the contract
for purposes of taxation, and not merely the place of the perfection of the contract.
(THE MUNICIPALITY OF JOSE PANGANIBAN, PROVINCE OF CAMARINES NORTE, ETC. v. THE
SHELL COMPANY OF THE PHILIPPINES, LTD., G.R. No. L-18349, July 30, 1966)

(3) Value-Added Tax (VAT)

As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional
reach of the tax. Goods and services are taxed only in the country where they are consumed;
thus, exports are zero-rated, while imports are taxed. (COMMISSIONER OF INTERNAL REVENUE
v.AMERICAN EXPRESS INTERNATIONAL, INC. (PHILIPPINE BRANCH), G.R. No. 152609, June
29, 2005)

Consumption is "the use of a thing in a way that thereby exhausts it, and applied to services,
the term means the performance or "successful completion of a contractual duty, usually
resulting in the performers release from any past or future liability." The services rendered by
respondent are performed or successfully completed upon its sending to its foreign client the
drafts and bills it has gathered from service establishments here; thus, its services, having been
performed in the Philippines, are also consumed in the Philippines. (COMMISSIONER OF
INTERNAL REVENUE v.AMERICAN EXPRESS INTERNATIONAL, INC. (PHILIPPINE BRANCH), G.R.
No. 152609, June 29, 2005)

Unlike goods, services cannot be physically used in or bound for a specific place where their
destination is determined but instead, there can only be a "predetermined end of a
course" when determining the service "location or position for legal purposes." Respondents
facilitation service has no physical existence, yet takes place upon rendition, and therefore upon
consumption, in the Philippines. (COMMISSIONER OF INTERNAL REVENUE v.AMERICAN
EXPRESS INTERNATIONAL, INC. (PHILIPPINE BRANCH), G.R. No. 152609, June 29, 2005)

e) Exemption of government entities, agencies, and instrumentalities

The Court rules that the Authority [PFDA] is not a GOCC but an instrumentality of the national
government which is generally exempt from payment of real property tax. However, said
exemption does not apply to the portions of the IFPC which the Authority leased to private
entities. (Philippine Fisheries Development Authority v. Court of Appeals, G.R. No. 169836, 31
July 2007)

As property of public dominion, the Lucena Fishing Port Complex is owned by the Republic of
the Philippines and thus exempt from real estate tax. (PHILIPPINE FISHERIES DEVELOPMENT
AUTHORITY (PFDA) v. CENTRAL BOARD OF ASSESSMENT APPEALS, G.R. No. 178030,
December 15, 2010)

(ii) Uniformity and equality of taxation

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; inequalities which result from a
singling out of one particular class for taxation or exemption infringe no constitutional limitation.
(KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC. v. HON.
BIENVENIDO TAN, G.R. No. 81311, June 30, 1988)

(iii) Grant by Congress of authority to the president to impose tariff rates

It is Congress which authorizes the President to impose tariff rates, import and export quotas,
tonnage and wharfage dues, and other duties or imposts. Thus, the authority cannot come
from the Finance Department, the National Economic Development Authority, or the World
Trade Organization, no matter how insistent or persistent these bodies may be. (SOUTHERN
CROSS CEMENT CORPORATION v. CEMENT MANUFACTURERS ASSOCIATION OF THE
PHILIPPINES, G.R. No. 158540, August 3, 2005)

The authorization granted to the President must be embodied in a law. Hence, the justification
cannot be supplied simply by inherent executive powers. (SOUTHERN CROSS CEMENT
CORPORATION v. CEMENT MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R. No.
158540, August 3, 2005)

The authorization to the President can be exercised only within the specified limits set in the
law and is further subject to limitations and restrictions which Congress may impose.
Consequently, if Congress specifies that the tariff rates should not exceed a given amount, the
President cannot impose a tariff rate that exceeds such amount. (SOUTHERN CROSS CEMENT
CORPORATION v. CEMENT MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R. No.
158540, August 3, 2005)

Assuming there is a conflict between the specific limitation in Section 28 (2), Article VI of the
Constitution and the general executive power of control and supervision, the former prevails in
the specific instance of safeguard measures such as tariffs and imposts, and would thus serve
to qualify the general grant to the President of the power to exercise control and supervision
over his/her subalterns. (SOUTHERN CROSS CEMENT CORPORATION v. CEMENT
MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R. No. 158540, August 3, 2005)
(iv) Prohibition against taxation of religious, charitable entities, and educational
entities

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 recoganized in law as
charitable or whether it is maintained for gain, profit, or private advantage. (LUNG CENTER OF
THE PHILIPPINES v.QUEZON CITY, G.R. No. 144104, June 29, 2004)

Even as we find that the petitioner is a charitable institution, we hold that those portions of its
real property that are leased to private entities are not exempt from real property taxes as
these are not actually, directly and exclusively used for charitable purposes. On the other hand,
the portions of the land occupied by the hospital and portions of the hospital used for its
patients, whether paying or non-paying, are exempt from real property taxes. (LUNG CENTER
OF THE PHILIPPINES v.QUEZON CITY, G.R. No. 144104, June 29, 2004)

To be a charitable institution, however, an organization must meet the substantive test of

charity in Lung Center. Charity is essentially a gift to an indefinite number of persons which
lessens the burden of government. In other words, charitable institutions provide for free goods
and services to the public which would otherwise fall on the shoulders of government.
(COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No.
195909 September 26, 2012)

In Lung Center, this Court declared: "exclusive" is defined as possessed and enjoyed to the
exclusion of others; debarred from participation or enjoyment; and "exclusively" is defined, "in
a manner to exclude; as enjoying a privilege exclusively." The words "dominant use" or
"principal use" cannot be substituted for the words "used exclusively" without doing violence to
the Constitution and the law. Solely is synonymous with exclusively. (COMMISSIONER OF
INTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No. 195909 September 26,
2012)

Services to paying patients are activities conducted for profit. There is a "purpose to make profit
over and above the cost" of services. (COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S
MEDICAL CENTER, INC. G.R. No. 195909 September 26, 2012)

Section 30(E) and (G) of the NIRC requires that an institution be "operated exclusively" for
charitable or social welfare purposes to be completely exempt from income tax. An institution
under Section 30(E) or (G) does not lose its tax exemption if it earns income from its for-profit
activities. Such income from for-profit activities, under the last paragraph of Section 30, is
merely subject to income tax, previously at the ordinary corporate rate but now at the
preferential 10% rate pursuant to Section 27(B). (COMMISSIONER OF INTERNAL REVENUE v.
ST. LUKE'S MEDICAL CENTER, INC. G.R. No. 195909 September 26, 2012)

A gift tax is not a property tax, but an excise tax imposed on the transfer of property by way of
gift inter vivos, the imposition of which on property used exclusively for religious purposes, does
not constitute an impairment of the Constitution. The phrase "exempt from taxation," as
employed in the Constitution should not be interpreted to mean exemption from all kinds of
taxes. (REV. FR. CASIMIRO LLADOC v. The COMMISSIONER OF INTERNAL REVENUE, G.R. No.
L-19201, June 16, 1965)
(v) Prohibition against taxation of non-stock, non-profit institutions

An organization may be considered as non-profit if it does not distribute any part of its income
to stockholders or members. However, despite its being a tax exempt institution, any income
such institution earns from activities conducted for profit is taxable, as expressly provided in the
last paragraph of Section 30. (COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S MEDICAL
CENTER, INC. G.R. No. 195909 September 26, 2012)

(vi) Majority vote of Congress for grant of tax exemption

The incentives under R.A. No. 7227 are exclusive only to the Subic SEZ, hence, the extension of
the same to the John Hay SEZ finds no support therein. The challenged grant of tax exemption
would circumvent the Constitution's imposition that a law granting any tax exemption must
have the concurrence of a majority of all the members of Congress. (JOHN HAY PEOPLES
ALTERNATIVE COALITION, et al. v. VICTOR LIM, et al., G. R. No. 119775, October 24, 2003)

(vii) Prohibition on use of tax levied for special purpose

The coco-levy funds, on the other hand, belong to the government and are subject to its
administration and disposition. Thus, these funds, including its incomes, interests, proceeds, or
profits, as well as all its assets, properties, and shares of stocks procured with such funds must
be treated, used, administered, and managed as public funds; the coco-levy funds are evidently
special funds. (PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA
SA NIYUGAN v. EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)

(viii) Presidents veto power on appropriation, revenue, tariff bills

An "item" in a revenue bill does not refer to an entire section imposing a particular kind of tax,
but rather to the subject of the tax and the tax rate; thus, in the portion of a revenue bill which
actually imposes a tax, a section identifies the tax and enumerates the persons liable therefor
with the corresponding tax rate. To construe the word "item" as referring to the whole section
would tie the President's hand in choosing either to approve the whole section at the expense
of also approving a provision therein which he deems unacceptable or veto the entire section at
the expense of foregoing the collection of the kind of tax altogether. (COMMISSIONER OF
INTERNAL REVENUE v. HON. COURT OF TAX APPEALS, G.R. No. L-47421, May 14, 1990)

(ix) Non-impairment of jurisdiction of the Supreme Court

(x) Grant of power to the local government units to create its own sources of
revenue

For a long time, the country's highly centralized government structure has bred a culture of
dependence among local government leaders upon the national leadership. The only way to
shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic
services, and confer them sufficient powers to generate their own sources for the purpose.
(NATIONAL POWER CORPORATION v. CITY OF CABANATUAN G.R. No. 149110 April 9, 2003)

Republic Act No. 7716, otherwise known as the "Expanded VAT Law," did not remove or abolish
the payment of local franchise tax; it merely replaced the national franchise tax that was
previously paid by telecommunications franchise holders and in its stead VAT. The imposition of
local franchise tax is not inconsistent with the advent of the VAT, which renders functus officio
the franchise tax paid to the national government for VAT inures to the benefit of the national
government, while a local franchise tax is a revenue of the local government unit. (SMART
COMMUNICATIONS, INC. v.THE CITY OF DAVAO, G.R. No. 155491, July 21, 2009)

(xi) Flexible tariff clause

In the interest of national economy, general welfare and/or national security, the
President, upon recommendation of the National Economic and Development Authority,
is empowered:

1. To increase, reduce, or remove existing protective rates of import duty, provided

that the increase should not be higher than 100% ad valorem;

2. To establish import quota or to ban imports of any commodity; and

3. To impose additional duty on all imports not exceeding 10% ad valorem.

(xii) Exemption from real property taxes

For real property taxes, the incidental generation of income is permissible because the test of
exemption is the use of the property and this test requires that the institution use the property
in a certain way, i.e. for a charitable purpose. Thus, the Court held that the Lung Center of the
Philippines did not lose its charitable character when it used a portion of its lot for commercial
purposes since the effect of failing to meet the use requirement is simply to remove from the
tax exemption that portion of the property not devoted to charity. (COMMISSIONER OF
INTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No. 195909 September 26,
2012)

The Constitution exempts charitable institutions only from real property taxes while the NIRC
extends the exemption to income taxes. However, the way Congress crafted Section 30(E) of
the NIRC is materially different from Section 28(3), Article VI of the Constitution: Section 30(E)
of the NIRC defines the corporation or association that is exempt from income tax while Section
28(3), Article VI of the Constitution does not define a charitable institution, but requires that the
institution "actually, directly and exclusively" use the property for a charitable purpose.
(COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No.
195909 September 26, 2012)

To be exempt from real property taxes, Section 28(3), Article VI of the Constitution requires
that a charitable institution use the property "actually, directly and exclusively" for charitable
purposes. To be exempt from income taxes, Section 30(E) of the NIRC requires that a
charitable institution must be "organized and operated exclusively" for charitable purposes.
(COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No.
195909 September 26, 2012)

b) Provisions indirectly affecting taxation

(i) Due process
In Sison, Jr. v. Ancheta, et al., we held that the due process clause may properly be invoked to
invalidate, in appropriate cases, a revenue measure when it amounts to a confiscation of
property. But in the same case, we also explained that we will not strike down a revenue
measure as unconstitutional (for being violative of the due process clause) on the mere
allegation of arbitrariness by the taxpayer. (Chamber of Real Estate and Builders Association,
Inc. v. Romulo, 614 SCRA 605 (2010))

The support for the poor is generally recognized as a public duty and has long been an
accepted exercise of police power in the promotion of the common good but, in the instant
case, the declarations do not distinguish between wealthy coconut farmers and the
impoverished ones. Consequently, such declarations are void since they appropriate public
funds for private purpose and, therefore, violate the citizens right to substantive due process.
(PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGAN
v. EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)

(ii) Equal protection

The real estate industry is, by itself, a class and can be validly treated differently from other
business enterprises. What distinguishes the real estate business from other manufacturing
enterprises, for purposes of the imposition of the CWT, is not their production processes but the
prices of their goods sold and the number of transactions involved. (Chamber of Real Estate
and Builders Association, Inc. v. Romulo, 614 SCRA 605 (2010))

PAGCOR cannot find support in the equal protection clause of the Constitution, as the legislative
records of the Bicameral Conference Meeting dated October 27, 1997, of the Committee on
Ways and Means, show that PAGCORs exemption from payment of corporate income tax, as
provided in Section 27 (c) of R.A. No. 8424, or the National Internal Revenue Code of 1997,
was not made pursuant to a valid classification based on substantial distinctions. The legislative
records show that the basis of the grant of exemption to PAGCOR from corporate income tax
was PAGCORs own request to be exempted. (PHILIPPINE AMUSEMENT AND GAMING
CORPORATION (PAGCOR) v. THE BUREAU OF INTERNAL REVENUE G.R. No. 172087 March 15,
2011)

(iii) Religious freedom

The constitutional guaranty of the free exercise and enjoyment of religious profession and
worship carries with it the right to disseminate religious information. Any restraints 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.
(AMERICAN BIBLE SOCIETY v. CITY OF MANILA, G.R. No. L-9637, April 30, 1957)

It may be true that in the case at bar the price asked for the bibles and other religious
pamphlets was in some instances a little bit higher than the actual cost of the same but this
cannot mean that appellant was engaged in the business or occupation of selling said
"merchandise" for profit. For this reason We believe that the City of Manila Ordinance No. 2529
requiring the payment of license fee cannot be applied to appellant, for in doing so it would
impair its free exercise and enjoyment of its religious profession and worship as well as its
rights of dissemination of religious beliefs. (AMERICAN BIBLE SOCIETY v. CITY OF MANILA,
G.R. No. L-9637, April 30, 1957)

With respect to Ordinance No. 3000 which requires the obtention of the Mayor's permit before
any person can engage in any of the businesses, trades or occupations enumerated therein, We
do not find that it imposes any charge upon the enjoyment of a right granted by the
Constitution, nor tax the exercise of religious practices. But as the City of Manila is powerless to
license or tax the business of plaintiff Society, We find that Ordinance No. 3000 is also
inapplicable to said business, trade or occupation of the plaintiff. (AMERICAN BIBLE SOCIETY v.
CITY OF MANILA, G.R. No. L-9637, April 30, 1957)

The Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds derived from
the sales are used to subsidize the cost of printing copies which are given free to those who
cannot afford to pay so that to tax the sales would be to increase the price, while reducing the
volume of sale. Granting that to be the case, the resulting burden on the exercise of religious
freedom is so incidental as to make it difficult to differentiate it from any other economic
imposition that might make the right to disseminate religious doctrines costly. (ARTURO M.
TOLENTINO v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 115455, October 30, 1995)

On the other hand the registration fee of P1,000.00 imposed by Sec. 107 of the NIRC, as
amended by Sec. 7 of R.A. No. 7716, although fixed in amount, is really just to pay for the
expenses of registration and enforcement of provisions such as those relating to accounting in
Sec. 108 of the NIRC. That the PBS distributes free bibles and therefore is not liable to pay the
VAT does not excuse it from the payment of this fee because it also sells some copies.
(ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)

The withdrawal of the exemption did not also violate freedom of religion as regards the
activities of PBS on religious articles, as the Free Exercise of Religious clause does not prohibit
imposing a generally applicable sale and use tax on the sale of religious materials by a religious
organization as held by the US Supreme Court in Jimmy Swaggart Ministries v. Board of
Equalization (1990).
The VAT registration fee does not constitute censorship of such freedom as held in the
American Bible Society case. The fee is a mere administrative fee and not imposed on the
exercise of a privilege, much less a constitutional right. But for the purpose of defraying cost of
registration which is a requirement and a central feature in the VAT system so as to provide
record of tax credits of the taxpayer. (ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE
and THE COMMISSIONER OF INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)

(iv) Non-impairment of obligations of contracts

Contractual tax exemptions, in the real sense of the term and where the non-impairment clause
of the Constitution can rightly be invoked, are those agreed to by the taxing authority in
contracts, such as those contained in government bonds or debentures, lawfully entered into by
them under enabling laws in which the government, acting in its private capacity, sheds its
cloak of authority and waives its governmental immunity. Truly, tax exemptions of this kind may
not be revoked without impairing the obligations of contracts. but these contractual tax
exemptions are not to be confused with tax exemptions granted under franchisesthe latter
partakes the nature of a grant which is beyond the purview of the non-impairment clause of the
Constitution. (PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR) v. THE
BUREAU OF INTERNAL REVENUE G.R. No. 172087 March 15, 2011)

Even though such taxation may affect particular contracts, as it may increase the debt of one
person and lessen the security of another, or may impose additional burdens upon one class
and release the burdens of another, still the tax must be paid unless prohibited by the
Constitution, nor can it be said that it impairs the obligation of any existing contract in its true
legal sense." Indeed not only existing laws but also "the reservation of the essential attributes
of sovereignty, is read into contracts as a postulate of the legal order." (ARTURO M.
TOLENTINO v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 115455, October 30, 1995)

J. Stages of taxation
1. Levy

Levy is an exercise of the power to tax, which is exclusively legislative in nature and character.
Clearly, taxes are not levied by the executive branch of government. (NPC v. Albay, 186 SCRA
198 (1990))

2. Assessment and collection

3. Payment
4. Refund

K. Definition, nature, and characteristics of taxes

Taxes are enforced proportional contributions from persons and property, levied by the State by
virtue of its sovereignty for the support of the government and for all its public needs.
(PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGAN
v. EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)

M. Tax as distinguished from other forms of exactions

1. Tariff
The term tariff and custom duties are used interchangeably in the Tariff and Customs Code or
PD No. 1464.

Customs duties, or simply duties, are taxes imposed on goods exported from or
imported into a country. Custom duties are really taxes but the latter term is broader in
scope.

On the other hand, tariff may be used in one of three senses:

1. A book of rates drawn usually in alphabetical order containing the names of several kinds
of merchandise with the corresponding duties to be paid for the same; or
 2. The duties payable on goods imported or exported; or

3. The system or principle of imposing duties on the importation or exportation of

goods.

2. Toll

Toll v. tax
1. Toll is a sum of money for the use of something. It is the consideration which is paid for
the use of a road, bridge, or the like, of a public nature. Taxes, on the other hand, are enforced
proportional contributions from persons and property levied by the State by virtue of its
sovereignty for the support of the government and all public needs.

2. Toll is a demand of proprietorship; tax is a demand of sovereignty.

3. Toll is paid for the use of anothers property; tax is paid for the support of government.

4. The amount paid as toll depends upon the cost of construction or maintenance of the
public improvement used; while there is no limit on the amount collected as tax as long
as it is not excessive, unreasonable, or confiscatory.

5. Toll may be imposed by the government or by private individuals or entities; tax may be
imposed only by the government.

A tax is imposed under the taxing power of the government principally for the purpose of
raising revenues to fund public expenditures; toll fees, on the other hand, are collected by
private tollway operators as reimbursement for the costs and expenses incurred in the
construction, maintenance and operation of the tollways. Taxes may be imposed only by the
government under its sovereign authority, toll fees may be demanded by either the government
or private individuals or entities, as an attribute of ownership. (RENATO V. DIAZ and AURORA
MA. F. TIMBOL v. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)

Fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense.
Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature of
VAT as an indirect tax. (RENATO V. DIAZ and AURORA MA. F. TIMBOL v. THE SECRETARY OF
FINANCE, G.R. No. 193007, July 19, 2011)

3. License fee

To be considered a license fee, the imposition must relate to an occupation or activity that so
engages the public interest in health, morals, safety and development as to require regulation
for the protection and promotion of such public interest; the imposition must also bear a
reasonable relation to the probable expenses of regulation, taking into account not only the
costs of direct regulation but also its incidental consequences as well. Accordingly, a charge of a
fixed sum which bears no relation at all to the cost of inspection and regulation may be held to
be a tax rather than an exercise of police power. (PROGRESSIVE DEVELOPMENT CORP. v.
QUEZON CITY, G.R. No. L-36081, April 24, 1989)

If the purpose is primarily revenue, or if revenue is at least, one of the real and substantial
purposes, then the exaction is properly called a tax. (LAND TRANSPORTATION OFFICE v. CITY
OF BUTUAN, G.R. No. 131512, January 20, 2000)

4. Special assessment

1. A special assessment is an enforced proportional contribution from owners of lands

specially or peculiarly benefited by public improvements.

2. A special assessment is levied only on land.

3. A special assessment is not a personal liability of the person assessed; it is limited to the
land.

4. A special assessment is based wholly on benefits, not necessity.

5. A special assessment is exceptional both as to time and place; a tax has general
application.

5. Debt

Taxes cannot be the subject of compensation because the government and taxpayer are not
mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off. (CALTEX PHILIPPINES, INC. v. THE
HONORABLE COMMISSION ON AUDIT, G.R. No. 92585, May 8, 1992)

N. Kinds of taxes
1. As to object

1. Personal, poll or capitation tax

Tax of a fixed amount imposed on persons residing within a specified territory, whether citizens
or not, without regard to their property or the occupation or business in which they may be
engaged, i.e. community tax.

2. Property tax

Tax imposed on property, real or personal, in proportion to its value or in accordance with some
other reasonable method of apportionment.

3. Excise tax

A charge imposed upon the performance of an act, the enjoyment of a privilege, or the engaging
in an occupation.
A contractor's tax is generally in the nature of an excise tax on the exercise of a privilege of
selling services or labor rather than a sale on products; and is directly collectible from the
person exercising the privilege. Being an excise tax, it can be levied by the taxing authority only
when the acts, privileges or business are done or performed within the jurisdiction of said
authority. (COMMISSIONER OF INTERNAL REVENUE v. MARUBENI CORPORATION, G.R. No.
137377, December 18, 2001)

A franchise tax is a tax on the privilege of transacting business in the state and exercising
corporate franchises granted by the state. It is not levied on the corporation simply for existing
as a corporation, upon its property or its income, but on its exercise of the rights or privileges
granted to it by the government. (CITY OF IRIGA v. CAMARINES SUR III ELECTRIC
COOPERATIVE, INC., G.R. No. 192945, September 5, 2012)

2. As to burden or incidence

1. Direct tax

A direct tax is demanded from the person who also shoulders the burden of the tax. It is a tax which
the taxpayer is directly or primarily liable and which he or she cannot shift to another

2. Indirect tax

An indirect tax is demanded from a person in the expectation and intention that he or she shall
indemnify himself or herself at the expense of another, falling finally upon the ultimate purchaser or
consumer. A tax which the taxpayer can shift to another.

Tax Systems

Constitutional mandate

The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation. [Section 28(1), Article VI, Constitution]

Tolentino v. Secretary of Finance: 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, just like the directive to
it to give priority to the enactment of laws for the enhancement of human dignity. The
provisions are put in the Constitution as moral incentives to legislation, not as judicially
enforceable rights.
Progressive system of taxation v. regressive system of taxation

A progressive system of taxation means that tax laws shall place emphasis on direct
taxes rather than on indirect taxes, with ability to pay as the principal criterion.

A regressive system of taxation exists when there are more indirect taxes imposed than
direct taxes.

Regressive tax rates

Tax the rate of which decreases as the tax base or bracket increases. There are no
regressive taxes in the Philippine jurisdiction.

Regressive tax rates should be differentiated from a regressive system of taxation which
exists when there are more indirect taxes imposed than direct taxes.

Three basic principles of a sound tax system

1. Fiscal adequacy

It means that the sources of revenue should be sufficient to meet the demands of public
expenditures. [Chavez v. Ongpin, 186 SCRA 331]
2. Equality or theoretical justice

It means that the tax burden should be proportionate to the taxpayers ability to pay. This is the so-
called ability to pay principle.
3. Administrative feasibility

It means that tax laws should be capable of convenient, just and effective administration.