TAXATION

POWER OF TAXATION 1. Revenue Purposes

▪ Process of collecting money to defray expenses of the government 2. Non-revenue Purposes

▪ Inherent power of the state: no need for a constitution or enabling statute for the (a) Promotion of general welfare
State to exercise the power of taxation
1 ▪ Taxation can be used as an implement of police power
LOCAL GOVERNMENT UNITS AND POWER OF TAXATION
e.g. Excise Tax: a type of business tax; higher rate of tax can be imposed to
▪ Prior to the 1987 Constitution, there needs to be an enabling law before LGUs can certain industries (cigarettes, alcohols because the state discourages the use of
collect taxes. these products)

▪ With the effectivity of the 1987 Constitution, the power of taxation is no longer (b) Regulation
delegated to the LGUs but is directly conferred by the Constitution.
▪ PAL v Edu: The state imposed a regulatory tax (imposed to raise revenues and
▪ The Constitution has a provision on Local Autonomy (Article X) regulate a subject matter)

Sec.5 Each local government unit shall have the power to create its own sources of revenues and to (c) Reduce Social Inequity
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 ▪ Progressive System of Taxation
exclusively to the local governments.
▪ “Ability to pay” principle: the higher the income, the higher the tax.
TAXATION BEING A POWER
(d) Encourage Economic Growth
1. Inherent
▪ Congress can grant incentives to promote a particular industry
2. Supreme, Plenary, Unlimited and Comprehensive
(e) Protectionism
▪ Can cover all subject matters provided in accordance with limitations (both
inherent and constitutional limitations) ▪ Imposition of custom duties to protect locally manufactured goods

POWER TO TAX: POWER TO DESTROY? e.g. “smuggled goods”

Justice Marshall: The power to tax includes the power to destroy LIFEBLOOD DOCTRINE

▪ The state can use the power of taxation to kill any business ▪ Taxes are lifeblood of nation and without taxes, the states cannot exist.

Justice Holmes: The power to tax does not include the power to destroy while this court sits ▪ The source of the power to tax is the main existence of the state

How to reconcile? The principle of Justice Marshall applies only to valid taxes, while that of JUSTIFICATIONS OF THE POWER OF TAXATION
Justice Holmes applies to invalid taxes. 1. Benefits-Received Theory
▪ We pay taxes because of the protection that we receive
▪ If a tax imposed is valid, it can be used by the state to destroy. 2. Symbiotic Relationship Theory
▪ Notwithstanding reluctance, we must pay because without it, the
▪ If it is an invalid tax, the state cannot use the power to tax to destroy a business.
government cannot provide protection to its citizens.
3. Necessity Theory
▪ Taxes are necessary for the government to operate
OBJECTIVES OF THE POWER OF TAXATION ▪ Lifeblood doctrine

Taxation I
S.Y. 2016-2017, 1st semester
 Benefits-Received Theory Symbiotic Relationship Theory Philippine Health Care Providers vs. CIR

Benefits have been received, so We must pay tax because benefits • Documentary Stamp Tax of PHCP: 376
we must pay tax. will be received from the Net worth of PHCP: 259M (assets minus liabilities)
government • PHCP alleges that the state is taxing it out of existence
• CIR alleges the principle of “Power to tax is the power to destroy”
▪ Involved valid tax
• VAT was found valid; DST was invalid
CHARACTERISTICS OF THE POWER OF TAXATION • DST can only be collected if the industry is an insurance provider. PHCP is not an
2 insurance provider but a health service provider. Thus, DST cannot be imposed
1. Must be for public purpose upon it.
▪ Since DST is an invalid tax (being imposed to a health service provider),
▪ Produce direct or indirect benefits to the people the power to tax is not the power to destroy.
• While it is true that the power to tax is unlimited, supreme, plenary, unlimited and
e.g. Collection of tax to prevent tuberculosis comprehensive, it must be exercised with precaution to avoid injury to proprietary
rights of taxpayer. It must be fairly, equally and uniformly imposed.
oLiving in a healthy society is an indirect intangible benefit
“The power of taxation is sometimes called also the power to destroy. Therefore it
2. Inherent
should be exercised with caution to minimize injury to the proprietary rights of a
3. taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the
Inherently Legislative
"hen that lays the golden egg."
▪ The power of taxation can only be exercised by the legislature by enactment of a law Legitimate enterprises enjoy the constitutional protection not to be taxed out of
authorizing a tax existence. Incurring losses because of a tax imposition may be an acceptable consequence
but killing the business of an entity is another matter and should not be allowed. It is
4. Territorial counter-productive and ultimately subversive of the nation’s thrust towards a better
economy which will ultimately benefit the majority of our people”
▪ It can only be exercised within the jurisdiction of the state

5. Recognizes Tax Exemption of State

6. Limited

Sison vs. Ancheta

• Power to tax is the power to build
▪ With the modern times, there is a need for more revenues to meet increasing social
challenges.
▪ Lifeblood doctrine
“It is manifest that the field of state activity has assumed a much wider scope xxx
Hence the need for more revenues. The power to tax, an inherent prerogative, has to be
availed of to assure the performance of vital state functions. It is the source of the bulk of
public funds. To praphrase a recent decision, taxes being the lifeblood of the government,
their prompt and certain availability is of the essence.

Taxation I
S.Y. 2016-2017, 1st semester
 CIR vs. Algue
• Lifeblood doctrine
“Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance. On the other hand, such collection should be made in accordance
with law as any arbitrariness will negate the very reason for government itself. It is
therefore necessary to reconcile the apparently conflicting interests of the authorities and
the taxpayers so that the real purpose of taxation, which is the promotion of the common
good, may be achieved”
3 •
• Symbiotic Relationship Theory
▪ Those who can contribute must do so
▪ Government responds to the taxes that we pay in the form of tangible and
intangible benefits
“It is said that taxes are what we pay for civilization society. Without taxes, the
government would be paralyzed for lack of the motive power to activate and operate it.
Hence, 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.”
• Taxes must be reasonably collected
“Even as we concede the inevitability and indispensability of taxation, it is a
requirement in all democratic regimes that it be exercised reasonably and in
• Tax was used both as a regulatory and revenue measure
accordance with the prescribed procedure. If it is not, then the taxpayer has a right to
complain and the courts will then come to his succor. For all the awesome power of the tax
collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has
here, that the law has not been observed.”
• Tax as an instrument of police power: to protect video industry
• Tax does not cease to be valid merely because it regulates, discourages or even
NAPOCOR vs. City of Cabanatuan
• Source of the exercise of taxing power: the very existence of the state
• Theory behind the power of taxation: Necessity
▪ So that the government can also provide for the citizens
▪ To promote general welfare
• LGU can exercise the power of taxation
▪ Directly conferred by the Constitution (Sec 5. Article X, 1987
Constitution)
• The Local Government Code was enacted by the Congress
Q: Does it grant the power to tax to the LGUs?
A: No. It only sets limitation to the taxing power of the state and does not grant
the power to collect the tax. It is the Constitution that grants the power to tax.
Taxation I
Philippine Airlines vs. EDU
• Fees are being imposed to PAL in the form of registration fees.
• SC: they are actually taxes.
“They are taxes. Tax are for revenue, whereas fees are exactions for purposes of regulation
and inspection, and are for that reason limited in amount to what is necessary to cover the
cost of the services rendered in that connection.
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.”
The fees are used for construction of highways. Only a portion is used for the
operation of the motor vehicles. Since the fees are used for a public purpose, they are
considered taxes.
Tio vs. Videogram Regulatory Board
• Taxes were not considered oppressive and were upheld to be valid.
“It is beyond serious question that a tax does not cease to be valid merely
because it regulates, discourages, or even definitely deters the activities taxed.
The power to impose taxes is one so unlimited in force and so searching in extent,
that the courts scarcely venture to declare that it is subject to any restrictions whatever,
except such as rest in the discretion of the authority which exercises it. In imposing a tax,
the legislature acts upon its constituents. This is, in general, a sufficient security against
erroneous and oppressive taxation. “
The tax imposed by the DECREE is not only a regulatory but also a revenue measure
prompted by the realization that earnings of videogram establishments of around P600
million per annum have not been subjected to tax, thereby depriving the Government of
an additional source of revenue
definitely deters the activities taxed.
Lutz vs. Araneta
• Tax as an implement of police power to promote general welfare
“The tax is levied with a regulatory purpose, i.e. to provide means for the
rehabilitation and stabilization of the threatened sugar industry. The act is primarily an
exercise of police power and is not a pure exercise of taxing power.
As sugar production is one of the great industries of the Philippines and its promotion,
protection and advancement redounds greatly to the general welfare, the legislature found
that the general welfare demanded that the industry should be stabilized, and provided
that the distribution of benefits had to sustain.”
S.Y. 2016-2017, 1st semester
 CIR vs. Central Luzon Drug Corporation 3. Theoretical Justice
• Tax Credit vs. Tax Deduction ▪ Founded on the “ability-to-pay” principle
• Pay because you’re able
Tax Credit: deduction from tax liability • Kindred concept of progressive system of taxation
Tax Deduction: reduction from the income √ The higher the income, the higher the tax
“xxx Tax deduction -- defined as a subtraction "from income for tax purposes," or
an amount that is "allowed by law to reduce income prior to [the] application of the tax ▪ Section 28, Article VI of the Constitution
rate to compute the amount of tax which is due." The Congress must evolve a progressive system of taxation
On the one hand, a tax credit reduces the tax due, including -- whenever
applicable -- the income tax that is determined after applying the corresponding tax rates
4 to taxable income. A tax deduction, on the other, reduces the income that is subject to tax
Q: Will a violation of these principles result to unconstitutionality of the tax law?
A:
in order to arrive at taxable income. To think of the former as the latter is to avoid, if not
entirely confuse, the issue. A tax credit is used only after the tax has been computed; a tax General Rule: NO
deduction, before.” These are merely principles. They are guidelines and are therefore not mandatory
• Elements of the Power of Eminent Domain The Constitution provides that the Congress must evolve a progressive system of taxation, but
1. Taking of private property: 20% of the gross sale does not prohibit regressive system of taxation. For example, VAT is valid eventhough it does
2. For public use: discount for the senior citizens not consider the ability to pay principle because it is automatically imposed upon the
3. For just compensation: tax credit consumers. The progressive system of taxation is merely encouraged and regressive system of
taxation is merely frowned upon.
• The corporation can incur whatever has been lost through the grant of tax credit.
• RA 9994: The 20% discount is already considered as tax deduction. Except: If a law is violative of theoretical justice and in effect is harsh, oppressive and
confiscatory such that it violates due process.

THREE STAGES IN THE TAX PROCESS

1. Levy
▪ Power of Taxation can be exercised through the law-making body
▪ How? By enactment of laws
▪ Nature: inherently legislative

2. Assessment
▪ Computation of taxes
▪ Nature: administrative

3. Collection
▪ Administrative in character

PRINCIPLES OF A SOUND TAX SYSTEM

1. Fiscal Adequacy
▪ Fiscal: money
Adequacy: sufficient
▪ Sufficient funds
▪ As much as possible, there would be no deficit and excessive surplus.

2. Administrative Feasibility
▪ Tax laws should be capable of convenient, just and effective administration

Taxation I
S.Y. 2016-2017, 1st semester
 Diaz v. Secretary of Finance 2. PROPORTIONATE CONTRIBUTION
Concept of Administrative Feasibility ▪ Progressive System of taxation and ability to pay principle.
• Petitioner was assailing the validity of the impending imposition of value-added
tax (VAT) 3. LEVIED BY LAW-MAKING AUTHORITY
by the Bureau of Internal Revenue (BIR) on the collections of tollway operators ▪ Only the Congress has the authority to levy taxes through enactment of laws.
• The implementation of Section 108 of NIRC is not administratively feasible ▪ Exceptions:
a. Local Government Units
“In order to claim input VAT, the name, address and tax identification number of the b. Flexible Tariff Clause
tollway user must be indicated in the VAT receipt or invoice. The manner by which the BIR
5 intends to implement the VAT by rounding off the toll rate and putting any excess collection
Article VI, Sec 28 (2), 1987 PC
in an escrow account is also illegal, while the alternative of giving change to thousands of
The Congress may, by law, authorize the President to fix within specified limits, and subject
motorists in order to meet the exact toll rate would be a logistical nightmare. Thus,
according to them, the VAT on tollway operations is not administratively feasible” 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
• Supreme Court: non-observance of the canon of administrative feasibility would national development program of the Government.
not make the law invalid.
c. Purely Administrative Functions
• “Administrative feasibility is one of the canons of a sound tax system. It simply means
that the tax system should be capable of being effectively administered and enforced 4. HAVE TERRITORIAL JURISDICTION OVER THE SOURCE OF TAX
with the least inconvenience to the taxpayer. Non-observance of the canon, Tax Situs (Section 42 of Tax Code)
▪
however, will not render a tax imposition invalid except to the extent that specific • Place of Taxation
constitutional or statutory limitations are impaired.[34] Thus, even if the imposition
of VAT on tollway operations may seem burdensome to implement, it is not necessarily
invalid unless some aspect of it is shown to violate any law or the Constitution.” 5. PERSONAL IN NATURE
• One cannot make others liable for his own tax liability
• Moreover, the issue on the implementation is premature because it remains to be seen Note: Tax Liability vs. Burden of Tax
how the taxing authority will actually implement the VAT on tollway operations. Any Tax Liability
declaration by the Court that the manner of its implementation is illegal or • Direct mandate of law
unconstitutional would be premature. Burden of Tax
• Who will shell out the funds

Q: VAT is an indirect tax. When someone buys a meal from Mcdonalds, a part of the purchase
Definition and Characteristics of Taxes price that the consumer pays is the VAT. Is it a violation of the nature of Tax as personal in
nature?
Taxes are enforced, proportionate contribution levied by the law-making authority which A: No. Only the burden of tax is shifted to the consumer and not the tax liability.
has territorial jurisdiction over the source of the tax.
Capital Gains Tax (CGT)
Characteristics: • Commonly the seller pays the tax of the property being sold. However,
1. ENFORCED they can stipulate that the buyer will pay the CPG instead.
▪ Mandated by law Q: If the buyer did not pay the tax, can the government run after the buyer?
▪ Poll tax: mandatory, but non-payment would not subject the person to imprisonment A: No. CPG is personal in nature. What was only shifted to the buyer was the burden of tax
and not the tax liability. Hence, the liability remains to the seller. The government should run
Article III, Section 20 (1987 PC) after the seller. The remedy of the seller is to file a complaint against the buyer.
No person shall be imprisoned for debt or non-payment of a poll tax
6. PUBLIC PURPOSE
Q: Can a person legally refused to pay taxes? • Basic test of public purpose: it must be used for the support of the
A: No. The privilege of living in a civilized society is a benefit derived from payment of taxes government
to the government. • To promote welfare for the common good.

Taxation I
S.Y. 2016-2017, 1st semester
 Pascual vs. Secretary of Public Works and Communications et al. INHERENTLY LEGISLATIVE
• A law was enacted wherein funds were appropriated for the construction of Pasig • The power to tax cannot be delegated to other branches of the government
feeder road terminals, which have no connection with any government highway. • Exceptions:
• Respondent Zulueta donated the feeder roads to the government AFTER the 1. LGU’s taxing power
enactment of the law. 2. President’s taxing power
• SC: The law was invalid because public funds were appropriated for a private 3. Purely administrative function
property. At the time of the enactment of the law, the property is still a private
6 property.. The donation by Zulueta was made only to give semblance of legality to • Congress has the power to determine coverage of taxation, object of taxation, nature
the project. of taxation, the kind of tax to be imposed, and the tax rate.

“The test of the constitutionality of a statute requiring the use of public funds is whether Double Taxation
the statute is designed to promote the public interest, as opposed to the furtherance of the
advantage of individuals, although each advantage to individuals might incidentally serve
Pepsi-Cola Bottling Company vs. Municipality of Tanauan
the public.
• There was no double taxation because there are different taxing authorities
The validity of a statute depends upon the powers of Congress at the time of its passage or
“Moreover, double taxation, in general, is not forbidden by our fundamental law, since we
approval, not upon events occurring, or acts performed, subsequently thereto, unless
have not adopted as part thereof the injunction against double taxation found in the
the latter consists of an amendment of the organic law, removing, with retrospective
Constitution of the United States and some states of the Union. Double taxation becomes
operation, the constitutional limitation infringed by said statute. Xxx Inasmuch as the land
obnoxious only where the taxpayer is taxed twice for the benefit of the same
on which the projected feeder roads were to be constructed belonged then to respondent
governmental entity or by the same jurisdiction for the same purpose, but not in a case
Zulueta, the result is that said appropriation sought a private purpose, and hence, was null
where one tax is imposed by the State and the other by the city or municipality.”
and void”
• There was no undue delegation of the power of taxation
“It is a power that is purely legislative and which the central legislative body
INTERNATIONAL COMITY cannot delegate either to the executive or judicial department of the government
• Courteous recognition and friendly relations between two sovereign states without infringing upon the theory of separation of powers. The exception, however,
lies in the case of municipal corporations, to which, said theory does not apply.
Q: Can the Philippine Government impose tax to the income of the US Government? Legislative powers may be delegated to local governments in respect of matters
A: No. It will be a violation of international comity of local concern. xxx Section 5, Article XI provides: "Each local government unit shall have
the power to create its sources of revenue and to levy taxes, subject to such limitations as
Illustration: may be provided by law."
Manny Pacquaio is a Filipino citizen who is also being given an income by other states during
his competitions.
Q: Is his income subject to tax?
A: Yes, regardless of the source of income, because of his citizenship.

Withholding Tax
• Income earned by an employee
• The payor is the withholding agent: the employer. He serves as the collector of the
government

Illustration:
Manny Pacquaio is being paid an income by Las Vegas.
Q: Can this income be subject to a withholding tax?
A: No. It would be a violation of international comity. The Philippines cannot constitute the
foreign corporation (“Top Rank Corp”) as a withholding agent, since the corporation has no
business in the Philippines.

Obligation of Pacquaio is to declare the income for income tax.

Taxation I
S.Y. 2016-2017, 1st semester
 Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. City of Butuan He earns P30,000 per month

•Double taxation is not prohibited by our Constitution. It is only unconstitutional if Q: May the condominium be imposed with real property tax?
it is obnoxious. A: No. It is located outside the Philippines.
• Type kinds of Double Taxation
Direct Indirect Eclectic Theory
Same type Same type • Tax laws cannot extend beyond territorial jurisdiction of a State
Same subject matter Same subject matter
Same taxable period Same taxable period Q: May the income of Ryan be subject to income tax in the Philippines?
7 Same taxing authorities Different taxing authorities
• However, the imposition of tax of 6% was found to be violative of due process A: Yes. The income is based on a right. Ryan is still a Filipino citizen who can be imposed
and is considered confiscatory and obnoxious by the Supreme Court with income tax by the Philippine Government even though he is a non-resident.
☑ Citizenship Principle
Xxx it would still be invalid, as discriminatory, and hence, violative of the uniformity
required by the Constitution and the law therefor, since only sales by "agents or consignees" Q: BUT is it subject to tax?
of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on A: No. RA 8429 (Tax Code) provides that only resident-citizens shall be subject to tax within
behalf of other merchants, regardless of the volume of their sales, and even if the same or outside the Philippines
exceeded those made by said agents or consignees of producers or merchants established Others are subject to tax only if the source is from the Philippines
outside the City of Butuan, would be exempt from the disputed tax
TAX EXEMPTIONS
TERRITORIALITY • GOCCs are not exempted from tax, except if charter so provides that they are
• Tax Situs exempted.
• Depends on the subject matter
• Right
• Real property
• Personal Property Light Rail Transit Authority vs. Central Board of Assessment Appeals
• Principles:
• Source Principle • The carriageways and passenger terminal stations are not public roads. They were
• Citizenship Principle merely elevated and only serve as improvements.
• Residence Principle “ XXX it must be emphasized that these structures do not form part of such roads, since the
former have been constructed over the latter in such a way that the flow of vehicular
Source Principle traffic would not be impeded. These carriageways and terminal stations serve a function
• State can impose tax to an income if such income has been earned in that State different from that of the public roads. The former are part and parcel of the light rail
transit (LRT) system which, unlike the latter, are not open to use by the general public. The
Citizenship Principle carriageways are accessible only to the LRT trains, while the terminal stations have been
• Tax is imposed to the income of all citizens of the State built for the convenience of LRTA itself and its customers who pay the required fare.”

Residence Principle • Petitioner is a GOCC and is not exempted from real property taxes
• Tax is imposed to the income of the residents of a state
“ Though the creation of the LRTA was impelled by public service -- to provide
Taxes on Properties mass transportation to alleviate the traffic and transportation situation in Metro
Real properties: where it is located Manila -- its operation undeniably partakes of ordinary business. Petitioner is
Personal properties clothed with corporate status and corporate powers in the furtherance of its
Tangible: where it is located proprietary objectives. Indeed, it operates much like any private corporation engaged in
Intangible: mobilia sequitur persona the mass transport industry. Given that it is engaged in a service-oriented commercial
follows the domicile of its owner endeavor, its carriageways and terminal stations are patrimonial property subject to
tax, notwithstanding its claim of being a government-owned or controlled corporation.”
Illustration:
Ryan is a Filipino Citizen who resides in Japan
He owns a condo at Japan
Taxation I
S.Y. 2016-2017, 1st semester
 Mactan Cebu International Airport Authority vs. Hon. Ferdinand J. Marcos (1996)
• GOCC’s are taxable entities. CONSTITUTIONAL LIMITATIONS
Exception: If the charter provides for exemption.
• However, the charter of MCIAA was already repealed upon enactment 1. Due Process Clause
of the Local Government Code 2 Aspects:
• Instrumentalities of the government are exempted from real property taxes as a. Substantive Due Process
• No tax imposed if no law enacted
provided by the Local Government Code. They are not taxable entities.

MCIAA case on June 15 2015 b. Procedural Due Process

8 • MCIAA is no longer a GOCC and is now a government instrumentality
• Government cannot levy property if no opportunity to be heard is given.
• In 2006, MIAA case was decided and Supreme Court considered it as an
instrumentality, subject to tax exemption Basic Concepts to understand the CREBA Case
• MCIAA filed a petition to the Court saying that it has the same functions with the Gross Sales: amount received from a business
MIAA and must also be exempted from real property taxes granted Cost of Sales: expenditure directly related to the earning of gross sales
Gross Income: Gross Sales minus Cost of Sales
Expenses: merely incidental expenditures
Net Income: Gross Income minus Expenses
Manila International Airport Authority vs. Court of Appeals
Illustration:
• MIAA is not a government-owned or controlled corporation Section 2(13) of the Atty. Carantes wants to sell 40 pcs of Boy Bawang. Her capital costs P40 (P1 per piece). She
Introductory Provisions of the Administrative Code because it is not organized as sold it for P5 per piece.
a stock or non-stock corporation.
• MIAA is a government instrumentality vested with corporate powers. As Gross Sales: P200
operator of the international airport, MIAA administers the land, improvements Cost of Sales: P40
and equipment within the NAIA Complex. Gross Income: P160
• 20% of its income reverts back to the government. Expense: P14 (jeepney fare)
• Under Section 133 of the LGC, it is exempt from taxes Net Income: P146

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalities and local government units

• MIAA is exempt from real property taxes but not as to those properties leased to
private entities, since these are taxable entities.

SEC. 234. Exemptions from Real Property Tax. — The following are exempted from payment
of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person;

Portions of the Airport Lands and Buildings that MIAA leases to private entities are not
exempt from real estate tax. For example, the land area occupied by hangars that MIAA
leases to private corporations is subject to real estate tax. In such a case, MIAA has granted
the beneficial use of such land area for a consideration to a taxable person and therefore
such land area is subject to real estate tax.

Taxation I
S.Y. 2016-2017, 1st semester
 CREBA v. The Hon. Executive Secretary Alberto Romulo
Illustration:
• Under the Tax Code, a corporation can become subject to the Minimum Corporate Real Property: P1m
Income Tax (MCIT) at the rate of 2% of gross income, beginning on the 4th Tax (30%): P300,000
taxable year immediately following the year in which it commenced its business CWT: P250,000
operations, when such MCIT is greater than the normal corporate income tax.
• CREBA argued, among others, that the use of gross income as MCIT base 300,000
amounts to a confiscation of capital because gross income, unlike net income, is - 250,000
not realized gain. It will be like imposing a tax even if there is no income yet. -----------
9 • In our earlier illustration, if the gross income is only P160 and the tax P50,000 Creditable next year
imposed is P170, there will be a net loss of –P10
• Thus, CREBA alleges that it is confiscatory If you have no income
0
Supreme Court: MCIT is valid and is not confiscatory. - 250,000
---------
☑ MCIT is not an additional tax imposition.
250,000 Can be utilized next taxable year
“It is imposed in lieu of the normal net income tax, and only if the normal income tax is
Q: What if the business suffered loss until closure? Will CWIT be a confiscation of property?
suspiciously low. The MCIT merely approximates the amount of net income tax due from a
A: If the taxpayer cannot utilize the CWT, he can petition for tax refund 2 years from
corporation, pegging the rate at a very much reduced 2% and uses as the base the
payment.
corporations gross income.”

The rationale of MCIT is to prevent declaration of normal income tax that is suspiciously The government did not forfeit the CWT
low.

Tax Code aims to prevent corporations from bloating up their expenses to appear that they
have no income. COCA COLA Case

☑ MCIT is not a tax on a capital • Tax Ordinance No. 7794, Section 21 provides for the exemption of Coca-Cola
from additional taxes apart from local business tax
“The imposition of the MCIT is constitutional. An income tax is arbitrary and confiscatory if • Year 2000: The City of Manila amended the ordinance and removed the tax
it taxes capital, because it is income, and not capital, which is subject to income tax. exemption of Coca-Cola
However, MCIT is imposed on gross income which is computed by deducting from gross
sales the capital spent by a corporation in the sale of its goods, i.e., the cost of goods ☑ Supreme Court: the amendatory law was null and void for non-compliance with
and other direct expenses from gross sales. Clearly, the capital is not being taxed.” the publication requirement, which is a requirement of due process
☑ Double Taxation: two ordinances imposed the same kind of tax
☑ Taxation as an attribute of sovereignty Same subject: privilege of doing business
Same taxing authority: City of Manila
“Taxation is an inherent attribute of sovereignty. It is a power that is purely legislative. Same purpose: contribution of revenue
Essentially, this means that in the legislature primarily lies the discretion to determine Same jurisdiction: City of Manila
the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) Same period: per calendar year
of taxation.It has the authority to prescribe a certain tax at a specific rate for a particular Same character: Local Business Tax
public purpose on persons or things within its jurisdiction.  In other words, the legislature
wields the power to define what tax shall be imposed, why it should be imposed, how much Direct Duplicate Taxation: the taxing measure becomes obnoxious
tax shall be imposed, against whom (or what) it shall be imposed and where it shall be Double Taxation is not unconstitutional.
imposed.” However, if it constituted direct double taxation and results to a measure that is
obnoxious and confiscatory, it becomes unconstitutional and violative of due
☑ Creditable Withholding Tax is valid process.
Concept of CWT
- Imposed on the Gross Selling Price/Market Value of the property at the time of
the sale

Taxation I
S.Y. 2016-2017, 1st semester
 Mayor Antonio J. Villegas vs.Hiu Chiong Tsai Pao Ho Sison v Ancheta
• Instances of due process violation:
• Ordinance provides for an imposition of employer permit (P50) to alien residents 1. Beyond jurisdiction of the state
before employment 2. Not for a public purpose
• Supreme Court: Ordinance is unconstitutional 3. Retroactive statute that is so harsh and unreasonable
4. When it becomes oppressive and arbitrary.
☒ Violative of Due Process
The fee imposed is not merely fore regulatory purposes but is actually for revenue. It
results to a withdrawal of livelihoods from aliens without due process
10
☒ Violative of Equal Protection Clause CIR v. CA and Fortune
• Procedural due process
“The P50.00 fee is unreasonable not only because it is excessive but because it fails to • 2 types of administrative issuances:
consider valid substantial differences in situation among individual aliens who are required 1. Legislative Rule
to pay it. Although the equal protection clause of the Constitution does not forbid 2. Interpretative Rule
classification, it is imperative that the classification should be based on real and substantial
differences having a reasonable relation to the subject of the particular legislation. The Legislative Rule Interpretative Rule
same amount of P50.00 is being collected from every employed alien whether he is casual Nature Subordinate legislation Guidelines
or permanent, part time or full time or whether he is a lowly employee or a highly paid Purpose Provide details of the law Interprets the law
executive” Force Force and effect of a law, given weight by the court and must be binding upon the
☒ The power granted to the mayor was an undue delegation of power courts Force and effect of a law but is merely given weight by the courts
Requirement Publication, notice and hearing Issuance
Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the
exercise of his discretion. It has been held that where an ordinance of a municipality fails
to state any policy or to set up any standard to guide or limit the mayor's action, expresses
no purpose to be attained by requiring a permit, enumerates no conditions for its grant or • Memorandum Circular: administrative issuance
refusal, and entirely lacks standard, thus conferring upon the Mayor arbitrary and • Reclassified cigarette brands to locally manufactured bearing foreign
unrestricted power to grant or deny the issuance of building permits, such ordinance is brands
invalid, being an undefined and unlimited delegation of power to allow or prevent an • Higher tax rates are imposed
activity per se lawful.  • The issuance adds burden to taxpayer Legislative Rule
Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion • As a legislative rule, it should have undergone publication, notice and hearing.
to guide the mayor in the exercise of the power which has been granted to him by the • Not having complied with the requirements, the rule should be
ordinance unconstitutional
• When the issuance is merely interpretative, its applicability needs nothing further
Mayor cannot impose tax: violation of legislative nature of taxation
than its mere issuance
• The fee is for revenue purpose • Administrative issuance cannot go beyond the limits of the law.
• If it goes beyond the law, it will be an illegal administrative issuance
• Power of taxation is inherently legislative
• Mayor is granted unrestricted authority

Reminder on how to answer questions

If the argument is based on “procedural due process answer that the law is
City of Baguio vs. de Leon unconstitutional
• There is no double taxation since there are two different taxing authorities If the argument is based on the issuance going beyond the limits of the law answer that the
1. National government issuance is illegal
2. City of Baguio
• Indirect double taxation is not prohibited by the Constitution. What is prohibited is
an obnoxious taxing measure such as direct double taxation.

Taxation I
S.Y. 2016-2017, 1st semester
 CIR v. MJ Lhuiller Shell vs. Vano
• Due Process violation • Tax is imposed to all installation managers
• 5% tax is imposed on pawn shops where the law imposed such tax ONLY to • There was only one installation manager in the whole municipality
lending investors
• The issuance imposed the same tax without notice and hearing Issue: Was there a violation of Equal Protection Clause for the act of singling out the
petitioner?
Supreme Court
☒ The issuance is unconstitutional for violation of due process Supreme Court: No.
11 ☒ The issuance is illegal for going beyond the provision of the law • Tax imposed is applicable to all installation managers who will occupy the same
profession in the future.
2. Equal Protection Clause
• All persons subject of legislation shall be treated alike under similar circumstances,
both in privilege conferred and liabilities imposed. Ormoc Sugar Central vs. Ormoc Treasurer
• Tax imposed to “Ormoc Sugar Central” (specifically mentioned in the ordinance)
ABAKADA Guro vs. Purisima • There is violation of Equal Protection Clause for singling out the industry
• Definition of Rational Basis Test
• There should be a reasonable foundation in the classification of the
subject matter of the tax and such classification should not be arbitrary. Shell vs. Vano Ormoc Sugar Central
• Grant of incentives to BIR and BOC employees
The classification is based on profession. The law evidently singled out not the sugar
Supreme Court: Applicable to all industries with the same industry but Ormoc Sugar Central itself.
☑ There is substantial distinction with employees of other agencies profession
☑ BIR and BOC are revenue-generating agencies There is no violation of Equal Protection There is violation of Equal Protection
• Substantial classification.
• Reasonable foundation Clause Clause
• Classification is not arbitrary

Association of Custom Brokers vs. Manila

• Ordinance imposed tax to all vehicles passing through the City of Manila but only Kapatiran vs. Tan
to those registered in the City of Manila • Value-added Tax
• The taxes were used for construction of roads
☑ No violation of uniformity principle
• It is imposed to all goods except as to those exempt by law
Issue: Was there a violation of the Equal Protection Clause?
Rate: 0-10%
Now: VAT is pegged at the rate of 20%
Supreme Court: Yes
☑ No violation of equitability principle
☒ There is no substantial distinction between those vehicles registered in Manila and • It recognizes exemption of those individuals who do not reach the
those that are not. They are all passing through the City roads.
threshold amount
☒ There is violation of Equal Protection Clause Hence, unconstitutional • If amount is less than P200,000 Exempt from VAT
Now: P1,919,500 is the threshold amount
• Small storeowners (sari-sari stores) are exempt from VAT, since their
income is only for daily sustenance
• Farmers selling farm and marine products: also exempt from VAT

Equality and Uniformity

• All taxable articles of the same class shall be taxed at the same rate

Taxation I
S.Y. 2016-2017, 1st semester
 • The legislature, in the exercise of its taxing power, has authority to make a Philreca vs. DILG
reasonable classification • Philreca is a cooperative registered under PD 269
• Inequalities resulting from singling out a particular class does not infringe any • A law was passed imposing real property taxes on cooperatives registered under PD
constitutional provision or limitation. 269
• Local Government Units
Tan v. Del Rosario Sec 190: Blanket withdrawal of tax exemptions
• Difference of tax treatment between single proprietors and corporations/ Sec 234: Enumerates properties exempt from tax, one of which are properties of
partnerships duly registered cooperatives under RA 6938
Issue: Was there a violation of Equal Protection Clause?
12 Individual Taxpayer Corporations/Partnerships
Subject to scheduler tax rates Held: No.
• Depend on income brackets (tax tables) There is a substantial distinction between cooperatives registered under PD 269 and RA
5%-32% Subject to fixed rate 6938
• Pegged at 30%
Schedular system of taxation PD 269 RA 6938
• Income of taxpayer should be classified into its nature Members are not required to pay reasonable contributions; Only membership fee of P5.00
(e.g. income from profession is subject to normal tax while individual earned prize is which is non-refundable 25-25 rule compliance
subject to a withholding tax od 10%) Global tax system 25% of authorized contributions must be subscribed,
• All kinds of income are combined 25% of subscribed contribution must be paid.
(e.g. corporate income and prizes will be both based on fixed rate of 30%) Cooperatives must be controlled by NEA Subsidiarity
➢ They can act on their own without much governmental control or supervision
➢ Still controlled by government but exercises subsidiarity
• Petitioner alleges violation of Equal Protection Clause
• Supreme Court: No violation. There is a substantial distinction between individual Those registered under PD 269 are not exempted from real property taxes.
taxpayers and corporations/partnerships.
• Taxing authorities have the power to classify subjects of tax as long as
classification complies with the 4 elements Judy Anne Santos v People
a. Based on substantial distinction • Case of Regine: dismissed by prosecutor
b. Germane to the purpose of the law • Case of Judy Anne: not dismissed
c. Applicable to future conditions
d. Applicable to all members of the same class Issue: Was there a violation of Equal Protection Clause?

Held: NO.
☑ Prosecution of guilty and non-prosecution of non-guilty is not violative of equal
protection clause.

Refer to People v. Dela Pena (?)

• Statute in conformity with a valid classification is valid.
• There is a violation of Equal Protection Clause only if the application and
enforcement of a law leads to undue discrimination
• Equal Protection Clause cannot be invoked as a defense if you do not have clean
hands.

FREEDOM OF RELIGION
1. Free-exercise Clause
• A freedom to act on a religious belief without restraint by government
• The restraint must be a prior restraint

2. Non-establishment Clause

Taxation I
S.Y. 2016-2017, 1st semester
 • An appropriation law must not favor a particular religion
• No funds must be appropriated in favor of a religion Q: If a person does not pay poll tax, will he be liable for an offense?
A: Yes, through the Revised Penal Code and not by non-payment of taxes.
American Bible Society vs. City of Manila
NON-IMPAIRMENT CLAUSE
• License fee is imposed prior to conduct of activity o No law shall be passed abridging contracts
No payment of fee, no selling of bibles o Also applies to taxation
o Applicable only in the exercise of government of its proprietary function.
Issue: Was there a prior restraint imposed by the government?
☒ If in the exercise of government’s sovereignty function, non-impairment
13 Held: Yes
clause should not be invoked.
The religious institution will not be able to express their religious belief
Casanova vs. Hord
“The power to tax the exercise of a privilege is the power to control or suppress its • Non-impairment clause has been applicable since 1902
enjoyment. . . . Those who can tax the exercise of this religious practice can make its • Government entered into a contact with the taxpayer
exercise so costly as to deprive it of the resources necessary for its maintenance. Those • The non-impairment clause applies because the contract was entered into by the
who can tax the privilege of engaging in this form of missionary evangelism can close all its exercise of the State’s proprietary function.
doors to all those who do not have a full purse. Spreading religious beliefs in this ancient
and honorable manner would thus be denied the needy”
Cagayan Power vs. CIR
• Congress granted tax exemption in favor of Cagayan Power
Q: What if after the ABS sells the bible, it earned P2M and the government imposed VAT on
Cagayan power will only pay 3% franchise tax.
that earning? • Congress enacted Internal Revenue Code
A: There will be no violation of Freedom of Religion since there is no prior restraint.
All corporate taxpayers shall pay income tax
• Cagayan Power: invokes non-impairment clause. It asked for amendment of its
If the tax is an imposition before the activity, there is a violation of Freedom of Religion. If the
charter so that it will only pay 3% franchise tax only.
tax is imposed after the activity, there is no prior restraint and no violation of constitutional
freedom of religion.
Supreme Court
☑ No impairment of contract
Tolentino vs. Secretary of Finance o The state exercised its governmental function
☑ No violation of Free Exercise Clause since the licensed fees are not prior o What is granted is a legislative franchise.
restraints. o Constitution provides that the State may grant public franchise subject
• Imposition of VAT to particular sectors is not prior restraint but an administrative to amendment, revocation and alteration by the Congress.
imposition o Congress may enact a law revoking the previously granted franchise.
Hence, the tax exemption may also be revoked.
☑ Cagayan Power must pay taxes from the effectivity of the Internal Revenue Code
☑ Progressivity up to the amendment of its charter.
• Petitioner: VAT is an indirect tax and regressive tax which does not consider the
ability to pay of the taxpayer
• Supreme Court: Constitution does not prohibit regressive system of taxation.

NON-IMPRISONMENT FOR NON-PAYMENT OF POLL TAXES

Poll tax/Persons Tax
Subject: person
E.g. Community tax, cedula
Other kinds of taxes:
1. Property Tax
2. Excise Tax
➢ Transaction, right, interest or privilege
Income tax: right to earn income
Donor tax: privilege of donating gratuitously.
Taxation I
S.Y. 2016-2017, 1st semester
 MERALCO vs. Province of Laguna X Corporation invested P10m and employed 100 employees.
• Contractual tax exemptions: tax exemption granted in a contract between After 2 years, Congress enacted a law revoking exemption.
government and taxpayer, such is present in cases of government bonds and
debenture Q: Can the non-impairment clause be invoked?
A: No. No contract was executed between government and taxpayer. For non-impairment
• Government bonds: offered by banks clause to be invoked, there must be a contract.
Risk-averse
High interest Tax exemption granted by RA 11111 is only a privilege that is given to those who comply
Fixed rates under the law.
14 There could be tax exemption
If there is a contractual taxpayer exemption, non-impairment clause shall be invoked.
• Invoking non-impairment clause is applicable if what is granted is Contractual
Tax Exemption TRADITIONALLY EXEMPTED TAXPAYERS
• RA 100678: T-bills
Grant of tax exemption depends on type of bill obtained for a period based on Article VI, Section 28 (3)
Charitable institutions, churches and parsonages or convents appurtenant thereto,
the stipulation of the grant
mosques, non-profit cemeteries, and all lands, buildings and improvements, actually, directly,
Interest income shall be exempt from tax
and exclusively used for religious, charitable, or educational purposes shall be exempt from
Legally, income is subject to 20% final withholding tax. But with the
taxation.
enactment of this law, interest income is exempt from tax.
• The law states that the exemption is good for 5 years. After lapse of 2 years,
Congress revoked the exemption 1. Subject Matter of the Tax: Lands, buildings, improvement
• Property tax only
• Not excise tax; Not poll tax
Q: Was there a violation of the non-impairment clause?
A: Yes. The contract was through the exercise of proprietary function of the state, and thus
the non-impairment clause can be invoked. What is involved is a government loan 2. Usage of Property: Actually, directly, exclusively
• Not the ownership of property but the usage
agreement
Government: debtor
Taxpayer: creditor 3. Purpose: Religious, charitable or educational

❖If three elements are present, the institution is exempt from property tax.
RCPI vs. Provincial Assessor
Illustrations
• Legislative franchise
➢ RCPI shall be exempt from real property tax 1.
➢ Charter was granted prior to enactment of LGC
P-Mall Church P-mall owned by diocese
• Section 191 of LGC provides for the blanket withdrawal of tax exemptions
previously granted to entities, except as to those enumerated under Sec 234

ISSUE: Was there a violation of Non-impairment Clause?

HELD: No.
Grant of legislative franchise is revocable. It is an exercise of governmental function so
non-impairment clause cannot be invoked.
Bayantel: same as Cagayan Power
Smart Communications: legislative franchise repealed by Congress
Problem
Government enacted RA 11111 which provides that all enterprises which will invest P10m and
employ atleast 100 employees shall avail of income tax holiday for a period of 5 years.
Mall’s rental income: P1m/year
Entire amount goes to church
Q: Is the Mall exempt from property tax?
A: No. It is used for a commercial purpose. It does not matter if it is owned by diocese. It is
the usage of property that determines its exemption from property tax.
Q: What if the church was also being subjected to income tax?
A: It is subject to income tax (excise tax: right to earn income)
What constitution covers is exemption from property tax.

Taxation I
S.Y. 2016-2017, 1st semester
 Lladoc v. CIR
• One corporation gave P100,000 to a diocese to build a church.
2. • The money was used to build a church.
• The diocese was compelled to pay donee’s tax. The diocese avails of
Classroom & Gym constitutional exemption from taxes.
If owned by B Family Corp, will it be exempted Issue: Was the contract of donation subject to donee’s tax?
from Property Tax? Held: Yes.
A: Yes. Ownership is immaterial. It is used for actually, The subject matter of donee’s tax is the privilege of receiving donations. It is in the form of
15 directly and exclusively for educational purpose. an excise tax.
☒ Constitutional exemption applies only to property tax and not to donee’s
Q: Is this subject to property tax? tax.
A: Yes. It is not exclusively used for an educational purpose.

Q: What about the part of the building that is used as a classroom?

ABRA VALLEY vs. AQUINO
Lung Center of the Philippines vs. QC
• “Actually, directly and exclusively used” means “solely used”. Director’s residence
• The building must be entirely used for religious, education or charitable
purpose. Incidental use
• Under the 1935 constitution, the term “used exclusively” includes the incidental
3. use.

Exemption extends to facilities which are incidental to and reasonably necessary for the
The building is owned by a charitable accomplishment of the main purposes.
institution. At first it was used for
Building
orphans. Afterwards, it was leased to *Note, however, that this has been abandoned in the 1987 Constitution. Note also the
Systems College Plus (a proprietary case of Lung Center of the Philippines.
Lot educational institution)
Q: Is the building
exempt from real property tax? BISHOP OF NUEVA SEGOVIA
A: As to its first use, it is exempt since it was for charitable purpose.
When it was leased to Systems College, it is no longer exempt from property tax. By virtue Old Cemetery
of the lease agreement, the institution earned rental income. It was used for a commercial Remainder & Convent
purpose. The direct benefit of the owner is its proprietary use. Church Yard & Convent Vegetable Garden

Systems College Plus *This case was also filed during the effectivity of 1935 Constitution.
• It is not the ownership or the indirect use that matters.
• Look on the direct usage of property.

Q: What if instead of a lease agreement, the building was donated to the SCP?
A: It will be exempt from property tax.

Taxation I
S.Y. 2016-2017, 1st semester
 LUNG CENTER OF THE PHILIPPINES CIR vs. ST. LUKES
• Non-stock, non-profit hospital • Non-stock, non-profit corporation

Vacant/ Issue: Is the income subject to tax exemption under the Constitution?
Idle lot Hospital
Held: No. The constitutional exemption pertains only to property tax.
Portion lease for private clinics
Elliptical Orchid and Garden Center
(accepts entrance fee)
16 ARTICLE XIV, SEC 4(3), 1987 CONSTITUTION
All revenues and assets of non-stock, non-profit educational institutions used
• Lung Center accepts paying patients.
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 institution, their
1st Question: Is it a charitable institution?
assets shall be disposed of in the manner provided by the law.
☑ Yes Proprietary educational institutions, including those cooperatively owned, may
Acceptance of paying patients will not reduce the character of Lung Center as
likewise be entitled to such exemptions subject to the limitations provided by law including
charitable institution.
restrictions on dividends and provisions for reinvestment.
To determine whether an enterprise is a charitable institution/entity or not, the
elements which should be considered include the statute creating the enterprise, its Subject Matter: Revenues and Assets
corporate purposes, its constitution and by-laws, the methods of administration, the Taxes: Excise tax (based on a right/privilege), and Property Tax
nature of the actual work performed, the character of the services rendered, the ☒ Does not include poll/capitation tax.
indefiniteness of the beneficiaries, and the use and occupation of the properties. Ownership: Non-stock, non-profit educational institutions
Usage: Educational Purpose
In the legal sense, a charity may be fully defined as a gift, to be applied consistently with
existing laws, for the benefit of an indefinite number of persons, either by bringing their minds RECALL the previous illustration
and hearts under the influence of education or religion, by assisting them to establish
themselves in life or otherwise lessening the burden of government. It may be applied to
almost anything that tend to promote the well-doing and well-being of social man. It Classroom
embraces the improvement and promotion of the happiness of man. The word charitable
is not restricted to relief of the poor or sick. The test of a charity and a charitable organization Canteen
are in law the same. The test whether an enterprise is charitable or not is whether it exists to
carry out a purpose reorganized in law as charitable or whether it is maintained for Boutique
gain, profit, or private advantage.

xxx Classroom/
Gym
As a general principle, a charitable institution does not lose its character as such and its
exemption from taxes simply because it derives income from paying patients, whether out- Exempt from property tax (Section 28(3), Article
patient, or confined in the hospital, or receives subsidies from the government, so long as the VI)
money received is devoted or used altogether to the charitable object which it is
intended to achieve; and no money inures to the private benefit of the persons It is owned by B Family Corporation. It collects tuition fees from students and uses the same
managing or operating the institution. for computer and laboratory equipments.

2nd Question: Is it actually, directly and exclusively used for a charitable purpose? Q: Is the revenue used for educational purposes?
☒ No A: YES!
The portion leased to doctors for private clinics is not exempt from property tax.
Other portions: exempt Q: But is it owned by a non-stock, non-profit educational institution?
A: NO. It is a Family Corporation.
Supreme Court directed the City Assessor to determine which portion is leased to
private individuals and are not exempt from property tax. Illustrations:
Those that are not used for proprietary purpose are constitutionally exempted. 1. SLU is a non-stock, non-profit educational institution.
It sold concert tickets to purchase computer and laboratory equipments.
Note that the revenues were from the act of selling the tickets, not from the tuition fees.
Taxation I
S.Y. 2016-2017, 1st semester
 Q: Is the revenue exempt from income tax?
A: Yes.

Subject Matter: Revenue

Ownership: Non-stock, non-profit educational institution
Usage: Educational Purpose

2. A non-stock, non-profit corporation had a revenue of P10m.

Revenue was used for charitable purposes.
17
Q: Is the revenue exempt from income tax?
A: No.

Subject Matter: Revenue

Ownership: Non-stock, non-profit educational institution
✗ Usage: CHARITABLE PURPOSE (Not educational purpose

To invoke Sec 4(3), Article XIV of the Constitution, the purpose must be
EDUCATIONAL.

Q: When is a corporation non-stock and non-profit?

A:
Non-profit: No portion of the income is distributed to its members
Non-stock: The structure of the corporation is not divided into shares (?)

The Articles of Incorporation commonly specifies the character of the corporation as being
non-stock, non-profit. However, the purpose of the corporation must be aligned with its
designation as a non-stock, non profit corporation.

Taxation I
S.Y. 2016-2017, 1st semester