[tax 1] midterms reviewer

TAX Laforteza | Midterms Reviewer Camille Umali

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FUNDAMENTALS OF TAXATION

A. Meaning and Nature of Taxes

1. Taxation and tax defined

Taxation The act of laying a tax, i.e., the process or

means by which the sovereign, through its law-making body, raises income to defray the necessary expenses of government. - (De Leon) As a power, it refers to the inherent

power of the state to demand enforced contributions for public purpose or purposes

- (Mamalateo) power by which the sovereign raises revenue to defray the expenses of the government among those who in some measure are privileged to enjoy its benefits and must bear its burden

- (Mamalateo) the 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

Tax The enforced proportional and pecuniary

contributions from persons and property levied by the law-making body of the state having jurisdiction over the subject of the burden for the support of the government and public needs

CIR v. Algue tax delinquency Algue asked for deduction of promotional fees as

it was a legitimate business expense. Allowed the deduction 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.

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.

2. Essential Characteristics

An enforced contribution Tax is not a voluntary payment or donation and its imposition is in no way dependent upon the will or assent, open or implied, of the person taxed

Proportionate in character Tax is laid by some rule of apportionment according to which persons share the public burden. It is ordinarily based on ability to pay

Generally payable in money Unless qualified by law, tax is usually understood to be a pecuniary burden.

Levied on persons or property A tax may also

be imposed on acts, transactions, rights or privileges. In each case, it is only a person who pays the tax. The property is resorted to for the purpose of ascertaining the amount of tax to be paid.

Levied by the state which has jurisdiction over

the person or property The object to be taxed must be subject to the jurisdiction of the taxing state. This is necessary in order that a tax can be enforced. It cannot reach over into another jurisdiction to seize upon property or person for purposes of taxation.

Levied by the law-making body of the state Power to tax is a legislative power which under the Constitution only Congress can exercise. However, our Constitution provides for exceptions and allows other government bodies to impose a tax with certain limits. (LGUs and President)

Levied for public purposes Taxation involves, and a tax constitutes, a charge or burden imposed to provide for the support of the government, the administration of the law or the payment of public expenses. Revenues derived from taxation cannot be used for purely private purposes or for the exclusive benefit of private persons.

Liability is personal to the taxpayer Paid at regular periods or intervals

3. Tax distinguished from other forms of impositions

a. Tax v. license and regulatory fees

TAX LICENSE FEE

Definition Enforced contribution assessed by sovereign authority to defray public expenses

Legal compensation or reward of an officer for specific services

Purpose Imposed for revenue purposes

Imposed for regulatory purposes

Basis Imposed under the power of taxation

Imposed under the police power of the State


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Amount No limit as to the

amount of tax Amount of license fee that can be collected is limited to the cost of the license and the expenses of police surveillance and regulation

Time of Payment

Normally paid after the start of a business

Normally paid before the commencement of the business

Effect of Non-Payment

Failure to pay the tax does not make the business illegal

Failure to pay a license fee makes the business illegal

Surrender Taxes, being the lifeblood of the State, cannot be surrendered except for lawful consideration

License fee may be with or without consideration

License fee is in the nature of a special privilege,

permission or authority to do what is within its terms. Makes lawful an act which would otherwise be unlawful. It is always revocable.

Importance of distinction: 1. Some limitations apply only to one and not to the

other. Also, some exemptions apply to tax but not to license fee.

2. Power to exercise police power does not include power to impose fees for purposes of revenue.

3. An exaction may be considered both a tax and a license fee. (E.g. car registration fees)

4. Tax may have only a regulatory purpose.

Osmena v Orbos OPSF PD 1956 created the OPSF to reimburse the oil

companies for cost increased in crude oil and imported petrol products. This fund was reclassified as trust liability account.

Tax collected in exercise of police power The OPSF as a special fund is plain from the special

treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny and review of the COA. The Court is satisfied that these measures comply with the constitutional description of a "special fund."

PAL v Edu Motor vehicle registration fees PAL claims exemption from MVRF Tax both for revenue and regulation If purpose is primarily revenue, or if revenue is, at

least, one of the real and substantial purposes, then the exaction is properly called tax.

PAL is exempt from paying motor vehicle registrations fees except for the period between June 27, 1968 until April 9,1979. Any registration fees collected between June 27, 1968 and April 9,

1979, were correctly imposed because the tax exemption in the franchise of PAL was repealed during the period.

Progressive Development Corp. v Quezon City Market Code of QC, supervision fee Tax on the gross receipts of stall rentals as being

in the nature of an income tax, and not a supervision fee or license tax as claimed by respondent. If such were an income tax, such would be in violation of Republic Act 2264

Privilege tax or license fee To be considered as 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. The Farmers Market and Shopping Center is a public market in the sense that it is open to the public, even if it is privately owned. The operation thereof required a license issued by the City, the issuance of which was done principally in the exercise of Rs police power.

Compania General de Tabacos v City of Manila wholesale and retail tax on liquor Tabacalera filed for refund of municipal sales

taxes because it already paid license fees for its liquor sales.

License fee, no double taxation Ordinance 3358 is a license fee for the privilege of

engaging in the sale of liquor, a calling which not anyone or anybody may freely engage, considering that the sale of liquor indiscriminately may endanger public health and morals. On the other hand, what Ordinances 3634, 3301, and 3816 impose is a tax for revenue purposes based on the sales made of the same article or merchandise. Both a license fee and a tax may be imposed on the same business or occupation, or for selling the same article, this not being a violation of the rule against double taxation.

b. Tax v. Special assessment

Sec. 240, RA 7160 (Local Government Code) Special Levy by Local Government Units. - A province, city or municipality may impose a special levy on the lands comprised within its territorial jurisdiction specially benefited by public works projects or improvements funded by the local government unit concerned:

PROVIDED, however, That the special levy shall not exceed sixty percent (60%) of the actual cost of such projects and improvements, including the costs of acquiring land and such other real property in connection therewith:

PROVIDED, further, That the special levy shall not apply to:

(1) lands exempt from basic real property tax and


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(2) the remainder of the land portions of which have been donated to the local government unit concerned for the construction of such projects or improvements.

TAX SPECIAL ASSESSMENT

Definition Enforced proportional contribution from persons and property

An enforced proportional contribution from owners of lands especially or peculiarly benefited by public improvements

Basis Based on necessity

Based wholly on benefits

Subject Levied on: Persons Property Acts

Levied only on land

Scope Has general application

It is exceptional both as to the time and place

Person Liable

It is a personal liability of the taxpayer

Not a personal liability of the person assessed; his liability is limited only to the land involved

- Exemption from taxation does not include

exemption from special assessment - The power to tax carries with it the power to

levy a special assessment

Republic v. Murcia Milling Philsugin fund Charter of Philsugin imposes a levy on annual

sugar production of sugar cane planters. The funs was supposedly for research work. The venture, however, failed. The 3 sugar centrals now claims for a refund of the amount they contributed.

No refund, Neither a special assessment nor a tax. As it is an exercise of the police power for the general

welfare of the entire country which no private citizen may lawfully resist. From its financially unsuccessful venture, the Philsugin could very well have advanced in its appreciation of the problems of management faced by sugar centrals, could have understood more clearly the difficulties of marketing sugar products, and could have known with better intimacy the precise are of the industry in need of the more help from the government. Therefore, herein respondents are likewise benefited. Moreover, the field of research involved here is difficult to carry out without the actual operation of a refinery.

c. Tax v. Toll

Sec. 155, RA 7160 (Local Government Code) Toll Fees or Charges. The Sanggunian concerned may prescribe the terms and conditionsand fix the rates for the imposition of toll fees or charges for the use of any public road, pier, or wharf, waterway, bridge, ferry or telecommunication system funded and constructed by the local government unit concerned:

PROVIDED, That no such toll fees or charges shall be collected from:

(1) officers and enlisted men of the Armed Forces of the Philippines AND members of the PNP on mission

(2) post-office personnel delivering mail (3) physically-handicapped (4) disabled citizens who are sixty-five (65) years or

older When public safety and welfare so requires, the

Sanggunian concerned may discontinue the collection of the tolls, and thereafter the said facility shall be free and open for public use.

TAX TOLL

Definition Enforced proportional contributions from persons and property

A sum of money for the use of something, a consideration which is paid for the use of a property which is of a public nature; e.g road, bridge

Basis A demand of sovereignty

A demand of proprietorship

Amount No limit as to the amount of tax

Amount of toll depends upon the cost of construction or maintenance of the public improvement used

Authority May be imposed only by the government

May be imposed by the government or private individuals or entities

Toll sum of money for the use of something,

generally applied to the consideration which is paid for the use of a road, bridge or the like of a public nature.

d. Tax v. tariff and customs duties

Custom duties taxes imposed on goods exported

from or imported into a country. The term taxes is broader in scope as it includescustom duties.

Tariff Three senses: Book of rates drawn usually in alphabetical order

containing the names of several kinds of merchandise with the correspondin duties to be paid for the same

Duties payable on goods imported or exported (cf PD No. 230)

System or principle of imposing duties on the importation (or exportation) of goods


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Garcia v. Executive Secretary 9% ad valorem duties Garcia challenges the constitutionality of the

imposition of 9% ad valorem duties on imported goods by virtue of an Executive Order issued by the President. He challenges the authority of the President to impose duties.

Constitutional The Congress may by law authorize the President to

fix tariff rates and other duties subject to certain limitations and restrictions. Through the Tariff and Customs Code, the President is empowered to fix tariff and customs duties subject to limitations. There is also nothing in the Code that suggests the limitation that the President may only impose tariffs to protect local industries and products.

Custom duties assessed at the prescribed tariff rates are very much like taxes which are frequently imposed for both revenue raising and for regulatory purposes. Custom duties is the name given to taxes on the importation and exportation of commodities.

e. Obligation to pay tax v. Obligation to

pay debt

New Civil Code Art. 1279. - In order that compensation may be

proper, it is necessary: (1) That each one of the obligors be bound principally,

and that he be at the same time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention

or controversy, commenced by third persons and communicated in due time to the debtor.

TAX DEBT

Basis Law Contract of judgment

Effect of non payment

May be imprisoned (except poll tax)

No imprisonment for failure to pay a debt

Mode of payment

Payable in money

Payable in money, property or service

Assignability Not Can be assigned

Interest No interest unless delinquent

Draws interest if stipulated or delayed

Authority Imposed by public authority

Can be imposed by private individuals

Prescription Determined under the NIRC

Governed by Civil Code

Caltex v COA OPSF A petition questioning the authority of the COA

in disallowing Caltexs claim for reimbursement from the Oil Price Stabilization Fund (OPSF) and seeking reversal of the COAs decision preventing Caltex from exercising the right to offset its remittances against its reimbursement from the OPSF

Not allowed to offset A taxpayer may not offset taxes due from the claims

that he might have against the government. 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.

Francia v IAC tax delinquency and expropriation A portion of Francias property was expropriated.

However, he also failed to pay real estate taxes so it was sold to satisfy tax delinquency. He now asks for a set-off of the amount the government owed him for the expropriation and the tax delinquency.

Not allowed to offset The collection of taxes cant await results of a lawsuit.

The obligation to pay taxes is not a contract but a duty a positive act of government wherein the consent of individuals is not required. There is no mutual creditor and debtor relationship between the government and the taxpayer. Furthermore, the tax being questioned was due to the city government but the expropriation was done by the national government - two different taxing bodies.

Republic v Mambulao Lumber Company Reforestation charges MLC failed to pay forest charges. It wants the

reforestation charges paid before (which were not allegedly not used because forests are still denuded) to be applied to the forest charges it owed the government.

Not allowed to offset. The amount paid by a licensee as reforestation

charges is in the nature of a tax which forms a part of the Reforestation Fund, payable by him irrespective of whether the area covered by his license is reforested or not.

Internal revenue taxes, such as the forest charges, cannot be the subject of set-off or compensation because axes are not in the nature of contracts between the party and party but grow out of a duty to, and are the positive acts of the government, to the making and enforcing of which, the personal consent of individual taxpayers is not required.


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Philex Mining v. CIR Excise tax. VAT input credit/refund Not allowed to set-off Parties are not creditor and debtor of each other.

Debts are due to the government in corporate capacity while taxes are due to the government in its sovereign capacity. Taxes are compulsory and not a matter of bargain.

Domingo v. Carlitos Estate and Inheritance tax, government debt Theres already a final judgment for payment of

estate and inheritance taxes, charges and penalties but the execution was not allowed because government is also indebted to the estate.

Allowed to set-off Both the claim of the government and the claim of

intestate for services rendered have already become overdue and demandable as well as fully liquidated. Compensation, therefore, takes place by operation of law. Both debts are extinguished by concurrent amount.

Tax. v. penalty Penalty sanction imposed as a punishment for

violation of law or act deemed injurious.

Tax Penalty

Raise revenue Regulate conduct

Imposed only by government

May be imposed by government or private individuals or entitites


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B. Purposes/Objectives of Taxation

1. Revenue-raising

This the primary purpose of taxation to raise revenue for the support of the government.

Pal v Edu MVRF Taxes not fees Taxes 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.

It is the object of the charge, and not the name, that determines whether a charge is a tax or a fee. The money collected under the Motor Vehicle Law is not intended for the expenditures of the Motor Vehicle Office but accrues to the funds for the construction and maintenance of public roads, streets and bridges.

As the fees are not collected for regulatory purposes as an incident to the enforcement of regulations governing the operation of motor vehicles on public highways, but to provide revenue with which the Government is to construct and maintain public highways for everyones use, they are veritable taxes, not merely fees

Osmena v Orbos OPSF special fund The funds are collected for the stabilization of the oil

industry, which is a tax collected not in the exercise of the taxing power but of the police power, for the purpose not of generating revenues attributable to the power to tax, but for the purpose of regulation.

Having been levied for a special purpose, the revenues collected are to be treated as a special fund, to be administered in trust for the purpose intended. Once the purposes has been fulfilled or abandoned, the balance, if any, is to be transferred to the general funds of the government.

Hence, while the funds collected may be referred to as taxes, they are exacted in the exercise of police power. It may then be converted and directed to the assailed trust fund.

2. Non-revenue/special or regulatory

Taxation is also employed as a device for regulation by means of which certain effects or conditions envisioned by the government may be achieved.

1. Strengthen anemic enterprises or provide incentive for greater production

2. Protect local industries taxes on imports 3. Bargaining tool of a country taxes on imports 4. Halt inflation (Increase in time of prosperity) or

ward of depression (lowered to expand business) 5. Reduce inequalities in wealth and income

estate, donor and income taxes 6. Promote science and invention or finance

educational activities, improve efficiency of police force,

7. Implement of police power 8. Incentive for some desirable activities From mamalateo:

1. Revenue 2. Regulatory 3. Promotion of general welfare

Republic v. Murcia Milling Phiilsugin funds SA imposed in the exercise of police power The purpose of the SA is to finance the improvement

of particular properties, with the benefits of the improvement accruing or inuring to the owners thereof who, after all, pay the assessment. The purpose of an ordinary tax is to provide the Government with revenues needed for the financing of state affairs. While the refusal of a citizen to pay his ordinary taxes may not indeed by sanctioned because it would impair government functions, the same would not hold true in the case of a refusal to comply with a special assessment.

Tio v VRB 30% tax on gross receipts PD 1987 (creating VRB) imposes tax on locally

manufactured or imported blank video tapes to sales tax.

Constitutional, hence a valid tax The Court will not invalidate a tax merely because it

regulates, discourages or definitely deters the activities taxed. The power to tax is so unlimited in force and so reaching in extent.

Tax imposed is both a regulatory and a revenue measure.

Revenue measure: earnings of videogram establishments of around P600M p.a. have not been subjected to tax, thereby depriving the Government of an additional source of revenue.

Regulatory measure: for regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic video tapes.

Caltex v COA OPSF The claims arising from the OPSF is a tax. Taxation is no longer envisioned as merely to raise

revenue to support the existence of government; taxes may be levied with a regulatory purpose to provide means for rehabilitation and stabilization of a threatened industry which is imbued with public interest as to be within the police power of the State. The stabilization of oil prices is one of prime concern which the state, via its police power, may properly address.

Esso Standard Eastern v CIR Margin fees paid to CB for remittances Not a tax It is an exaction designed to curb the excessive

demands upon our international reserve. It was imposed by state in the exercise of police power.


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C. Theory and Basis of Taxation

1. Necessity theory

The existence of governemtn is a necessity, it cannot

exist nor endure without the means to pay its expenses and for those means, the government has the right to compel all its citizens and property within its limit to contribute in the form of taxes.

Phil Guaranty v CIR Withgolding tax on Reinsurance contracts ceded to

foreign Companies Taxable Where the reinsurance contracts show that the

activities that constituted the undertaking to reinsure a domestic insurer against losses arising from the original insurances in the Philippines were performed in the Philippines, the reinsurance premiums are considered as coming from sources within the Philippines and are subject to Philippines Income Tax.

The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the States sovereignty and a means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvements designed for the enjoyment of the citizenry and those which come within the States territory, and facilities and protection which a government is supposed to provide. Considering the reinsurance premiums in question were afforded protection by the government and the recipient foreign reinsurers exercised rights and privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the estate.

CIR v Algue Deduction for promotional fees Allowed to deduct Taxes are what we pay for civilized 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 ones hard-earned money to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government, for it 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.

Marcos II v CA Estate and income tax Authority of the Bureau of Internal Revenue to

collect by the summary remedy of levying upon, and sale of real properties of the decedent, estate tax deficiencies, without the cognition and authority of the court sitting in probate over the supposed will of the deceased is being challenged.

Has authority, allowed to collect Enforcement of tax laws and the collection of taxes, is

of paramount importance for the sustenance of government. Taxes are the lifeblood of the government and should be collected without unnecessary hindrance. However, 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.

NPC v City of Cabanatuan Franchise tax on NPC by the City of Cabanatuan Taxable As a rule, LGUs cannot impose taxes on the National

Government; but it admits of an exception, i.e. when specific provisions of the LGC authorize the LGUs to impose taxes. Here, the LGC authorizes the City to impose the franchise tax. NPC is also covered by the franchise tax because (1) it has a franchise in the sense of a secondary or special franchise, and (2) it is exercising its rights or privileges under this franchise within the territory of the city government of Cabanatuan.

The power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of the LGUs for the delivery of basic services essential to the promotion of the general welfare.

2. Benefits received theory

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

Gomez v Palomar Postage stamp tax The constitutionality of RA 1635, as amended by

RA 2631,imposing a tax on postage stamps for the benefit of the Philippine Tuberculosis Society, is assailed for being unconstitutional

Constitutional The Anti-TB stamp tax is in the nature of an excise

tax, laid upon the exercise of a privilege, namely, the privilege of using the mails. The legislature has the inherent power of selecting the subjects of taxation and has the greatest freedom in classification. The classification of mail users is not without any reason. It is based on the ability


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to pay, and enjoyment of the privilege of using the mails

The eradication of a dreaded disease is a public purpose, although it does not benefit the taxpayer directly. The only benefit that the taxpayer is constitutionally entitled to is derived from his enjoyment of the privileges of living in an organized society, established and safeguarded by the devotion of taxes for public purposes.

Lorenzo v Posadas Inheritance tax Hanley died and left his property to his nephew

Matthew however such property will only be given 10 years after his death.

Taxable at time of delivery to trustee Delivery to the trustee is in esse delivery to the cestui

que trust, the beneficiary. The mere fact that the estate of the deceased was placed in trust did not remove it from the operation of our inheritance tax laws.

Should the court hold that payment of taxes be delayed through the creation of a trust, the collection of the tax would be left to the will of a private individual.

The obligation to pay taxes rests not upon the privileges enjoyed by a citizen but upon the necessity of money for the support of the state, for this reason, no one is allowed to object to or resist the payment of taxes solely because no personal benefit to him can be pointed out.

D. Aspects of Taxation

1. Levy/imposition by the legislative 2. Collection/administration/ways/ and

methods of collection

First is taxation, strictly speaking, while the second may be referred to as tax administration

From Mamalateo:

a. Levy enactment of a law by Congress b. Assessment and collection administration

and implementation of the tax law by the Executive through admin agencies

c. Payment act of compliance by the taxpayer Pay as you earn/pay as you go

Most efficient for government

Person paying you acts as BIR agent Pay as you are assessed

BIR founds out that you have a deficiency so they send you an assessment

Pay as you file Easiest


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E. Nature and Scope of and Limitations on the Power of Taxation

1. Power to tax as differentiated from the

powers of eminent domain and police power

TAXATION EMINENT DOMAIN POLICE POWER

Authority who Exercises the Power

May be exercised only by the government or its political subdivisions

May be: (1) Exercised by the government or its political subdivisions; (2) Granted to public service companies or public utilities

May be exercised only by the government or its political subdivisions

Purpose The property (generally in the form of money) is taken for the support of the government

The property is taken for public use; it must be compensated

The use of the property is regulated for the purpose of promoting the general welfare; it is not compensable

Persons Affected Operates upon a: (1) Community (2) Class of individuals

Operates on an individual as the owner of a particular property

Operates upon a: (1) Community (2) Class of individuals

Effect The money contributed becomes part of the public funds

There is a transfer of the right to property

There is no transfer of title. At most, there is restraint on the injurious use of property

Benefits Received It is assumed that the individual receives the equivalent of the tax in the form of protection and benefits he receives from the government

He receives the market value of the property taken from him

The person affected receives indirect benefits as may arise from the maintenance of a healthy economic standard of society

Amount of Imposition Generally, there is no limit on the amount of tax that may be imposed

No amount imposed but rather the owner is paid the market value of property taken

Amount imposed should not be more than sufficient to cover the cost of the license and necessary expenses

Relationship to Constitution

Is subject to certain constitutional limitations Including the prohibition against impairment of obligation of contracts

Inferior to the impairment prohibition; government cannot expropriate private property which under a contract it had previously bound itself to purchase from the other contracting party

Relatively free from constitutional limitations Is superior to the impairment of contract provision

Power of eminent domain power of the state or

those to whom the power has been delegated to take private property for public use upon paying to the owner a just compensation to be ascertained according to law.

Police power power of the state to enact laws in

relation to persons and property as may promote public health, morals, safety and general prosperity and welfare to its inhabitants. It springs from obligation of the State to protect its citizens.

2. Essential characteristic of taxation

a. Inherent in sovereignty

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

It is inherent in a sovereign because it is a necessary attribute of sovereignty. Without this

power, no sovereign State can exist or endure. The power to tax is an essential and inherent attribute of sovereignty, belonging as a matter of right to every State.

b. Exclusively legislative in nature

Power to tax includes authority to: a. Determine the nature, object, extent,

coverage, apportionment, place and method b. Grant tax exemptions or condonations c. Specify/provide for admin/judicial remedies

It cannot be delegated either to exec/jud dept without infringing on separation of powers

When delegation is allowed: a. Local governments local concern b. Allowed by constitution President c. Merely administrative implementation


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c. Subject to inherent and

constitutional limitations Power of taxation is not absolute.

Roxas v CTA Real estate dealers tax Roxas brothers were asked by the government to

sell their land for agrarian reform by letting the farmers pay for the land in installment.

Not taxable The power of taxation is sometimes called also the

power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the hen that lays the golden egg. And in order to maintain the general publics trust and confidence in the government, this power must be used justly and not treacherously. It does not conform with our sense of justice in this case for the government to persuade the taxpayer to lend it a helping hand and later on penalize him for duly answering the urgent call. Thus, the partnership of the brothers, Roxas y Cia, cannot be considered as a real estate dealer for the sale in question.

3. Inherent Limitations

a. Purpose must be public in nature Public purpose governmental purpose, purpose affecting the inhabitants of the state or taxing district as a community and not merely as individuals It must be used for:

1. Support of government 2. Recognized objects of government 3. Promote welfare of community

Reason: if for private = taking of property without due process of law as it is beyond the power of the government to impose Although private individuals are benefited, still

valid tax if benefit is only incidental Taxpayer may question the purpose of tax but is

not relieved from the duty of paying it

Pascual v. Sec. of Public Works Appropriation for feeder roads on a land owned by Senator Zulueta. Unconstitutional The legislature has no power to appropriate public

revenue for anything but public purpose. The test of the constitutionality of a statute requiring

the use of public funds is whether the statute is designed to promote the public interests, as opposed to the furtherance of the advantage, of individuals, although each advantage to individuals might incidentally serve the public. In this case, the property was private at the time the law was passed. The donation which gave the law a semblance of legality cannot cure the defect

Caltex v. CIR OPSF special fund Taxation is no longer envisioned as merely to raise

revenue to support existence of the government; taxes may be levied with a regulatory purpose to provide means for rehabilitation and stabilization of a threatened industry which is imbued with public interest as to be within the police power of the state.

Gaston v. Republic Planter Stabilization fund A class suit by sugar producers, sugarcane planters

and millers claiming ownership of the stocks of the Republic Planters Bank. Such investment was funded by the deduction of Php1.00 per picul from the proceeds of the sugar producers as the Stabilization Fund collected by Philsucom. The sugar producers argue the stabilization fees collected from them are funds in trust for them

Tax, Not a fund held in trust for the sugar producers, planters and millers

The stabilization fees are in the nature of the tax which is within the power of the State to impose for the promotion of the entire sugar industry. This is within the public purpose limitation of taxation and the purpose is this: to protect the sugar industry which constitutes one of the nations great sources of wealth which directly and indirectly affects the welfare of so great a portion of the population of the State.

Planters Product v. Fertphil capital recovery component LOI 1465 provided for a capital recovery component

(CRC) on the domestic sale of fertilizers of not less than P10 per bag in favor of Planters Products, Inc. (PPI). Fertphil stopped paying after EDSA revolution and now asks for a refund.

Allowed a refund LOI is unconstitutional even if enacted under the

police power as it did not promote public interest. The imposition of the levy was an exercise by the

State of its taxation power. The primary purpose of the levy is revenue generation. An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a public purpose. The levy is not for a public purpose. It is imposed for the benefit of PPI, a private company, to pay for its corporate debts.

b. Prohibition against delegation of taxing power

i. Extent of the legislative power to tax

General Rule: Congress may not delegate to others. The power of taxation is purely legislative. Basis: separation of powers


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Tan v. Del Rosario Simplified Net Income Taxation Valid With the legislature primarily lies the discretion to

determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation. The court cannot freely delve into those matters which, by constitutional fiat, rightly rest on legislative judgment. But, where a tax measure becomes so unconscionable and unjust as to amount to confiscation of property, courts will not hesitate to strike it down, for, despite all its plenitude, the power to tax cannot override constitutional proscriptions.

Sison v. Ancheta Income tax The higher tax rate on income arising from

exercise of profession as opposed to those with fixed income or salaried workers is being assailed as unconstitutional.

Constitutional The power to tax is an inherent prerogative of the

state in its sovereign capacity exercised through the legislative branch of government

However, the power to tax is not unconfined but has restrictions provided for in the Constitution. The due process and equal protection clauses may be invoked to strike down invalid revenue measures as they affect property rights. When any legislative measure violates the fundamental law, the former must be declared null.

The taxing power has the authority to make reasonable and natural classifications for the purposes of taxation. That taxpayers who are recipients of income compensation as opposed to those in business or professions are classified separately is a reasonable classification that the legislature may so prescribe without violating the fundamental law.

Kapatiran v. Tan VAT law enacted by Pres. Aquino Valid The legislative process started long before the signing

when the data were gathered, proposals were weighed and the final wordings of the emasure were drafted,revised and finalized. It cannot be said that the President made a jump, so to speak, on the Congress, two days before it convened.

ii. Exceptions from the prohibition

(a) Delegation to local governments

Basis:

1. Necessary implication power to create municipal corporations for purpose of local self-government carries with it the power to confer the power to tax, they are instrumentalities of the state

2. Constitution

1987 Constitution Art. X, Sec. 5 Each local government unit shall have the power to create it own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments. Local Government Code, RA 7160, Book 2

Basco v. Pagcor (1991) PD 1869 which exempts PAGCOR from taxes and

license fees and Manilas right to impose local taxation and principle of local autonomy.

PAGCOR is required to pay franchise tax of 5% of its gross revenues in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial or national government authority

Pagcor is exempt. The Legislatures (inherent) power to tax is far more

superior to a municipal corporations (delegated) power to tax. The latter has to yield to the former, considering that an LGUs power to impose taxes and fees is always subject to limitations which Congress may provide by law.

A municipal corporation has no inherent power to tax. Local government has no power to tax government instrumentalities.

(b) Delegation to president

Purpose: practicality and expediency, need for speedy action Basis: constitution (no ground for legal objection) Required: Congress is prohibited from renouncing its law-making power over the subjects specified. The delegation must impose limitations and restrictions and specify the minimum as well as the maximum rates.

1987 Constitution Art. VI Sec. 28 (2) - (2) The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government. Tariff and Customs Code Sec. 401 - Tariff and Customs Code Sec. 401 Flexible Clause. a. The President, upon investigation by the Commission and recommendation of the National Economic Council, is hereby empowered to reduce by not more than fifty per cent or to increase by not more than five times the rates of import duty expressly fixed by statute (including any necessary change in classification) when in his judgment such modification in the rates of import duty is necessary in the interest of national economy, general welfare and/or national defense.


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b. Before any recommendation is submitted to the President by the Council pursuant to the provisions of this section, the Commission shall conduct an investigation in the course of which it shall hold public hearings wherein interested parties shall be afforded reasonable opportunity to be present, to produce evidence and to be heard. The Commission may also request the views and recommendations of any government office, agency or instrumentality, and such office, agency or instrumentality shall cooperate fully with the Commission. c. The President shall have no authority to transfer articles from the duty-free list to the dutiable list nor from the dutiable list to the duty-free list of the tariff. d. The power of the President to increase or decrease rates of import duty within the limits fixed in subsection "a" shall include the authority to modify the form of duty. In modifying the form of duty the corresponding ad valorem or specific equivalents of the duty with respect to imports from the principal concerning foreign country for the most recent representation period shall be used as basis. e. The Commissioner of Customs shall regularly furnish to the Commission a copy each of all customs import entries containing every pertinent information appearing in the collectors' liquidated duplicates, including the consular invoice and/or the commercial invoice. The Commission or its duly authorized agents shall have access to and the right to copy all the customs import entries and other documents appended thereto as finally in the General Auditing Office. f. The Commission is authorized to adopt such reasonable procedure, rules and regulations as it may deem necessary to carry out the provisions of this section. g. Any order issued by the President pursuant to the provisions of this section shall take effect thirty days after its issuance. h. The provisions of this section shall not apply to any article the importation of which into the Philippines is or may be governed by Section 402 of this Code. i. The authority herein granted to the President shall be exercised only when Congress is not in session.

Garcia v. Executive Secretary 9% ad valorem duties on imported goods by virtue

of an Executive Order issued by the President Constitutional The Congress may by law authorize the President to

fix tariff rates and other duties subject to certain limitations and restrictions. Through the Tariff and Customs Code, the President is empowered to fix tariff and customs duties subject to limitations. There is also nothing in the Code that suggests the limitation that the President may only impose tariffs to protect local industries and products.

Abakada v. Ermita Expanded-VAT law No undue delegation It is simply a delegation of ascertainment of facts

upon which enforcement and administration of the increase rate under the law is contingent. No discretion will be exercised by the President. Instead, it is her duty to immediately impose the 12% rate upon the existence of any of the conditions specified by Congress.

Secretary of Finance is not acting as 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.

Congress did not delegate the power to tax but the mere implementation of the law. The intent and will to increase the VAT rate to 12% came from Congress and the task of the President is to simply execute the legislative policy.

(c) Delegation to administrative

agencies Powers not legislative (therefore, delegable)

1. To value property for purposes of taxation pursuant to fixed rules

2. Assess and collect taxes 3. Perform computation, appraisement,

adjustment Cannot be delegated:

1. Subjects to be taxed 2. Purpose 3. Amount or rate 4. Manners, means and agencies of collection 5. Prescribing necessary rules

Maceda v. Macaraig NPCs tax exemption from indirect tax FIRB resolution restored NPCs exemption No undue delegation The legislative authority could not or is not expected

to state all the detailed situations wherein the tax exemption privileges of persons or entities be restored. The task may be assigned to an administrative body like FIRB. EO 93 is complete in itself and constitutes a valid delegation of legislative power to the FIRB.

Maceda v. ERB Provisional increase in oil prices no undue delegation ERB does have to authority to grant the provisional

increase, given the nature and duties of the agency. It has been shown the there was a rise in the crude oil importation costs and that the government has decided to discontinue subsidizing oil prices in view of the inflationary pressures. There is also the apparent inadequacy of the proposed increase in the government appropriation for the OPSF and the sharp drop in the value of the peso in relation to the US dollar. Hence, the board is left with no other recourse but to grant applicant oil companies further relief by increasing the prices of petroleum products sold by them.


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Osmena v. Orbos OPSF Valid delegation For a valid delegation of power, it is essential that the law delegating the power must be: (1) complete in itself, that is it must set forth the policy to be executed by the delegate and (2) it must fix a standard the limits of which are sufficiently determinate or determinable to which the delegate must conform.

CIR v. CA, Fortune tobacco (1996) BIR issued an RMC which reclassified the cigarettes of Respondent subject to excise tax. Not valid, quasi-legislative power Two kinds of administrative issuances: a legislative

rule is in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof, which must have the benefit of public hearing; and an interpretative rule is designed to provide guidelines to the law which the administrative agency is in charge of enforcing.

When the administrative rule substantially adds to or increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard before that new issuance is given the force and effect of law.

c. Exemption of government entities, agencies and instrumentalities

Reason: if not exempt, government would be taxing itself to raise money to pay over to itself - fundamental principles of government necessary in order that the functions of government not be impeded Who are exempted: those entities through which the government immediately and directly exercise sovereign powers (AFP, etc.) Not exempt: GOCCs performing proprietary functions (in the absence of tax exemption in their charters) Exempt: Public Corporations local government units

NIRC SEC. 24. Income Tax Rates. (C) Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange. - The provisions of Section 39(B) notwithstanding, a final tax at the rates prescribed below is hereby imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange. Not over P100,000.................. 5% On any amount in excess of P100,000 10%

See: EO 93 and PD 1931

Mactan Cebu v. Marcos Realty taxes Not exempt A claim of exemption from tax payments must be

clearly shown. Taxation is the rule, exemption is the 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 operation.

Nothing can prevent Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom.

Since the last paragraph of Sec. 234 (LGC) unequivocally withdrew exemptions from payment of real property taxes granted to natural or juridical persons, including GOCCs, and MCIAA is, undoubtedly, a GOCC, it necessarily follows that its exemption from such tax granted under its charter has been withdrawn.

Manila International v. CA Real property taxes Exempt MIAA is not a government-owned or controlled

corporation but an instrumentality of the National Government and thus exempt from local taxation. Real properties owned by MIAA is actually owned by the Republic of the Philippines.

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock

a. It is neither a stock nor non-stock corporation: no stockholders (thus not a stock corp.) and no members (hence not a non-stock corp.)

b. It is a government instrumentality vested with corporate powers to efficiently perform its governmental functions thus it is exempt from taxation. Local government units are mere creations of Congress thus they cannot tax the National Government or its instrumentalities (Basco ruling cited).

Philippine Fisheries v. CA Philippine Fisheries Development authority was created by PD 977 and was given properties (buildings, water and oil supply system, market hall, breakwater, etc.). PFDA leased some portions to private firms and individuals an instrumentality and not a GOCC, exempted but not the portions leased.


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GSIS v. Treasurer of Manila Real property tax It is an instrumentality of the National Government. Hence, it is also exempt from taxation in general except for those contracted for beneficial use of private persons. GSIS is similar to MIAA. Under LGC, LGUs are prohibited from imposing taxes

on the national government, its agencies and instrumentalities.

RP can grant the beneficial use of its properties to an agency or instrumentality of the national government. Such grant does not necessarily result in loss of tax exemption. It ceases only if the beneficial use thereof has been granted, for a consideration, to a taxable person.

Philippine Fisheries v. CBAA Realty taxes, Lucena fishing port complex PFDA is an instrumentality, not a GOCC. It is a government instrumentality exercising not only

governmental but also corporate powers. The LFPC, which is a major infrastructure undertaken

by the national government under the nationwide fishing port package, is devoted for public use and falls within the term, ports. As property of public dominion, the LFPC is owned by RP and thus exempt from real estate tax.

d. Limitation of international comity

Concept: property of foreign state or government may not be taxed by another Basis:

1. Sovereign equality among states 2. Usage among states 3. IL rule: foreign government may not be sued

without its consent , useless to collect tax because it cannot be collected

4. Constitution: Incorporation clause

1987 Constitution Art. II, Sec. 2 The Philippines renounces war as an instrument of national policy, adopts the generally accepted principles of international law as part of the law of the land and adheres to the policy of peace, equality, justice, freedom, cooperation, and amity with all nations. Local Government Code Sec. 159. Exemptions. The following are exempt from the community tax: (1) Diplomatic and consular representatives; and Transient visitors when their stay in the Philippines does not exceed three (3) months.

Tanada v. Angara WTO reduction of tariff Valid Treaties effectively limit the exercise of sovereign

powers of taxation, eminent domain and police power. The underlying consideration in this partial surrender of sovereignty is the reciprocal commitment of the other contracting states granting the same privileges and immunities to the Philippines.

CIR v. Mitsubishi Exchange of notes between RP and Japan provides

that the Government of the Republic of the Philippines, will, itself or through its instrumentalities, assume all fiscal levies or taxes imposed in the Republic of the Philippines on Japanese firms and nationals operating as suppliers, contractors or consultants on and/or in connection with any income that may accrue from the supply of products of Japan and services of Japanese nationals to be provided under the Loan.

Not exempt The Exchange of Notes grants no tax exemption. It

merely provides for the assumption of tax liabilities by the Philippine Government through its government executing agency.

A contract can only bind the parties who had entered into it or their successors who assumed their personalities or their juridical positions, and that, as a consequence, such contract can neither favor nor prejudice a third person. The CIR was neither a party thereto nor was he aware of the provision thereof.

RP does not turn back from its obligations under the EON. There is no violation of international agreement and therefore, the matter of comity among nations is not affected.

e. Limitation of territorial/personal

jurisdiction Reason: state may not tax property laying outside its borders or lay an excise or privilege tax upon the exercise of enjoyment of a right or privilege derived from the laws of another state and therein exercised

Not mean that person outside Philippines is exempt

May be taxed if there exist between him and the taxing state, a PRIVITY OF RELATIONSHIP justifying the levy

Philippines still has PERSONAL JURISDICTION over Filipinos abroad basis is the relation as a citizen to the state entitled to protection from government wherever he may be

CIR v. British Airways Sales agent of a International Carrier with no landing rights in the Philippines but only sells tickets here. Taxable The sale of tickets in the Philippines is the activity

that produced the income. The tickets exchanged hands here and payments for fares were also made here in Philippine currency. The situs of the source of payments is the Philippines.

The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine Government. In consideration of such protection, the flow of wealth should share the burden of supporting the government


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Iloilo bottlers v. City of Iloilo Municipal license tax City enacted Ordinance No. 5 imposing a municipal

license tax on: 1) distributors of softdrinks, 2) manufacturers of softdrinks, and 3) bottlers of softdrinks within its territorial jurisdiction. Bottlers which initially had its plant in Iloilo City transferred its bottling plant at Pavia, Iloilo. City demanded payment of the said municipal license tax from Bottlers.

Taxable Where the manufacturer enters into sales transactions

and invoices the sales at its main office where purchase orders are received and approved before delivery orders are sent to the company's warehouses where actual deliveries are made, there is no separate business of selling. In a case, however, where sales transactions are entered into and perfected at stores or warehouses maintained by the company, the entity is considered engaged in the separate business of selling. Bottlers fall under the second category as the delivery trucks it employ also serve as rolling stores.

Hopewell v. CIR DST, mortgage trust indenture Execution of the MTI was done in Hongkong not taxable, refund is allowed The power to levy an excise upon the performance of

an act or the engaging in an occupation does not depend upon the domicile of the person subject to the excise, nor upon the physical location of the property in connection with the act or occupation taxed but on the place in which the act is performed and the occupation engaged in.

Test: where the transaction is perfected and consummated.

BPI v. CIR DST, sale of dollars to CB taxable DST is not imposed on the sale of forex, rather it is an

excise tax on the privilege or facility which the parties used in their transaction.

The act of BPI in instructing the bank to transfer the funds to the Fed.Reserve bank was performed in the Philippines.

Smith v. CIR Controller of Coastal Subic bay Terminal claims

exemption from income tax by virtue of RA 7227 which that no taxes be imposed on Subic Special economic zone

Taxable RA 7227 in granting tax incentives, only made

mention of businesses or enterprises within the SSEZ and not to individuals

Resident aliens are taxed only on income from within the Philippines while a resident citizen is taxed on all income within and without the Philippines.

CIR v. Baier-Nickel A non-resident, German Citizen claims exemption from taxes on her sales commission for transactions she made in behalf of a Phil. Company (JUBANITEX)

Taxable It is the situs of the activity that determines whether an income is taxable in the Philippines. The source of income relates to the property, activity or service that produced the income. With respect to rendition of labor or personal service, as in the instant case, it is the place where the labor or service was performed that determines the source of the income. As to whether these instructions/orders gave rise to consummated sales and whether these sales were truly concluded in Germany, respondent presented no such evidence. Neither did she establish reasonable connection between the orders/instructions faxed and the reported monthly sales purported to have transpired in Germany.

4. Constitutional Limitations

a. Due process of law Basis: Constitution Due process:

1. Substantive under authority of the valid law ( not violate the constitution)

2. Procedural after compliance with fair and reasonable method of procedure prescribed by law

87 Constitution Art III Sec. 1 No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws

Tan v. Del Rosario when a tax measure becomes so unconscionable and unjust as to amount to confiscation of property, courts will not hesitate to strike it down, for despite all its plenitude, the power to tax cannot override constitutional proscriptions. In this case, this stage has not been demonstrated to have been reached within any appreciable distance. The due process clause may correctly be invoked only when there is a clear contravention of inherent or constitutional limitations in the exercise of the tax power.

Sison v. Ancheta It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. Where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on the due process grounds A mere allegation of arbitrariness will not suffice. There must be factual foundation of such unconstitutional taint. Where the DP and EP clauses are invoked, considering they are not fixed rules, but rather broad standards, there is a need for proof of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity prevails.


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Carlos Superdrug v. DSWD Proprietors operating drugstores are questioning the validity of the tax deduction scheme as a reimbursement mechanism rather than a tax credit. Scheme is valid. Expanded Senior Citizens Act of 2003 is a legitimate

exercise of police power (not taxation) similar to the power of eminent domain, has general welfare for its object.

Police power is not capable of an exact definition, but has been purposely veiled in general terms to underscore its comprehensiveness to meet all exigencies and provide enough room for an efficient and flexible response to conditions and circumstances, thus assuring the greatest benefits. Accordingly, it has been described as the most essential, insistent and the least limitable of powers, extending as it does to all the great public needs.

Property rights must bow (in this case loss of earnings and capital) to the primacy of police power because property rights, though sheltered by due process, must yield to general welfare.

b. Equal Protection of the laws Basis: Constitution Equal protection all persons under jurisdiction must be treated alike under like circumstances and conditions in the privileges conferred and liabilities imposed

Sison v. Ancheta The Constitution does not require things which are different to be treated in law as though they were the same. Classification if rational in character is allowable. With regard to the kindred concept of uniformity, it does not call for perfect uniformity or perfect equality. Equality and uniformity in taxation that all taxable 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. It is enough that the classification must rest upon substantial distinctions that make real differences. Here, taxpayers who are recipients of compensation income are set apart as a class

Villegas v. Hiu Chiong Tsai Pao Ordinance No. 6537 was passed by the Municipal

Board of Manila prohibiting aliens from being employed or to engage or participate in any position or occupation or business enumerated in the ordinance without first securing an employment permit from the Mayor of Manila and paying a permit fee of 50 pesos.

Permit fee is not valid. But Emp. Permit is valid. . The ordinance is but a revenue measure under the

guise of a regulatory measure. The fee imposed is unreasonable because it is excessive and it fails to consider valid substantial differences in situation among individuals. It does not take into consideration whether the employed alien is a

casual or permanent, part time or full time, or whether he is a lowly employee or highly paid executive.

the ordinance violates the due process and equal protection clauses by requiring a person before he can be employed to secure a permit from the Mayor of Manila who may or may not grant it. Such power to deny employment if tantamount to denying the person of his basic right to engage in a means of livelihood.

Tan v. Del Rosario Uniformity of taxation and equal protection merely require that all the subjects or objects of taxation similarly situated are to be treated alike both in privileges and liabilities. Uniformity does not forfend classification as long as: (1) the standards that are used therefore are substantial and not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3) the law applies, all things being equal, to both present and future conditions, and (4) the classification applies equally well to all those belonging to the same class.

PHILRECA v. Secretary This is a case about two kinds of electric cooperatives those registered under Republic Act 6938 (Cooperatives Code) and those registered under Presidential Decree 269 (National Electrification Administration Decree). Constitutional There is a reasonable classification and substantial distinction under the Local Government Code to justify the different tax treatment between electric cooperatives under PD 269 and electric cooperatives under RA 6938. 1. Extent government control 2. Contribution of members

c. Uniformity and equity in taxation

Basis: Constitution Uniformity all taxable articles or property of same class shall be taxed at same rate, effected through apportionment of the tax burden among tax payers which under the Constitution must be equitable

a. Uniformity of operation throughout tax unit b. Equality in burden

Equity apportionment be more or less just in light of the taxpayers ability to shoulder the tax burden, must not be excessive or unreasonable - cornerstone is ability to pay - usually measured in size of wealth and benefit he receives Progressive place emphasis on direct rather than indirect taxation with ability to pay as criterion

87 Constitution Art. VI Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a uniform system of taxation.


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i. Adoption of progressive system of

taxation

Tolentino v. Secretary of Finance VAT valid The Constitution does not really prohibit the

imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall "evolve a progressive system of taxation." The constitutional provision has been interpreted to mean simply that direct taxes are to be preferred and as much as possible, indirect taxes should be minimized. Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system.

Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of certain transactions and granting exemptions to other transactions. Also, the transactions which are subject to the VAT are those which involve goods and services which are used or availed of mainly by higher income groups

ii. Valid classification of taxpayers/subjects or items to be taxed

Pepsi Cola v. Butuan Tax Ordinance passed by respondent city council imposing taxes on any agent and/or consignee of any dealer engaged in selling liquors, imported or local, in the city. Violates EPC If its purpose were merely to levy a burden upon the

sale of soft drinks or carbonated beverages, there is no reason why sales thereof by dealers other than agents or consignees of producers or merchants established outside the City of Butuan should be exempt from the tax.

Manila Racehorse v. Dela Fuente Ordinance No. 3065 a tax based on the number of

race horses kept or maintained in the boarding stables to be paid by the maintainers at Php10.00 per year for each race horse and increased correspondingly to each additional race horse

Valid There is no violation of equality and uniformity of

taxation. It is not class legislation. The owners of boarding stables from race horses are a class by themselves compared to owners of stables for horses dedicated for other purposes. The tax is considered in terms of ability to pay in relation to benefits received race horses are devoted to gambling and owners derive fat income from them.

Eastern Theatrical v. Alfonso The municipal board of Manila enacted Ordinance

2958 (series of 1946) imposing a fee on the price of every admission ticket sold by cinematograph theaters, vaudeville companies, theatrical shows and boxing exhibitions, in addition to fees imposed under Sections 633 and 778 of Ordinance 1600

Valid 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; and the theater companies cannot point out what places of amusement taxed by the ordinance do not constitute a class by themselves and which can be confused with those not included in the ordinance. The fact that some places of amusement are not taxed while others, like the ones herein, are taxed is no argument at all against the equality and uniformity of the tax imposition.

Shell v. Municipal Treasurer of Cordova ordinances No. 10, series of 1946 imposes an

annual tax of PhP150 on occupation or the exercise of the privilege of installation manager;

Valid The contention that the ordinance is discriminatory

and hostile because there is no other person in the locality who exercises such "designation" or occupation is also without merit, because the fact that there is no other person in the locality who exercises such a "designation" or calling does not make the ordinance discriminatory and hostile, inasmuch as it is and will be applicable to any person or firm who exercises such calling or occupation named or designated as "installation manager."

d. Prohibition against imprisonment for non-

payment of poll tax Basis: Constitution Application:

1. Only penalty for delinquency under LGC is payment of surcharge in the form of interest which shall be added to the unpaid amount from due date until it is paid at rate of 24%pa

2. May be imprisoned for falsification but not from non-payment

Community tax vs. poll tax A capitation tax imposed on all persons of a

certain age. At present it is the tax one pays for his/her residence certificate which generally serves as a personal identification instrument. (Bernas, 568)

Under the LGC, the only penalty for delinquency is the payment of surcharge in the form of interest at the rate of 24% per annum which shall be added to the unpaid amount, from the due date until it is paid.

However, imprisonment is possible when community tax law is violated other than for non-payment of tax e.g.: o Falsification of community tax certificate


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o Non-payment of other taxes if so expressly

provided by the pertinent law

87 Constitution Art. III, Sec. 20. No Person shall be imprisoned for

debt or non-payment of poll tax.

LGC Section 156. Community Tax. - Cities or

municipalities may levy a community tax in accordance with the provisions of this Article.

Section 157. Individuals Liable to Community Tax. -

Every inhabitant of the Philippines eighteen (18) years of age or over who has been regularly employed on a wage or salary basis for at least thirty (30) consecutive working days during any calendar year, or who is engaged in business or occupation, or who owns real property with an aggregate assessed value of One thousand pesos (P1,000.00) or more, or who is required by law to file an income tax return shall pay an annual additional tax of Five pesos (P5.00) and an annual additional tax of One peso (P1.00) for every One thousand pesos (P1,000.00) of income regardless of whether from business, exercise of profession or from property which in no case shall exceed Five thousand pesos (P5,000.00).

In the case of husband and wife, the additional tax herein imposed shall be based upon the total property owned by them and the total gross receipts or earnings derived by them.

Section 158. Juridical Persons Liable to Community

Tax. - Every corporation no matter how created or organized, whether domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual community tax of Five hundred pesos (P500.00) and an annual additional tax, which, in no case, shall exceed Ten thousand pesos (P10,000.00) in accordance with the following schedule:

(1) For every Five thousand pesos (P5,000.00) worth of real property in the Philippines owned by it during the preceding year based on the valuation used for the payment of real property tax under existing laws, found in the assessment rolls of the city or municipality where the real property is situated - Two pesos (P2.00); and

(2) For every Five thousand pesos (P5,000.00) of gross receipts or earnings derived by it from its business in the Philippines during the preceding year - Two pesos (P2.00).

The dividends received by a corporation from another corporation however shall, for the purpose of the additional tax, be considered as part of the gross receipts or earnings of said corporation.

Section 159. Exemptions. - The following are exempt

from the community tax: (1) Diplomatic and consular representatives; and (2) Transient visitors when their stay in the

Philippines does not exceed three (3) months.

Section 160. Place of Payment. - The community tax shall be paid in the place of residence of the individual, or in the place where the principal office of the juridical entity is located.

Section 161. Time for Payment; Penalties for

Delinquency. - (a) The community tax shall accrue on the first (1st)

day of January of each year which shall be paid not later than the last day of February of each year. If a person reaches the age of eighteen (18) years or otherwise loses the benefit of exemption on or before the last day of June, he shall be liable for the community tax on the day he reaches such age or upon the day the exemption ends. However, if a person reaches the age of eighteen (18) years or loses the benefit of exemption on or before the last day of March, he shall have twenty (20) days to pay the community tax without becoming delinquent.

Persons who come to reside in the Philippines or reach the age of eighteen (18) years on or after the first (1st) day of July of any year, or who cease to belong to an exempt class or after the same date, shall not be subject to the community tax for that year.

(b) Corporations established and organized on or before the last day of June shall be liable for the community tax for that year. But corporations established and organized on or before the last day of March shall have twenty (20) days within which to pay the community tax without becoming delinquent. Corporations established and organized on or after the first day of July shall not be subject to the community tax for that year.

If the tax is not paid within the time prescribed above, there shall be added to the unpaid amount an interest of twenty-four percent (24%) per annum from the due date until it is paid.

Section 162. Community Tax Certificate. - A

community tax certificate shall be issued to every person or corporation upon payment of the community tax. A community tax certificate may also be issued to any person or corporation not subject to the community tax upon payment of One peso (P1.00).

Section 163. Presentation of Community Tax

Certificate On Certain Occasions. - (a) When an individual subject to the community tax

acknowledges any document before a notary public, takes the oath of office upon election or appointment to any position in the government service; receives any license, certificate. or permit from any public authority; pays any tax or free; receives any money from any public fund; transacts other official business; or receives any salary or wage from any person or corporation with whom such transaction is made or business done or from whom any salary or wage is received to require such individual to exhibit the community tax certificate.


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The presentation of community tax certificate shall not be required in connection with the registration of a voter.

(b) When, through its authorized officers, any corporation subject to the community tax receives any license, certificate, or permit from any public authority, pays any tax or fee, receives money from public funds, or transacts other official business, it shall be the duty of the public official with whom such transaction is made or business done, to require such corporation to exhibit the community tax certificate.

(c) The community tax certificate required in the two preceding paragraphs shall be the one issued for the current year, except for the period from January until the fifteenth (15th) of April each year, in which case, the certificate issued for the preceding year shall suffice.

Section 164. Printing of Community Tax Certificates

and Distribution of Proceeds. - (a) The Bureau of Internal Revenue shall cause the

printing of community tax certificates and distribute the same to the cities and municipalities through the city and municipal treasurers in accordance with prescribed regulations.

The proceeds of the tax shall accrue to the general funds of the cities, municipalities and barangays except a portion thereof which shall accrue to the general fund of the national government to cover the actual cost of printing and distribution of the forms and other related expenses. The city or municipal treasurer concerned shall remit to the national treasurer the said share of the national government in the proceeds of the tax within ten (10) days after the end of each quarter.

(b) The city or municipal treasurer shall deputize the barangay treasurer to collect the community tax in their respective jurisdictions: Provided, however, That said barangay treasurer shall be bonded in accordance with existing laws.

(c) The proceeds of the community tax actually and directly collected by the city or municipal treasurer shall accrue entirely to the general fund of the city or municipality concerned. However, proceeds of the community tax collected through the barangay treasurers shall be apportioned as follows:

(1) Fifty percent (50%) shall accrue to the general fund of the city or municipality concerned; and

(2) Fifty percent (50%) shall accrue to the barangay where the tax is collected.

e. Prohibition against impairment of obligation of contracts

Basis: Constitution Impairment of obligation of contracts when the

terms of the contract are changed by law or by party without the consent of the other, thereby weakening the position or rights of the latter Includes contracts entered into by

government

Law includes Executive agreements, administrative orders, circulars by departments and ordinances

Application:

1. When tax exemption is revoked by a later taxing statute (Except: franchise)

Taxing statute should not alter the relative rights of parties with each other.

When does law impair contract? Only if the relative position of the parties to a contract (i.e. equality that is assumed when the contract was entered into) is disturbed by the operation of a taxing statute.

However, mere fact that tax makes the conduct of a business more expensive or makes an activity more difficult does not result in the impairment of obligation of contracts.

87 Constitution Art III, Section 10. No law impairing the obligation of

contracts shall be passed. Art XII, Section 11. No franchise, certificate, or any

other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines.

Casanovas v Hord Taxes on mining claims Void Concessions granted by the government to the owner

thereof constitute a contract between the parties and the taxes imposed impairs the obligation of these contracts and is therefore void as to them.

Tolentino v. Secretary of Finance CREBA assails the VAT law as unconstitutional as

its application to existing contracts of the sale of real property by installment or on deferred payment basis would result in substantial increases in the monthly amortizations to be paid because of the 10% VAT.

Valid 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


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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." Contracts must be understood as having been made in reference to the possible exercise of the rightful authority of the government and no obligation of contract can extend to the defeat of that authority.

PAGCOR v. BIR declaration of nullity of RA 9337 which amends Sec.

27 of NIRC effectively removing PAGCOR from the exemption from corporate income tax and VAT

Valid The non-impairment clause is limited in application

to laws that derogate prior acts or contracts by enlarging, abridging or in any manner change the intention of the parties. There is impairment if a subsequent law changes the terms of the contract, imposes new conditions, dispenses with those agreed upon or withdraws remedies for the enforcement of rights of the parties.

However, a franchise (from which PAGCOR base its exemption), partakes the nature of a grant which is beyond the purview of the non-impairment clause. It can be withdrawn, altered, amended or repealed.

f. Prohibition against infringement of

religious freedom Basis: Constitution Application:

1. Imposition of license fees on distribution and sale of bibles is unconstitutional

2. Not prohibit imposing a generally applicable tax on the sale of religious materials by religious organizations

87 Constit

[tax 1] midterms reviewer

Documents

government tax

character tax

tax defined taxation

enforced contribution

property rights

algue tax delinquency

purposes of taxation

public burden