GENERAL-PRINCIPLES-chap-1 PDF

' 1 -Fundamental Princjples Taxation Defined , Taxatipn is the process or means by which the sovereign (ind~pendent State), _Under American Jurisprudence, throu·gh its law-making body...

' 1 -Fundamental Princjples Taxation Defined , Taxatipn is the process or means by which the sovereign (ind~pendent State), _Under American Jurisprudence, throu·gh its law-making body (the the power to tax is considered legislature), -l imposes _ burdens upon inherent in a sovereign State subjects and objects within, its jurisdiction because it is a necessary for the purpose of raising revenues to carry attrib~te of sovereignty. Without out the legitimate objects of government. this power no sovereign State In simple terms, it is the.act of levying a tax can exist or endure. The power to apportion the cqst of government among to tax proceeds upon the theory that the existence of a those who, in some meas.ure·, are privileged govemme~t is a necessity and to enjoy its benefits.and must therefore this power is an essential and bear its ,burdens. If is a power inherent in inherent attribute of every sovereign State being essential to sovereignty, belonging as a the.existence of every government. Hence, matter of right to every even· if not mentioned in the constitutio'n, independent State or the State can still exercise the power. government. No sovereign Therefore, any constitutional ·prov1s1on State can continue to exist regarding the State's power.to tax should without the means to pay its not be interpreted as a "grant of.power", but expenses; ah_d that for those m·erely a limitation on the State's -power to means, it has the right to tax. Taxes, on the qther hand, are the compel all citizens and property enforced proportional. contributions or within its limits to contribute, hence, the emergence of the charges from persons and property levied power to tax. (51 Am. QY the law-making body of the State by Jur.,Taxation 40). · virtue ·of its sovereignty for the support of _ the g_overnment and all public needs. 1 I I " RELATED Pepsi-Ct;Jla ~ott(ing Coinpany·ot the Philippines, Inc. v..Municipality of CASE Tanauan, Leyte, G.R. N(}. L-31156, Februa,y_21, 1916 · ISSUE:. Whether a legislative bqdy may enact laws to raise revenues in _the absence of a constitutional provision granting said bo~y the power to tax. \ ANSWER:. Yes, the legislativ~ body ·may enact laws even in the absence of a... constitutional provision becfiuse the power to tax is inherent in the government and not merely-a constitutional grant. The power of taxation is an-essential and · inherent attribute of ·sovereignty belonging as a matter of right to evert inde endent overnment without bein ex ressl ranted b the eo le. \ ·The.Three (3) Inherent Powers of the State 1.. Police.Powf)r. It is the' power·ofJhe State for promoting publrc welfare ' by_restraining and regulating the.use.of liberty and property. It may be , exetcise only by·the gov~rnment. The property taken in the exercise of this povver is.destroyed because 'it is noxious or intended for. a noxious. purpose. 2: P9wer of Taiation. It i~ the power by wh.ich the State raises revenue · -t.defray the necessary expen~es of the government. · 3. Power of Eminent Domain. It is the power of the State to acquire ,·private property for public purpose upon payment of just I compensation.. Meaning of "~NHERENT Powe( Built-in, inbpm, ingrained Existing in something as a p~rmanent, essential, or characteristic attribute. Vested in someone {i.e., St~te or government) as a right or privilege. Similarities among t~e three (3) Inherent powers of the State 1. They ar~ !n~~rent in the State......I 1 1 2. They exist independently of the Const1tut1on although th e cond1t1ons _for their exercise may be prescribed by the Constitution. 3~ Yyays by wh_ich the S!ate Interfere with private rights and property. · 4. - Legislative in nature and character. 5. · Presuppose an equivalent compensation received, directly or I indirectly, by the persons· affected. '} TABLE 1-1: DISTINCTIONS AMONG THE THREE (3) INHERENT POWERS Taxation Police Power Eminent Domain 1. Nature Power to enforce Power , to make and Power to. take private co,ntributions to raise implement laws for the prpperty for public -use gov't funds. general welfare. with just compensation. 2. Authority Government only.Government only May be granted to public service/utility companies I. , 3. Purpose. For the support _of the Promotion of generar The taking of private government welfare through property for public use., regulation I 4. Persons Community or a class of Community or a class of Oh an · individual as the affected individuals. Applies to · individuals. owner of personal all pe~sons, property and property. excises that may be Applies to all persons, Only_particular property subject thereto property and excises that is comprehended: may be ·s·ubject thereto. 4.Scope ,Plenary, comprehensive, Broader in application.· Merely a power to take supreme General power to make private property for and implement law. public use. 5. Effect Contribution becomes No transfer or title. There There is a transfer of title part of public fund · may just be a restraint on to property: the injurious use of. property. 6..Benefits In form of protection and No direct and· immediate Market value of property received , benefits received from benefit but only such as taken. government ·.' may arise from the maintenance of a healthy economic standard of society. '7. Amount No limit Sufficient to cover cost of No imposition. The of the license. ·and the owner is paid equivalent imposition necessary expenses of to the fair value of his police surveillance and property. re ulation~ 3. I ·PURPOSES OF TAXATION -f 1. Primary: Revenue or Fisc;;il Purpose T~e primary purpose of taxatio"n on -the part of the governme t. to provide _funds _or prop~rty ":"i_th.which to promote the general we~a:! and. th~, pro~e~t1.~n , of its c1t1zens and to.enable it to finance its multifarious act1v1~1es. fo: gove~nm~~t can run its administrative set up onl_ y through public funding which 1s collected in the form of tax.· I "Eifimples of taxes impo~ed for raising rev~nues· are income and. business taxes~ 2. _ S econ~a~:· Regulatory Purpose (or Sumptuary/Compensatory) While the p_ rimary-_pu.rpose q( taxation is to raise revenue for the support ol the government, taxation is often employed as a devise for -regulation ·or - control (implementation. of.State's police power) by means of which certain effects or conditions envisioned · by the · government may be achieved such as: a) Promotion-of General Welfare / b) Reduction ofSocial Jnequa_lity c) Economic Growth.Examples of Taxes.Excise taxes :t or sin products such as imposed for cigarettes and alcohols '- ·,egulation Amusement taxes for "amusement places".· such as night. and day clubs, cockpits and racetracks. Examples·of means Increasing taxes in periods_ of prosperity to of attaining.some · curb spending power and halt inflation. social or. economic Granting - tax incentives to promote objeqtives through new/pioneeL industries and enco_ urage growth taxation · · of local industries.. : Lowering taxes in case of · economic breakdown due to pandemic such a~ th e.Covid19 pandemic (i.e., CREATE Law signed_ ) , I · by the President on March 26, 202.1 ) 4  RELATED CALTEX V. COMMISSIONER. 208 SCRA 755 CASES "Taxation is no.longer a measure merely to raise revenue to ' support the existence of the government. Taxes may be levied with a regulatory ·purpose.to provide means for the rehabilitation· and stabilization of a threatened industry which is affected with publi~ interest as to be within the police power of the State. The oil industry is imbued with public interest as it vitally affects general welfare". TIO V. VIDEOGRAM, 151 SCRA 208 '\ PD1987 which created the Videogram Regulatory Board also imposed a 30% tax on the ·gross receipts payable to the local __ governm·ent. The Supreme Court upheld the validity of the law ruling ·that the ~0% tax also served a 'regulatory purpose to answer the need for regulating the video industry, particularly the rampant film piracy, the flagrant violation of intellectual. property rights, and the roliferation of orno ra hie video ta es. THEORY and BASIS.OF TAXAr ·10N 1. Theory (Authority): LIFEBLOOD THEORY and/or NECESSITY THEORY The power of taxation proceeds ·up.on the theory that the existence of government is a necessity ("Necessity theory").· As stated in the case of Phil. Guaranty Co., Inc. v. Commissioner [13 SCRA 775], is a power predicated upon necessity.. It is a necessary b'urden to preserve the State's sovereignty and a means to give the citizenry ·an army to res ist aggression, a navy to defend- its shores from invasion, a corps of civi l servants to serve, pubiic improvements for.the enjoyment of the citizenry 1 and those which come within the State's territory and facilities and protection which a government is supposed to provide. 1 The power of taxation is essential because the government can neither exist nor endure without taxation. "Taxes are the lifeblood of the government and their prompt and certain availability is an imperious need,, (Lifeblood Doctrine). The government cannot continue to perform its basic functions of serving and protecting its people withou t means to pay its expenses. Consequently, the State has the right to compel all its citizens and property within its limits to contribute. 5..RELATED COMMISSIONER v. ALGUE. · 1 CASES r · The Supreme Court held that taxes are the lifeblood of the government and should be collected without unnecessary hindrance..They are what we pay for.,.a civilized society. Without taxes, the government would be paralyzed for lack of motive power to activate a~d operate it. The government, for its part, ·is.expected to , respond in 'the form of tangible and.intangible benefit~ intended to.. improve the lives of the people.and enhance their moral and material values. I. PHIL. GUARANTEE co.,·1NC. v CIR, t3·SCRA 775 · · · , The power to tax. is an attribute of sovereignty. It is a power emanating from necessity. _It 1s a necessary burden to preserve the State's sovereignty ·and a me~ns _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 State's ·.territory, apd facilities and protection which a government is supposed to provide. Considering ,that the reinsurance premiums in question were · afforded protection · by. the government and the reqipient · foreign reinsurers exercised rights and privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of maintainin the State.. 2. BASIS of Taxation: "· BENEFITS RECEIVED. or RECIPROCITY. THEORY. - ),..... The basis is the reciprocal duties of protection and support between the Stat~ ·-and its·ihhabitants.' The State collects taxes from the subjects of taxation- in· order that -it may be able to perform the functions of.. government. The-citizens, on the other hand, pay taxes in ord~r that they ·may be s~cured in the ·enjoyment of the benefits of organized society. This theory spawned. the. Doctrine of Symbiotiq.Relationship which means, -taxes are what we pay for a civilized soci~ty (Co_mmissioner v. Algue). _ Taxpayers receive benefits· from taxes through the protection the_ State affords to them. For the· protection they get arises their obligation to support the government through payment of taxes. (CIR v. Algue, Inc., G.R. ·No. L-~8896, February 17, 1988, 158 SCRA 9) 6  TABLE 1-2: · Doctrine of Symbiotic Relationship or Benefits-Protection Theory · Every person who is able to, must. contribute his share in the running of the- government by paying taxes. In return for the contributions made, -the ·taxpayers receive the general advantages and protection in ·.the form of tangible or intangible·benefits intended to improve the. lives of the people.and enhanced their material and moral values which the government affords the· taxpayer and his property. MANIFESTATION OF THE LIFEBLOOD THEORY:. a) Rule of "No Estoppel against the Government." It means that in the performance of its governmental functions,. · The State cannot be _ estopped by the neglect of its agents/officers.. · Erroneous application and enforcement of law by public officers do not block the subsequent correct application of statutes. b) Collection of taxes cannot be enjoined (stopped) by injunction. Under section· 218 of the Tax Code (as. amen9ed), no court, except the Court. of Tax Appeals.(through Taxes are the lifeblood administrative remedies when collection · of the government. could jeopardize the interest of the , Thus, it should be government or taxpayer - Section 11, collected wtthout RA 1125), shall have the. authority to. unnecessary delay. grant an injunction. to restrain the Its collection, however, collection of any national internal should not be tainted revenue tax, fee or charge.imposed by with arbitrariness. the tax code. 7  -. -This prohibition shall apply t~ -all collection activities, insluqing imposition arid collection of taxes, Issu~n.c~ of warrants qf ~1straint 1 and garnishment, an_d/or levy on final dec1s_ 1ons of the BIR on disputed assessments, cases filed before the ,CTA, and the sale of property distrair;ied or garnished (RMO 42-20.10).. · c) · Taxes could not be the subject of compe_n sation or set-off. Taxes cannot be subject to s~t-off or compensation since claim for tax~s is ·not a debt or contract. · A distin_ guishing feature of a tax is th_at it ;i~ compulsory rather thari _a matter of bargain. If taxes could be a subject, of compensation ·or set off, it can easily give rise to confusion -and abuse, depriving ·the government of authority over the manner by which taxpayers can credi.t and offset their. tax liabilities. - ' ' - · In the case of Repu_blic vs. Mambula_o Lumber Co. (6 SCRA 622; Caltex" Pt,ils-. vs._COA-208'.SCRA -726), the no set-off rule also states that taxes are not subject to set-off or legal compensation because the government and the taxpayer are not mutual creditor and debtor of each other. An exception to the rule is where both the , claims -of th,e ;gov_ ernment and the taxpa·yer against e~ch. other have - already become due, demandab!e and fully liquidated.. In this case,... com·pens~tion takes place by operation of law and both obligations are ' extinguished to their concurrent amounts (Domingo v. ·Ga·rlitos, 8 ·scRA 443). · · RELATED (FRANCIA VS. IAC. ~-R 76749,-June 28. 1988) ~ASE$ X is the owner/ of a residential lot situated at Q~irino Avenue '. Pasay qity. The lot has an area of 300 square meters. On June 1, 1994, 100 square meters of said lot owned by Xwas expropriated by the government to be "used in the widening of Quirino Avenue, for P300.000.0O r~presenting {he estimated assessed value of ~-. said portion; From 1991 to 1995, X, who is a businessman, has · -. ·not been paying his income taxes. X is now being assessed for..the unpaid income- taxes in the total amount of P150,000.00. X claims his inc9me tax liability has already been compensated by th_e amount of !2300.000 which the government owes him for the expropriation of his property. Decide. 8  ANSWER: The income tax liability of X cannot be compensated with the amount owed by the Government as compensation for his. · property ~xpropriated, taxes are of distinct kind, essence and nature t~an ordinary·obligations. Taxes and debts ca·nnot be the subject of compensation because the Government and X are not mutually creditors and -debtors of each other and a claim for taxes is not a debt, demand, contract, or judgment as is allowable to be set off. PHILEX MINING CORP. V. CIR, GR NO.125704, Auf. 29, 1998). May a taxpayer who has pending claims for VAT input credit or ·refund, set-off said claims against his other tax liabilities? ANSWER: No. Set-off is available only if both obligations are liquidated and demandable. Liquidated debts are those where the exact amounts have already been determined. In the instant case, the claim of the taxpayer for VAT refund is still pending and the amount has still to be determined. The liquidated obligation of the taxpayer to the government cannot, therefore, be set-off against I the unliquidated claim which the_taxpayer conceived to exist in his favor. · d) Righ.t to.select objects {subjects) of taxation The power to tax is essential.ly legislative in nature. Hence the 1 right to.select t~e objects/subjects of taxation rests with the Congress. The matters within the competence of the legislature include the determination of: 1). The subject or object to be taxed 2) The purpos~ of the tax as· long as it is a public purpose. 3) The amount or rate of the tax. 4) Kind of tax 5) Apportionment of th~ tax 6) Situs of taxation 7) The manner, means, and agencies of collection of the tax. '·. t, 9. e) A. valid · tax may result in the d~struction. of :.the ': taxpayer's prop~rty.. ,... I d the "power to destroy", where the The_ power to_ t8:x inc ~e~!use a taxpayer Could not seek the tax is a.va~1d tax. Thi~ ~-s $O lel u. on the premise that the tax will nullificat!on o~ the ~ahd _tax ~~e :xefcise Of the power to tax is."not impoverish him. Likew,ise, ert ,where it is an invalid tax, which destnjctive ~f taxpayers p~~~tutranal limitatiohs. This is so b.ecause violate~ the inherent t~r.co rt that· shall come to the. succor of the.. there is a sympathe ic cou.... taxpayer and declare such tax as invalid. RELATED ROXAS vs. CTA {23 SCRA 276) CASE 'The power to tax is viewe·d as the power to :destroy i~ the se~se 'that a lawful tax cannot be defeated just. b~cause its e~erc1se would be destructive. or would bring about insolvency to a taxJ)'ayer. An imposition of lawful regulatory taxes ~ould be destructive to the taxpayers and business establishments because the. government ·can compel payment of tax and forfeiture of ro'-·ert throu h the exercise of olice ower". \ In Mcculloh v. Maryland, U.S.· Chief Justice Marshall declared that the power to tax involves the power to destroy. Th·is maxim on_ ly means -that the power to tax includes the power to _regulate even to the extent of prohibition or destruction of businesses. The reasqn is that. the legislature has the inheren·t power to determine who to tax, ·W_ hat to tax and how rnuch ·tax is · to be imposed. Pursuant to the regulatory purpose. of- taxation, th~ legislature' ·may: impose tax in order ·to discourage or prohibit- things or enterprises.inimical to · the p_ublic \ '· welf~re. For i~stance, the' legi slatL~re's impo~itibn of prohibitive sin tax' on c~gare~~s is_ congruent with Jts purpose ·of dis_ ¢ouraging the public fc;>rm smokmg ·c1garettes which are hazardous to hea.lth. · -.,.,' ' ' I.; ·' I,... '.\ 1-0·.. -: l. J  SCOPE of the Power of Taxation I In the case of Sison vs. Ancheta (130 SCRA 654 ), the Supreme Court · ·held that the power of taxation is the most absolute of all powers of the government. It has the broadest scope of all the powers of the government because in the absen,ce of limitations, it is considered as comprehensive_' -unlimited, plenary and supreme. a. Comprehensive - as it covers persons, businesses, activities, ' - professions, rights and privileges. b. Unlimited - In the absence of limitations prescribed by law or the constitution, the. power to tax is unlimited and comprehensive. · lts force is so searching to the extent that the courts scarcely venture to declare that It is subject to any restrictions. c. Plenary - as it is complete; BIR may avail of certain remed ies to ensure collection of taxes. d. Supreme - in so far as the selection of the subject of taxaUon. ESSENTIAL ELEMENTS of a Tax., a. It is an enforced contribution. Payment of tax is not volunta ry payment or donation, but an enforced contribution , exacted pursuant to legislative ✓authority. b. It is generally payable in money. It is a pecuniary burden payable in money which must be in legal tender. c. It is proportionate in character. Payment of taxes should be based on the ability to pay theory or theoretical justice. The use of a graduated tax rates is in consonance with this rule. d. It is levied on persons, property, or the exercise of a right or privileg (subjects or objects of taxation). e. It is levied by the law.. making body of the State. The pow,er of "imposing" a tax, being purely legislative function Congr ss cannot delegate such power. This limitation ari ses from th e doctrine of separation of powers among the three branches of the governm n. f. It is levied for pu blic purpose 11  ASPECTS of Tax·ation Aspects refer to 0stages or phases" that are included or embodied in the term ' taxation" such as: 1. Levying or imposition of the tax which is a legislative act or function. 2. Assessment or detennination of the correct amount of applicable tax. 3. Collection of the tax levied which is essentially administrative in character. The national agency charged with the function of collecting internal re.venue taxes is the Bureau of Internal Revenue. TABLE 1-3: ASPECTS OF TAXATION ~- - - - - -- - 3. Collection 1. Levying (Executive Function} (Le gislative Function) 2. Assessment. {Executive Function) NATURE/CHARACTERISTICS of the State's Power to Tax 1. It is inherent in sovereignty. The State, having sovereignty, can enforce contribution (tax) even in the absence of a constitutional provision because the State has the supreme power to command and enforce obedience to its will from the people within its jurisdiction. · 2· It is legislative in character: le. Th~ po~er to tax (levying or imposition) is peculiarly and exclusi~~ly 9t 5 lat,ve in nature. It cannot be exercise by the executive or judicial branches of the government. 12 EXCEPTIONS to non-delegation rule: a. Delegation as provided for in the 1987 Constitution such as "Delegation to the President" under Section 28 Article VI stating that the Congress may authorize by law, 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 impo$tS within the framework of the national development program of the government. b. Delegation to local government units as provided under Section 5 , Art. X of the Constitution. The power of local government units to impose taxes and fees is always subject to the limitations which Congress may provide, the.Jormer having no inher.e nt power to tax. , TABLE 1-4: Power to Tax - National versus Local NATIONAL LOCAL Authority Inherent Delegated (through constitutional grant) Nature Legislative 1n nature through Legislative in nature through enactment of tax laws by the enactment of local Congress and the Senate ordinances by the local le islative branch CASE to Ponder: Since the authority of the LGUs to tax is merely a delegated power, may the Congress, under the 1987 Constitution, abolish the power of the former to tax? ANSWER: NO. C9ngr~ss cannot abolish what is expressly granted by the fu'ndamental law. The only authority conferred to Congress is to provide the guidelines and limitations on the local government's exercise of the power to tax (Sec. 5, Art. X , 1987 Constitution), 13.F ~dPrwr oeiegation to administr~tive_agencies '.. ·.-. c.. Certain aspects of the taxing process t~at are not really leg1slat1ve in nature are vested.·in administrative· ag~ncies such.as: Power to value property. _. Power to assess and collect taxes · · ·.. Power to perform d~tails of comp':Jtation, appraisement or adjustment; am9ng others. , ILLUS_ TRATIVE The Secretary. of Finance, upon recommendation of the CASE. Commissioner of lnternaf Revenue, issued a· Revenue Regulation using gross income as the tax base · for corporations doing bus.iness in the Philippines. Is the Revenue Regulation valid? ANSWER: NO The regulation establishing gross income as the tax base for corporations doing business in the Philippines (domestic as well as resident foreign) is ·not valid. This is no longer implementation of the law· (administrative :function) : but actually it constitutes I legislation because among the powers that are exclusively within.the legislative authority to_ -tax is the power to determine the amount of the tax. d... It is sub'ect to Consti-tutional ·and inherent limitations ILLUSTRATIVE The- Congress, after much public hearing and consultations with various CASE. · sectors of society, came to the conclusion that it will be good for the country to hav_e only one system of taxation by centralizing the imposition and collection of all taxes in th.e national government. Accordingly, it is thinking of passing a law that would abolish ·the taxing power of all local government units. Would such ·a law be valid under the present Constitution? _ANS~ER: NO · _The law centralizing the imposition and collection of all taxes in the national ·government would contravene the Constitution which mandates that: tach local government unit shall have the power to creo~e their own sources of revenue and to levy taxes, fees, and charges subiecf to such guidelines and limitations as Congress may provide consistent wi/h the basic policy of local autonomy." It is clear that Congress can only give the guidelines and limitations on the exercise by the local governments of the power to tax but what was ranted b the fundamental law cannot be withdrawn b Con ress 1A.  I I. I. 3. Exemption of government · entities, agencies and instrumentalities. · Immunity 'is -ne~essary in order that governmental functions will not be imp·ede~:L Otherwise, the government will _be taxing itself to ·raise money · for itself. The followin'g rµles $hail apply in 'determining whether or not governm_ ent entities·and ,agencies are subject' to tax: a. _Agencies performing governmental function~. are -tax·exempt , u.nless.expressly taxed 1 1 b. ·Agencies performing proprietary functions are subject to tax · un·less expressly exempted. 1. ;. , c. Go~ernment owned and controlled corporations (Gbcc·s) ·performin'g proprietary functions are ·subject to tax, hpwever~ the following were granted tax exemptions: · Gov.ernment.Service Insurance System (GSIS) · · -. Social Security System (SSS) - Philippine Health Insurance.Corporation (P~IC) , Local Water Di'stricts (RA 10026). ,. Home Development Mutual Fund (HDMF or Pag-ibig): NOTE:. _ , _ ·. HDMF or Pag-ibig is ex·empt upon the effectivity of CREATE Law on April-11, 2021. PGSO be0f3me taxable beginning _Jan. 1,.2018 or upon effectivity of the TRAIN Law. 4. ·International comity (Polite and friend.l_y agreement[s] among nations).Under international law,. property of a foreign State may. not be taxed by another State due to: ·. Sovereign equality of ~tates. ;. When one State enters the t~rritory of another State, there is an implied l:fnderstanding that. the former does not inte~d to denigrate its dignity.by placing itself under the.jurisdiction of the other State.. Immunity from suit ot:a State I ,,..5. Limitation.on territorial jurisdiction.. ·_ Tax laws cannot operate beyond a State's territorial limits. Property outside one's jurisdiction d_ o es not receive any protection from the State. · 6. Strongest among the inherent powers of.the State (Sison v. Ancheta, 130 SCRA 654). 15  Classification of Taxes · 1- :s t~:i~J::, _ imposed by the National Government (e.g. income tax, · estate tax, donor's tax, VAT other percentage taxes, documentary stamp tax) b. Local _ imposed by local governmentf.u~its sut ch as. mt u)nicTipal corporations (e.g. real estate tax and pro ess,ona 1 ax r~ce_,p s. he local government unit's power to tax is based on a const1tut1onal grant that ·paved.the way for the enactment of the Local Government Code of the Phi_ lippines. Hence, th_ e local government's power to tax is not inherent.. 2~ As to subject matter or object: a. Personal, poll or capitation - tax of a fixed amount imposed upon -individual~ whether citizens or not,. residing within a specifi~d territory w1tt,out regard -to their property or the occupation in which he may be engaged (e.g. community tax) - b. Property.- tax imposed on property, whether real or personal , in proportion either to its - value, or in accordance with some other reasonable method of apportion_ ment (e.g. real estate tax). q. Excise - any tax which ,does not fall within the classification of a poll tax or a p'roperty tax.. This is a tax on the exercise of certa in rights and p·rivileges (e.g. income tax, estate tax, donor's tax). Excise tax may also refer to the tax levied or imposed on sin products and non- es~ential goods such as cigars and liquors (Discussed in vo lume 2 - Transfer and Business taxes). Excise taxes of this nature are taYes applicable to certc1in specified articles or products manufactured in the Philippines for domestic sale or consumption or any other disposition and to specified things or goods imported into the Phili ppines. It may be specific or ad val ore m 3. As to who bears the burden: a. Direct - tax which is demanded from the person who also shoulders the burden of tax or tax which the taxpayer cannot shift to another. ~oth the incidence (liability for the payment of the tax) as well as th e impact or burden of the tax falls on the same person (e.g. income tax, estate tax, donor's tax). 16.... hu~IWWlfPru~ , b. lndir~ct - t~x which is demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another. These are taxes wherein the incidence of or the liability for the payment of the tax falls on one person but the burden thereof can be shifted or passed on to another person (e.g. VAT, percentage tax, excise tax qn e~ciseable articles). In the case of Maceda v. Macaraig (197 SCRA 771 ), an indirect tax is defined as one paid by a person who is not directly liable therefor, and who may therefore shift or pass on the tax to another person or er,tity, which ultimately assumes the tax burden. 1 4. As to determination of amount: a. Specific - tax of fixed amount imposed by the head or number, or by some standard of weight or measureme_ nt (e.g. excise tax on cigars and fiquors) b. Ad valorem - tax of fixed proportion of the value of the property with respect to which the tax is· assessed -(e.g. vat, income tax, donor's tax and estate tax) , · TABLE 1-5: SAMPLE COMPUTATION OF AD~Valorem and SI DISTILLED SPIRITS (based on Republic Act No.10351) 2013 2014 2015 2016 2017 AD-VALOREM TAX RATE - Based on the Net Retail Price (NRP) per proof (excluding the excise and value-added taxes) 15% · 15% 20% 20% 20% SPECIFIC TAX - Per proofli!~r P20 P20 P20 P20.80 P21.fi3 CIGARETTES, PER PACK (based on Republic Act No.10351). 2013 2014 2015 2016 _2017 SPECIFIC TAX ON Cigarettes packed by machine where the NRP (excluding excise and VAT) er ack is 17  ·; µ 11.50 and below P.12 8'17 µ21 P25 P30 - Mor th n 1=21 '1.50 P25 P27 P28 P29 P30 5. As to purpose: a. Primary, Fiscal. or Revenue Purpose- tax imposed solely for the general purpose of the government, i.e., to raise revenue for govern111ent purposes (e.g. incon1e tax, donor's tax and estate tax). b. Secondary, Regulatory, Special or Sumptuary Purpose - tax imposed for a specific purpose, i.e., to achieve some social or economic ends irrespective of whether revenue is actually raised or not (e.g. tariff and certain duties on imports). 6. As to graduation or rate: a. Proportional - tax based on a fixed percentages of amount of the property, receipts, or other basis to be taxed [e.g. VAT, Table 1-5 above (Ad-valorem tax on distilled spirits)] b. Progressive or graduated - tax the rate of which increases as the tax base or bracket increases (e.g. income tax on individual taxpayers) c. Regressive - tax the rate of which decreases as the tax base or bracket increases 7. As to taxing authority: a. National - taxes imposed under the National Internal Revenue Code (commonly known as the Tax Code) collected by the national government through the Bureau of Internal Revenue (BIR) and other national government agencies. Other national taxes other than those collected by the BIR as provided for under special laws include but not limited to : Customs duties Taxes on narcotic drugs Special education fund taxes Energy taxes on aircraft, motorized watercraft, and electric power consumption Sugar adjustment taxes Travel tax Private motor vehicle tax b. Local - taxes Imposed by local goverrJment units  ELEMENTS Oi= SOUND TAX SYSTEM a. Fiscal Adequacy The fundamental purpose of taxation is to raise the revenue necessary to fund public services. Consequently, it is necessary that the so~rces of revenues must be adequate to meet government e~_pend1tures and sustain the level of public services demanded by c1t1zens and policymakers. · b. Theoretical Justice or Equity ("ability to pay principle") Taxpayer's ability to pay must be taken into consideration. The tax burden should be proportionate to the taxpayer's ability to pay. c. Administrative Feasibility Tax laws must be capable of effective and efficient enforcement. A good tax system requires informed stakeholders who understand how taxes are assessed, collected and complied with. It should be clear who and what is being taxed, and how tax burdens affect them. Therefore, the tax system s~ould be as simple as possible, and should minimize gratuitous complexity. Complicated tax rules make the tax system difficult for citizens to understand. Complexity also makes it harder for governments to monitor and enforce tax collections, and makes it easier for lawmakers to -enact (and conceal) targeted tax breaks benefitting particular groups. LIMITATIONS ON THE STATE'S POWER TO TAX 1. Inherent Limitations These are restrictions arising from the very nature of the power to tax itself. Inherent limitations are those limitations which exist despite the absence of an express constitutional provision. a) Purpose must be public in nature This one is synonymous to "governmental purpose." A tax must always be imposed for a public purpose , otherwise , it will be declared as invalid. No tax law may be en acted for the purpose of raising revenue for private purposes. The purpose should affect the inhabitants of the State or taxi ng district as a community and not merely as individuals. It has been said that the best test of rightful taxation is that the proceeds of the tax must be used : a. For the support of the government; or b. For some of the recognized objects of governm,ent or 19  A I I ;111. 111/ l'ltll/l lf,l1 ,1 1t:1 c. To promote the welfare of the community. In the case of Gomez vs. Palom r (25 SCRA 827) ttnd Philippine Guarantee Company.~s. CIR (1 3 S~ f A : 75), i.l ha been held that tax has been utilized for ~ubl1c ~ur pos ,r ~he welfare of the nation or the greater portion of its population has benefited for use. Effect of incidental benefit to private interest The purposes to be accomplished by taxation need not be exclusively ·public. Although private individuals are directly benefited, the tax would still be valid provided such benefit is only incidental. Legislative Prerogative It is the Congress which has the power to determine whether the purpose is public or private. A question on the validity of such tax measure may be raised before the courts on the ground that it is not for public purpose. However, once it is settled that it is for a public purpose, it can no longer be a subject of inquiry. RELATED TIO vs. VIDEOGRAM CASE "It is not the immediate result but the ultimate result that determines, whether the purpose is public or not. It is not the number of persons benefited but it ·is the character of the purpose that determines the public character of such law. What is not allowed is that if it has no link tb public welfare. Public purpose is determined by the use to which the tax money is devoted. If it benefits the community in general, then it is for ublic ur ose no matter who collects it". · b) Prohibition against delegation of the taxing power What cannot be delegated is the legislative "enactment/imposition/levying" of tax measure. However as regards to administrative implementation of a ta x law (i.e. , assessme~t, collection,.valuation of property for tax purposes), that can be delegated. c) Territorial limitation (Refer to page 15) '.. ·.. ;,·,:: :.·1 20 ;··;1:,~:;:: _;;..:_... 2. Constitutional Limitations a) Due process of law Ther~ must be a valid law and the measure should not b unconscionable and unjust as' to amount to confiscation ~ 0 property: Tax statute must not be arbitrary as to find no support in the ?onstitution. The power to tax should not be , harsh, oppres~1ve or confiscatory. This limitation is also known as the nght to notice and hearing. b) Equal protection of laws All persons subject to legislation shall be treated alike under similar circumstances and conditions both in the privileges conferred and liabilities imposed. The doctrine does not require that persons or properties different in fact be treated in law as though they were the same. What it prohibits is class legislation which discriminates against some and favors others. As long as there are rational or reasonable grounds for so doing, Congress may group persons or properties to be taxed and it is sufficient if all members of the same class are · subject to the same rate and the tax is administered impartially upon them. RELATED TIU, et al vs.CA (G.R. No. 127410, January 20, 1999) CASE/ ILLUSTRATION · · An· Executive Order was issued pursuant to Jaw l granting tax and duty incentives only to businesses and residents within the "secured area" of the Subic Economic Sp~cial Zone, and denying said incentives to those who live within the Zone but outside such "secured area". Is the constituti_ onal right to equal protection of the law violated by · the Executive Order? ANSWER: No. Equal protection of the law clause is subject to reasonable classification. Classification, to be valid! must Rest on substantial distinctions, Be germane to the purpose of the law, Not be limited to existing conditions only, Apply equally to all members of.the same class_. 21  h 1u/41,u:11Ld'Pr~ -- -- - -·· - yi,ere -are substantial differences between big investors being enticed to the "secured area" and the business operators outside that are in accord with the equal protection clause that does not require territorial uniformity of laws. The classification applies equally to all the re side~t indiv~duals and _businesses 1 within the "secured area'. The residents, being in like circumstances to contributing directly to the achievement of the end purpose of the law, are not.cate~?rized further. Instead, they are similarly treated, both m privileges granted and obli ations re uired. c) Rule of uniformity and equity in ta~ation. ,,. "The rule of taxation shall be umform and eq~1ta?I~. l_t requires the -uniform application ~nd operation, without ~1scnmmat1on, of the tax in every place where the subject of the tax 1s fou_nd. It does not, however, require absolute identity or ~~ua!1ty under all circumstances, but subject to reasonable class1f1cat1on. For classification to be valid, the following must c9ncur: It must be based on substantial distinction It must apply both to. present and future conditions It must be germane to the purposes of the law· It must apply equally to all members of the same class. RELATED PLOT vs. GLOBE and SMART · CASE RA 7926 provides for equality of treatment of the telecommunications industry cannot be a valid basis for PLOT to claim the same exemption and privilege granted to GLOBE and SMART. PLOT is ~ot similarly situated nor.is the same as GLOBE and SMART who provide for handheld phone communication. Being not similarly situated, the same is. not of similar class. Hence, no room for ~he a lication of uniformit and e ualit. A progressive system of taxation means that tax laws shall place emphasis on direct taxes rather than on indirect taxes, with -ability to pay as the principal criterion. (Article VI, Section 28 of the - Constitution). Regressive tax rates refer- to tax rates which decreases as the tax base or bracket increases. Regressive tax rat~s sho~/d be differentiated from.a regressive system of taxation ~hich exists when there are more indirect taxes imposed than direct taxes. ·. , '. 22  ·... huu/u,wwtff>rulC,l~ ' d) Proh1b1tlon against im... /. N pnsonment for non-payment of "poll tax" o person shall be impris df · poll tax The n.. one or debt or non-payment of poll ta; which ~n-1mp~1~onment rule applies to non-payment of th.. IS. purns able only by a surcharge.but not to 0 der violations hke falsification of commurlity ta~ certificate · a~. non-payment of other ·taxes. Poll tax is a tax of fixed ,.amount impo~~d on. residehts within a specific territory regardless -of c1t1z~~sh1p,.business or profession. e) Pro~ibition against impairment of ~bligatio~ of contracts , No · law impairing the.,obligation of contracts shall be passed. The.obligation of a contract 'is impaired when its terms or conditions are changed by law or by a party without ,t~e consent of the other, thereby weakening the position or nghts of the latter. An example of impairment by law is when , a later taxing statute revokes a tax exemption based on a contract. But this only applies when the tax exemption has been granted for a valid consideration. ·If the tax exemption pertains, for instance, to a franchise tax, a later statute may revoke such exemptio·n because the constitution provides that a franGhise tax is subject to amendment, alteration or repeal. f) Prohibition against infringement of religious freedom. No law _shall be made respecting an establishment of religion,. or prohibiting. the free exercise thereof. The free exercise and enjoyment of religious profession and worship, without discrimination or.pceference, shall forever be allowed.._No religious test shall be required for the exercise of civil or political rights. The payment of 1.icense f~es for the distribution and sale of bibles suppr~sses the constitutional right of free exercise of reli.gi_on.. g) ·Prohibition against appropriation of proceeds of taxation for the use, benefit, or support of any church _ No public money or · property shall be appropriated, applied, paid, or employed directly or -indirectly, for the u~e, benefit, or support of any church, denomination, sectarian. institution or system of religion, (?r of ·any priest, preacher, · minister or other religious teacher, or dignitary as such except when such priest, preacher, minister or dignitary is assigned to "  F ~ Pri~ the armed forces, or to any penal institution, or government orphanage or leprosarium. h) P~ohibition against taxation of religious, charitable and educational entities _ Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques,. non-profit cemeteries, and all lands, buildings and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation. This is an exemption from real property tax only. ·The exemption in favor of property used exclusively for charitable or educational purposes is not limit_ed to property actually indispensable therefore, but extends to facilities which are incidental to and - reasonably necessary for tt,e accomplishment of said purposes. The test of exemption refers. to actual use, not ownership. The term "exclusively" should be interpreted as "primarily'' - rather. than "solely". ILLUSTRATIVE Mr. Ramos is the owner of a 5,000 sq. m. parcel of land located 1 CASE in the city limits of Naga City. He leased the property for '! P50,000 a year to a religious congregation for a period of fifteen (15) years (2010-2025). The religious congregation built on a ; 1,000 sq. m. portion a seminary and a chapel that it used in connection with its religious activities. It constructed a ten (10) story building on the remaining 4,000 sq. m. which it rented out to various commercial establishments, the proceeds of which go 1 to the support of its various seminaries located throughout the I Philippines. These seminaries are organized as non-profit and non-stock educational institutions. Questions: 1. Is Mr. Ramos exempt from the payment of real property taxes? Yes, Mr. Ramos is exempt from the payment of real property taxes on the 1,000 sq. m. portion of :his 5,000 sq. m. lot, as well as on the , · - remaining 4,000 sq.m. 2. Is the religious congregation exempt from the payment of real property taxes? The religious congregation should pay real property taxes on the ~,OOO sq. m. parcel of land a_nd.the 10-story building be~ause the bas,~/ ~: taxation of real property is use and not ownership. However, 1 '. : ' l'. ,' ,. 24. ~~a/Pr~ - exempt from real _pro"perty taxes on the 1,000 sq. m. parcel of land as well as on the imp~ovements the chapel and the seminary. This is so because they are actually, ·directly and exclusively used for religious purposes. The treatment is different with regard t6 the 4,000 sq. m. lot and the 10 story building which. it rented out to commercial establishments. · · 3. Is the religious congregation exempt from the payment of income taxes on the rental rec_eipts? · · The religious congregation is, subject.to income taxation. The constitutional tax exemptions refer only to real property that are actually, directly and e~clusively used for religious, charitable or educational purposes, and that the only constitutionally recog_ nized exemption from taxation of revenues are those earned by non-profit, non-stock educational institutions which are actually, directly and exclusively used for educational purposes. i) Prohibition against taxation of non-stoc~, non-profit educational institutions. All revenues and assets of non-. stock, non-profit educational institutions Nonprofit non-stock used actually, directly, and exclusively Educational Institution for educational purposes shall be This exemption covers exempt from taxes.and duties. However, income, property, donor's they shall be· subject to internal revenue tax, and customs duties tax on income from trade, business or (distinguish from exemption other activity, the conduct of which is not in the preceding page which related to the exercise or performance pertains only to property by such educational institution of its tax). educational purpo~es or functio~s. , Taxation of ''proprietary" educational institutions Proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such exemptions subject to the limitations provided by law including restrictions on dividends and provisions for investment. Proprietary educational.institutions and hospitals wh_ich are non-profit shall pay a tax of ten percent (10%) on their taxable income, except for passi~e incomes which are subject to different tax rates as discussed m Chapter 4. ' \. ' l' '.. 25 ltti);,· ,> J - j) OTHERS 1_ Grant of tax exemption.. No law granting , any tax exemption (1.e.. amnesties, condonations and refunds) shall be passed without the concurrence of a majority of all Members of Congress (voting separately). · 2. Veto of appropriation, revenue tariff bills by the President The President shall have tt,e power to veto any particular item or items in an appropriation , revenue, or tariff bill, but the veto shall not affect the item or items to which he does not object. An item in a bill refers to particulars, details, the distinct and severable parts of a bill. In budgetary legislation. an item is an individual sum of money dedicated to a stated purpose. 3. Delegated authority of President to impose tariff rates, import and export quotas, tonnage and \'.Vharfage dues as delegated by Congress through a law (subject to Congressional limits and restrictions) within the framework. of national development program. 4. Non-impairment of the Supreme Court (SC) jurisdiction Congress cannot take away from the Supreme Court the power given to it by the Constitution as the final arbiter of tax cases. The Supreme Court shall have the following powers: Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of Court may provide, final judgments 9 nd orders ·of lower courts in all cases involving the legality of any tax, impost, assessment, or toll, or any penalty imposed in relation thereto. 5. REVENUE BILLS shall originate exclusively from the House of Representatives All appropriation, revenue or tariff bills, bills authorizing an · increase of the pubiic debt, bills of local application,and private bills shall originate ~xclusively in the House of Representatives, but the.Senate may P,:opose Qr concur with. amendments. The Constitution simply means that the initiative for the filing of bills must 26  ha~dafP r ~ come from the House of Representatives on the theo ·. !~at,Helected as they are from the districts, ihe members~ e ouse can be expect~d to be more sensitive to the loca_ l needs and problems. Given the power of the Senate to prop~~e.. amendments, it can propose its own version · even _w1~h respect_ !o bills which are required by 'the Const~tut~on to originate in the House nor does the Const1tut1on prohibit the filing in the Senate of a substitute bill -in anticipation of its receipt of the bill from the House so long as action by the Senate as a bo.dy is withheld pending receipt of the House bill. (Tolentino v. Secretary of. Finance, 235 SCRA 630) · RELATEO (JOLENTINO V. SECRETARY.OF FINANCE,. GR No. 115455,. CASE Oct. 30, 1995).. ISSUE: The House of Representatives introduced HB 7-000 which envi_sioned to levy a tax on various transactions. After the bifl was approved by the House, the bill was sent to the Senate as so required by the C9nstitution. In the upper house, instead.of a deliberation on the· House Bill, the Sen~lte introduced SB 8000 which ·was its own version of the same tax. The Senate deliberated on this Senate Bill and approved the same. The House Bill and the Senate Bill_ were then consolidated in the Bicameral Committee. Eventually, the consolidated · bill was approved and sent to the President who signed the same. The. private sectors affected by the new law questioned the validity of the enactment on the ground that the constitutional provision requiring that all revenue _bills should originate from the House of Representatives had been vi~lated. Resolve the issue. ANSWER: · There is no violation of the constitutional requirement that all revenue bills should originate from.the House of j: Representatives. What is ·prohibited is.for the Senate to enact revenue measures on its own without a bill originating from the House. But once the revenue bill was passed by the House and sent to tt,e Senate, the latter can pass its own version ori the. /·..,,..I same subject matter consonant with the latter's power to propose or concur with amendments. This follows from the co-equality of :f/,: '·-~· the two chambers of Congress. r._ -. 1., 27 ,.. ' ~ r·' : ) I ~~:.::--.~., ,.  /' J1- huuift.1,w 1L-td, Prur 6. Infringement of press freedom This limitation does not mean that the press is exempt from taxation. Taxation constitutes an infringement of press freedom when it operates as a prior restraint to the exercise of this constitutional right. When the tax is imposed on the receipts or the income of the press it is a valid exercise of the sovereign prerogative. 7. Revocation of Tax Exemptions · Tax exemptions, such as "grant of franchise" may be revoked by another law as it is specifically provided in the Constitution that the grant of any franchise is always subject to amendment, alteration, or repeal by the Congress when the common good so requires. ILLUSTRATIVE "X" Corporation was the recipient of two tax exemptions both CASE from Congress, one law exempting the company's bond issues : from taxes and the other exempting the company from taxes in the operation of its public utilities. The two laws extending the tax exemptions were revoked by Congress before their expiry , dates. Were the revocations constitutional? ' ANSWER: YES The exempting statutes are both granted unilaterally by Congress in the exercise of taxing powers. Since taxation is the rule and tax exemption, the exception, any tax exemption unilaterally granted can be withdrawn at the pleasure of the taxing authority without violating the Constitution. Neither of these were issued by the taxing authority in a contract la ully entered by it so that their revocation would not constitute an impairment of the obligations of contracts. (Mactan Cebu International Airport Authority v, Marcos, G.R No, ·1200821 · Se /ember 11, 1}_'9~6_. _ _ _ __ SITUS OF TAXATION Literally, situs of taxation means place" of taxation. It is the State 11 or political unit which has jurisdiction to impose a particul r t x. The S a e where the subject to be taxed has a situs may rightfully levy and collect the. tax. The situs is necessarily in the State whict1 has jurisdiction or which exercises dominion over the subject in question. \ !.i.=,.-;',' ~, ' I 1. i'. -.r:·..~ "'. 28 ':... ' ,.r ~· ~T; t  F~dPr~ FACTORS To· CONSIDER IN DETERMINING THE_ - SITUS OF TAXATION: a. Subject matter (person, property, or activity) b. Nature of the tax. · · c. · Citizenship. · d. Residence of the.taxpayer e. Squrce of income f. Plac~ of excise, business or occupation being taxed TABLE 1-6: EXAMPLES OF SITUS OF TAXATION Persons Residence of the taxpayer Real Property Location Personal.. Location; Place of sale or transaction Property Intangible Domicile of the owner except when the intangible has a situs elsewhere Personal such as: Property Franchise, pate·nts, copyrights, trademarks: Situs is the place or country where such intangibles are exercised. · Receivables: Domicile or residence of.the debtor. Bank deposits: Location of the deposi~ory bank. **~ shares of stock in a domestic corporation· of a nonresident alien are taxable in the Philippines because the said shares receive the protection and benefit of the Philippine laws. Income *** Source of income Occupation - where the occupation is engaged in Transaction - where the transaction took place ·ausiness Place of the business Gratuitous Residence or citizenship of the taxpayer; or location of the property Transfer TAX DISTINGUISHED FROM OTHER TERMS OR IMPOSTS 1 TAX versus TOLL · A Toll is a sum of money for the use of something , generally applied to the consideration, which is paid of the use of a road , bridge_ or the like of a public nature. · 29 i. Demand of proprietorship ·paid for the use of another's property Paid for the support of government Amount is based on cost of-construction Amount is based on the necessities of or maintenance of the public the State. · improvement used ·, Maybe imposed by _the governrnent or May be imposed only by the State rivate individuals or en~ities ·2~ TAX versus PENAL TY Penalty is a sanction imposed as a punishment for violation of law. · or acts deem injurious. The violation of tax may give right to imposition of penalty. · -- - PENALTY---------. - TAX -.- ----- -- - ,.. Designed to regulate _conduct Primarily aimed at rising revenue May ·be imposed by the government or _May b~ imposed only by the government rivate individuals or entities 3. TAX v~rsus SPECIAL ASSESSMENT. Special assessment is an enforced proportional contribution from owners of lqnds for special benefits resulting from public improvements.. In.Republic v. ·aacolod, f7SCRA632, a special assessment is a levy -on property which de,rives some special benefit. from the improvement.. Its purpose is to finance such improvement, thus accruing only to the o_wners thereof wh9, after all, pay the assessment. It is ·not a'. tax measure intended to raise revenues for the government beca ·u se the proceeds thereof may be devoted to the specific purpose f