TAX 1 - Expanded Outline (Prof.

Loriega) Azis - A-2014 G

E N ER A L

R I N C I P L E S

O F

AX A T I O N

A. Concept, nature, underlying basis, purpose Taxation: Process or means by which the sovereign (thru the lawmaking body) raises income to defray necessary expenses of the government; mode by which governments make exactions for revenue in order to support their existence and carry out their legitimate objectives. Inherent power of the State to demand enforced contributions for public purpose/s. Includes every imposition of charge or burden by the sovereign power upon persons, property, property rights, for the use and support of the government and to enable it to discharge its appropriate functions. Tax: Enforced proportional and pecuniary contributions from persons and property levied by lawmaking body of State having jurisdiction over the subject. NATURE Inherent in sovereignty as an incident or attribute thereof: Essential to existence of government; constitutional provisions are limitations, NOT grants of power. Legislative in character: May also be made by local legislative body, subject to limitations provided by law. Subject to constitutional and inherent limitations: Individual equities or inequities are NOT considered. BASIS Reciprocal duties of state and inhabitants: In return for his contribution (support), the taxpayer receives the general advantages and protection which the government affords the taxpayer and his property. (benefits-received principle) Such privileges and protection can also be enjoyed by those who cannot pay taxes. Protection in enjoyment of rights is a duty owed by the State to every citizen. Government renders NO special or commensurate benefit to any particular property or person. Only benefit to which taxpayer is entitled is that derived from his enjoyment of the privileges of living in an organized society established and safeguarded by the devotion of taxes to public purposes. Person cannot object to or resist payment of taxes solely because no personal benefit to him can be pointed out as arising from the tax. PURPOSE Primary: To provide funds or property with which to promote the general welfare and protection of its citizens. Secondary: Strengthen anemic enterprises or provide incentive to greater production; protect local industries; used as a bargaining tool; halt inflation and ward off depression; reduce inequalities in wealth and incomes; promote science and invention or improve efficiency of local police forces; use as an implement of police power. Commissioner of Internal Revenue vs. Pineda BIR should be given the necessary discretion to avail itself of the most expeditious way to collect the tax; because taxes are the lifeblood of government, and their prompt and certain availability is an imperious need. Vera vs. Fernandez Taxes are the lifeblood of government, and their prompt and certain availability is an imperious need. Upon taxation depends the governments ability to serve the people for whose benefit taxes are collected. To safeguard such interest, neglect or omission of government officials entrusted with collection of taxes should not be allowed to bring harm or detriment to the people, in the same manner as private persons may be made to suffer individually on account of his own negligence, the

presumption being that they take good care of their personal affairs. This should not hold true to government officials with respect to matters not of their own personal concern. Govts exception, as a GR, from the operation of estoppel. Commissioner of Internal Revenue vs. Algue Taxes are the lifeblood of the Govt, and so should be collected without unnecessary hindrance. It is necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, the promotion of common good, may be achieved. Taxes are what we pay for civilization society. Without it, 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. For its part, the government 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. B. Principles of a sound tax system Fiscal adequacy: Sources of revenue, as a whole, should be sufficient to meet the demands of public expenditure; revenues should be elastic or capable of expanding or contracting annually in response to variations in public expenditures. Equality or theoretical justice: Tax burden should be distributed in proportion to the taxpayers ability to pay. Similarly situated taxpayers should pay equal taxes, while those who have more should pay more. Taxation should be uniform as well as equitable. Administrative feasibility: Tax laws should be capable of convenient, just and effective administration or enforcement at a reasonable cost; enforced with the least inconvenience to the taxpayer. C. Aspects of taxation Levying or imposition: Legislative act. (Taxation) Collection: Administrative act. (Tax administration) D. Essential characteristics of tax Enforced contribution: Not voluntary payment or donation; imposition is not dependent upon will or assent, open or implied, of the person taxed. Proportionate in character: Rule of apportionment according to which persons share the public burden; based on ability to pay. Generally payable in money: Pecuniary burden; discharged in the form of money which must be in legal tender. Levied on persons or property: On acts, transactions, rights or privileges. It is a person who pays. Property is resorted to for ascertaining the amount of tax that must be paid and of enforcing payment in case of default of taxpayer. Levied by state with jurisdiction over person/property: This is necessary so tax can be enforced. Levied by the lawmaking body: Only Congress can exercise it, through tax statutes (statutory liability). Levied for public purpose/s: Support of the government, administration of law, payment of public expenses. Revenues derived from taxes cannot be used for purely private purposes or for the exclusive benefit of private persons. It is implied in the levy of tax.

TAX 1 - Expanded Outline (Prof. Loriega) Azis - A-2014 E. Classification of Taxes 1. According to subject matter Progressive or graduated: Tax the rate of which increases as the tax base or bracket increases. (income tax, estate tax, donors tax) Regressive: Tax the rate of which decreases as the tax base or bracket increases. F. Distinguished from certain kinds of exactions 1. License fee Tax Enforced contribution assessed by sovereign authority to defray public expenses. For revenue. Exercise of taxing power. Generally no limit on amount of tax that may be imposed. Imposed also on persons and property. Does not necessarily make it illegal.

Personal/poll/capitation: Tax of fixed amount on persons residing within a specified territory, whether citizens or not, without regard to their property or the occupation or business in which they may be engaged. (community tax) Property: On property, whether real or personal, in proportion either to its value, or in accordance with some other reasonable methods of apportionment. (real estate tax) Excise/privilege: Performance of an act, enjoyment of privilege, or engaging in an occupation, profession or business. (income tax, VAT, estate tax, donors tax) EPL: Excise taxes under the NIRC are property taxes. 2. According to burden or incidence

License Fee Legal compensation or reward of an officer for specific services. For regulation. Exercise of police power. Amount is limited to necessary expenses of inspection and regulation. Imposed on right to exercise a privilege. Failure to pay makes act or business illegal.

Direct: Demanded from person who also shoulders the burden of the tax; tax for which the taxpayer is directly or primarily liable or which he cannot shift to another. (corporate and individual income taxes, community tax, estate tax, donors tax) Indirect: Demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another, falling finally upon ultimate purchaser; person who absorbs or bears the burden of tax is other than the one on whom it is imposed and required by law to pay the tax. (VAT, percentage tax, excise tax on certain specific goods, customs duties) 3. According to determination of amount

Specific: Fixed amount imposed by the head or number, or by some standard of weight or measurement; requires no assessment other than a listing or classification of objects to be taxed. (tax on distilled spirits, wines and fermented liquors; cigars) Ad valorem: Fixed proportion of the value of the property wrt which the tax is assessed; requires intervention of assessors or appraisers to estimate the value of such property before the amount due from each taxpayer can be determined. (real estate tax, excise taxes on autos, nonessentials, customs duties - EXC cinematographic films) 4. According to purpose

License or permit fee: Charge imposed under the police power for purposes of regulation. Special privilege; permission or authority to do what is within its terms. Always revocable. Power to regulate as an exercise of police power does not include power to impose fees for revenue purposes. An exaction may be considered both a tax and license fee (ex. car registration). A tax may have only a regulatory purpose. GR: Tax if primary purpose is to generate revenue, and regulation merely incidental. Procter and Gamble vs. Municipality of Jagna The term "license tax" has not acquired a fixed meaning. It is often used indiscriminately to designate impositions exacted for the exercise of various privileges. In many instances, it refers to revenue-raising exactions on privileges or activities. If the charge exceeds the expense of issuance of a license and costs of regulation, it is a tax. Morcoin Co., Ltd., vs. City of Manila This power to regulate and impose license fee for the operations of slot machines (which include juke boxes) should not be construed as including the power to impose license taxes for revenue purposes. The amount of license fees that may be imposed upon juke boxes and other coin-operated contrivances cannot be prohibitive, extortionate, confiscatory or in an unlawful restraint of trade, but should be approximately commensurate with and sufficient to cover all the necessary or probable expenses of issuing the license and of such inspection, regulation and supervision as may be lawful. Any ordinance which imposes a license fee which is substantially in excess of the reasonable expense of issuing the license and regulating the occupation to which it pertains, is invalid. Golden Ribbon Lumber vs. City of Butuan If unpaid, the business or activity itself subject to the license fee can become illegal, unlike, generally, that of the non-payment of tax. Progressive Development Corp. vs. QC The term "tax" frequently applies to all kinds of exactions of monies which become public funds. It is loosely used to include levies for revenue as well as levies for regulatory purposes such that license fees are frequently called taxes although license fee (imposed in the exercise of police power primarily for purposes of regulation) is a legal

General, fiscal or revenue: General purpose of government, i.e. raise revenue for its needs. (income tax, VAT, almost all taxes) Special or regulatory: Special purpose, to achieve some social or economic ends irrespective of whether revenue is actually raised or not. (protective tariffs or customs duties on imported goods). 5. According to scope or authority imposing the tax

National: Imposed by national government (national internal revenue taxes, customs duties) Municipal or local: Imposed by municipal corporations or LGUs. (real estate tax, professional tax) 6. According to gradation

Proportional: Based on fixed percentage of the amount of property, receipts or other basis to be taxed. Rate of tax remains constant for all levels of tax base or any given income level (flat or uniform). (real estate tax, VAT, percentage taxes)

TAX 1 - Expanded Outline (Prof. Loriega) Azis - A-2014 concept distinguishable from tax (imposed under the taxing power primarily for purposes of raising revenues). Thus, if the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax. To be considered a license fee, the imposition questioned must relate to an occupation or activity that so engages the public interest in health, morals, safety and development as to require regulation for the protection and promotion of such public interest; the imposition must also bear a reasonable relation to the probable expenses of regulation, taking into account not only the costs of direct regulation but also its incidental consequences as well. When an activity, occupation or profession is of such a character that inspection or supervision by public officials is reasonably necessary for the safeguarding and furtherance of public health, morals and safety, or the general welfare, the legislature may provide that such inspection or supervision or other form of regulation shall be carried out at the expense of the persons engaged in such occupation or performing such activity, and that no one shall engage in the occupation or carry out the activity until a fee or charge sufficient to cover the cost of the inspection or supervision has been paid. Accordingly, a charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held to be a tax rather than an exercise of the police power. PAL vs. Edu If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. Such is the case of motor vehicle registration fees. Sec. 70(b) of Rep. Act 587 quoted in Calalang. 2. Toll Tax Demand of sovereignty. Paid for the support of the government. Generally no limit on amount to be imposed. May be imposed only by the government. 3. Special assessment or levy

Special assessment: Enforced proportional contribution from owners of lands esp. or peculiarly benefited by public improvements. Levied only on land. Not a personal liability of person assessed. Based wholly on benefits (not necessity). o LPE: You can object to the assessment if there is no benefit to you. Exceptional both as to time and place. Power to tax = power to levy special assessment; exemption from tax exemption from special assessment. 4. Debt or ordinary obligation Tax Based on law. Generally cannot assigned. Generally payable money. Generally not. be in

Debt Based on contract, express or implied. Assignable. May be paid in kind. May be the subject of setoff or compensation. Cannot be imprisoned for non-payment. (EXC: When it arises from a crime) Governed by ordinary periods of prescription. Draws interest when stipulated or when there is default.

Imprisonment is sanction for non-payment (EXC: Poll tax). Governed by special prescriptive periods in the Code. Does not draw interest, except only when delinquent.

Victoria Milling vs. PPA The imposition was held to be a contractual compensation rather than a tax. Philex Mining Corp. vs. CIR Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not 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. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity.

Toll Demand of proprietorship. Paid for use of anothers property. Depends upon the cost of construction or maintenance of the public improvement used. May be imposed by government or private entities.

G.

Scope and Limitations of Taxation

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. City of Ozamis vs. Lumapas The word toll when used in connection with highways has been defined as a duty imposed on goods and passengers travelling public roads. The toll for use of a toll road is for its use in travelling thereon, not for its use as a parking place for vehicles. Considering that the PUVs are only charged the fee when said vehicles stop on any portion of the existing parking areas for the purpose of loading or unloading passengers or cargoes, the fees collected are actually in the nature of parking fees, and not toll fees for the use of Zulueta Street. (Stipulation of Facts) Fees were not exacted for mere passage thru the street but for stopping in the designated parking areas therein to unload or load passengers or cargoes. It was not a toll fee for the use of public roads, within the context of Sec.59(b) of R.A. 4136, which requires the authorization of the President of the Philippines. A toll is an act or demand on proprietorship or ownership. Its imposition is generally contractual in nature, and it may be demanded by private persons or entities.

Sison vs. Ancheta The field of State activity has assumed a much wider scope. The areas which used to be left to private enterprise and initiative continue to lose their well-defined boundaries and to be absorbed within activities that the government must undertake in its sovereign capacity if it is to meet the increasing social challenges of the times. Hence, the need for more revenues. The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state functions. It is the source of bulk of public funds. The power to tax is an attribute of sovereignty. For all its plenitude, the power to tax is not unconfined. There are restrictions. The Const. sets forth such. Commissioner vs. Algue Despite the natural reluctance to surrender part of ones hard earned income to taxing authorities, every person who is able must contribute his share in the running of 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. Even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in

TAX 1 - Expanded Outline (Prof. Loriega) Azis - A-2014 accordance with the prescribed procedure. Pepsi Cola vs. Municipality of Tanuan Taxation may be delegated to local governments in respect of matters of local concern. By necessary implication, the legislative power to create political corporations for purposes of local self-government carries with it the power to confer on such local government agencies the power to tax. In delegating authority, State is not limited to exact measure of power which is exercised by itself. There may be delegated such measure of power to impose and collect taxes as the legislature may deem expedient. Thus, municipalities may be permitted to tax subjects, which for reasons of public policy the State has not deemed wise to tax for general purposes. A violation of inherent limitations can amount to taking of property without DP. 1. Inherent limitations a. Taxation is for a public purpose long as it is based on some standard capable of reasonable comprehension, be that standard based upon ability to produce revenue or some other legitimate distinction, EP of the law has been afforded. It is never a requirement of EP that all evils of the same genus be eradicated or none at all. Use of tax proceeds for putting up experimental facilities to increase sugar production and benefit that industry (Lutz vs. Araneta), for the support of a public educational system (Gomez vs. Palomar), and other special public purposes, without any part of such money being channeled directly to private interest, cannot seriously be assailed. Tio vs. Videogram Regulatory Board A tax does not cease to be valid merely because it regulates, discourages or even definitely deters the activities taxed. The power to tax is one so unlimited in force and so searching in extent, that courts scarcely venture to declare that it is subject to any restrictions whatsoever, except such as rest in the discretion of the authority which exercises it. The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax was to favor one industry over another. (Valentin Tio vs. Videogram Regulatory Board) b. Taxation is inherently legislative to President; LGUs and

Governmental purpose: Purpose affecting the inhabitants of the state or taxing district as a community and not merely as individuals. Test: Proceeds of tax must be used: For the support of the government. For any of the recognized objects of government. To promote the welfare of the community. Reason: Tax levied for private purpose constitutes taking of property without DP. Since the government is established for public purpose, public money can only be spent for the same purpose. Purpose need not be exclusively public; it can have incidental benefit to private interest. The test is not as to who receives the money but the character of the purpose for which it is expended. GR: Taxpayers have sufficient interest of preventing illegal expenditures of money raised by taxation; but he is not relieved from obligation of paying a tax because of his belief that it is being misappropriated by certain officials. EXC: No legal standing to question executive acts that do not involve use of public funds. Pascual vs. Secretary of Public Works Legislature is without power to appropriate public revenues for anything but a public purpose. It is the essential character of the direct object of the expenditure which must determine its validity as justifying a tax and not the magnitude of the interests to be affected nor the degree to which the general advantage of the community may be ultimately benefited by their promotion. Incidental advantage to the public or to the State, which results from the promotion of private enterprises or businesses, does not justify their aid by the use of public money. Lutz vs. Araneta It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that inequalities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation. There might be other industries that are also in need of similar protection; but the legislature is not required by the Constitution to adhere to a policy of all or none. Gomez vs. Palomar Legislature has the inherent power to select the subjects of taxation and to grant exemptions. Wide range and flexibility; greatest freedom in classification. REASON: Classification is a device for fitting tax programs to local needs and usages in order to achieve an equitable distribution of tax burden. The rule of reasonable relationship between classification and purpose is not applicable to a revenue measure; so

GR: Congress. EXC: Proper delegation administrative agencies.

Legislative authority includes the authority: 1. To determine: a. Nature (kind) b. Object (purpose) c. Extent (amount or rate) d. Coverage (subjects and objects) e. Situs (place) 2. To grant tax exemptions or condonations. 3. To specify or provide for administrative, judicial remedies that either the government or taxpayer may avail themselves of in the proper implementation of the measure.

CASES: GR: It is a legislative prerogative (National Power Corporation vs. Albay), and thus cannot be delegated.
EXC: 1. 2. 3. To local governments or political subdivisions (Cu Unjieng vs. Patstone) When allowed by the Constitution. When the delegation relates merely to administrative implementation that may call for some degree of discretionary powers under a set of sufficient standards expressed by law (Cervantes vs. Auditor General) or implied from the policy and purpose of the Act (Maceda vs. Macaraig)

LIMITATIONS on delegation: 1. It shall not contravene any constitutional provision or inherent limitation. 2. It is effected either by the Const. or by validly enacted legislative measures or statute. 3. The delegated levy power, EXC when the delegation is by an express provision of Const., should only be in favor of the local legislative body of the local or municipal government concerned. c. Taxation is territorial

51 Am. Jur. 88 A state may not tax property lying outside its borders or lay an excise or privilege tax upon the exercise or enjoyment of a right or privilege derived from the laws of another estate and therein exercised and enjoyed.

TAX 1 - Expanded Outline (Prof. Loriega) Azis - A-2014 Within the territorial jurisdiction, the taxing authority may determine the place of taxation (tax situs) Reason: Tax laws do not operate beyond a countrys territorial limits; property wholly within the jurisdiction of another state receives none of the protection for which a tax is supposed to be compensation. EXC: A person may be taxed where there is between him and the taxing state, a privity of relationship justifying the levy. d. Taxation is subject to international comity properties to be taxed and it is sufficient if all of the same class are subject to the same rate and the tax is administered impartially upon them. Applies alike to all entities placed in similar situation, or differently to entities belonging to different classes, provided all those belonging to one class are treated alike. Equal treatment under the law and may involve the same or different treatment depending on the circumstances.

Art. II, 2, 1987 Const. 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.
Under international comity, the property of foreign state or government may not be taxed by another. Basis: Sovereign equality among states (one state cannot exercise its sovereign powers over another). Usage among states (when one enters the territory of another, there is an implied understanding that the former does not intend to degrade its dignity by placing itself under the jurisdiction of the latter). Foreign government may not be sued without its consent. e. Exemption of government agencies and instrumentalities

Art. III, 10, 1987 Const. No law impairing the obligation of contracts shall be passed.
Impaired when its terms or conditions are changed by law or by a party without the consent of the other, thereby weakening the position or the rights of the latter. Includes contracts entered into by the government. Prohibited law also includes executive orders, administrative orders or circulars, and ordinances.

Art. III, 20, 1987 Const. No person shall be imprisoned for debt or non-payment of a poll tax.
Only penalty for delinquency is payment of surcharge in the form of interest. A person is subject to imprisonment for violation of community tax law other than for nonpayment of tax and for non-payment of other taxes if so expressly provided for.

Art. VI, 28 (1), 1987 Const. The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.
All taxable articles or properties of the same class shall be taxed at the same rate. (Rate is uniform on the same class everywhere) Uniform application and operation, without discrimination, of the tax in every place where the subject of it is found. Equality in burden, NOT equality in amount or equality in its strict and literal meaning. Uniformity is effected through apportionment of tax burden among taxpayers which under the Const. must be equitable. Such apportionment must be more or less just in the light of the taxpayers ability to shoulder the tax burden. It may be uniform but inequitable where the amount of tax imposed is excessive or unreasonable. Reasonable classification of entities or individuals who are to be affected by a tax. Progressive system: Tax laws shall place emphasis on direct rather than indirect taxation, with ability to pay as principal criterion. While EP refers to like treatment of persons in like circumstances, uniformity and equity refer to proper relative treatment for tax purposes of persons in unlike circumstances. CASES: 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. (City of Baguio vs. De Leon) Classification is permitted if: (Pepsi Cola vs. City of Butuan) 1. Standards used therefor are not arbitrary but reasonable and substantial. 2. The classification is germane to achieve the purpose of the legislation. 3. That classification applies to both present and future conditions, other circumstances being equal.

Reason: Government would be taxing itself if it levies a tax upon public property; functions of government shall not be unduly impeded; to reduce amount that has to be handled by the government in the course of its operations. Entities exempted: Government entities through which the government immediately exercises its sovereign powers. GOCCs performing proprietary functions: Generally subject to tax in absence of tax exemptions in their charters or special laws creating them. 2. Constitutional limitations

Constitutional provisions are meant and intended more to regulate and define, rather than to grant, the power emanating therefrom. (Vitug)

Art. III, 1, 1987 Const. 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.
Application of DP to taxation: For private purpose or beyond jurisdiction - offends DP; judicially declared invalid tax - cannot be enforced and thus must be refunded if paid; no notice of tax liability - cannot be deprived of property for non-payment; tax law denying taxpayer the fair opportunity to assert his substantial rights before a competent tribunal is invalid. The procedure prescribed for paying the tax or contesting the same must be reasonable and not unjust or oppressive to title taxpayer. EP: All persons subject to legislation shall be treated alike under all circumstances and conditions both in the privileges conferred and liabilities imposed. What the Const. prohibits is class legislation. So long as there are rational or reasonable grounds for so doing, Congress may group the persons or

TAX 1 - Expanded Outline (Prof. Loriega) Azis - A-2014 4. If the classification applies equally to all those belonging to the same class. 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 competing foreign country for the most recent representative period shall be used as bases. The Commissioner of Customs shall regularly furnish the Commission a copy of all customs import entries as filed in the Bureau of Customs. The Commission or its duly authorized representatives shall have access to, and the right to copy all liquidated customs import entries and other documents appended thereto as finally filed in the Commission on Audit. The NEDA shall promulgate rules and regulations necessary to carry out the provisions of this section. Any Order issued by the President pursuant to the provisions of this section shall take effect thirty (3) days after promulgation, except in the imposition of additional duty not exceeding ten (10) per cent ad valorem which shall take effect at the discretion of the President.

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. (Eastern Theatrical Co. vs. Alfonso) The Constitution does not require situations, which are different in fact or opinion to be treated in law as though they were the same. (Basco vs. PAGCOR) Example of violation of uniformity of taxation Does not distinguish between motor vehicle for hire and for public use; between those in Manila and in another place but comes to Manila occasionally. (Association of Customs Brokers vs. Municipal Board of Manila) Uniformity is met when the tax operates with the same force and effect in every place where the subject may be found. The rule does not call for perfect uniformity or equality, because this is hardly attainable. It just means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. Where the differentiation complained of conforms to the practical dictates of justice and equity, it is not discriminatory within the meaning of this clause and is therefore uniform. (Sison vs. Ancheta)

d.

e. f.

Art. VI, 28 (2), 1987 Const. 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.
Section 401, Tariff and Customs Code Flexible Clause. a. In the interest of national economy, general welfare and/or national security, and subject to the limitations herein prescribed, the President, upon recommendation of the National Economic and Development Authority (hereinafter referred to as NEDA), is hereby empowered: (1) to increase, reduce or remove existing protective rates of import duty (including any necessary change in classification). The existing rates may be increased or decreased to any level, in one or several stages but in no case shall the increased rate of import duty be higher than a maximum of one hundred (100) per cent ad valorem; (2) to establish import quota or to ban imports of any commodity, as may be necessary; and (3) to impose an additional duty on all imports not exceeding ten (10%) per cent ad valorem whenever necessary; Provided, That upon periodic investigations by the Tariff Commission and recommendation of the NEDA, the President may cause a gradual reduction of protection levels granted in Section One Hundred and Four of this Code, including those subsequently granted pursuant to this section. Before any recommendation is submitted to the President by the NEDA pursuant to the provisions of this section, except in the imposition of an additional duty not exceeding ten (10) per cent ad valorem, the Commission shall conduct an investigation in the course of which they shall hold public hearings wherein interested parties shall be afforded reasonable opportunity to be present, produce evidence and to be heard. The Commission shall also hear the views and recommendations of any government office, agency or instrumentality concerned. The Commission shall submit their findings and recommendations to the NEDA within thirty (30) days after the termination of the public hearings. The power of the President to increase or decrease

Art. VI, 28 (3), 1987 Const. Charitable institutions, churches and personages 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.
Covers only PROPERTY TAXES. USE of property, NOT ownership. Must be ACTUALLY, DIRECTLY AND EXCLUSIVELY USED for the purposes mentioned. Extends to facilities which are incidental to or reasonably necessary for accomplishment of said purposes. CASES: Test of exemption is USE. (Abra Valley College vs. Aquino) Lung Center vs. QC To determine whether an enterprise is a charitable institution/entity or not, the elements which should be considered include the statute creating the enterprise, its corporate purposes, its constitution and by-laws, the methods of administration, the nature of the actual work performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the use and occupation of the properties. In the legal sense, a charity may be fully defined as a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds and hearts under the influence of education or religion, by assisting them to establish themselves in life or otherwise lessening the burden of government. It may be applied to almost anything that tend to promote the well-doing and well-being of social man. It embraces the improvement and promotion of the happiness of man. The word charitable is not restricted to relief of the poor or sick. The test of a charity and a charitable organization are in law the same. The test whether an enterprise is charitable or not is whether it exists to carry out a purpose reorganized in law as charitable or whether it is maintained for gain, profit, or private advantage. The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law. Solely is synonymous with exclusively. Herrera vs. QC Board no longer holds true.

b.

c.

Art. VI, 28 (4) 1987 Const. No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress.

TAX 1 - Expanded Outline (Prof. Loriega) Azis - A-2014 Prevent indiscriminate grant of tax exemptions. Majority: At least plus one of all members thereof. Refers to all members of Congress, NOT attendees constituting a quorum. The exemption does not cover revenues derived from or assets used in unrelated activities or enterprise. (Vitug) LPE: o Non-stock, non-profit: ALL taxes o Proprietary - SUBJ. TO LIMITS - enabling law.

Art. VI, 29 (3), 1987 Const. All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the Government.
Stabilization fees collected by PHILSUCOM for promotion of sugar industry were in the nature of taxes. Revenues derived therefrom are to be treated as a special fund to be administered for the purpose intended. Once the purpose is achieved, the balance is to be transferred to the general funds of the government. (Gaston vs. Republic Planters Bank)

H.

Interpretation and Construction of Tax Statutes

CIVIL, not political or penal in nature. Reasonable construction or interpretation with a view to carrying out their purpose and intent. PLAIN: APPLY. (No construction) DOUBT: Strictly against the government; liberally in favor of taxpayer. (Commissioner vs. Firemans Ins. Co.) Taxes being burdens, they are not to be presumed beyond what the statute expressly and clearly declares. o Does NOT extend to cases involving the issue of validity of the tax statute itself, which is presumed valid. GR: Taxation Tax statute generally construed in favor of taxpayer. (Statute that favors taxpayer is generally given retroactive effect) EXC: Tax exemption Strictly against claimant; Doubt - in favor of taxation. (applies to REFUNDS - CIR vs. CA) o Exemptions are NOT presumed. (Luzon Stevedoring vs. CTA), such provisions being highly disfavored and may almost be said to be odious to the law. o EXC to EXC: Exemptions are LIBERALLY construed in favor of claimant in the following cases; When the law provides for such. Exemption from certain taxes granted under special circumstances to special classes of persons. Exemptions in favor of the government, its political subdivisions or instrumentalities (Maceda vs. Macaraig). BASIS; Reason for the rule on exemptions does not apply here. The practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the course of its operations. Exemptions to traditional exemptees, such as religious and charitable institutions. REWARDS: Liberally construed in favor of awardees. (Crispin Penid, et al vs. Cesar Virata) AMNESTIES: general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an absolute forgiveness or waiver by the Government of its right to collect what otherwise would be due it, and in this sense, prejudicial thereto, particularly to give tax evaders, who wish to relent and are willing to reform a chance to do so and thereby become a part of the new society with a clean slate. (Republic vs. IAC) o Terms - strictly construed against. Once you qualify - effects are construed in favor of the taxpayer. Special law prevails over general law (Republic vs. Gancayco) o Special laws are considered exemptions to the general law because they pertain to a particular set of circumstances. Courts may take judicial notice of the original and history of the statutes which they are called upon to construe and administer, and of the facts which affect their derivation, validity and operation (US vs. De Guzman)

Art. VI, 27 (2), 1987 Const. The President shall have the 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.
GR: President may not veto a bill in part and approve it in part. EXC: This.

Art. VIII, 5 (2.b), 1987 Const. The Supreme Court shall have the following powers:
(2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of Court may provide, final judgments and orders of lower courts in: (b) All cases involving the legality of any tax, impost, assessment, or toll, or any penalty imposed in relation thereto. SC is final arbiter of tax cases.

Art. X, 5 (2), 1987 Const. Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments.
EXC to GR that constitutional tax provisions, normally addressing themselves to national tax where the power inheres in sovereignty, are designed to limit rather than to grant tax powers. (Vitug) Power to create municipal corporations for purposes of local self-government carries with it, by necessary implication, the power to confer the power to tax on such local governments.

Art. XIV, 4(3), 1987 Const. All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law.
Proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such exemptions, subject to the limitations provided by law, including restrictions on dividends and provisions for reinvestment. Covers income, property and donors taxes and customs duties, and other taxes imposed by either or both national government or political subdivisions.

TAX 1 - Expanded Outline (Prof. Loriega) Azis - A-2014 Where a local rule is patterned or copied from that of another country, then the decisions of the courts in such country construing the rule are entitled to great weight in interpreting the local rule. (Ppl vs. Pagpaguitan) I. Classifications of Tax Exemption o 3. The exceptions to the law on prescription should be strictly construed.

Double taxation

Exemption: Grant of immunity to particular persons or corporations or to persons or corporations of a particular class from a tax which persons and corporations generally within the same state or taxing district are obliged to pay. Rationale: Public interest will be subserved. Grounds: Contract or public policy. (NOTE: Equity NOT a ground) Nature: Personal privilege of grantee; generally revocable by government; implies waiver on part of government of its right to collect what would be due it; not necessarily discriminatory.

Double taxation: Taxing for the same tax period the same thing or activity twice, when it should be taxed but once, for the same purpose and with the same kind or character of tax. Direct duplicate taxation (strict sense): o Taxing twice o By same taxing authority o Within same taxing jurisdiction or taxing district o For the same purpose o In the same taxing period o Some of the property in the territory o Same property or subject matter (Villanueva vs. City of Iloilo) Indirect duplicate taxation (broad sense): Burden of 2 or more pecuniary impositions. GR: Standing alone and not being forbidden by our fundamental law, double taxation is NOT a valid defense against the validity of a tax measure. o EXC: Strict and legal sense. Seek relief under uniformity rule or EPC. 4. Power to tax involves the power to destroy

As to manner: 1. Express (Constitution, statutes, treaties, franchises, legislative acts) 2. Implied or by omission: Without mentioning the other classes. 3. Contractual: Those agreed to by the taxing authority in contracts lawfully entered into by them under enabling law. NOT those granted under franchises, which are NOT contracts within the purview of the nonimpairment clause. (Commissioner of Internal Revenue vs. CTA) o Legislative franchises partake the nature of a contract (law between the parties). It springs from contracts between the sovereign power and private citizens made upon valuable considerations, for purposes of individual advantages as well as public benefit. o Obligation to comply with the terms and conditions of the grant (consideration); Tax exemption (inducement to accept the franchise and perform public services) As to scope: 1. Total 2. Partial As to object 1. Personal 2. Impersonal
J. Certain Doctrines in Taxation 1. Prospectivity of tax laws

To say, however, that the power to tax involves the power to destroy is to describe not the purposes for which the taxing power may be used but the extent to which it may be employed in order to raise revenues. Thus, even if a tax should destroy a business, such fact alone could not invalidate the tax. As long as the power is exercised within the bounds of constitutional limitations, a tax cannot be held invalid merely because the power which is manifested by its imposition may involve the power to destroy. The power to tax must be exercised with caution to minimize injury to the proprietary rights of a taxpayer. But, if the tax is lawful and not violative of any of the inherent and constitutional limitations, the fact alone that it may destroy an activity or object of taxation will not entirely permit the courts to afford any relief. A subject or object that may not be destroyed by the taxing authority may not likewise be taxed. 5. Escape from taxation (SEE DIAGRAM)

GR: Tax laws must be imposed prospectively. o EXC: May be imposed retroactively by law. o Tax laws are NOT political nor penal in nature (Central Azucarera de Don Pedro vs. CTA), and they are deemed laws of the occupied territory Ex post facto rule would be inapplicable. o Harsh retroactivity may make it inequitable and violative of the Const. (Republic vs. Fernandez) 2. Imprescriptibility of taxes

GR: Taxes are imprescriptible. EXC: Unless otherwise provided by the tax law itself. (Commissioner vs. Ayala Securities Corporation) Our tax law provides a statute of limitations in the collection of taxes. o Law on prescription, being remedial measure, should be liberally construed to afford such protection.

Shifting: Transfer of burden of tax by the original taxpayer or one on whom the tax was assessed or imposed to another or someone else. Impact of taxation: Point on which a tax is originally imposed. Incidence of taxation: Point on which tax burden finally rests or settles down. IMPACT (imposition) SHIFTING (transfer) INCIDENCE (settling or coming to rest) NOTE: Direct tax cannot be shifted; it is absorbed by the statutory taxpayer. Kinds of shifting o Forward: From a factor of production through the factors of distribution until it finally settles on the ultimate purchaser or consumer. o Onward: Shifted 2 or more times either forward or backward. o Backward: From the consumer or purchaser through the factors of distribution to the factor of production. Capitalization: Reduction in price of taxed object equal to the capitalized value of future taxes which the purchaser expects to be called upon to pay.

TAX 1 - Expanded Outline (Prof. Loriega) Azis - A-2014 Transformation: Manufacturer or producer upon whom the tax has been imposed, fearing the loss of his market if he should add the tax to the price, pays the tax and endeavors to recoup himself by improving his process of production thereby turning out his units of products at a lower cost. It is a transformation of the tax into a gain through the medium of production. Tax evasion (Tax dodging): Use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of tax. It is punishable by law. Factors: o End to be achieved (payment of less or none at all) o Accompanying state of mind (BF, deliberate) o Course (or failure) of action which is unlawful. It takes place only when there are no proceeds. Tax avoidance (tax planning/tax minimization): Use by taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income, in order to avoid or reduce tax liability. Taxpayer uses tax saving device or means sanctioned or allowed by law. Taxpayer has the legal right to decrease the amount of what otherwise would be his taxes or altogether avoid them by means which the law permits. He may perform an act that he honestly believes to be sufficient to exempt him from taxes. Evasion Breaking the law. Passes on toll bridge and fails to pay the toll. Avoidance Accomplished by legal procedure (does not violate law) Crosses the free bridge. than the tax being collected, The collection of tax cannot await the results of a lawsuit against the government. They are not mutual creditors and debtors of each other. Obligations in the nature of debts are due to the government in its corporate capacity, while taxes are due to the government in its sovereign capacity. (Philex Mining Corporation vs. CIR)

Francia vs. IAC

8. Mandatory and directory provisions of tax statutes

Mandatory: Intended for the security of citizens or to insure equality of taxation or certainty as to the nature and amount of each persons tax. Directory: For the information or direction of officers or to secure methodical and systematic modes of proceedings. (Hijos de Pedro P. Roxas vs. Rafferty) 9. Compromises

GR: Allowed and enforceable when the subject matter thereof is not prohibited from being compromised and the person entering into it is duly authorized to do so. NIRC: CIR is expressly authorized to enter, under certain conditions, into a compromise of both the civil and criminal liabilities of taxpayer. LGC: No such provisions. CC: Tax liability is not prohibited from being compromised.

K.

Sources of tax laws

Const.; legislation (statutes, PDs, EOs) [INDEPENDENT sources] Administrative rules and regulations and rulings of the CIR; including opinions of DOJ Sec. Judicial decisions.

Estate planning (conveyance of property to a family corporation for shares) within the means sanctioned by the NIRC has been held to be one of tax avoidance. (Delpher Trades Corporation vs. IAC) 6. Doctrine of equitable recoupment

L.

Tax Treaties

Common law doctrine to the effect that a claim for refund barred by prescription may be allowed to offset unsettled tax liabilities should be pertinent only to taxes arising from the same transaction on which an overpayment is made and underpayment is due. It finds no application where the taxes involved are totally unrelated. (Invocation of equity rather than law) The Court however, was not convinced of the wisdom and propriety of this doctrine, and that it may work to tempt both collecting agency and the taxpayer to delay and neglect their respective pursuits of legal action within the period set by law. (Collector vs. University of Sto. Tomas) 7. Set-off of taxes

Tax agreements entered into by the Phils, with other countries for avoidance of double taxation.

Taxes are not subject to set off or legal compensation. (Republic vs. Mambulao Lumber Co.) - BETTER VIEW. Taxes are of a distinct kind, essence and nature, and these impositions cannot be so classed in merely the same category as ordinary obligations. The applicable laws and principles governing each are peculiar, not necessarily common to each. Public policy is better subserved if the integrity and independence of taxes be maintained. Where taxes and taxpayers claim are fully liquidated, due and demandable, legal compensation under Art. 1279 can take place by operation of law, and both debts are extinguished to the concurrent amount (Domingo vs. Garlitos) A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater

TAX 1 - Expanded Outline (Prof. Loriega) Azis - A-2014

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DIAGRAM
Escape

Without resulting in loss of revenue to government

Resulting in loss of revenue to government

Process of exchange

Process of production

Thru means allowed by law

Through means not allowed by law

Thru consti, statutes, treaties, franchises

Shifting

Capitalization

Transformation

Avoidance

Evasion

Exemption

Forward

Onward

Backward