CONSTITUTIONAL LIMITATIONS 1.

DUE PROCESS OF LAW

There must be a valid law Tax measure should not be unconscionable and unjust as to amount to confiscation of property. Tax statute must not be arbitrary as to find no support in the Constitution.

Sison v. Ancheta, supra BP 135 FACTS: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1) unduly discriminated against him by the imposition of higher rates upon his income as a professional, that it amounts to class legislation, and that it transgresses against the equal protection and due process clauses of the Constitution as well as the rule requiring uniformity in taxation. Issue: Whether BP 135 violates the due process and equal protection clauses, and the rule on uniformity in taxation. HELD: No, there was no violation of the due process and equal protection clause, since petitioner did not made a case, only allegations. The Congress has the power to determine the rates of taxation; thus, the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious example is where it can be shown to amount to the confiscation of property. That would be a clear abuse of power. It then becomes the duty of this Court to say that such an arbitrary act amounted to the exercise of an authority not conferred. That properly calls for the application of the Holmes dictum. It has also been held that where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on due process grounds.

Sec. 1 Art. III 1987 - No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws. Tan v. Del Rosario, supra (SNITS); FACTS: Petitioners challenge the constitutionality of RA 7496 or the simplified income taxation scheme (SNIT) under Arts (26) and (28) and III (1). The SNIT contained changes in the tax schedules and different treatment in the professionals which petitioners assail as unconstitutional for being isolative of the equal protection clause in the constitution. Petitioner contends that the tile of House Bill No. 34314 progenitor of RA 7496, is a misnomer or, at least, deficient for being merely entitled, Simplified Net Income Taxation Scheme for the Self-Employed and Professional Engaged in the Practice of their Profession. HELD: Tax law is constitutional. Uniformity of taxation, like the hindered concept of equal protection, merely require that all subjects or objects of taxation similarly situated are to be treated alike both privileges and liabilities. Uniformity, does not offend classification as long as it rest on substantial distinctions, it is germane to the purpose of the law. It is not limited to existing only and must apply equally to all members of the same class. The due process clause may correctly be invoked only when there is a clear contravention of inherent or constitutional limitations in the exercise of the tax power. No such transgression is evident to us.

2.

EQUAL PROTECTION OF THE LAWS Right to be treated under like circumstance.

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 property 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.

purposes of taxation. Where the differentiation conforms to the practical dictates of justice and equity, similar to the standards of equal protection, it is not discriminatory within the meaning of the clause and is therefore uniform. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, he conditions nt being different, both in the privileges conferred and liabilities imposed. 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 infringes no constitutional limitation. Villegas vs Hiu Chiong Tsai Pao Ho FACTS: The Municipal Board of Manila enacted Ordinance 6537 requiring aliens (except those employed in the diplomatic and consular missions of foreign countries, in technical assistance programs of the government and another country, and members of religious orders or congregations) to procure the requisite mayors permit so as to be employed or engage in trade in the City of Manila. The permit fee is P50, and the penalty for the violation of the ordinance is 3 to 6 months imprisonment or a fine of P100 to P200, or both. ISSUE: Whether the ordinance imposes a regulatory fee or a tax. HELD: The ordinances purpose is clearly to raise money under the guise of regulation by exacting P50 from aliens who have been cleared for employment. The amount is unreasonable and excessive because it fails to consider difference in situation among aliens required to pay it, i.e. being casual, permanent, part-time, rankand-file or executive. The Ordinance was declared invalid as it is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus

Requisites of a Valid Classification: 1. 2. 3. Must be based on Substantial Distinctions. Germane to the purpose of law Classification must not be limited to existing conditions only but must also apply to future conditions substantially identical to those of the present. It must apply equally to all members of the same class.

4.

Application
Where the statute or ordinance in question applies alike to all persons, firms, or corporations placed in similar situations, or differently to persons, firms, or corporations belonging to different classes provided all those belonging to one class are treated alike, there is no infringement of the constitutional guarantee. What the Constitution requires is equal treatment under the law and this may involve same or different treatment depending on the circumstances. Sison v. Ancheta, supra. There is a need for proof of such persuasive character as would lead to a conclusion that there was a violation of the due process and equal protection clauses. Absent such showing, the presumption of validity must prevail. 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

deprived of their rights to life, liberty and property and therefore violates the due process and equal protection clauses of the Constitution. Further, the ordinance does not lay down any criterion or standard to guide the Mayor in the exercise of his discretion, thus conferring upon the mayor arbitrary and unrestricted powers.

Alhambra. CA affirming such decision, hence, this appeal. ISSUE: whether private respondent's reliance on a void BIR ruling conferred upon the latter a vested right to apply the same in the computation of its ad valorem tax and claim for tax refund HELD: The government is not stopped from collecting taxes legally due because of mistake/errors of its agents, this admits of exceptions in the interest of justice and fair play, as where injustice will result to the taxpayer. As regards, petitioners argument the private respondent should have made consultations with it before private respondent used the computation mandated by BIR ruling 473-88 suffice it to state that the BIR ruling was clear and categorical, there leaving no room for interpretation. The failure of private respondent to consult petitioner does not imply bad faith on the part of the former. Tiu v. Court of Appeals, 301 SCRA 278 (1999) The Subic Special Economic Zone case. The Constitutional right to equal protection of the law is not violated by an executive order, issued pursuant to law, granting tax and duty incentives only to business within the secured area of the Subic Special Economic Zone and denying them to those who live within the Zone but outside such fenced in territory. The Constitution does not require absolute equality among residents. It is enough that all persons under like circumstances or conditions are given the same privileges and required to follow the same obligations. In short, a classification based on valid and reasonable standards does not violate the equal protection clause. We find real and substantial distinctions between the circumstances obtaining inside and those outside the Subic Naval Base, thereby justifying a valid and reasonable classification.

Tan v. Del Rosario, supra. The said law is not arbitrary; it is germane to the purpose of the law and; applies to all things of equal conditions and of same class. It is neither violative of equal protection clause due to the existence of substantial difference between one who practice his profession alone and one who is engaged to proprietorship. Further, the SC said that RA 7496 is just an amendatory provision of the code of taxpayers where it classifies taxpayers in to four main groups: Individuals, Corporations, Estate under Judicial Settlement and Irrevocable Trust. The court would have appreciated the contention of the petitioner if RA 7496 was an independent law. But since it is attached to a law that has already classified taxpayers, there is no violation of equal protection clause.

CIR VS. CA AND ALHAMBRA 267 SCRA 557 (1997) FACTS : Alhambra industries, Inc. (Alhambra) is a domestic corporation engaged in the manufacture and sale of cigar and cigarette products. On May 7, 1991 private respondent received a letter dated April 26, 1991 from the Commissioner of Internal Revenue assessing its deficiency Ad Valorem Tax (AVT) in the total amount of P488,396.62, inclusive of increments, on the removals of cigarette products from their place of production during the period Nov. 2, 1990 to January 22, 1991.Alhambra filed protest against amount assessed by the CIR, however, it was denied by the latter at the same time increasing the amount assessed to P520,835.29. Alhambra filed a petition for review with the CTA, despite payment under protest the amount of P520,835.29. On December 1, 1993, CTA ordered petitioner to refund said amount to

Classification based on: 1. Valid & 2. Reasonable Standards

Does not violate equal protection clause

 3. UNIFORMITY AND EQUITY IN TAXATION same class, same rate classification of taxpayers, subject or items to be taxed The rule of taxation shall be uniform and equitable (Sec.28 (1), Art. III, 1987 Constitution). The tax is uniform when it operates with the same force and effect in every place where the subject of it is found. "Uniformity" means all property belonging to the same class shall be taxed alike. It does not signify an intrinsic, but simply a geographic, uniformity (Churchill & Tait vs. Conception, 34 Phil. 969). Uniformity does not require the same treatment; it simply requires reasonable basis for classification. The concept of equality in taxation requires that the apportionment of the tax burden be more or less just in the light of the taxpayers ability to shoulder the tax burden and if warranted, on the basis of the benefits received from the government. Its cornerstone is the taxpayers ability to pay.

The concept of equity in taxation requires that the apportionment of the tax burden be, more or less, just in the light of the taxpayers ability to shoulder the tax burden and, if warranted, on the basis of the benefits received from the government. Its cornerstone is the taxpayers ability to pay.

Tolentino v. Sec. of Finance, supra, Equity and uniformity in taxation means that all the taxable articles or kinds of properties of the same class be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. To satisfy this requirement, it is enough that the statute or ordinance applies equally to all persons, firms, and corporations placed in a similar situation. It is inherent in the power to tax that the state be free to select the subjects of taxation & it has been repeatedly held that the inequalities which result from a singling out of 1 particular class for taxation or exception infringe no constitutional limitation.

Manila Race Horse v. Dela Fuente No arbitrary classification it was said there is equality and uniformity in taxation if all articles or kinds of property of the same class are taxed at the same rate. The owners of boarding stables for race horses and, for that matter, the race horse owners themselves, who in the scheme of shifting may carry the taxation burden, are a class by themselves and appropriately taxed where owners of other kinds of horses are taxed less or not at all, considering that equity in taxation is generally conceived in terms of ability to pay in relation to the benefits received by the taxpayer and by the public from the business or property taxed. Taking everything into account, the differentiation against which the plaintiffs complain conforms to the practical dictates

Uniformity v. equity in taxation The concept of uniformity in taxation implies that all taxable articles or properties of the same class shall be taxed at the same rate. It requires the uniform application and operation, without discrimination, of the tax in every place where the subject of the tax is found. It does not, however, require absolute identity or equality under all circumstances, but subject to reasonable classification.

of justice and equity and is not discriminatory within the meaning of the Constitution. Equity in taxation is generally conceived in terms of liability to pay in relation to the benefits received by the taxpayer and by the public from the business or property taxed.

established outside the City of Butuan, would be exempt from the disputed tax. It is true that the uniformity essential to the valid exercise of the power of taxation does not require identity or equality under all circumstances, or negate the authority to classify the objects of taxation. The classification made in the exercise of this authority, to be valid, must, however, be reasonable and this requirement is not deemed satisfied unless: o (1) it is based upon substantial distinctions which make real differences; (2) these are germane to the purpose of the legislation or ordinance; (3) the classification applies, not only to present conditions, but, also, to future conditions substantially identical to those of the present; and (4) the classification applies equally to all those who belong to the same class.

Eastern Theatrical Co. Inc., vs. Alfonso there is equality and uniformity in taxation if all articles or kinds of property of the same class are taxed at the same rate. Thus, it was held in that case, that "the fact that some places of amusement are not taxed while others, such cinematographs, theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other kinds of amusements or places of amusement are taxed, is not argument at all against the equality and uniformity of tax imposition." The taxing power has the authority to make reasonable and natural classifications for purposes of taxation.

PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. CITY OF BUTUAN FACTS: The ordinance imposes taxes for every case of soft drinks, liquors and other carbonated beverages, regardless of the volume of sales, shipped to the agents and/or consignees by outside dealers or any person or company having its actual business outside the City. ISSUE: Does the tax ordinance violate the uniformity requirement of taxation? HELD: Yes. The tax levied is discriminatory. Even if the burden in question were regarded as a tax on the sale of said beverages, it would still be invalid, as discriminatory, and hence, violative of the uniformity required by the Constitution and the law therefor, since only sales by "agents or consignees" of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants, regardless of the volume of their sales, and even if the same exceeded those made by said agents or consignees of producers or merchants

Shell Company of P.I, Ltd. Vs. Vano, etc. 94 Phil 387 FACTS: The municipal council of Cordova, Cebu adopted several ordinances among which Ordinance 10 imposing an annual tax of P150 on occupation or the exercise of the privilege of installation manager. Shell Co., a foreign corporation, filed suit for the refund of the taxes paid by it on the ground that the ordinance imposing such tax is ultra vires for being discriminatory and hostile because there is no other person in the locality who exercise such designation or occupation. HELD: A tax on installation manager is not discriminatory just because at the time said tax was imposed, there was no other person in the locality who exercised such occupation. The tax is and will be applicable to any person or firm who exercises such calling or occupation designated as installation manager. CITY OF BAGUIO vs. DE LEON 25 SCRA 938 FACTS: The City of Baguio passed an ordinance imposing a license fee on any person, entity or

corporation doing business in the City. De Leon was assessed for P50 annual fee it being shown that he was engaged in property rental and deriving income therefrom. The latter assailed the validity of the ordinance arguing that it is ultra vires for there is no statutory authority which expressly grants the City of Baguio to levy such tax, and that there it imposed double taxation, and violates the requirement of uniformity. HELD: No. First, RA 329 was enacted amending Section 2553 of the Revised Administrative Code empowering the City Council not only to impose a license fee but to levy a tax for purposes of revenue, thus the ordinance cannot be considered ultra vires for there is more than ample statutory authority for the enactment thereof. Second, an argument against double taxation may not be invoked where one tax is imposed by the state and the other is imposed by the city. And third, violation of uniformity is out of place it being widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation, calling or activity by both the state and the political subdivisions thereof. A tax is considered uniform when it operates with the same force and effect in every place where the object may be found.

ISSUE: Whether the E-VAT law discriminates against customs brokers. HELD: The phrase except custom brokers is not meant to discriminate against custom brokers but to avert a potential conflict between Sections 102 and 103 of the Tax Code, as amended. The distinction of the customs brokers from the other professionals who are subject to occupation tax under the Local Tax Code is based upon material differences, in that the activities of customs brokers partake more of a business, rather than a profession and were thus subjected to the percentage tax under Section 174 of the Tax Code prior to its amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT.

Kapatiran vs. Tan FACTS: EO 273 amended the Revenue Code, adopting the (VAT) effective 1 January 1988. Four petitions assailed the validity of the VAT Law for being beyond the President to enact; for being oppressive, discriminatory, regressive, and violative of the due process and equal protection clauses, among others, of the Constitution. The Integrated Customs Brokers Association particularly contend that it unduly discriminate against customs brokers (Section 103 [r]) as the amended provision of the Tax Code provides that service performed in the exercise of profession or calling(except custom brokers) subject to occupational tax under the Local Tax Code, and professional services performed by registered general professional partnerships are exempt from VAT.

Villanueva vs. City of Iloilo, supra: The ordinance is not violative of the rule of uniformity in taxation. The Supreme Court has already ruled that tenement houses constitute a distinct class of property. It has likewise ruled that "taxes are uniform and equal when imposed upon all property of the same class or character within the taxing authority." The fact, therefore, that the owners of other classes of buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact that tenement taxes are not imposed in other cities, for the same rule does not require that taxes for the same purpose should be imposed in different territorial subdivisions at the same time. So long as the burden of the tax falls equally and impartially on all owners or operators of tenement houses similarly classified or situated, equality and uniformity of taxation is accomplished. Association of Custom Brokers v. Mun.Board, supra: Facts: The Association of Customs Brokers, Inc., which is composed of all brokers and public service operators of motor vehicles in the City of Manila challenge the validity Ordinance No. 3379 on the ground that (1xxx (2) said ordinance offends against the rule of uniformity of taxation; and (3) xxx.

The ordinance exacts the tax upon all motor vehicles operating within the City of Manila. It does not distinguish between a motor vehicle for hire and one which is purely for private use. Neither does it distinguish between a motor vehicle registered in the City of Manila and one registered in another place but occasionally comes to Manila and uses its streets and public highways. This is an inequality which the Court finds in the ordinance, and which renders it offensive to the Constitution.

In the case of husband and wife, the additional tax herein imposed shall be based upon the total property owned by them and the total gross receipts or earnings derived by them. Section 158. Juridical Persons Liable to Community Tax. - Every corporation no matter how created or organized, whether domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual community tax of Five hundred pesos (P500.00) and an annual additional tax, which, in no case, shall exceed Ten thousand pesos (P10,000.00) in accordance with the following schedule: (1) For every Five thousand pesos (P5,000.00) worth of real property in the Philippines owned by it during the preceding year based on the valuation used for the payment of real property tax under existing laws, found in the assessment rolls of the city or municipality where the real property is situated - Two pesos (P2.00); and (2) For every Five thousand pesos (P5,000.00) of gross receipts or earnings derived by it from its business in the Philippines during the preceding year - Two pesos (P2.00). The dividends received by a corporation from another corporation however shall, for the purpose of the additional tax, be considered as part of the gross receipts or earnings of said corporation. Section 159. Exemptions. - The following are exempt from the community tax: (1) Diplomatic and consular representatives; and

4.

PROHIBITION AGAINST IMPRISONMENT FOR NON-PAYMENT OF POLL TAX

Section 20, Article III, Constitution. No person shall be imprisoned for debt or non-payment of poll tax. The non-imprisonment rule applies to non-payment of poll tax which is punishable only by a surcharge, but not to other violations like falsification of community tax certificate and non-payment of other taxes. Community Tax v. Poll Tax Poll tax is a tax of fixed amount imposed on residents within a specific territory regardless of citizenship, business or profession. Example is community tax. Community tax Cities or municipalities may levy a community tax in accordance with the provisions of this article. 156 RA 7160.

Section 157. Individuals Liable to Community Tax. (18) or over who has been regularly employed on a wage or salary basis for at least thirty (30) consecutive working days, or who is engaged in business or occupation, or who owns real property with an aggregate assessed value of One thousand pesos (P1,000.00) or more, or who is required by law to file an income tax return shall pay an annual additional tax of Five pesos (P5.00) and an annual additional tax of One peso (P1.00) for every One thousand pesos (P1,000.00) of income regardless of whether from business, exercise of profession or from property which in no case shall exceed Five thousand pesos (P5,000.00).

(2) Transient visitors when their stay in the Philippines does not exceed three (3) months. Section 160. Place of Payment. - The community tax shall be paid in the place of residence of the individual, or in the place where the principal office of the juridical entity is located. 164 (c) The proceeds of the community tax actually and directly collected by the city or municipal treasurer shall accrue entirely to the general fund of the city or municipality concerned. However, proceeds of the community tax collected through the barangay treasurers shall be apportioned as follows:

(1) (50%) shall accrue to the general fund of the city or municipality concerned; and (2) (50%) shall accrue to the barangay where the tax is collected. 5. PROHIBITION AGAINST OBLIGATION OF CONTRACTS IMPAIRMENT OF

OPOSA vs. FACTORAN Police power prevails over the nonimpairment clause LA INSULAR vs. MANCHUCA A lawful tax on a new subject or an increased tax on an old one, does not interfere with a contract or impairs its obligation. The constitutional guarantee of the nonimpairment clause can only invoked in the grant of tax exemption. RULES: 1. If the exemption was granted for valuable consideration and it is granted on the basis of a contract. cannot be revoked If the exemption is granted by virtue of a contract, wherein the government enters into a contract with a private corporation cannot be revoked unilaterally by the government If the basis of the tax exemption is a franchise granted by Congress and under the franchise or the tax exemption is given to a particular holder or person can be unilaterally revoked by the government (Congress) The non-impairment clause applies only to contracts and not to a franchise. The non-impairment clause applies to taxation but not to police power and eminent domain. Furthermore, it applies only where one party is the government and the other, a private individual. As a rule, the obligation to pay tax is based on law. But when, for instance, a taxpayer enters into a compromise with the BIR, the obligation of the taxpayer becomes one based on contract.

No law impairing the obligation of contracts shall be passed. [Section 10, Article III, Constitution] The power of taxation cannot be exercised in a manner that would impair the obligation of contracts. What is prohibited is that a taxing statute be passed that would alter the relative rights of the parties with each other. The mere fact that a tax makes the conduct of a business more expensive or makes an activity more difficult does not result in the impairment of the obligation of contracts. Contract is impaired only if the relative position of the parties to a contract (i.e. equality that is assumed when the contract was entered into) is disturbed by the operation of a taxing statute. The obligation of a contract is 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 rights 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. A later statute may revoke exemption from taxation provided for in a franchise because the Constitution provides that a franchise is subject to amendment, alteration or repeal.

2.

3.

Tolentino v. Sec. of Finance, supra: 1 issue that was raised was whether the imposition of the VAT on sales & leases on real estate by virtue of contract s entered into prior to the efectivity of the law would violate the non-impairment of contracts rule in the constitution.

Note: A latter statue may revoke exemption from taxation provided for in a franchise because the Constitution provides that a franchise is subject to amendment, alteration or repeal. [Sec. 11 Art. XII]

HELD: It is enough to say that parties to a contract cannot, through the exercise of prophetic discernment, fetter the exercise of the taxing power of the state. For not only are existing laws read into contracts in order to fix obligations as between parties, but the reservation of essential attributes of sovereign power is also read into contracts as a basic postulate of the legal order. The policy of protecting contracts against impairment presupposes the maintenance of a government which retains adequate authority to secure the peace & good order of society.

to the exercise of one's religion since the constitutional guaranty of the free exercise and enjoyment of religious profession and worship carries with it the right to disseminate religious information. It is one thing to impose a tax on the income or property of a preacher, and another to exact a tax for him for the privilege of delivering a sermon. The power to tax the exercise of a privilege is the power to control or suppress its enjoyment

7.

PROHIBITION AGAINST APPROPRIATION OF PROCEEDS OF TAXATION

6.

PROHIBITION AGAINST RELIGIOUS FREEDOM

INFRINGEMENT

OF

Section 29, Article VI, Constitution 1. No money shall be paid out of the Treasury except in pursuance of an appropriation made by law. No public money or property shall be appropriated, applied, paid, or employed directly or indirectly, for the use, benefit, or support of any church, denomination, sectarian institution or system of religion, or of any priest, preacher, minister or other religious teacher, or dignitary as such except when such priest, preacher, minister or dignitary is assigned to the armed forces, or to any penal institution, or government orphanage or leprosarium. 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.

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 preference, shall forever be allowed. No religious test shall be required for the exercise of civil or political rights. [Section 5, Article III, Constitution] American Bible Society v. City of Manila FACTS: In the course of its ministry, the Philippine agency of the American Bible Society has been distributing and selling bibles and/or gospel portions thereof throughout the Philippines and translating the same into several Philippine dialets. The acting City Treasurer of Manila required the society to secure the corresponding Mayors permit and municipal license fees, together with compromise covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953. The society paid such under protest, and filed suit questioning the legality of the ordinances under which the fees are being collected. HELD: The payment of license fees for the distribution and sale of bibles suppresses the constitutional right of free exercise of religion. A tax ordinance is considered violative of the free exercise of religion when it becomes a prior restraint to the exercise thereof. In this case, the business permit is a prior restraint

2.

3.

Use of tax levied for a special purpose: Osmena v. Orbos, supra - It seems clear that while the funds collected may be referred to as taxes, they are exacted in the exercise of the police power of the State. Moreover, that the OPSF as a special fund is plain from the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to

the scrutiny and review of the COA. The Court is satisfied that these measures comply with the constitutional description of a "special fund."

The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution. Use overrides ownership. If a property is incidentally used for the aforementioned purposes, it is clear from decided cases that tax exemption still subsist.

8. Prohibition against taxation of real property actually, directly and exclusively used for religious, charitable and educational purposes 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. [Section 28 (3) , Article VI, Constitution] This is an exemption from real property tax only.

9.

Prohibition against taxation of the revenues and assets of non-stock, non-profit educational institutions

Abra Valley College vs. Aquino Facts: Abra Valley College rents out the ground floor of its college building to Northern Marketing Corporation while the second floor thereof is used by the Director of the College for residential purposes. The municipal and provincial treasurers served upon the College a notice of seizure and later a notice of sale due to the alleged failure of the College to pay real estate taxes and penalties thereon. The school filed suit to annul said notices, claiming that it is taxexempt. Issue: Whether the College is exempt from taxes HELD: While the Court allows a more liberal and non-restrictive interpretation of the phrase exclusively used for educational purposes, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. While the second floors use, as residence of the director, is incidental to education; the lease of the first floor cannot by any stretch of imagination be considered incidental to the purposes of education.

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. [Section 4, Article XIV, Constitution] This exemption from corporate income tax is embodied in Section 30 of the NIRC which includes a non-stock, non-profit educational institution. Note: however the last paragraph of Section 30 which states: Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing organizations from any of their property, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, shall be subject to tax imposed under this Code. 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. [Section 28 (3) , Article VI, Constitution] This is an exemption from real property tax only. The exemption in favor of property used exclusively for charitable or

educational purposes is not limited to property actually indispensable therefore, but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes. [Abra Valley College v. Aquino, 162 SCRA 106] Department of Finance Order 145-85 Non-stock, non-profit educational institutions are exempt from taxes on all their revenues and assets used actually, directly and exclusively for educational purposes. However, they shall be subject to internal revenue tax on income from trade, business or other activity, the conduct of which is not related to the exercise or performance by such educational institution of its educational purposes or functions. Interest income shall be exempt only when used directly and exclusively for educational purposes. To substantiate this claim, the institution must submit an annual information return and duly audited financial statement. A certification of actual utilization and the Board resolution or the proposed project to be funded out of the money deposited in banks shall also be submitted.

administered by a private individual or group offering formal education, and with an issued permit to operate by the DECS. Revenues derived from and assets used in the operation of cafeteria/canteens, dormitories, and bookstores are exempt from taxation provided they are owned and operated by the educational institution as ancillary activities and the same are located within the school premises.

CIR v. Court of Appeals, et.al., 298 SCRA 83 (1998) FACTS: The Young Mens Christian Association of the Philippines, Inc. (YMCA) was established as a welfare, educational and charitable non-profit corporation. It conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives. HELD: In this case, the Supreme Court held that the income derived by YMCA from leasing out a portion of its premises to small shop owners, like restaurant and canteen operators, and from parking fees collected from non-members are taxable income. First, the constitutional tax exemption granted to non-stock, non-profit educational institutions does not find application because YMCA is not an educational institution. The term educational institution or institution of learning has acquired a well known technical meaning. Under the Education Act of 1982, such term refers to schools. Second, even if it be exempt under Section 30 of the NIRC as a non-profit, non-stock educational corporation, the income from the rent of its premises and parking fees is not covered by the exemption, according to the last paragraph of the same section. Section 30 provides that income of whatever kind and character from any of its properties, real or personal,

Department of Finance Order 137-87 An educational institution means a non-stock, non-profit corporation or association duly registered under Philippine law, and operated exclusively for educational purposes, maintained and

or from any of its activities for profit are not exempt from income tax. Finally, Section 28(3), Article VI of the Constitution does not apply as it extends exemption only from real property taxes not from income taxes.

CIR v. CA, CTA, and ATENEO The Supreme Court denied the petition and affirmed the assailed Decision of the Court of Appeals. The Court ruled that the private respondent is not a contractor selling its services for a fee but an academic institution conducting these researches pursuant to its commitments to education and, ultimately, to public service. For the institute to have tenaciously continued operating for so long despite its accumulation of significant losses, we can only agree with both the Court of Tax Appeals and the Court of Appeals that education and not profit is motive for undertaking the research projects

a certain extent, in the local legislative bodies. Section 28 (4), Article VI of the Constitution, specifically provides: "No law granting any tax exemption shall be passed without the concurrence of a majority of all the Member of the Congress." The PCGG has absolutely no power to grant tax exemptions, even under the cover of its authority to compromise ill-gotten wealth cases. Even granting that Congress enacts a law exempting the Marcoses form paying taxes on their properties, such law will definitely not pass the test of the equal protection clause under the Bill of Rights. Any special grant of tax exemption in favor only of the Marcos heirs will constitute class legislation. It will also violate the constitutional rule that "taxation shall be uniform and equitable."

2. Veto of appropriation, revenue, or tariff bills by the President 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. [Section 27 (2) Article VI, Constitution] 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. [Gonzales v. Macaraig, 191 SCRA 452]

10. Other Constitutional Limitations 1. Grant of tax exemption

No law granting any tax exemption shall be passed without the concurrence of a majority of all Members of Congress. [Section 28 (4), Article VI, Constitution] CHAVEZ VS PCGG The General and Supplemental Agreement dated December 28, 1993, which PCGG and the Marcos heirs entered into are hereby declared NULL AND VOID for being contrary to law and the Constitution. Under Item No. 2 of the General Agreement, the PCGG commits to exempt from all forms of taxes the properties to be retained by the Marcos heirs. This is a clear violation of the Construction. The power to tax and to grant tax exemptions is vested in the Congress and, to

3. Non-impairment of the jurisdiction of the Supreme Court Congress cannot take away from the Supreme Court the power given to it by the Constitution as the final arbiter of tax cases.

Section 5 (2) (b), Article VIII, Constitution - 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 and orders of lower courts in: All cases involving the legality of any tax, impost, assessment, or toll, or any penalty imposed in relation thereto. CIR v. Santos The policy of the courts is to avoid ruling on constitutional questions and to presume that the acts of the political departments are valid in the absence of a clear and unmistakable showing to the contrary. This is not to say that RTC has no power whatsoever to declare a law unconstitutional, but this authority does not extend to deciding questions which pertain to legislative policy. RTC have the power to declare the law unconstitutional but this authority does not extend to deciding questions which pertain to legislative policy. RTC can only look into the validity of a provision, that is whether or not it has been passed according to the provisions laid down by law, and thus cannot inquire as to the reasons for its existence. RULING ON THE EXTENT OF LEGISLATIVE POWER TO TAX : SC held that it is within the power of the legislature whether to tax jewelry or not. With the legislature primarily lies the discretion to determine the nature (kind), object(purpose), extent (rate), coverage (subject) and situs (place) of taxation

saying the ordinance was of doubtful validity. City of Cebu then filed a suit for collection where it squarely put in issue the validity of such ordinance. Issue: Can Citys act of filing suit after the Secretary of Justices opinion was rendered be considered "an appeal" under the Presidential Decree? HELD: Yes, action by City valid. The writs prayed for, certiorari and prohibition, cannot issue. The validity of a statute, an executive order or ordinance is a matter for the judiciary to decide and whenever in the disposition of a pending case such a question becomes unavoidable then it is not only the power but the duty of the Court to resolve such a question. It is undoubted that under the Constitution, even the legislative body cannot deprive this Court of its appellate jurisdiction over all cases coming from inferior courts where the constitutionality or validity of an ordinance or the legality of any tax, impost, assessment, or toll is in question. Since it is likewise expressly provided in Section 43 of the Judiciary Act that the original jurisdiction over all civil actions involving the legality of any tax, impost or assessment appertains to the Court of First Instance, it takes a certain degree of ingenuity to allege that the lower court was bereft of such authority. Both under the Constitution and the Judiciary Act, respondent Judge is vested with jurisdiction to make a declaration regarding an ordinances validity It would be therefore premature for the corrective power of this Tribunal to be interposed, just because he did not grant the motion to dismiss on the allegation that there was lack of jurisdiction. Authorities support the municipal power to impose specific taxes on beverages manufactured within its territorial boundaries.

San Miguel Corp. v. Avelino FACTS: City Treasurer, on April 1, 1974, demanded from SMC payment of the made specific tax on the total volume of beer it produced in the City of Mandaue. SMC on April 8,1974, contested the correction of said specific tax "on the ground that Section 12(e) (7) in relation to Section 12(e) (1) and (2), Mandaue City Ordinance No. 97, is illegal and void because it imposed a specific tax beyond its territorial jurisdiction. In an opinion the City Fiscal upheld its validity which was reversed by the Secretary of Justice,

4. Revenue bills shall originate exclusively from the House of Representatives

Section 24, Article VI, Constitution - All appropriation, revenue or tariff bills, bills authorizing an increase of the public debt, bills of local application, and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments. Tolentino v. Secretary of Finance The Constitution simply means that the initiative for the filing of bills must come from the House of Representatives, on the theory that, elected as they are from the districts, the members of the House can be expected to be more sensitive to the local needs and problems. It is not the law but the revenue bill which is required by the Constitution to originate exclusively in the House of Representatives, because a bill originating in the House may undergo such extensive changes in the Senate that the result may be a rewriting of the whole, and a distinct bill may be produced. The Constitution does not also prohibit the filing in the Senate of a substitute bill in anticipation of its receipt of the bill from the House, as long as action by the Senate is withheld until receipt of said bill. [Tolentino v. Secretary of Finance] Senate can endorse an entirely new bill. 6.

removed them from the exemption to pay VAT. Suffice it to say that since the law granted the press a privilege, the law could take back the privilege anytime without offense to the Constitution. By granting exemptions, the State does not forever waive the exercise of its sovereign prerogative. Grant of franchise

Tax exemptions included in the grant of a 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. Petitioners claim that the R.A. violates their press freedom and religious liberty, having removed them from the exemption to pay VAT. Suffice it to say that since the law granted the press a privilege, the law could take back the privilege anytime without offense to the Constitution. By granting exemptions, the State does not forever waive the exercise of its sovereign prerogative. [Tolentino v. Sec. of Finance]

5.

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.

C. SITUS OF TAXATION & DOUBLE TAXATION

Meaning of Situs The source of the tax, or the place of taxation. Literally, situs of taxation means place of taxation. It is the State or political unit which has jurisdiction to impose a particular tax. The determination of the situs of taxation depends on various factors including the: 1. 2. 3. Nature of the tax; Subject matter thereof (i.e. person, property, act or activity; Possible protection and benefit that may accrue both to the government and the taxpayer;

Tolentino v. Sec. of Finance, supra Petitioners claim that the R.A. violates their press freedom and religious liberty, having

4. 5.

Residence or citizenship of the taxpayer; and Source of the income.

A. Situs of tax on persons (poll tax) Poll tax may be properly levied upon persons who are inhabitants or residents of the State, whether or not they are citizens.

General rule: Situs is the domicile of the owner pursuant to the principle of mobilia sequuntur personam. This rule is based on the fact that such property does not admit of any actual location and that such property receives the protection and benefits of the law where they are located. Exceptions: 1. 2. When it is inconsistent with the express provisions of the statute. When the property has acquired a business situs in another jurisdiction.

B. Situs of tax on real property Situs is where the property is located pursuant to the principle of lex rei sitae. This applies whether or not the owner is a resident of the place where the property is located. This is so because the taxing authority has control over the property which is of a fixed and stationary character. The place where the real property is located gives protection to the real property, hence, the owner must support the government of that place. Lex rei sitae - This is a principle followed in fixing the situs of taxation of a property. This means that the property is taxable in the State where it has its actual situs, specifically in the place where it is located, even though the owner resides in another jurisdiction. With respect to property taxes, real property is subject to taxation in the State where it is located and taxable only there. Lex rei sitae has also been adopted for tangible personal property under Article 16 of the Civil Code. A different rule applies to intangible personal property, specifically, mobilia sequuntur personam.

Mobilia sequuntor personam This Latin maxim literally means that the property follows the person. Thus, the place where the owner is found is the situs of taxation under the rule that movables follow the person. This is generally where the owner resides. In taxation, this principle is applied to intangible personal property the situs of which is fixed by the domicile of the owner. The reason is that this type of property rarely admits of actual location. However, there are two exceptions to the rule. One is when it is inconsistent with the express provisions of a statute. Two, when the interests of justice demand that it should not be applied, i.e. where the property has in fact a situs elsewhere.

Theories re: Situs of Income tax C. Situs of tangible personal property

It is taxable in the State where it has actual situs although the owner resides in another jurisdiction. As stated above, lex rei sitae has also been adopted for tangible personal property under Article 16 of the Civil Code.

1.

Domicilliary theory The location where the income earner resides is the situs of taxation. This is where he is given protection, hence, he must support it.

D. Situs of taxation of intangible personal property

2.

Nationality theory

The country of citizenship is the situs of taxation. This is so because a citizen is given protection by his country no matter where he is found or no matter where he earns his income. 3. Source law The country which is the source of the income or where the activity that produced the income is the situs of taxation. Wells Fargo v. Collector, 70 Phil 325 This case involves the collection of inheritance taxes on shares of stock issued by the Benguet Consolidated Mining Corporation and owned by Lillian Eye. Said shares were already subjected to inheritance taxes in California and are now being taxed by Philippine authorities. Originally, the settled law in the United States is that intangibles have only one situs for the purpose of inheritance tax the domicile of the decedent at the time of death. But this rule has, of late, been relaxed. The maxim mobilia sequuntur personam, upon which the rules rests, has been decried as a mere fiction of law having its origin in considerations of general convenience and public policy and cannot be applied to limit or control the right of the State to tax property within its jurisdiction. It must yield to established fact of legal ownership, actual presence and control elsewhere, and cannot be applied if to do so would result in inescapable and patent injustice. The relaxation of the original rule rests on either of two fundamental considerations: 1. Upon the recognition of the inherent power of each government to tax persons, properties and rights within its jurisdiction and enjoying the protection of its laws; or

2. Upon the principle that as to intangibles, a single location in space is hardly possible, considering the multiple, distinct relationships which may be entered into with respect thereto. The actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein. And besides, the certificates of stock have remained in this country up to the time when the deceased died in California, and they were in the possession of the secretary of the Benguet Corporation. The secretary had the right to vote, collect dividends, among others. For all practical purposes, the secretary had legal title to the certificates of stock held in trust for Eye. Eye extended in the Philippines her activities re: her intangible personal property so as to avail herself of the protection and benefits of the Philippine laws. E. Income Income tax may properly be exacted from persons who are residents or citizens in the taxing jurisdiction and even from those who are neither residents nor citizens provided the income is derived from sources within the taxing state. F. Business, occupation and transaction The general rule is that the power to levy an excise tax depend upon the place where the business is done, or the occupation is engaged in, or the transaction took place. G. Gratuitous transfer of Property The transmission of property from a donor to a done or from a decedent to his heirs may be subject to taxation in the state where the transferor is or was a citizen or resident, or where the property is located.

Commissioner vs. British Overseas Airways Corp. The source of an income is the property, activity or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. Herein, the

sale of tickets in the Philippines is the activity that produced the income. The tickets exchanged hands here and payments for fares were also made here in Philippine currency. The situs of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine Government. In consideration of such protection, the flow of wealth should share the burden of supporting the government. PD 68, in relation to PD 1355, ensures that international airlines are taxed on their income from Philippine sources.

respect to her intangibles so as to avail herself of the protection and benefit of the Philippine laws

3. MULTIPLICITY OF SITUS
Multiplicity of situs, or the taxation of the same income or intangible subject in several taxing jurisdictions, arises from various factors:

1. The variance in the concept of domicile for tax purposes; 2. Multiple distinct relationships that may arise with respect to intangible personal property; or 3. The use to which the property may have been devoted all of which may receive the protection of the laws of jurisdictions other than the domicile of the owner thereto. The remedy to avoid or reduce the consequent burden in case of multiplicity of situs is either to: 1. Provide exemptions or allowance of deduction or tax credit for foreign taxes; or Enter into tax treaties with other States.

CIR v. Japan Airlines Citing the case of CIR v BOAC, the court reiterated that the source of an income is the property, activity or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. The absence of flight operations to and from the Philippines is not determinative of the source of income or the situs of income taxation. The test of taxability is the source, and the source of the income is that activity which produced the income. In this case, as JAL constitutes PAL as its agent, thesales of JAL tickets made by PAL is taxable

2.

Wells Fargo Bank v. Collector It is the identity or association of intangibles with the person of their owner at his domicile which gives jurisdiction to tax. But when the taxpayer extends his activities with respect to his intangibles, so as to avail himself of the protection and benefit of the laws of another state, in such a way as to bring his person or property within the reach of the tax gatherer there, the reason for a single place of taxation no longer obtains. In this case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein. The owner residing in California has extended her activities with

Collector v. De Lara The Supreme Court did not subject to estate and inheritance taxes the shares of stock issued by Philippine corporations which were left by a non-resident alien after his death. Considering that he is a resident of a foreign country, his estate is entitled to exemption from inheritance tax on the intangible personal property found in the Philippines. This exemption is granted to non-residents to reduce the burden of multiple taxation, which otherwise would subject a decedents intangible personal property to the

inheritance tax both in his place of residence and domicile and the place where those properties are found. This is, therefore, an exception to the decision of the Supreme Court in Wells Fargo v. Collector. This has since been incorporated in Section 104 of the NIRC. As to the shares of stocks issued by Philippine corporations, an exemption was granted to the estate by virtue of Section 122 of the Tax Code, which provides as follows:. . ."And Provided, however, That no tax shall be collected under this Title in respect of intangible personal property (a) if the decedent at the time of his death was a resident of a foreign country which at the time of his death did not impose a transfer tax or death tax of any character in respect of intangible personal property of citizens of the Philippines not residing in that country, or (b) if the laws of the foreign country of which the decedent was resident at the tune of his death allow a similar exemption from transfer taxes or death taxes of every character in respect of intangible personal property owned by citizen, of the Philippine not residing in that foreign country.

Constitutionality of double taxation Unlike the United States Constitution, our Constitution does not prohibit double taxation. However, while it is not forbidden, it is something not favored. Such taxation should, whenever possible, be avoided and prevented. In addition, where there is direct double taxation, there may be a violation of the constitutional precepts of equal protection and uniformity in taxation.

CIR v. S.C. Johnson and Son, Inc. The RP-US Tax Treaty is just one of a number of bilateral treaties which the Philippines has entered into for the avoidance of double taxation. The purpose of these international agreements is to reconcile the national fiscal legislations of the contracting parties in order to help the taxpayer avoid simultaneous taxation in two different jurisdictions. More precisely, the tax conventions are drafted with a view towards the elimination of international juridical double taxation, which is defined as the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods. The apparent rationale for doing away with double taxation is of encourage the free flow of goods and services and the movement of capital, technology and persons between countries, conditions deemed vital in creating robust and dynamic economies. Double taxation usually takes place when a person is resident of a contracting state and derives income from, or owns capital in, the other contracting state and both states impose tax on that income or capital. In order to eliminate double taxation, a tax treaty resorts to several methods. First, it sets out the respective rights to tax of the state of source or situs and of the state of residence with regard to certain classes of income or capital. In some cases, an exclusive right to tax is conferred on one of the contracting states; however, for other items

4. Double Taxation
In its strict sense, referred to as direct duplicate taxation, double taxation means: 1. 2. 3. 4. 5. 6. taxing twice; by the same taxing authority; within the same jurisdiction or taxing district; for the same purpose; in the same year or taxing period; some of the property in the territory.

In its broad sense, referred to as indirect double taxation, double taxation is taxation other than direct duplicate taxation. It extends to all cases in which there is a burden of two or more impositions.

of income or capital, both states are given the right to tax, although the amount of tax that may be imposed by the state of source is limited. b. Double Taxation in its broadest sense. In its broad sense, referred to as indirect double taxation, double taxation is taxation other than direct duplicate taxation. It extends to all cases in which there is a burden of two or more impositions. Villanueva v. City of Iloilo, 265 SCRA 528 An ordinance imposing a municipal tax on tenement houses was challenged because the owners already pay real estate taxes and also income taxes under the NIRC. The Supreme Court held that there was no double taxation. The same tax may be imposed by the National Government as well as the local government. There is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation, calling, or activity by both the State and a political subdivision thereof. Further, a license tax may be levied upon a business or occupation although the land used in connection therewith is subject to property tax.

7.

of the same kind or character of tax.

C. Constitutionality of Double Taxation Unlike the United States Constitution, our Constitution does not prohibit double taxation. However, while it is not forbidden, it is something not favored. Such taxation should, whenever possible, be avoided and prevented. In addition, where there is direct double taxation, there may be a violation of the constitutional precepts of equal protection and uniformity in taxation.

City of Baguio v. De Leon, 25 SCRA 938 The argument against double taxation may not be invoked where one tax is imposed by the State and the other is imposed by the city, it being widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation, calling, or activity by both the State and a political subdivision thereof. And where the statute or ordinance in questions applies equally to all persons, firms and corporations placed in a similar situation, there is no infringement of the rule on equality.

In order to constitute double taxation in the objectionable or prohibited sense: 1. 2. 3. 4. 5. 6. the same property must be taxed twice when it should be taxed once; both taxes must be imposed on the same property or subject matter; for the same purpose; by the same State, Government, or taxing authority; within the same jurisdiction or taxing district; during the same taxing period; and

Pepsi-Cola Bottling Co. vs. City of Butuan The Ordinance, as amended, is discriminatory since only sales by agents or consignees of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants, regardless of the volume of their sales , and even if the same exceeded those made by said agents or consignees of producers or merchants established outside the city, would be exempt from the tax. The classification made in the exercise of the authority to tax, to be valid must be reasonable, which would be satisfied if the classification is based upon substantial distinctions which makes real

differences; these are germane to the purpose of legislation or ordinance; the classification applies not only to present conditions but also to future conditions substantially identical to those of the present; and the classification applies equally to all those who belong to the same class. These conditions are not fully met by the ordinance in question. Sanchez v. Collector Sanchez has an accessoria building which she leases out as an apartment. Searate tax levied upon a business or occupation and the property used therein does not amount to double taxation. Income tax and real estate dealers tax are different taxes. Double taxation may not be invoked as a defense against the validity of a tax law as where the real estate dealers tax is imposed for engaging in the business of leasing real estate in addition to the real estate tax on the property leased and the income tax on the income derived as it is a different kind of tax. City of Manila v. Interisland Gas Service The City of Manila collects deficiency municipal tax from interisland for liquefied flammable gas taxed as merchandise. Fees aid for storage, installation, use and transportation of compressed inflammable gas are charged by way of license fees in the exercise of police power of the state. Double Taxation may not be invoked as a defense against the validity of a tax law as where aside from the tax, a license fee is imposed in the exercise of police power. Here the license fee is imposed for a different purpose, i.e, as a regulatory measure. Compana General de Tabacos v. City of Manila, supra; Both a license fee and a tax may be imposed on the same business or occupation for selling the same article and this is not in violation of the rules against double taxation.

Means of Avoiding or Minimizing the Burden of Taxation: 1. Shifting - is the transfer of the burden of a tax by the original payer or the one on whom the tax was assessed or imposed to someone else. It should be borne in mind that what is transferred is not the payment of the tax but the burden of the tax. Only indirect taxes may be shifted; direct taxes cannot be shifted. Ways of shifting the tax burden a. Forward shifting - When the burden of the tax is transferred from a factor of production through factors of distribution until it finally settles on the ultimate purchaser or consumer. i. Example: Manufacturer or producer may shift tax assessed to wholesaler, who in turn shifts it to the retailer, who also shifts it to the final purchaser or consumer. Backward shifting - when the burden of the tax is transferred from the consumer or purchaser through the factors of distribution to the factor of production. i. Example: Consumer or purchaser may shift tax imposed on him to retailer by purchasing only after the price is reduced, and from the latter to the wholesaler, and finally to the manufacturer or producer. Onward shifting - when the tax is shifted two or more times either forward or backward. i. Thus, a transfer from the seller to the purchaser involves one shift; from the

b.

c.

producer to the wholesaler, then to retailer, we have two shifts; and if the tax is transferred again to the purchaser by the retailer, we have three shifts in all. Persons Liable (Sec. 105) - Any person who, in the course of trade or business, sells barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT)imposed in Sections 106 to 108 of this Code. The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act No.7716. Impact and incidence of taxation Impact of taxation is the point on which a tax is originally imposed. In so far as the law is concerned, the taxpayer is the person who must pay the tax to the government. He is also termed as the statutory taxpayer the one on whom the tax is formally assessed. He is the subject of the tax. Incidence of taxation is that point on which the tax burden finally rests or settle down. It takes place when shifting has been effected from the statutory taxpayer to another.

Relationship between impact, shifting, and incidence of a tax The impact is the initial phenomenon, the shifting is the intermediate process, and the incidence is the result. Thus, the impact in a sales tax (i.e. VAT) is on the seller (manufacturer) who shifts the burden to the customer who finally bears the incidence of the tax. Impact is the imposition of the tax; shifting is the transfer of the tax; while incidence is the setting or coming to rest of the tax. Tax Evasion Tax evasion is the use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of a tax. It is also known as tax dodging. It is punishable by law. Tax evasion is a term that connotes fraud through the use of pretenses or forbidden devices to lessen or defeat taxes. [Yutivo v. Court of Tax Appeals, 1 SCRA 160] Example: Deliberate failure to report a taxable income or property; deliberate reduction of income that has been received.

2.

Elements of tax evasion: 1. The end to be achieved. Example: the payment of less than that known by the taxpayer to be legally due, or in paying no tax when such is due. An accompanying state of mind described as being evil, in bad faith, willful or deliberate and not accidental. A course of action (or failure of action) which is unlawful.

Statutory taxpayer - The statutory taxpayer is the person required by law to pay the tax or the one on whom the tax is formally assessed. In short, he or she is the subject of the tax. In direct taxes, the statutory taxpayer is the one who shoulders the burden of the tax while in indirect taxes, the statutory taxpayer is the one who pay the tax to the government but the burden can be passed to another person or entity.

2.

3.

Evidence to prove evasion Since fraud is a state of mind, it need not be proved by direct evidence but may be proved from the circumstances of the case.

Republic v. Gonzales [13 SCRA 633] SC affirmed the assessment of a deficiency tax against Gonzales, a private concessionaire engaged in the manufacturer of furniture inside the Clark Air Base, for underdeclaration of his income. SC held that the failure of the taxpayer to declare for taxation purposes his true and actual income derived from his business for two (2) consecutive years is an indication of his fraudulent intent to cheat the government if its due taxes.

SEC. 254. Attempt to Evade or Defeat Tax. - Any person who willfully attempts in any manner to evade or defeat any tax imposed under this Code or the payment thereof shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine not less than Thirty thousand (P30,000) but not more than One hunderd thousand pesos (P100,000) and suffer imprisonment of not less than two (2) years but not more than four (4) years: Provided, That the conviction or acquittal obtained under this Section shall not be a bar to the filing of a civil suit for the collection of taxes. 3. Tax Avoidance Tax avoidance is the exploitation by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income in order to avoid or reduce tax liability. It is politely called tax minimization and is not punishable by law.

in a corporation which they themselves owned and controlled. By virtue of the deed of exchange, the Pachecho co-owners saved on inheritance taxes. The Supreme Court said the records do not point to anything wrong and objectionable about this estate planning scheme resorted to. The legal right of the taxpayer to decreased the amount of what otherwise could be his taxes or altogether avoid them by means which the law permits cannot be doubted. What they really did was to invest their properties and change the nature of their ownership from unincorporated to incorporated form by organizing Delpher Trades Corporation to take control of their properties and at the same time save on inheritance taxes. The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be considered a contract of sale. There was no transfer of actual ownership interests by the Pachecos to a third party. The Pacheco family merely changed their ownership from one form to another. The ownership remained in the same hands. Hence, the private respondent has no basis for its claim of alight of first refusal under the lease contract.

Yutivo v. CTA Facts: Yutivo Sons Hardware Co. bought a number of cars and trucks from General Motors Overseas Corporation. As importer, GM paid sales tax prescribed by sections 184, 185and 186 of the Tax Code on the basis of its selling price to Yutivo. Said tax being collected only once on original sales, Yutivo paid no further sales tax on its sales to the public. Southern Motors, Inc. was organized to engage in the business of selling cars, trucks and spare parts. After the incorporation of SM and until the withdrawal of GM from the Philippines in the middle of 1947, the cars and trucks purchased by Yutivo from GM were sold by Yutivo to SM which, in turn, sold them to the public in the Visayas and Mindanao.

Delphers Traders Corp. v. IAC[157 SCRA 349], SC upheld the estate planning scheme resorted to by the Pacheco family in converting their property to shares of stock

Issue: Whether or not Southern Motors, Inc. was organized as a tax evasion device. Held: NO. SM was organized in June, 1946 when it could not have caused Yutivo any tax savings. From that date up to June 30, 1947, or a period of more than one year, GM was the importer of the cars and trucks sold to Yutivo, which, in turn resold them to SM. During that period, it is not disputed that GM as importer, was the one solely liable for sales taxes. Neither Yutivo or SM was subject to the sales taxes on their sales of cars and trucks. The sales tax liability of Yutivo did notarize until July 1, 1947 when it became the importer and simply continued its practice of selling to SM. The decision, therefore, of the Tax Court that SM was organized purposely as a tax evasion device runs counter to the fact that there was no tax to evade Intention to minimize taxes used in the context of fraud, must be proved by clear and convincing evidence amounting to more than mere preponderance and cannot be justified by mere speculation. Fraud is never presumed. 4. Exemption from Taxation It is the 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. It is an immunity or privilege; it is freedom from a financial charge or burden to which others are subjected. Exemption is allowed only if there is a clear provision therefor. It is not necessarily discriminatory as long as there is a reasonable foundation or rational basis.

Greenfield v. Meer Facts: Since the year 1933, the plaintiff has been continuously engaged in the embroidery business. In 1935, the plaintiff began engaging in buying and selling mining stocks and securities for his own exclusive account and not for the account of others. The plaintiff has not been a dealer in securities as defined in section 84 (t) of Commonwealth Act No. 466; he has no established place of business for the purchase and sale of mining stocks and securities; and he was never a member of any stock exchange. The plaintiff filed an income tax return where he claims a deduction of P67,307.80 representing the net loss sustained by him in mining stocks securities during the year 1939. The defendant disallowed said item of deduction on the ground that said losses were sustained by the plaintiff from the sale of mining stocks and securities which are capital assets, and that the loss arising from the sale of the same should be allowed only to the extent of the gains from such sales, which gains were already taken into consideration in the computation of the alleged net loss of P67,307.80. Issue: Whether the personal and additional exemptions granted bysection 23 of Commonwealth Act No. 466 should be considered as a credit against or be deducted from the net income, or whether it is the tax on such exemptions that should be deducted from the tax on the total net income. Held/Ratio: Personal and additional exemptions claimed by appellant should be credited against or deducted from the net income. "Exception is an immunity or privilege; it is freedom from a charge or burden to which others are subjected." (If the amounts of personal and additional exemptions fixed in section23 are exempt from taxation, they should not be included as part of the net income, which is taxable. There is nothing in said section 23 to justify the contention that the tax on personal exemptions (which are exempt from taxation) should first be fixed, and then deducted from the tax on the net income

PLDT vs. CITY OF DAVAO Facts: PLDT paid a franchise tax equal (3%) of its gross receipts. The exemption from all taxes on this franchise or earnings thereof was subsequently withdrawn by RA 7160 (LGC), which at the same time gave local government units the power to tax businesses. The City of Davao enacted Ordinance imposing a tax on businesses enjoying a franchise, a rate of seventyfive percent (75%) of one percent (1%) of the gross annual receipts for the preceding calendar year. In 1995, Congress enacted RA 7925, providing that any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises. In January 1999, when PLDT applied for a mayors permit to operate its Davao Metro exchange, it was required to pay the local franchise tax which then had amounted to P3,681,985.72. PLDT challenged the power of the city government to collect the local franchise tax and demanded a refund of what had been paid as a local franchise tax for the year 1997 and for the first to the third quarters of 1998. Issue: Whether or not by virtue of RA 7925, Sec. 23, PLDT is again entitled to the exemption from payment of the local franchise tax in view of the grant of tax exemption to Globe and Smart. Held: Petitioner contends that because their existing franchises contain in lieu of all taxes clauses, the same grant of tax exemption must be deemed to have become ipso facto part of its previously granted telecommunications franchise. But the rule is that tax exemptions should be granted only by a clear and unequivocal provision of law expressed in a language too plain to be mistaken and assuming for the nonce that the charters of Globe and of Smart grant tax exemptions, then this runabout way of granting tax exemption to PLDT is not a direct, clear and unequivocal

way of communicating the legislative intent. Nor does the term exemption in Sec. 23 of RA 7925 mean tax exemption. The term refers to exemption from regulations and requirements imposed by the National Telecommunications Commission (NTC). For instance, RA 7925, Sec. 17 provides: The Commission shall exempt any specific telecommunications service from its rate or tariff regulations if the service has sufficient competition to ensure fair and reasonable rates of tariffs. Another exemption granted by the law in line with its policy of deregulation is the exemption from the requirement of securing permits from the NTC every time a telecommunications company imports equipment. Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language too plain to be mistaken.

Tax remission or tax condonation The word remit means to desist or refrain from exacting, inflicting or enforcing something as well as to restore what has already been taken. The remission of taxes due and payable to the exclusion of taxes already collected does not constitute unfair discrimination. Such a set of taxes is a class by itself and the law would be open to attack as class legislation only if all taxpayers belonging to one class were not treated alike. [Juan Luna Subd. V. Sarmiento, 91 Phil 370] The condonation of a tax liability is equivalent to and is in the nature of a tax exemption. Thus, it should be sustained only when expressly provided in the law. [Surigao Consolidated Mining v. Commissioner of Internal Revenue, 9 SCRA 728] Condonation of taxes which are unpaid does not extend to refund of paid taxes.

5. Tax Amnesty Tax amnesty, being a 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. It is granted particularly to tax evaders who wish to relent and are willing to reform, thus giving them a chance to do so and thereby become a part of the new society with a clean slate. [Republic v. Intermediate Appellate Court, 196 SCRA 335] Like tax exemption, tax amnesty is never favored nor presumed in law. It is granted by statute. The terms of the amnesty must also be construed against the taxpayer and liberally in favor of the government.

There is tax condonation or remission when the State desists or refrains from exacting, inflicting or enforcing something as well as to restore what has already been taken. The condonation of a tax liability is equivalent to and is in the nature of a tax exemption. Thus, it should be sustained only when expressed in the law. Tax exemption, on the other hand, is the grant of immunity to particular persons or corporations or to person 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. Tax exemption are not favored and are construed strictissimi juris against the taxpayer.

C I R v. THE HON. CA, R.O.H. AUTO Facts: On 22 August 1986, Executive Order No. 41 was promulgated declaring a one-time tax amnesty on unpaid income taxes, later amended to include estate and donor'staxes and taxes on business, for the taxable years 1981 to 1985. Respondent R.O.H. Auto Products Philippines, Inc., availing of the amnesty, filed in October 1986 and November 1986, its Tax Amnesty Return and Supplemental Tax Amnesty Return No. and paid the corresponding amnesty taxes due. Prior to this availment, petitioner CIR, in a communication received by private respondent on August 13, 1986, assessed the latter deficiency income and business taxes for its fiscal years 1981 and 1982 in an aggregate amount of P1,410,157.71. Meanwhile, respondent averred that since it had been able to avail itself of the tax amnesty, the deficiency tax notice should forthwith be cancelled and withdrawn. This was denied by the CIR Revenue Memorandum Order No. 4-87, implementing Executive Order No. 41, had construed the amnesty coverage to include only assessments issued by the Bureau of Internal Revenue after the promulgation of the executive order on August 22 1986and not to assessments theretofore made.

Tax amnesty v. tax condonation v. tax exemption A tax amnesty, being a 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 tax evaders who wish to relent and are willing to reform are given a chance to do so and therefore become a part of the society with a clean slate. Like a tax exemption, a tax amnesty is never favored nor presumed in law, and is granted by statute. The terms of the amnesty must be strictly construed against the taxpayer and liberally in favor of the government. Unlike a tax exemption, however, a tax amnesty has limited applicability as to cover a particular taxing period or transaction only.

ISSUE: Whether or not the the deficiency assessments were extinguished by reason of respondents availment of the tax amnesty. HELD: Yes, as the scope of the amnesty covers the unpaid income taxes for the years 1981 to 1985. If, as the Commissioner argues, Executive Order No. 41 had not been intended to include 1981-1985 tax liabilities already assessed(administratively) prior to August 22, 1986, the law could have simply so provided in its exclusionary clauses. It did not. The conclusion is unavoidable, and it is that the executive order has been designed to be in the nature of a general grant of tax amnesty subject only to the cases specifically excepted by it.c Further, the law provides that, upon full compliance with the conditions of the tax amnesty and the rules and regulations issued pursuant to this Executive order, the taxpayer shall be relieved of any income tax liability on any untaxed income from January 1, 1981 to December 31, 1985, including increments thereto and penalties on account of the non-payment of the said tax. Civil, criminal or administrative liability arising from the non-payment of the said tax, which are actionable under the National Internal Revenue Code, as amended, are likewise deemed extinguished. People v. Castaneda To be entitled to the extinction of liability under PD 370, the claimant must have voluntary disclosed his previously untaxed income or wealth and paid te required 15% tax on such previously untaxed income or wealth. In this case, claimant is not entitled since the disclosure of previously untaxed income was not voluntary but was a result of tax cases already pending. A tax amnesty, much like a tax exemption, is never favored nor presumed in law and if granted by statute, the terms of the amnesty like that of a tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing authority. (strictly against taxpayer, liberally in favor of the government)

Pascual v. CIR The two isolated transactions whereby they purchased properties and sold the same a few years thereafter did not thereby make them partners. They shared in the gross profits as co-owners and paid their capital gains taxes on their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be considered to have formed an unregistered partnership which is thereby liable for corporate income tax, as the respondent commissioner proposes. And even assuming for the sake of argument that such unregistered partnership appears to have been formed, since there is no such existing unregistered partnership with a distinct personality nor with assets that can be held liable for said deficiency corporate income tax, then petitioners can be held individually liable as partners for this unpaid obligation of the partnership. However, as petitioners have availed of the benefits of tax amnesty as individual taxpayers in these transactions, they are thereby relieved of any further tax liability arising there from. Distinctions between Evangelista and Pascual vs. CIR: Republic of the Philippines vs. IAC FACTS: BIR commenced an action in the CFI to collect from the defendants deficiency income taxes for the years 1955 to 1959 with surcharge and monthly interest, and costs. They contended that they had availed of the tax amnesty under P.D.s Nos. 23, 213 and 370 and had paid the corresponding amnesty taxes amounting of their reported untaxed income under P.D. 23, and a final payment on October 26, 1973 under P.D. 370 evidenced by the Governments Official Receipt. Government allege that the private respondents were not qualified to avail of the tax amnesty under P.D. 213 for the benefits of that decree are available only to persons who had no pending assessment for unpaid taxes, as provided in Revenue Regulations Nos. 8-72 and 7-73.. HELD: the Government is estopped from collecting the difference between the deficiency tax assessment and the amount already paid by them as amnesty tax.

The finding of the appellate court that the deficiency income taxes were paid by the Pastors, and accepted by the Government, under P.D. 213, granting amnesty to persons who are required by law to file income tax returns but who failed to do so, is entitled to the highest respect and may not be disturbed except under exceptional circumstances The rule is that in case of doubt, tax statutes are to be construed strictly against the Government and liberally in favor of the taxpayer strictisimi juris for taxes, being burdens, are not to be presumed beyond what the applicable statute (in this case P.D. 213) expressly and clearly declares. A tax amnesty being a general pardon or intentional overlooking by the State of it 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 otherwise would be due it.

HELD: Petitioner's claim cannot be sustained. The filing of income tax cases in court must have been made before and as of the date of effectivity of E.O. No. 41. Thus, for a taxpayer not to be disqualified under Section 4 (b) there must have been no income tax cases filed in court against him when E.O. No. 41took effect. E.O. No. 41 took effect on August 22, 1986. The petition was filed by respondent with the Court of Tax Appeals on September 26, 1986. When E.O. No. 41 became effective on August 22, 1986, the CTA Case had not yet been filed in court. Respondent corporation did not fall under the said exception in Section 4 (b), hence, respondent was not disqualified from availing of the amnesty for income tax and branch profit remittance tax under E.O. No. 41. However, as regards business tax amnesty under E.O. 64, the effectivity referred to in Section 4 (b) of E.O. No. 41 should be November 17, 1986. By the time respondent filed its supplementary tax amnesty return on December 15, 1986,respondent already fell under the exception was disqualified from availing of the business tax amnesty granted therein.

CIR v. Marubeni Corp. Facts: On August 27, 1986 it was assessed by the Commissioner of Internal Revenue for failure to declare income derived from two contracts in the Philippines, both of which were completed in1984. The assessment involved deficiency in 3 types of taxes income tax, branch profit remittance tax and contractor's tax. Earlier, on August 2, 1986, E.O. No. 41 declaring a one-time amnesty covering unpaid income taxes for the years 1981 to1985 was issued. Then on November 17, 1986, it was expanded by E.O. 64, including estate and donor's taxes and tax on business, also covering the years 1981 to 1985 and extended the period within which the taxpayer could avail of the amnesty to December 15, 1986. Marubeni duly filed its tax amnesty under both EOs. CIR raised the issue to the SC alleging that respondent is disqualified from availing of the said amnesties because the latter falls under the exception in Section 4 (b) of E.O. No. 41."Sec. 4. b) Those with income tax cases already filed in Court as of the effectivity hereof;. VAT zero-rating, Sec 106 (A) (2) - The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales. - The term 'export sales' means: (1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); (2) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local exportoriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign currency and

accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); (3) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production; (4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and (5) Those considered export sales under Executive Order NO. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws.

2.

Implied exemption or exemption by omission When a tax is levied on certain classes of persons, properties, or transactions without mentioning the other classes. Every tax statute makes exemptions because of omissions.

According to scope or extent: 1. Total - When certain persons, property or transactions are exempted, expressly or implied, from all taxes. Partial - When certain persons, property or transactions are exempted, expressly or implied, from certain taxes, either entirely or in part.

2.

(b) Foreign Currency Denominated Sale. - The phrase 'foreign currency denominated sale' means sale to a nonresident of goods, except those mentioned in Sections 149 and 150, assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). (c) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate. The law minimizes the regressive effects of VAT impositions by providing for a zero-rating on certain transaction while granting exemptions to other transactions. RA 7716 b. Kinds of tax exemption According to manner of creation: 1. Express or affirmative exemption - When certain persons, property or transactions are, by express provision, exempted from all or certain taxes, either entirely or in part.

Does provision in a statute granting exemption from all taxes include indirect taxes? NO. As a general rule, indirect taxes are not included in the grant of such exemption unless it is expressly stated.

Atlas Fertilizer v. Commissioner In compliance with said directive, AFC filed its application for total exemption under R. A. No. 3050 which was granted by the Secretary of Finance. R. A. No. 901 grants partial exemption while R. A. 3050 grants total exemption. Once a manufacturer of fertilizer chose to come under R. A. 3050, his partial exemption under R. A. 901 ceased. When AFC availed of the total exemption under R. A. No. 3050, it has in effect given up the partial exemption which it was enjoying under R. A. No. 901. In effect, he enjoyed only one exemption benefit, the full exemption under R. A. No. 3050

Commissioner v. Phil. Ace Lines To deny exemption from compensating tax to one whose utilization contract has been renovated, while granting the exemption to

one who files an application for acquisition of reparations goods after the approval of the new law, would be contrary to the express mandate of the law that they both be subject to the same obligations and they both enjoy the same privileges in like manner and to the same extent. It would be a manifest distortion of the literal meaning and purpose of the law.

create and abolish municipal corporations due to its general legislative powers. If Congress can grant the power to tax, it can also provide for exemptions or even take back the power. Rationale for granting tax exemptions Its avowed purpose is some public benefit or interest which the lawmaking body considers sufficient to offset the monetary loss entailed in the grant of the exemption. The theory behind the grant of tax exemptions is that such act will benefit the body of the people. It is not based on the idea of lessening the burden of the individual owners of property.

Nature of power to grant tax exemption 1. National government

The power to grant tax exemptions is an attribute of sovereignty for the power to prescribe who or what persons or property shall be taxed implies the power to prescribe who or what persons or property shall not be taxed. It is inherent in the exercise of the power to tax that the sovereign state be free to select the subjects of taxation and to grant exemptions therefrom. Unless restricted by the Constitution, the legislative power to exempt is as broad as its power to tax. 2. Local governments

Exemption from taxation is never presumed. It is a basic tenant in statutory construction that between a general law and a special law, the special law prevails. Where a later special law on a particular subject is repugnant to, or inconsistent with, a prior general law on the same subject. A partial repeal of the latter will be implied to the extent of the repugnancy or an exception grafted upon the general law. [NPC v. RTC Presiding Judge, Cagayan de Oro, 190 SCRA] In a compromise agreement between the Philippine Government, represented by the PCGG, and the Marcos heirs, the PCGG granted tax exemptions to the assets which will be apportioned to the Marcos heirs. The Supreme Court ruled that the PCGG has absolutely no power to grant tax exemptions, even under the cover of its authority to compromise ill gotten wealth cases. The grant of tax exemptions is the exclusive prerogative of Congress. In fact, the Supreme Court even stated that Congress itself cannot grant tax exemptions in the case at bar because it will violate the equal protection clause of the Constitution. [Chavez v. PCGG, G.R. No. 130716, 09 December 1998]

Municipal corporations are clothed with no inherent power to tax or to grant tax exemptions. But the moment the power to impose a particular tax is granted, they also have the power to grant exemption therefrom unless forbidden by some provision of the Constitution or the law. The legislature may delegate its power to grant tax exemptions to the same extent that it may exercise the power to exempt. Basco v. PAGCOR (196 SCRA 52 The power to tax municipal corporations must always yield to a legislative act which is superior, having been passed by the State itself. Municipal corporations are mere creatures of Congress which has the power to

How should tax exemptions be construed ? Tax exemptions are strictly construed against the taxpayer and liberally in favor of the State and must be clearly shown and based on language in the law too plain to be mistaken (Davao Gulf Lumber Corporation v. Commissioner of Internal Revenue, et al., 293 SCRA 76, 88), because taxes are necessary for the continued existence of the State. Nature of tax exemption 1. 2. It is a mere personal privilege of the grantee. It is generally revocable by the government unless the exemption is founded on a contract which is protected from impairment. It implies a waiver on the part of the government of its right to collect what otherwise would be due to it, and so is prejudicial thereto. It is not necessarily discriminatory so long as the exemption has a reasonable foundation or rational basis.

the articles produced by the machines. Such was the intention of the State for new and necessary industries as an incentive to greater and adequate production of products made scarce by World War II. Tax exemptions are highly disfavored in law and those who claim them must be able to justify his claim and must be clearly expressed in the law. Tax exemptions cannot be established by implication. In the case, Wonder Corp. was granted tax exemption in the manufacture of cigarette paper, pails, lead washers, nails as explicitly stated in the Certificate of Tax Exemption. The manufacture of steel chairs, jeep parts and other articles not constituting machines for making certain products does not fall under RA 901.

3.

Laws granting tax exemption incentives 1. Constitution

4.

Maceda v. Macaraig, supra Applying the rule of strict construction to statutory provisions granting tax exemptions or deductions would minimize differential treatment and foster fairness and equality of treatment among taxpayers.

Sec. 28 (3) Art. VI 1987 Constitution - Charitable institutions, churches, parsonages and convents appurtenant thereto, mosques, and all lands, buildings and improvements of all kinds actually, directly and exclusively used for religious, charitable or educational purposes shall be exempt from taxation Sec. 4 (3) Art. XIV 1987 Constitution - 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. (4) Subject to conditions prescribed by law, all grants, endowments, donations, or contributions

Phil. Acetylene v. Commissioner, supra: In the construction of tax statutes, exemptions are not favored and are construed strictissimi juris.

Wonder Mechanical Engineering Corp. v CTA Wonder Corp. was granted the tax exemption in the manufacture and sale of machines but not manufacture and sale of

used actually, directly, and exclusively for educational purposes shall be exempt from tax.

ABRA VALLEY COLLEGE, INC. VS AQUINO It must be stressed that while the court allows a more liberal and non-restrictive interpretation of the phrase exclusively used for educational purposes as provided for in the Article VI, Section 22, Paragraph 3 of the 1935Philippine Constitution, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purpose. Otherwise stated, the use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the Director and his family, may find justification under the concept of incidental use, which is complimentary to the main or primary purpose educational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purposes of education

equipment that are actually, directly and exclusively used by local water districts and government-owned or -controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; (d) All real property owned by duly registered cooperatives as provided for under R. A. No. 6938; and (e) Machinery and equipment used for pollution control and environmental protection. Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or -controlled corporations are hereby withdrawn upon the effectivity of this Code. 3. Special Laws a. Ra 7549 An Act Exempting All Prizes And Awards Gained From Local And International Sports Tournaments And Competitions From The Payment Of Income And Other Forms Of Taxes And For Other Purpose

4.

Treaties A tax treaty is one of the sources of our law on taxation. The Philippine Government usually enters into tax treaties in order to avoid or minimize the effects of double taxation. A treaty has the force and effect of law. a. b. RP-US Treaty RP-German

2.

Tax Statutes

Sec. 159 Exemptions from community tax. Section 234 of R A 7160 SEC. 234. Exemptions from Real Property Tax. - The following are exempted from payment of the real property tax: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person; (b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable or educational purposes; (c) All machineries and

Reagan vs. CIR The Philippines, as an independent and sovereign country, exercises its authority over its entire domain. Any state may, however, by its consent, express or implied, submit to a restriction of its sovereign rights. It may allow another power to participate in the exercise of jurisdictional right over certain portions of its territory. By doing so, it by no means follows

that such areas become impressed with an alien character. The areas retain their status as native soil. Clark Air Base is within Philippine territorial jurisdiction to tax, and thus, Reagan was liable for the income tax arising from the sale of his automobile in Clark. The law does not look with favor on tax exemptions and that he who would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted. Reagan has not done so, and cannot do so.

because the general rule is that they are exempt from tax. The rule on strict interpretation does not apply in the case of exemptions in favor of a political subdivision or instrumentality of the government. (Maceda v. Macaraig) The rule on strict interpretation does not apply in the case of exemptions in favor of a political subdivision or instrumentality of the government. Com v. CA and YMCA YMCA is not a school or an educational institution and income derived from rentals of its real property leased out as a restaurant and canteen are subject to income tax. Exemption is only for property tax. Misamis Oriental Assoc. of Coco Traders Inc. vs. DOF - The BIR, as the government agency charged with the implementation and interpretation of the tax laws, is entitled to great respect. In interpreting Section 103 of the NIRC, the Commissioner of Internal Revenue correctly gave it a strict construction consistent with the rule that tax exemptions must be strictly construed against the taxpayer and liberally in favor of the state. The ruling was made by the Commissioner of Internal Revenue in the exercise of his power under 245 of the NIRC to "make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including rulings on the classification of articles for sales tax and similar purposes. Manila Electric Co. v. Vera Percentage tax imposed on Meralco in lieu of all taxes and assessment of whatsoever nature and by whatsoever authority cannot be said to have granted it exemption from payment of compensation tax. Meralco not exempt from compensation tax on poles, wires, transformers and insulators imported by it for use in the operation of its electric light, heat and power system. Buenget Corp. CBAA, supra

CIR v. PJ Kiener - Oil products used for the operation of construction equipment in US bases are no tax exempt. g. Construction of laws granting tax exemptions General rule: In the construction of tax statutes, exemptions are not favored and are construed strictissimi juris against the taxpayer. The fundamental theory is that all taxable property should bear its share in the cost and expense of the government. Taxation is the rule and exemption is the exemption. He who claims exemption must be able to justify his claim or right thereto by a grant express in terms too plain to be mistaken and too categorical to be misinterpreted. If not expressly mentioned in the law, it must be at least within its purview by clear legislative intent.

Exceptions: 1. When the law itself expressly provides for a liberal construction thereof. 2. In cases of exemptions granted to religious, charitable and educational institutions or to the government or its agencies or to public property

H. Sources, Application, Interpretation and Administration of Tax Laws Sources of tax laws: 1. 2. 3. 4. 5. Constitution National Internal Revenue Code Tariff and Customs Code Local Government Code (Book II)

Tax treaty A tax treaty is one of the sources of our law on taxation. The Philippine Government usually enters into tax treaties in order to avoid or minimize the effects of double taxation. A treaty has the force and effect of law.

Authority to promulgate rules and regulations and rulings and opinions The Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, shall promulgate needful rules and regulations for the effective enforcement of the provisions of the NIRC. This is without prejudice to the power of the Commissioner of Internal Revenue to make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including rulings on the classification of articles for sales tax and similar purposes.

Local tax ordinances/ City or municipal tax codes Tax treaties and international agreements Special laws Decisions of the Supreme Court and the Court of Tax Appeals Revenue rules and regulations and administrative rulings and opinions

6. 7. 8.

9.

Requisites for validity of rules and regulations Tuzon and Mapagu vs Court of Appeals Petitioners acted within the scope of their authority and in consonance with their honest interpretation of the resolution in question. It was not for them to rule on its validity. In the absence of a judicial decision declaring it invalid, its legality would have to be presumed. As executive officials of the municipality, they had the duty to enforce it as long as it had not been repealed by the Sangguniang Bayan or annulled by the courts. xxx As a rule, a pubic officer, whether, judicial, quasi-judicial or executive, is not personally liable to one injured in consequence of an act performed within the scope of his official authority, and in line of his official duty. xxx It has been held that an erroneous interpretation of an ordinance does not constitute nor does it amount to bad faith, that would entitle an aggrieved party to an award for damages. 1. They must not be contrary to law and the Constitution. 2. They must be published in the Official Gazette or a newspaper of general circulation.

Commissioner v. Court of Appeals, 240 SCRA 368 The authority of the Minister of Finance, in conjunction with the Commissioner of Internal Revenue, to promulgate rules and regulations for the effective enforcement of internal revenue rules cannot be controverted. Neither can it be disputed that such rules and regulations, as well as administrative opinions and rulings, ordinarily should deserve weight and respect by the courts. Much more fundamental than either of the above,

however, is that all such issuances must not override, but must remain consistent with, the law they seek to apply and implement. Administrative rules and regulations are intended to carry out, neither to supplant nor to modify, the law. La Suerte v. Court of Tax Appeals, 134 SCRA 29 When an administrative agency renders an opinion by means of a circular or memorandum, it merely interprets existing law and no publication is therefore necessary for its validity. Construction by an executive branch of the government of a particular law, although not binding upon courts, must be given weight as the construction came from the branch of the government which is called upon to implement the law.

1. Copies of the tax issuance have been sent through registered mail to the following business and professional organization: a. Philippine Institute of Certified Public Accountants; Integrated Bar of the Philippines; Philippine Chamber of Commerce and Industry; American Chamber of Commerce; Federation of Filipino-Chinese Chamber of Commerce; and Japanese Chamber of Commerce and Industry in the Philippines.

b. c.

d. e.

f.

Effectivity of revenue rules and regulations Revenue Memorandum Circular 20-86 was issued to govern the drafting, issuance, and implementation of revenue tax issuances, including: Revenue Regulations; Revenue Audit Memorandum Orders; and

2. However, other persons or entities may request a copy of the said issuances. 3. The Bureau of Internal Revenue shall issue a press release covering the highlights and features of the new tax issuance in any newspaper of general circulation. 4. Effectivity date for enforcement of the new issuance shall take place thirty (30) days from the date the issuance has been sent to the aboveenumerated organizations. BIR rulings Administrative rulings, known as BIR rulings, are the less general interpretation of tax laws being issued from time to time by the Commissioner of Internal Revenue. They are usually rendered on request of taxpayers to clarify certain provisions of a tax law. These rulings may be revoked by the Secretary of Finance if the latter finds them not in accordance with law.

1. 2.

3. Revenue Memorandum Circulars and Revenue Memorandum Orders. Except when the law otherwise expressly provides, the aforesaid revenue tax issuances shall not begin to be operative until after due notice thereof may be fairly assumed. Due notice of the said issuances may be fairly presumed only after the following procedures have been taken:

The Commissioner may revoke, repeal or abrogate the acts or previous rulings of his predecessors in office because the construction of the statute by those administering it is not binding on their successors if, thereafter, such successors are satisfied that a different construction of the law should be given. Rulings in the form of opinions are also given by the Secretary of Justice who is the chief legal officer of the Government.

continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. Income tax returns that were filed during that period and income tax payments made were considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy. Civil, not penal, in nature Tax laws are civil and not penal in nature, although there are penalties provided for their violation. The purpose of tax laws in imposing penalties for delinquencies is to compel the timely payment of taxes or to punish evasion or neglect of duty in respect thereof. Republic v. Oasan, 99 Phil 934: The war profits tax is not subject to the prohibition on ex post facto laws as the latter applies only to criminal or penal matters. Tax laws are civil in nature.

Effectivity and Validity of a Tax Ordinance Tuazon v. Court of Appeals, 212 SCRA 739

If the resolution is to be considered as a tax ordinance, it must be shown to have been enacted in accordance with the requirements of the Local Government Code. These would include the holding of a public hearing on the measure and its subsequent approval by the Secretary of Finance, in addition to the usual requisites for publication of ordinances in general.

Interpretation and Application of Tax Laws Nature of internal revenue laws 1. Internal revenue laws are not political in nature. 2. Tax laws are civil and not penal in nature.

Construction of tax laws 1. Rule when legislative intent is clear

Tax statutes are to receive a reasonable construction with a view to carrying out their purpose and intent. They should not be construed as to permit the taxpayer easily to evade the payment of taxes. 2. Rule when there is doubt

Not political in nature Internal revenue laws are not political in nature. They are deemed to be the laws of the occupied territory and not of the occupying enemy. Thus, our tax laws continued in force during the Japanese occupation. Hilado v. Collector, 100 Phil 288: It is well known that our internal revenue laws are not political in nature and, as such,

No person or property is subject to taxation unless within the terms or plain import of a taxing statute. In every case of doubt, tax statutes are construed strictly against the government and liberally in favor of the taxpayer.

Taxes, being burdens, are not to be presumed beyond what the statute expressly and clearly declares. 3. Provisions granting tax exemptions

Such provisions are construed strictly against the taxpayer claiming tax exemption. Application of tax laws General rule: Tax laws are prospective in operation because the nature and amount of the tax could not be foreseen and understood by the taxpayer at the time the transactions which the law seeks to tax was completed. Exception: While it is not favored, a statute may nevertheless operate retroactively provided it is expressly declared or is clearly the legislative intent. But a tax law should not be given retroactive application when it would be harsh and oppressive.

Directory and mandatory provisions of tax laws Directory provisions are those designed merely for the information or direction of officers or to secure methodical and systematic modes of proceedings. Mandatory provisions are those intended for the security of the citizens or which are designed to ensure equality of taxation or certainty as to the nature and amount of each persons tax. The omission to follow mandatory provisions renders invalid the act or proceeding to which it relates while the omission to follow directory provisions does not involve such consequence. [Roxas v. Rafferty, 37 Phil 958]