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Tax Midterm Reviewer 10 VITUG

CONCEPT

Taxation- mode by which the government

makes exactions for revenue in order to
support their existence and carry out
their legitimate objectives

THEORYGOVERNMENTAL NECESSITY

Taxes are the lifeblood of the government

without it the govt can neither exist nor
endure
Indispensible & inevitable price for civilized
society, without it govt will be paralyzed
Revenues derived are intended to finance
the govt & its activities & are EXEMPT from
execution
Why are taxes strictly construed against the
taxpayer if its the lifeblood of the govt?

PRINCIPLES (Adam Smiths Taxation) (FAT)

Fiscal Adequacy- the sources (proceeds) of

tax should coincide with the needs of govt
expenditure
o Neither excess nor deficiency
Administrative Feasibility- tax system
should be administered with the least
inconvenience to the tax payer
Theoretical Justice- tax system should be
fair to the average taxpayer & based upon
his ability to pay

Non-observance

invalid tax, except to the

extent of statutory & constitutional limitations

Ex. Inequitable tax=VOID (Art 6 Sec 28,
equitable)
LIMITATIONS
INHERENT LIMITATIONS (PLIT)

FOR PUBLIC PURPOSE

Used for SUPPORT
For RECOGNIZED OBJECTS/ directly
to PROMOTE the WELFARE of the
community
Incidental advantage to the public/ State
which results from promotion of private
enterprises doesnt justify their aid by
use of public money [Pascual v Sec of
Public Works]
Tax doesnt cease to be valid merely
because it regulates, discourages, or
even definitely deters the activities taxed
Public purpose of tax may legally exist
even if the motive which impelled the
legislature to impose the tax was to favor
one industry over another [Tio v
Videogram Regulatory Board]
INHERENTLY LEGISLATIVE
Taxation ( for revenue) is an inherent
power (borne by necessity) of the
sovereignty
Being Legislative in character-may NOT
be DELEGATED, except
o To LOCAL GOVERNMENTS
o Allowed by CONSTITUTION
o Delegation merely relates to
ADMINISTRATIVE
IMPLEMENTATION
Legislative Taxing power includes the
authority
o To DETERMINE
Nature (Kind)
Object (Purpose)
Extent (Rate)
Coverage (Subjects
&Objects)
Situs (Place)
o To GRANT tax
exemptions/condonation

To SPECIFY for
administrative/judicial
REMEDIES

Subject to INTERNATIONAL COMITY

Art 2 Sec 2- Phils adopted generally
accepted principles of intl law as law of
the land
State must recognize the generally
accepted tenets of intl law- limits
authority of state to impose taxes on
sovereign state, its instrumentalities on
its property & activity
o Equality among states
o Freedom from suit w/out their
consent
Violation would contravene due process
& tax levied shall amount to taking w/out
due process
o To be valid taking:
Tax is for public
purpose
Rule on Uniformity is
observed
Either person/ property
to be taxed is w/in
jurisdiction of govt
levying tax
In certain taxes, notice
& opportunity for
hearing

TERRITORIAL
Exercised only within the territorial
jurisdiction
In fixing tax situs:
Poll tax
Residence of taxpayer
Property tax
Property is situated
Excise tax
1. Place of exercise of
privilege
2. Nationality
3. Residence

CONSTITUIONAL LIMITATIONS

DIRECTLY affecting taxation

1. [Art 3 Sec 20] No person shall be
imprisoned for debt or non-payment of a poll
tax.
Poll tax- levied on residence ex. Community
tax
Imposition of fine/ imprisonment for any
other violation other than nonpayment is
constitutional
2. [Art 6 Sec 28 par 1] The rule of taxation shall
be uniform and equitable. The Congress
shall evolve a progressive system of
taxation
Uniformity- requires that all subjects
similarly situated, be treated alike both in
privileges & liabilities
Classification is PERMITTED:
Standards used has Reasonable &
substantial distinction
Germane to achieve purpose of
legislation
Applies to both present & future
conditions
Applies equally to all belonging to the
same class
Fact that only one person is affected by a tax
of general application is not invalid
Equitable- fair, just, reasonable &
proportionate to ones ability to pay
Progressive system- place stress on direct
taxes and taxpayers ability to pay ex.
Individual Income tax- rates progresses as

tax base increases

3. [Art 6 Sec 28 par 2] The Congress may, by
law, authorize the President to fix within
specified limits, and subject to such
limitations and restrictions as it may impose,
tariff rates, import and export quotas,
tonnage and wharfage dues, and other
duties or imposts within the framework of the

national development program of the

Government.
Tariff & Customs Code provides for flexible
tariff clause authorizing Pres. To modify
import duties

7. [Art 6 Sec 28 par 2]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.

4. [Art 6 Sec 28 par 3]Charitable institutions,

churches and personages or convents
appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and
improvements, actually, directly, and
exclusively used for religious, charitable, or
educational purposes shall be exempt from
taxation.
Tax exemption covers PROPERTY taxes
only
Special levies/assessments not covered but
LGC extends exemption
Exclusively- means primarily NOT solely
ex. Even if hospital accepts pay patients as
long as funds are exclusively used for
maintenance it retains purpose
Not limited to property actually
indispensable but extends to facilities which
are incidental /reasonably necessary for
accomplishment of purpose
Idle land/ property let to others for unlike
purpose is NOT tax exempt
Test of exemption is USE

8. [Art 8 Sec 5 par 2(b)] Supreme Court:

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.

5. [Art 6 Sec 28 par 4]No law granting any tax

exemption shall be passed without the
concurrence of a majority of all the Members
of the Congress.
Requires Concurrence of ALL, NOT quorum
6. [Art 6 Sec 29 par 3]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.

9. [Art 10 Sec 5] Each local government unit

shall have the power to create its own
sources of revenues and to levy taxes, fees
and charges subject to such guidelines and
limitations as the Congress may provide,
consistent with the basic policy of local
autonomy. Such taxes, fees, and charges
shall accrue exclusively to the local
governments.

[Art 10 Sec 6] Local government units shall

have a just share, as determined by law, in
the national taxes which shall be
automatically released to them.
Art 10 Sec 5 is an exception to the limitation
provided by the Constitution as it grants
power.

10. [Art 14 Sec 4 par 3] 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.

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11. Proprietary educational institutions, including CLASSIFICATION of TAXES
those cooperatively owned, may likewise be
entitled to such exemptions, subject to the
1) Accdg to Subject Matter/Object:
limitations provided by law, including
restrictions on dividends and provisions for
a) Personal, capitation or poll taxes- fixed
reinvestment.
amounts upon residents or persons of a
certain class w/out regard to their property/
Covers all taxes imposed by both national &
business
local govt
b) Property taxes- assessed on things or
property
Exemption doesnt cover revenues from
unrelated activities
c) Excise/ license taxes- on privilege,
occupation or business not falling w/in the

INDIRECTLY affecting taxation

poll/prop tax
1. Due Process
2. Church & State Separation
3. Non-impairment clause
4. Mandatory character of
Constitutional provisions
ASPECTS OF TAXATION
1. LEVY- act of imposition by the legislature
such as by its enactment of the law
including the grant of tax exemptions,
amnesties & condonations
2. ASSESSMENT (notice & demand for
payment of tax liability) & COLLECTION- act
of administration & implementation of the tax
law by the executive
3. PAYMENT- act of compliance by taxpayer

2) Accdg to Burden:
a) Direct taxes- demanded from persons
primarily burdened to pay ex. Income tax
b) Indirect taxes- levied upon transactions or
activities before it reaches the consumers
who ultimately pays ex. VAT

a) General/ Fiscal- imposed for the general

purpose of the govt ex. Income tax
b) Special/ Regulatory/ Sumptuary- imposed
for particular legitimate govt objective

If partakes of both revenue measure &

regulatory fee, the primary purpose must be
inquired to determine

5) Accdg to Authority Imposing the tax:

a) National- imposed by the national
government
b) Municipal/ Local tax- imposed by local
government

Why is there a distinction between the taxing

power of the national and local govt &
source of its authority? The LGUs are
created by the Constitution by charter while
the State is sovereign it isnt created by law.

6) Accdg to Graduation (Tax Base & Tax Rate):

3) Accdg to Determination of Amount Tax rates:
a) Specific taxes- imposed per head, unit or
number or by weight or volume which
require no assessment beyond a listing or
classification of the subjects to be taxed
b) Ad valorem taxes- based upon value of the
article subject to tax
4) Accdg to Purpose:

a) Progressive- tax rate increases as tax base

increases
b) Regressive- tax rate decreases as tax base
increases
c) Mixed partly progressive & partly
regressive
d) Proportionate- tax rate is fixed on a flat tax
base

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Issue of taxing power- presumed taxing entity
has power to tax
DISTINGUISHED from OTHER EXACTIONS
1) LICENSE FEE- imposed for the regulation of
lawful business or occupation in the exercise of
police power, the amount of which is limited to
cover the expenses of issuing license & cost of
necessary supervision of the govt. If unpaid,
may make the activity illegal.

Tax Exemptions: Strictly against the grantee +

not presumed + may be revoked

CLASSIFICATION:

2) TOLL- an act or demand on proprietorship or

ownership. May be demanded by private
persons.
3) SPECIAL ASSESSMENT/ LEVY demand for
contribution to help defray the cost of
improvement on real property owners of a
particular locale directly benefitted by such
improvement. Not a personal liability of the
person assessed but assessable on the property
itself.
4) DEBT/ ORDINARY OBLIGATION- based upon a
juridical tie, created by law, contracts, quasicontracts,delicts or quasi-delicts, between the
parties for their private interest or resulting from
their own act or omissions.

EXPRESS (by Constitution, statute,

treaties, franchise or similar legislative
acts) ex. Sec 30 NIRC

Law provides

Certain taxes under special

circumstances to special classes of
persons

In favor of the govt / political

subdivision/ instrumentality

Traditional exemptees
(Charitable,religious)

Tax statutes offering rewards- Liberally

construed in favor of awardees

IMPLIED or by OMISSION

PD 1177 withdrew the exemption of

govt owned or controlled corp from
income tax, custom duties, and
other taxes covered both Natl &
local taxes

EXCEPTIONSs: Liberally for grantee:

Exemptions are not presumed but

so are laws imposing taxes, unless
expressed deemed not subject to
law imposing tax

Tax statutes offering amnesty Liberally

construed in favor of tax payer

To avail must voluntarily disclosed previous

untaxed income + paid the corresponding
tax

CONTRACTUAL

CONSTRUCTION OF TAX STATUTES

Those that are agreed to by the

taxing authority in contracts lawfully
entered into by them under enabling
laws

Tax amnesty granted by statue- Strictly against

taxpayer + not presumed

DOCTRINES in TAXATION
Doubt in Intent/ Taxability of the object- Liberally
in favor of taxpayers & strictly against taxing
authority

Validity- Presumed valid

In entering, the govt waives it

immunity
Revocation cant be unilateral w/out
violating non-impairment clause

Prospectivity of Tax laws

GR: Prospective

Exc: Expressed to be retroactive

Exc to exc: if harsh & oppressive in

application

Treaty provisions against

Reciprocity provisions

Tax credit provisions

TAX EVASION

Scheme used outside of lawful means and

when availed of usually subjects the taxpayer
to further civil or criminal liabilities

Breaking the law

Imprescriptibility

GR: Taxes are IMPRESCRIPTIBLE

POWER TO TAX INVOLVES THE POWER TO

DESTROY

FACTORS to determine EVASION/AVIODANCE

EXC: Unless otherwise provided

Assessment & collection have prescriptive

periods BUT applicable only to those
required to be reported or returned by
taxpayer for tax purpose

Power to tax must be exercised w/ caution

to minimize injury to the proprietary rights
of a taxpayer

Surtax imposed on IAP is imprescriptible

Must be exercised fairly, equally and

uniformly

Prescription is liberally construed &

exceptions are strictly construed

BUT if the tax is lawful & not violative of

any limitations, the fact alone that it may
destroy an activity will not permit courts to
afford any relief

And a subject/object that may not be

destroyed by the taxing authority may not
be taxed
ex. Taxing of exercise
of fundamental right = censorship

Tariff & Customs Code- After 1 year is final

LGC- Assessment & Collection- 5 years

Double Taxation

Seeks to describe an extreme consequence

of taxation & its implication

Taxing the same thing/ activity twice, when it

should be taxed only once for the same
purpose and with the same kind of character
of tax
Double taxation alone is not a valid defense
against the validity of a tax measure

TAX AVOIDANCE

Tax saving device within the means

sanctioned by law

Should be used by taxpayers in good faith

Sidestepping the law

Measures adopted to avoid:

End to be achieved

Accompanying state of mind

Course of Action

DOCTRINE OF EQUITABLE RECOUPMENT

(not applicable in the Phils.)

A claim for refund barred by prescription may

be allowed to offset unsettled tax liabilities
should be pertinent only to taxes arising from
the SAME transaction on which an
overpayment is made and underpayment is
due.

Not applicable in totally unrelated taxes

SET-OFF OF TAXES

Taxes are not subject to set-off or legal

compensation [Republic v Mambulao Lumber
Co.]

REASONS:

Taxes are distinct kind of impositions not

merely ordinary obligations

TAXPAYER SUIT

Applicable laws & principles governing

them are peculiar not common
Public policy is better subserved if the
integrity and independence of taxes be
maintained

Allowed only if the act complained of directly

involves the illegal disbursement of public
funds derived from taxation
Must show that sustained direct injury as a
result and not just general interest common
to all public (unsure)

Cant set off if due city then due from the Natl COMPROMISE
govt
Allowed when the subj matter is not
No offsetting of taxes against due from the
prohibited from being compromised & the
government
person entering into it is duly authorized to do
so

Commissioner of Internal Revenue may enter

into compromise of both civil & criminal
liabilities of taxpayer

Imposition of fines, surcharges, forfeitures by

Commissioner + Sec. of Finance