GENERAL PRINCIPLES OF TAXATION

I. TAXATION

TAXATION is the inherent power by which the sovereign, through its law-making body, raises revenue to defray the necessary expenses of the government.

It is a manner of apportioning the costs of the government among those who, in some measure, are privileged to enjoy its benefits and must bear its burdens.

INHERENT TO THE STATE: It is inherent in character because its exercise is guaranteed by the mere existence of the state. It could be exercised even in the
absence of a constitutional grant. The power to tax proceeds upon the theory that the existence of a government is a necessity and this power is an essential
and inherent attribute of sovereignty, belonging as a matter of right to every independent state or government. (Pepsi-Cola Bottling Co. of the Philippines vs.
Municipality of Tanauan, Leyte, G.R. No. L-31156, February 27, 1976)

SCOPE OF LEGISLATIVE POWER TO TAX

1. The determination of purposes for which taxes shall be levied provided it is for the benefit of the public.
2. The determination of subjects of taxation such as the person, property or occupation within its jurisdiction.
3. The determination as to the amount or rate of tax unless constitutionally prohibited.
4. The determination as to the kind of tax to be collected (i.e. property tax, income tax, inheritance tax, etc.).
5. The determination of agencies to collect the taxes.
6. The power to specify or provide for administrative and judicial remedies.
7. The power to grant tax exemptions and condonations.

THEORY AND BASIS

1. Life Blood Theory – Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. (Commissioner of Internal
Revenue vs. Algue; GR No. L-28896; Feb. 17, 1988)

2. Necessity Theory - government is necessary; however, it cannot continue without the means of paying for its existence; hence, it has the right to compel
all citizens and property within its power to contribute for the same purpose. (71 Am. Jur. 2d 346)

The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the State's sovereignty and a
means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvement
designed for the enjoyment of the citizenry and those which come within the State's territory, and facilities and protection which a government is supposed
to provide. (Phil. Guaranty Co., Inc. vs. CIR; GR No. L-22074; April 30, 965)

3. Symbiotic relationship theory - It is said that taxes are what we pay for a civilized society. Without taxes, the government would be paralyzed for lack
of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities,
every person who is able to must contribute his share in the running of the government. The government for its part, is expected to respond in the form
of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship
is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. (Commissioner
of Internal Revenue vs. Algue, supra)

PURPOSE OF TAXATION
1. Primary – to raise revenues; to support the existence of the State and enable the state to promote the general welfare.
2. Secondary – non-revenue or sumptuary
a. Promotion of general welfare – taxation may be used to implement police power (e.g., grant of VAT exemption and Discounts to Senior Citizens);
b. Regulation - where taxes are levied on excises or privileges for purposes of rehabilitation and stabilization of threatened industry which is affected by
public interest or to discourage consumption of harmful products (e.g., excise taxes on cigarettes and alcohol);
c. Reduction of Social Inequity – This is made possible through the progressive system of taxation where the objective is to prevent the undue
concentration of wealth in the hands of few individuals. Progressivity is keystoned on the principle that those who are able to pay should shoulder the
bigger portion of the tax burden. (e.g., Income tax)
d. Encouragement of economic growth – tax incentives and reliefs may be granted to encourage investment (i.e., Income Tax Holiday, 5% preferential
Gross Income Tax for PEZA registered entities);
e. Protectionism – for the protection of local industries, in case of foreign importations, protective tariffs and customs duties and fees (e.g., Special
Duties imposed by the Bureau of Customs)

CHARACTERISTICS OF THE POWER TO TAX (CUPS)

1. Comprehensive – it covers persons, businesses, activities, professions, rights and privileges.
2. Unlimited – it is so unlimited in force and searching in extent that courts scarcely venture to declare that it is subject to any restrictions, except those
that such rests in the discretion of the authority which exercises it. (Tio vs. Videogram Regulatory Board; GR No. 75697; June 18, 1987)
3. Plenary – it is complete; unqualified; absolute. Under the Tax Code, the BIR may avail of certain remedies to ensure collection of taxes.
4. Supreme – insofar as the selection of the subject of taxation is concerned.

PRINCIPLES OF A SOUND TAX SYSTEM (FAT)

1. Fiscal Adequacy – revenue raised must be sufficient to meet government/public expenditures and other public needs. (Chavez vs. Ongpin; GR No. 76778;
June 6, 1990)

2. Administrative Feasibility – tax laws must be clear and concise; capable of effective and efficient enforcement; convenient as to time and manner of
payment, must not obstruct business growth and economic development.

3. Theoretical Justice – must take into consideration the taxpayer’s ability to pay (Ability to Pay Theory). Art. VI, Sec. 28(1) of the 1987 Constitution
mandates that the rule on taxation must be uniform and equitable and that the State evolve a progressive system of taxation.

NOTE: Non-observance of Fiscal Adequacy and Administrative Feasibility will render the tax measure unsound but not unconstitutional. However, non-observance
of the Principle of Theoretical Justice is invalid because the Constitution itself requires that taxation must be equitable.
“THE POWER TO TAX IS THE POWER TO DESTROY”

According to Justice Marshall: The power to tax includes the power to destroy. Taxation is a destructive power which interferes with the personal and property
rights of the people and takes from them a portion of their property for the support of the government. (McCulloch vs. Maryland, 4 Wheat, 316 4 L ed. 579,
607)

However, according to Justice Holmes: The power to tax is not the power to destroy as long as this court (Supreme Court) sits.

Taxpayers may seek redress before the courts in case of illegal imposition of taxes and irregularities. The Constitution, as the fundamental law, overrides any
legislative or executive act that runs counter to it. In any case, therefore, where it can be demonstrated that the challenged statutory provision fails to abide by
its command, then the court must declare and adjudge it null. (Sison Jr. v. Ancheta; G.R. No. L-59431; July 25, 1984)

IMPRESCRIPTIBILITY OF TAXES: Taxes are generally imprescriptible, except when the law provides otherwise, e.g. the statute of limitations provided under
the Tax Code.

DOUBLE TAXATION: means taxing the same person for the same tax period and the same activity twice, by the same jurisdiction.

Double taxation in strict sense is when:

1. Both taxes are imposed on the same property or subject matter;
2. For the same purpose;
3. Imposed by the same taxing authority;
4. Within the same jurisdiction;
5. During the same taxing period;
6. Covering the same kind or character of tax.

Double Taxation in Broad sense is the opposite of direct double taxation and is not legally objectionable. The absence of one or more of the foregoing
requisites of obnoxious direct tax makes it indirect.

Constitutionality of double taxation: Double taxation in its stricter sense is unconstitutional but that in the broader sense is not necessarily so.

Our Constitution does not prohibit double taxation. However, double taxation will not be allowed if it results in a violation of the equal protection clause.

Kinds of double taxation as to taxing authorities:

1. Domestic double taxation – when both the taxes are imposed within the same state.
2. International double taxation – when the taxes are imposed by different states.

Modes of eliminating double taxation

1. Tax Deduction – an amount subtracted from the gross income to arrive at taxable income.
2. Tax Credit - an amount subtracted from an individual’s or entity’s tax liability (tax due) to arrive at the tax liability still due.

A deduction differs from a tax credit, in that a deduction reduces taxable income while a credit reduces tax liability.

3. Treaties with other states: a tax treaty sets out the respective rights to tax of the state of source (situs) and the state of residence with regard to
certain cases, an exclusive right to tax is conferred on one of the contracting states; however, for other items 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.

It applies whenever the state of source is given full or limited right to tax. The treaty makes it incumbent upon the state of residence to allow relief in order
to avoid double taxation.

Note: The BIR issued RMO No. 1-2000, as amended by RMO No. 72-2010, requiring taxpayers to file for a Tax Treaty Relief Application on or before the
transaction date before availing of the provisions of a tax treaty. However, as held by the Supreme Court, this administrative requirement cannot defeat
the right of any taxpayer entitled to the preferential rates in the tax treaty.

FORMS OF ESCAPE FROM TAXATION

1. Shifting – the burden of payment is transferred from the statutory taxpayer to another without violating the law (e.g., VAT);
2. Capitalization – the reduction in the price of the taxed object equal to the capitalized value of future taxes the purchaser is expected to be called upon
to pay.
3. Transformation - for manufacturers or producers, upon whom tax are imposed, fearing the loss of his market if he should add to the price, pays the tax
and endeavor to recoup himself by improving his process of production, thereby producing his units at a lower cost.
4. Tax Avoidance – 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. Also known as “tax minimization.” (e.g. utilizing all permissible allowable deductions)
5. Tax Exemption – grant of immunity to particular persons or corporations of a particular class from a tax which persons or corporations generally within
the same rate or taxing district are obliged to pay.

Basic Principles Regarding Tax Exemption

i. Exemptions are highly disfavored by law and he who claims an exemption must be able to justify his claim by the clearest grant of law. An exemption
from the common burden cannot be permitted to exist upon vague implication. (Asiatic Petroleum Co. vs. Llanes, 49 Phil. 466; see also House vs.
Posadas, 53 Phil. 338)." (Collector of Int. Revenue vs. Manila Jockey Club, Inc., G.R. No. L-8755, March 24, 1956)
ii. He who claims exemption should prove his factual and legal basis for exemption. (Commissioner of Internal Revenue v. Acesite (Philippines) Hotel
Corporation, G.R. No. 147295, February 16, 2007)
iii. Tax exemptions are strictly construed against the person claiming it. (Esso Standard Eastern, Inc. vs. Acting Commissioner of Customs; GR No. L-
21841; Oct. 28, 1966)
iv. Constitutional grant of exemptions are self-executing.
v. In the same way that taxes are personal, tax exemptions are also personal.
 vi. Deductions from income tax purposes partake of the nature of tax exemptions, therefore should also be construed strictly against the taxpayer.
(Commissioner of Internal Revenue vs. General Foods (Phils), Inc.; GR No. 143672; April 24, 2003)
vii. Same treatments are given to tax refunds. (Commissioner of Internal Revenue v. Eastern Telecommunications Phils., Inc., G.R. No. 163835, July 7,
2010)

Grounds for Tax Exemption

a. Contract – the grant of tax exemption is usually contained in the charter of the corporation to which the exemption is granted.
b. Public policy - to encourage new and necessary industries, or to foster charitable institutions.
c. Reciprocity – to reduce the rigors of international double or multiple taxation, tax exemptions maybe granted in treaties. A tax exemption is a personal
privilege of the grantee and therefore not assignable; it is generally revocable by the government, unless founded on contract and must not be
discriminatory.

Revocation of Tax Exemption: If the grant of an exemption does not constitute a contract, but merely “a spontaneous concession by the legislature,
not connected with any service or duty imposed” it is REVOCABLE by the power which made the grant.

Thus, if the basis of the tax exemptions is by virtue of a franchise granted by Congress, the exemption may be revoked.

However, if the tax exemption constitutes a binding contract and for a valuable consideration, the government cannot unilaterally revoke the tax exemption.

6. Tax Evasion – use of a taxpayer of illegal or fraudulent means to defeat or lessen the payment of tax. Also known as “tax dodging,” it presupposes malice,
fraud, bad faith, or willful intent on the part of the taxpayer either to underdeclare income or overdeclare deductions to defeat tax liability.

Connotes the integration of 3 Factors:

a. The end to be achieved, i.e. the payment of less than that known by the taxpayer to be legally due;
b. An accompanying state of mind which is described as being “evil”, in “bad faith”, “willful”, or “deliberate and not merely accidental”, and
c. A course of action or failure of action which is unlawful.

7. Compensation or Set-off: as a general rule, taxes cannot be the subject of a set-off or compensation because of the lifeblood doctrine; they are not
contractual obligations but arise out of duty to the government; and the government and the taxpayer are not mutually debtors and creditors of each
other. (Francia vs. IAC No. L-67649; June 28, 1988)

Taxes are of a distinct kind, essence and nature, and these impositions cannot be classed in merely the same category as ordinary obligations; the applicable
laws and principles governing each are peculiar, not necessary common, to each; and public policy is better subserved if the integrity and independence
of taxes are maintained. (Republic vs. Mambulao Lumber Co.)

A person cannot refuse to pay tax on the basis that the government owes him an amount equal to or greater than the tax being collected. The collection
of a tax cannot await the results of a lawsuit against the government. (Philex Mining Corp. v. Commissioner)

Doctrine of Equitable Recoupment: is a doctrine in common law applicable where the taxpayer has a claim for refund but he was not able to file a
written claim due to the lapse of the prescription period within which to make a refund.

The taxpayer is allowed to credit such refund to his existing tax liability.

This doctrine is not allowed in the Philippines. Note that the prescription of tax refunds in this jurisdiction is two years from the date of payment (for
illegally collected or erroneously paid taxes), and the lapse of such period bars recovery.

8. Compromise and Abatement – these are powers granted to the Commissioner of Internal Revenue to reduce tax liabilities and/or penalties. (see Tax
Remedies)

9. Tax Amnesty refers to the articulation of the absolute waiver by a sovereign of its right to collect taxes and power to impose penalties on persons or
entities guilty of violating a tax law. Tax amnesty aims to grant a general reprieve to tax evaders who wish to come clean by giving them an opportunity
to straighten out their records. (Metropolitan Bank and Trust Co. v. Commissioner of Internal Revenue, G.R. No. 178797, 4 August 2009)

Distinguished with tax exemption:

Tax Amnesty Tax Exemption
Immunity from all criminal and civil obligations from non-payment of taxes Immunity from civil liability only
It is a general pardon given to all taxpayers Immunity or privilege granted to qualified taxpayers from a charge or
burden of which others are subjected (Florer vs. Sheridan, 137 Ind. 28, 36
NE 365)
It applies only to past tax periods. (People vs. Castañeda, G.R. No. L- Applies prospectively after the grant of the exemption or from qualification
46881, September 15, 1988) therefrom

CONSTRUCTION AND INTERPRETATION OF TAX LAWS:

Tax laws must be construed reasonably to carry out the purpose, intent and the objective of the law.

As a rule, if the tax law is clear and free of ambiguity, it will be applied in its literal import. If there is doubt as to its validity or if it is ambiguous, the law will be
construed strictly against the Government and liberally in favor of the taxpayer.

"a statute will not be construed as imposing a tax unless it does so clearly, expressly, and unambiguously. A tax cannot be imposed without clear and express
words for that purpose. Accordingly, the general rule of requiring adherence to the letter in construing statutes applies with peculiar strictness to tax laws and
the provisions of a taxing act are not to be extended by implication.” (CIR vs. CA, CTA and Ateneo de Manila University, GR No. 115349, April 18, 1997)

Tax Exemptions; deductions and refund: in case of ambiguity, the law will be construed strictly against the taxpayer and liberally in favor of the government,
except:
1. Where the statute granting exemption expressly provides for a liberal interpretation;
2. Special taxes relating to special cases and affecting only special classes of persons;
3. Property held in private ownership;
4. Traditional exemptees, such as those in favor of religious and charitable institutions;
5. In favor of the government, its political subdivisions or instruments; and
6. By clear legislative intent.

Tax exemptions are never presumed. It must be established and proved by the taxpayer; must be limited to what the law says; and personal to the person
entitled to the same.

II. TAXATION and the other INHERENT POWERS

1. Taxation is the power of the State to demand from the members of society their proportionate share or contribution in the maintenance of the government.
2. Eminent Domain is the power of the State to forcibly acquire private property, upon payment of just compensation, for some intended public use
3. Police Power is the power of the State to regulate liberty and property for the promotion of general welfare

SIMILARTITIES:
1. Inherent in the State and need not be conferred by the Constitution;
2. Indispensable in that the State cannot continue or be effective unless it is able to exercise the same;
3. Methods whereby the State interferes with private rights;
4. Presuppose an equivalent compensation, tangible or otherwise, for the private rights interfered with; and
5. Primarily exercised by the legislature.

DIFFERENCES:

Taxation Police Power Eminent Domain

Raise revenue Promote public welfare through Facilitate the taking of private property
Purpose regulations for public use
No limit BUT must be equal to the Limited to the cost of regulation and No specific amount BUT just
needs of the government issuance of license or surveillance fees compensation must be paid to the
owner which is equivalent to the market
Amount of Exaction
value of the property

No direct benefit; only general benefit No direct benefit; only a healthy Direct benefit in the form of just
Benefits Received of protection economic standard of society compensation

Non-impairment of Contracts may NOT be impaired Contracts MAY be impaired Contracts MAY be impaired
Contracts
Transfer of Property Taxes become part of the public funds No transfer but only restraint in its Transfer in favor of the State
Rights exercise
All persons, property and excises All persons, property and privileges Only upon a particular property
Scope

Only by the government and its political Only by the government and its political May be by (1) the government or its
subdivisions subdivisions political subdivisions OR (2) public
Who exercises the
service companies or public utilities
power
granted with such power.

III. TAXES

TAXES: are enforced proportional contributions from the persons and property levied by the law-making body of the State by virtue of its sovereignty in support
of government and for public needs.

ESSENTIAL CHARACTERISTICS OF TAX

1. Imposed by the State which has jurisdiction over the person, property or excises (activity);
2. Levied by the Legislature;
3. It is an enforced contribution;
4. Generally payable in money;
5. Proportionate in character – based on the taxpayer’s ability to pay;
6. Levied on persons, property or excises;
7. Levied for public purpose;
8. Paid at regular periods of intervals;
9. Personal to the taxpayer.

CLASSIFICATOIN OF TAXES
1. As to purposes:
a. General/Fiscal or Revenue – purpose is to raise revenue for the government’s ordinary needs;
b. Special/Regulatory or Sumptuary – purpose is some social or economic ends irrespective of whether revenue is actually raised.
2. As to subject matter:
a. Personal, poll or capitation – those imposed upon residents of a territory, regardless of citizenship, property, occupation, business.
b. Property – those imposed upon real and personal property depending on their value.
c. Excise or privilege – those imposed upon the performance of an act, enjoyment of a privilege, or engaging in an occupation, profession or business.
3. As to incidence:
 a. Direct – where the burden for the payment of the tax as well as the impact falls on the same person; as such, the person who pays is the person who
is statutory liable to pay the tax (e.g., income tax);
b. Indirect – where the incidence falls on one person but the burden falls another. (e.g., VAT).
4. As to amount:
a. Specific – amounts fixed and is imposed by the head or number or some measurement, hence, no valuation is needed except for the list of things to
be taxed.
b. Ad valorem – one which is based on the value of the object to be taxed.
5. As to rate/progression:
a. Progressive – tax rates increase as the tax base or bracket increases.
b. Regressive – tax rate decreases as tax base or bracket increases.
c. Proportionate – tax is based on a fixed percentage of the amount of the property, receipts or other bases to be taxed.
6. As to authority imposing the tax:
a. National – levied by the national government and enforced by the BIR;
b. Local – levied by the local government through its sanggunian and enforced by the treasurer.

TAX VS. LICENSE FEES

Tax License Fee

Basis Taxation power Police power
Purpose Revenue Regulation
Limitation on Amount Subject only to inherent and constitutional limitations Limited to the cost of issuance of license and cost of
inspection and surveillance

When paid After the start of business Before the start of business

Surrender vis-a-vis necessity of Cannot be surrendered except for lawful Lawful consideration not necessary
consideration consideration
Effect of non-payment Will not render the business illegal BUT criminal Will render the business illegal
prosecution will result

IMPORTANCE OF DISTINCTION:
1. Government instrumentality concerned may not be authorized to exact taxes but IS authorized to exact license fees
2. Person imposed upon may be exempt from taxes BUT NOT exempt from license fees
3. Tax, NOT fees, may be claimed as income tax deduction for income tax purpose. However, fees may be considered as expenses ordinary and necessary
for business.
4. In Local Government Taxation, Sec. 187 of the Local Government Code covers only “tax” ordinance. Such that, if the ordinance is regulatory, it does not
come within the purview of Sec. 187 and the CTA does not have jurisdiction over the legality of the same, jurisdiction thereof being under the RTC.

TAX VS. TOLL

Tax Toll
Definition Demand of sovereignty for raising revenue Amount charged for the cost and maintenance of property used
Purpose For support of the government As compensation for use of another's property
Determination of Amount Determined by the sovereign Determined by the cost of the property or improvement
Who may impose Imposed by the State Imposed by the government or private individual

TAX VS. PENALTY

Tax Penalty
Definition Enforced proportional contributions from persons Sanction imposed for violation of laws
and property
Purpose For revenue To regulate conduct
Authority Imposed only by the government Imposed either by the government or by private individuals or
entities

TAX VS. SPECIAL ASSESSMENT

Tax Special Assessment

Definition Demand of sovereignty for raising revenue Special levy on lands comprised within the territorial jurisdiction of a
Province, City or Municipality specially benefitted by public works,
projects, improvements funded by the LGU concerned
Subject Imposed on lands, persons, property, income, Imposed on land only
business, etc.
Liability Personal Non-personal
Basis Based on necessity (and partially on benefits) Based solely on benefits

Application General Special to a particular time and place

TAX VS. CUSTOMS DUTIES

Tax Custom Duties

Purpose Raising revenue Controlling the flow of the goods of the country
 Broadness Broader term Tariff or tax on the importation (usually) or exportation (unusually)
of goods

TAX VS. DEBT

Tax Debt
Basis Law Contract/ judgment
Effect of failure to pay Civil and criminal liability Civil liability only (No imprisonment)
Mode of payment Money Money, property or service
Assignability No Yes
Subjectivity to No Yes
Compensation/ Set-off
Interest Yes, if deficient or delinquent. General Rule: no interest, unless expressly stipulated or after
demand is made
Authority Public authority Private individuals
Prescription Determined by the Tax Code Determined by the Civil Code

SOURCES OF REVENUE: the following are considered national internal revenue taxes:
1. Income tax;
2. Estate and donor’s taxes;
3. Value-added tax;
4. Other percentage taxes;
5. Excise taxes;
6. Documentary Stamp Taxes; and
7. Such other taxes as are or hereafter may be imposed and collected by the Bureau of Internal Revenue.

IV. INHERENT LIMITATIONS

A. IT MUST BE FOR A PUBLIC PURPOSE

A revenue measure must be laid for a public purpose determined by the legislature. The proceeds of the tax must be used either for the support of the State or
for some recognized objective of government or directly to promote the welfare of the community.

The public purpose must exist at the time the law is enacted. (Pascual vs. Secretary of Public Works, GR No. L-10405; Dec. 29, 1960)

Tests in determining public purpose:

1. Duty Test – whether the thing to be furthered by the appropriation of public revenue is something which is the duty of the State, as a government.
2. Promotion of General Welfare Test – whether the law providing the tax directly promotes the welfare of the community in equal measure.

One sector is not benefited: Public purpose is not destroyed by the fact that the tax law may not be beneficial to one group. The fact that one sector is benefited
and in the process another sector is being in a way prejudiced would not diminish the public character of the tax (Tio v. Videogram Regulatory Board, G.R.
75697, June 1987)

B. EXEMPTION OF GOVERNMENT ENTITIIES, AGENCIES and INSTRUMENTALITIES

As a rule, the government, its agencies and instrumentalities performing governmental function are exempt from VAT. This is because taxes are financial burdens
imposed for the purpose of raising revenues to defray the cost of the operation of the Government, and a tax on property of the Government, whether national
or local, would merely have the effect of taking money from one pocket to put it in another pocket (Board of Assessment of Appeals of Laguna vs. CTA, G.R.
No. L-18125, May 31, 1963).

Exceptions:
1. Agencies performing proprietary functions;
2. When the charter creating the agency or instrumentality or the law provides that they are subject to tax.
3. If the government wishes to tax itself.

GOCCs: performing proprietary functions are taxable similar to a corporation. However, Sec. 27(c) of the Tax Code provides for the following corporations as
exempt:
1. Government Service Insurance System (GSIS)
2. Social Security System (SSS)
3. Philippine Health Insurance Corporation (PHIC)
4. Local Water Districts
5. Home Development Mutual Fund (HMDF) (as included by the CREATE Law)

PAGCOR: is no longer exempt from income tax by its omission from the above list. (PAGCOR vs. BIR, GR No. 12087, March 15, 2011) However, PAGCOR
remains exempt from income tax for its income arising from casino operations which are subject to franchise tax in lieu of all taxes. (PAGCOR vs. BIR, GR No.
215427, Dec. 10, 2014)

PCSO: was removed under the TRAIN and is thus taxable beginning January 1, 2018.

C. THE POWER TO TAX IS INHERENTLY LEGISLATIVE (NON-DELEGABILITY)

Taxation is the inherent power of the state and it is exercised primarily by the Legislature as delegates of the people. In accordance with the latin maxim
potestas delegatas non delegari potest, which means, what has been delegated can no longer be delegated, as a rule, only the Congress (to whom the legislative
power has been delegated by the people) can exercise this power.
Exceptions:

1. Delegation to Local Government – the Constitution, as implemented by the Local Government Code, empowers the local government units (LGU) to
create its own sources of revenue and to levy taxes, fees and charges which shall accrue exclusively to the LGU. (Sec. 5, Art. X of the Constitution)
2. Delegation to the President – the Constitution, as implemented by the Tariff and Customs Code, allows the President to fix tariff rates, import and
export quotas, tonnage and wharfage dues and other duties or imposts. (Sec. 28[2], Art. VI of the Constitution)

Likewise, the President may exercise emergency powers (Sec. 23[2], Art. VI of the Constitution) and enter into executive agreements or treaties which
may contain tax exemption provisions subject to the concurrence of the Senate. (Sec. 27, Art. VII of the Constitution)

3. Delegation to Administrative Agencies – administrative agencies may issue rules and regulations to implement tax laws, under their quasi-legislative
powers, subject to the following tests:

a. Completeness test – in order for the delegation to be valid, the law must be complete in all aspects when it leaves the legislature. The only thing
left for the delegate to do is to implement the law.
b. Sufficiently Determinable Standards test – there must exist sufficient standards which should limit the boundaries of the delegate’s authority by
defining legislative policy and the circumstance under which it is to be pursued and implemented.

Technically, no. 3 is not really an exception as the powers of the administrative agencies are limited to implementing and/or interpreting the tax laws issued
by Congress.

D. INTERNATIONAL COMITY

Par in parem non habet imperium is a principle of international law forming the basis of state immunity which translates to “equals have no sovereignty
over each other.” The principle of international comity recognizes that States are co-equal sovereigns such that one cannot exercise its inherent sovereign
powers over another, including the power to tax.

States find it mutually advantageous to create self-imposed restraints on their taxing powers with reference to properties of foreign governments. Moreover,
when on state enters the territory of another, there is an implied understanding that the former does not intend to degrade its dignity by placing itself under
the jurisdiction of the latter, note that a foreign state cannot be sued without its consent, thus it would be useless to impose or assess a tax which cannot be
collected.

E. TERRITORIAL IN APPLICATION (SITUS)

Tax is territorial in application in the sense that the object and/or subject of the tax must be within the territorial jurisdiction of a State. The object of taxation
is the income and the subject would be the income earner. As such, for a non-resident alien, income earned outside the Philippines is non-taxable herein,
because the income (object) and the individual (subject) are both outside the Philippines. However, if the income (object) is earned within the Philippines, then
it can be subject to tax here, since the object is now within Philippine territory.

On the other hand, a resident citizen is taxable even on income earned outside the Philippines, since the individual is a resident herein, or the subject of taxation
is within Philippine territory.

V. CONSTITUTIONAL LIMITATIONS

A. DUE PROCESS REQUIREMENT

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

Procedural due process: requires that taxpayers must be notified of the assessment in writing and must state the fact and the law upon which it is based.
Moreover, assessments and collection must not be arbitrary.

Substantive due process: requires that assessments must not be harsh, oppressive or confiscatory; it must be made under authority of a valid law; and must
be imposed within the territorial jurisdiction of the State.

Specific Cases:
1. There is a denial of due process on account of the passage of an ordinance in the City of Manila which imposes a permit fee of P50.00 on aliens as a
condition to employment or engaging in any business or occupation, where it appears that under said ordinance, the City Mayor of Manila could withhold
or refuse issuance of such permit at will. Aliens, once admitted in the Philippines, cannot be deprived of life without due process of law and this guarantee
includes the means of livelihood (Villegas vs. Hiu Chiong Tsai Pao Ho, G.R. No. L-29646, November 10, 1978)
2. Section 112 (B) allows a VAT registered person to apply for the issuance of a tax credit certificate or refund for any unused input taxes, to the extent that
such input taxes have not been applied against output taxes. The input tax is not a property or property right within the constitutional purview of the due
process clause. A VAT-registered person’s entitlement to the creditable input tax is merely a statutory privilege (Abakada Guro Party List vs. Ermita, Ibid.).

B. EQUAL PROTECTION OF THE LAWS

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

The requirement of equal protection of the laws requires that the law must apply equally to all persons within the same class. As such, providing for a classification
and applying the law only to a particular class is not violative of the constitutional right so long as it comes from a valid classification.

Requisites for a valid classification:

1. Must be based upon substantial distinctions;
2. Must be germane to the purpose of law;
3. Must apply to both present and future conditions; and
4. Must apply equally to all members of a class.

Two ways by which equal protection clause is violated:

1. When classification is made when there should be none
2. When classification is not made when called for

Specific Cases:
1. The fact that the taxpayer is the only sugar central or refinery in the municipality where the tax ordinance is enacted does not make said ordinance
discriminatory. The reason is that since other refineries to be established in the future would also be taxable, no singling out of the taxpayer to its
disadvantage has ever taken place (Victorias Milling Co., Inc. vs. Municipality of Victoria, G.R. No. L-21183, September 27, 1968)
2. A local ordinance which levies an ad valorem tax on motor vehicles registered in Manila without also taxing those which are registered outside the city but
which enters the city and use its streets occasionally violates the rule on the equality of taxation (Assoc. of Customs Brokers vs. Municipality Board of
Manila, G.R. No. L-4375, May 22, 1953).
3. With regard to the 5% creditable withholding tax imposed on payments made by the government for taxable transactions, Section 114 par. C merely
provides a method of collection, or as stated by respondents, a more simplified VAT withholding system. Since it has not been shown that the class subject
to the 5% final withholding tax has been unreasonably narrowed, there is no reason to invalidate the provision. Petitioners, as petroleum dealers, are not
the only ones subjected to the 5% final withholding tax. It applies to all those who deal with the government (Abakada Guro Party List vs. Ermita, Ibid.).

C. UNIFORMITY AND PRGRESSIVITY OF TAXATION

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

UNIFORMITY means that all taxable articles or kinds of property of the same classes shall be taxed at the same rate. A tax is uniform when it operates with
the same force and effect in every place where the subject of it is found. (Commissioner vs. Lingayen Gulf Elec. Co., G.R. No. L-23771, August 4, 1988)

Uniformity vs. Equitability vs. Equality

• Uniformity – All taxable property shall be taxed alike

• Equitability – The burden of taxation falls to those better able to pay.
• Equality – When the burden of the tax falls equally and impartially upon all persons and property subject to it.

PROGRESSIVITY means that the tax rate increases as the tax base thereof increases. Our income tax system is one good example of such progressivity
because it is built on the principle of the taxpayer’s ability to pay. Taxation is progressive when its rate goes up depending on the resources of the person
affected (Reyes vs. Almanzor, G.R. Nos. 49839-46, April 26, 1991)

D. NO IMPRISONMENT FOR PAYMENT OF POLL TAX

Art. III, Sec. 20. No person shall be imprisoned for debt or non-payment of a poll tax.

Poll Tax is a tax on individuals residing within a specified territory, whether citizens or not, without regard to their property or the occupation in which they
may be engaged.

E. EXEMPTION FROM PROPERTY TAX OF REGILIOUS, CHARITABLE AND EDUCATIONAL INSTITUTIONS

Art. VI, Section 28.

(3) 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.

Property Tax: The tax exemption under this constitutional provision covers property taxes only. As Chief Justice Hilario G. Davide, Jr., then a member of the
1986 Constitutional Commission, explained: “what is exempted is not the institution itself; those exempted from real estate taxes are lands, buildings and
improvements actually, directly and exclusively used for religious, charitable or educational purposes." (Lung Center of the Philippines vs. Quezon City, GR No.
144104, June 29, 2004)

Estate and donor’s tax are excise taxes on the privilege to transfer property gratuitously. Accordingly, the above exemption does not cover estate and donor’s
tax unless specifically provided under the Tax Code. (see Sections 101(A)(3) and 101(B)(2) of the Tax Code)

“Exclusive”: is defined as possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment; and “exclusively” is defined, “in a
manner to exclude; as enjoying a privilege exclusively.” If real property is used for one or more commercial purposes, it is not exclusively used for the exempted
purposes but is subject to taxation. The words “dominant use” or “principal use” cannot be substituted for the words “used exclusively” without doing violence
to the Constitution and the law (Lung Center of the Phil. vs. Quezon City, G.R. No. 144104, June 29, 2004).

Actual and Direct Use is necessary: To be exempt from tax, the lands, buildings and improvements must not only be exclusively but also actually and
directly used for religious and charitable purposes.

Thus, even if a property is owned by a religious, educational or charitable institution, if it is rented out and used for activities other than the main purpose of
the institutions, it will be subject to tax and not covered by the exemption. Note that in Real Property Taxation, the actual use is determinative of assessment
and taxability NOT OWNERSHIP.

Incidental Use: the exemption likewise covers activities which are incidental to the main activity. As such, canteens owned and operated by the school, as
well as libraries are covered by the exemption extended to schools.

If the use is not incidental, exemption does not apply: While the use of the second floor of the main building 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, i.e., educational, the lease of the first
floor to the Northern Marketing Corporation cannot be considered incidental to the purpose of education. Since only a portion is used for the purpose of
commerce, it is only fair that half of the assessed tax be returned to the school involved (Abra Valley vs. Aquino, G.R. No. L-39086, June 15, 1988).
Only the portion used for commercial purpose are subject to the tax: While portions of the hospital are used for the treatment of patients and the
dispensation of medical services to them, whether paying or non-paying, other portions thereof are being leased to private individuals for their clinics and a
canteen. Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not
exempt from such taxes. On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying
or non-paying, are exempt from real property taxes. (Lung Center of the Phil. vs. Quezon City, G.R. No. 144104, June 29, 2004).

F. EXEMPTION OF NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS

Art. XIV, Sec. 4(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.

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.

Coverage: the above exemption does not only cover property tax but also income tax unlike the exemption of religious and educational institutions provided
under (E) above which covers only property taxes.

The tax exemption granted is conditioned only on the actual, direct and exclusive USE of their revenues and assets for educational purposes.

Revenues: the exemption extends to the non-stock, non-profit educational institution on all revenues that is USED for educational purposes, regardless of its
source.

Assets: the property, to be considered exempt from real property tax, the test is USE also, not ownership.

Thus, if the institution earns rental income from a commercial entity but uses such rental for educational purposes, it is exempt from income tax, local business
tax, and/or VAT, but NOT real property tax.

Limitation under Section 30 of the Tax Code: the last paragraph of Sec. 30 (Exempt Entities) under the Tax Code provides that “income from whatever kind and
character of the foregoing corporations from any of their properties, 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”.

While Sec. 30 covers non-stock, non-profit educational institutions, the above limitation on exemption does not apply to it. Thus, even if it derives income from
activities conducted for profit, the income remains exempt as long as it is actually, directly and exclusively used for educational purposes. (Commissioner of
Internal Revenue vs. De La Salle University, Inc., GR No. 196596, November 9, 2016)

Proprietary educational institutions: are subject to 10% income tax on their taxable income under Sec. 27(B) of the Tax Code. The same provision provides
that if income from unrelated trade, business or other activity exceeds 50% of the total gross income, the tax shall be the 30% Regular Corporate Income Tax.

G. GRANT OF EXEMPTION REQUIRES THE MAJORITY VOTE OF CONGRESS

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

Rationale: in order to prevent the indiscriminate grant of tax exemptions.

H. PROHIBITION ON TAX LEVIED FOR SPECIAL PURPOSE

Art. VI, Sec. 29(3): All money collected or any tax levied for special purposes shall be treated as 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.

I. VETO POWER OF THE PRESIDENT

Art. VI, Sec. 27(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 which he does not object.

J. REVENUE OR TARIFF BILL MUST EXCLUSIVELY ORIGINATE FROM THE LOWER HOUSE

Art. VI, Sec. 24: All appropriation, revenue or tariff bills, bills authorizing the increase of public debts, bills of local application and private bills, shall
originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments.

K. LOCAL GOVERNMENT’S POWER TO TAX

Art. X, 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.

L. NO APPROPRIATION FOR RELIGIOUS PURPOSES

Art. VI, Sec. 29(2): No public money or property shall be appropriated applied, paid or employed, directly or indirectly, for the use, benefit or support of
any sect, church, denomination, sectarian institution or system of religion, or of any priest, preacher, minister, 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.

M. RELIGIOUS FREEDOM
 Art. III, Sec. 5: 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.

Sale of Bibles at cost or at a low premium: The Constitutional guaranty of the free exercise of religion carries with it the right to disseminate religious
information. Any restraint on such right can only be justified on the ground that there is a clear and present danger of any substantive evil which the State has
the right to prevent.

Activities simply and purely for propagation of faith are exempt (i.e., sale of bibles and religious articles by non-stock, non-profit organizations at minimal profit).
A license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the exercise
of its right. Hence, although its application to others is valid, its application to the press or to religious groups, such as the Jehovah’s Witnesses, in connection
with the latter’s sale of religious books and pamphlets, is unconstitutional (American Bible Society v. City of Manila, G.R. L-9637, April 1957)

N. NON-IMPAIRMENT OF CONTRACTS

Art. III, Sec. 10: No law impairing the obligation of contracts shall be passed.

Revocability of Tax Exemption: A law which changes the terms of the contract by making new conditions, or changing those in the contract, or dispenses
with those expressed, impairs the obligation.

However, the non-impairment rule does not apply to public utility franchises since a franchise is subject to amendment, alteration or repeal by the Congress
when the public interest so requires (Article XII, Section 11). This is so because under the Constitution [now Section 11, Article XII, 1987 Constitution], the
legislature can impair a grantee’s franchise since a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires.
(Cagayan Electric Power & Light Co., Inc. vs. CIR, G.R. No. L-60126, September 25, 1985)

O. NON-IMPAIRMENT OF THE JURISDICTION OF THE SUPREME COURT

Art. VIII, Sec. 5[2]: The Supreme Court shall have the power to review, revise, 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.

Thus, Congress cannot enact a law which makes the decisions of the Court of Tax Appeals final and non-appealable to the Supreme Court.

VI. STAGES OR ASPECTS OF TAXATION

1. LEVY

The determination by Congress of the subject and object of taxation as well as the rate (Domondon, 9th ed, p. 29). It refers to the enactment of tax laws or
statutes (Dimaampao, 2011 ed, p. 14).

Note: This is NOT the “Levy” under Sec. 207 of NIRC, which refers to the remedy of the Government to collect taxes.

2. ASSESSMENT AND COLLECTION

Assessment is a notice to the effect that the amount therein stated is due as tax and a demand for payment thereof.

Rules governing assessment and collection of taxes to prevent its abuse

1. The tax law must designate which agency will collect the taxes
2. The circulars or regulations issued by the Secretary of Finance or the Commissioner of the Internal Revenue must be in accordance with the tax measures
imposed by Congress

Collection is the final stage and goal of tax administration.

3. PAYMENT

The act of compliance by the taxpayer, including such options, schemes or remedies as may be legally open or available to him.

4. REFUND

The taxpayer asks for restitution of the money paid as tax which is either excessive or erroneous.

VII. THE BUREAU OF INTERNAL REVENUE

The Bureau of Internal Revenue is the agency tasked under the Tax Code for its implementation and its powers and duties shall comprehend the assessment
and collection of all national internal revenue taxes, fees and charges, and the enforcement of all forfeitures, penalties, and fines connected therewith, including
the execution of judgments in all cases decided in its favor by the CTA and the ordinary courts.

It is under the supervision and control of the Department of Finance.

Composition: The BIR shall be composed of:

1. Commissioner of Internal Revenue which shall be the chief of the BIR; and
2. Four Deputy Commissioners, currently for the following:
a. Operations Group
b. Legal Group
c. Information Systems Group; and
d. Resource Management Group
Powers and Authority of the Commissioner of Internal Revenue:
1. Exclusive and original jurisdiction to interpret the provisions of the Tax Code and other tax laws, subject to review by the Secretary of Finance.

2. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters
arising under the Tax Code or other laws or portions thereof administered by the BIR, subject to the exclusive appellate jurisdiction of the Court of Tax
Appeals.

3. The power to ascertain the correctness of any return, or in making a return when none has been made, or in determining the liability of a person for any
internal revenue tax, or in collecting any such liability, or in evaluating tax compliance. The Commissioner shall be authorized:
a. To examine any book, paper, record, or other data which may be relevant or material to such inquiry;
b. To obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation, or from
any office or officer of the national and local governments, government agencies and instrumentalities, including the Bangko Sentral ng Pilipinas and
government-owned or -controlled corporations, any information such as, but not limited to, costs and volume of production, receipts or sales and
gross incomes of taxpayers, and the names, addresses, and financial statements of corporations, mutual fund companies, insurance companies,
regional operating headquarters of multinational companies, joint accounts, associations, joint ventures of consortia and registered partnerships, and
their members;

The Cooperative Development Authority shall submit to the Bureau a tax incentive report, which shall include information on the income tax, value
added tax, and other tax incentives availed of by cooperatives registered and enjoying incentives under Republic Act No. 6938, as amended.

c. To summon the person liable for tax or required to file a return, or any officer or employee of such person, or any person having possession, custody,
or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax, or any other
person, to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such
books, papers, records, or other data, and to give testimony;
d. To take testimony of the person concerned, under oath, as may be relevant or material to such inquiry; and

e. To cause revenue officers and employees to make a canvass from time to time of any revenue district or region and inquire after and concerning
all persons therein who may be liable to pay any internal revenue tax, and all persons owning or having the care, management or possession of any
object with respect to which a tax is imposed.

4. Inquiry into Bank Deposits: in the following cases:

a. To determine the gross estate of a decedent
b. In relation to a compromise application of a taxpayer by reason of financial incapacity to pay his tax liability
c. A specific taxpayer or taxpayers subject of a request for the supply of tax information from a foreign tax authority pursuant to an international
convention or agreement on tax matters to which the Philippines is a signatory or a party of.
5. Power to resort to the Best Evidence Obtainable Rule: When a report required by law as a basis for the assessment of any national internal revenue tax
shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false, incomplete
or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable.

In case a person fails to file a required return or other document at the time prescribed by law, or willfully or otherwise files a false or fraudulent return or
other document, the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony
or otherwise, which shall be prima facie correct and sufficient for all legal purposes

6. Inventory taking, Surveillance and Prescribe Presumptive Gross Sales or Receipts: The Commissioner may, at any time during the taxable year, order
inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities, or may place the business operations of any person,
natural or juridical, under observation or surveillance if there is reason to believe that such person is not declaring his correct income, sales or receipts for
internal revenue tax purposes. The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different
taxable years and such assessment shall be deemed prima facie correct.

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of this Code, or when there
is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed
under the provisions of this Code, the Commissioner, after taking into account the sales, receipts, income or other taxable base of other persons engaged
in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such
gross receipts, sales and taxable base, and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax
liabilities of such person.

7. Authority to Terminate Taxable Period: When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax,
or is intending to leave the Philippines or to remove his property therefrom or to hide or conceal his property, or is performing any act tending to obstruct
the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings
are begun immediately, the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such
decision, together with a request for the immediate payment of the tax for the period so declared terminated and the tax for the preceding year or quarter,
or such portion thereof as may be unpaid, and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed,
unless paid within the time fixed in the demand made by the Commissioner.

8. Authority of the Commissioner to Prescribe Real Property Values. –The Commissioner is hereby authorized to divide the Philippines into different zones or
areas and shall, upon mandatory consultation with competent appraisers both from the private and public sectors, and with prior notice to affected
taxpayers, determine the fair market value of real properties located in each zone or area, subject to automatic adjustment once every three (3) years
through rules and regulations issued by the Secretary of Finance based on the current Philippine valuation standards: Provided, That no adjustment in
zonal valuation shall be valid unless published in a newspaper of general circulation in the province, city or municipality concerned, or in the absence
thereof, shall be posted in the provincial capitol, city or municipal hall and in two (2) other conspicuous public places therein: Provided, further, That the
basis of any valuation, including the records of consultations done, shall be public records open to the inquiry of any taxpayer. For purposes of computing
any internal revenue tax, the value of the property shall be, whichever is the higher of:
a. The fair market value as determined by the Commissioner; or
b. The fair market value as shown in the schedule of values of the Provincial and City Assessors.
9. Authority to Accredit and Register Tax Agents: The Commissioner shall accredit and register, based on their professional competence, integrity and moral
fitness, individuals and general professional partnerships and their representatives who prepare and file tax returns, statements, reports, protests, and
other papers with or who appear before, the Bureau for taxpayers.

Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner and/or the national and
regional accreditation boards may appeal such denial to the Secretary of Finance, who shall rule on the appeal within sixty (60) days from receipt of such
appeal. Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation
of the appellant.

10. Authority of the Commissioner to Prescribe Additional Procedural or Documentary Requirements: The Commissioner may prescribe the manner of
compliance with any documentary or procedural requirement in connection with the submission or preparation of financial statements accompanying the
tax returns.

11. Delegation of Power: The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any or such subordinate
officials with the rank equivalent to a division chief or higher, subject to such limitations and restrictions as may be imposed under rules and regulations to
be promulgated by the Secretary of Finance, upon recommendation of the Commissioner.

Powers which may NOT be delegated:

a. The power to recommend the promulgation of rules and regulations by the Secretary of Finance;
b. The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau;
c. The power to compromise or abate, under Sec. 204 (A) and (B) of this Code, any tax liability, except the following:
i. Assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500,000) or less, and
ii. minor criminal violations, as may be determined by rules and regulations to be promulgated by the Secretary of finance, upon recommendation
of the Commissioner, discovered by regional and district officials

The above may be compromised by a REGIONAL EVALUATION BOARD which shall be composed of the Regional Director as Chairman, the Assistant
Regional Director, the heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer,
as members;
d. The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept.

Other BIR officials:

1. Revenue Regional Directors
2. Revenue District Officers
3. Revenue Officers

Sources of Tax Laws according to hierarchy:

1. Constitution
2. Statutes (e.g., Tax Code), including Supreme Court decisions interpreting the same and Treaties to which the Philippines is a signatory
3. Revenue Regulations – are issuances signed by the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, that specify,
prescribe or define rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code (NIRC) and related statutes.
4. BIR Issuances:
a. Revenue Memorandum Circulars - are issuances that publish pertinent and applicable portions, as well as amplifications, of laws, rules, regulations
and precedents issued by the BIR and other agencies/offices.

b. Revenue Memorandum Orders - are issuances that provide directives or instructions; prescribe guidelines; and outline processes, operations, activities,
workflows, methods and procedures necessary in the implementation of stated policies, goals, objectives, plans and programs of the Bureau in all
areas of operations, except auditing (which is covered by Revenue Audit Memorandum Orders [RAMO])

c. Revenue Administrative Orders - are issuances that cover subject matters dealing strictly with the permanent administrative set-up of the Bureau,
more specifically, the organizational structure, statements of functions and/or responsibilities of BIR offices, definitions and delegations of authority,
staffing and personnel requirements and standards of performance

d. Revenue Delegation of Authority Orders - refer to functions delegated by the Commissioner to revenue officials in accordance with law