Taxation for EXAM

7/28/2019 Taxation for EXAM

http://slidepdf.com/reader/full/taxation-for-exam 1/212

Taxation 1: Manresa3/2013[Jeremiah 29:11]Kay Frin Chez

June 18, 2013

Taxation has been defined as the power of the sovereign to impose burdens

or charges upon persons, properties or property rights for the use and

support of the government for it to be able to discharge.

-“inherent power of the state to demand enforced contributions for public

purposes.”

Taxation is also the power to create revenue to defray necessary

governmental expenses.

TAXES: are enforced proportional and pecuniary contribution from persons

and property levied by the law-making body of the state having jurisdiction

over the subject of the burden for the support of the government and all

public needs.

Attributes of Taxation

1. I t is an inherent power of the sovereign –it exists and

independent from the Constitution; it exist independent from any

act of legislation. In other words, taxation exists when there is

government or of a state. Taxation as a power emanates from

the people.

2. It is legislative in character- because this power is given to the

legislature or the law-making body. WHY? Because from the very

beginning, taxation is a power of the sovereign ad who is the

sovereign? The people. And when the people exercise this power

it is done through their representatives and who are the

representatives of the people? You have the legislature.

3. It is subject to Inherent and Constitutional Limitations- Since thepower of taxation is so comprehensive and unlimited –The power

to tax involves the power to destroy-this power is so

comprehensive in scope therefore, it should be subjected to

limitations. These limitations are divided into two: Inherent

Limitations and Constitutional Limitations.

PURPOSE & SCOPE

Then taxation the power to impose burdens or charges upon persons,

properties, or property rights for the use and support of the government to

support and to enable the government to discharge its functions. This tells usthe purpose of taxation. The purpose of taxation is that these charges and

burdens that will be imposed upon the subjects of the tax so the money that

will be raised from taxation will be used for the support of the government.

Therefore, REVENUE is the PRINICIPAL OBJECTIVE OF TAXATION.

“on the part of the government: to provide funds w/ w/c to promote the

general welfare and protection of its citizens; may also be exercised to attain

various social and economic (non-revenue) objectives”

There are three inherent powers of the State:

1. Police Power

2. Eminent Domain

3. Power to Tax.

SOURCES OF REVENUE OF THE GOVERNMENT- Charges, taxes and

fees.

Theory of Taxation: Taxes proceed from the theory of the existence of the

government is a necessity. This is the principle which states that TAXES

ARE THE LIFEBLOOD OF THE GOVERNMENT. That the existence of the

government is a necessity because the government will not be able to

discharge its functions without taxes/ cannot continue without the means to

pay its expenses, thus it has the right to compel all its citizens and property

w/n the limits to contribute (NECESSITY THEORY.)

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

improvements designed for the enjoyment of the citizenry and those which

come within the State’s territory and facilities and protection w/c a gov’t is

supposed to provide

The other basis would be the PROTECTION-BENEFIT

PRINCIPLE (Basis of taxation) - The reciprocal obligation or the symbiotic

obligation between the State and the citizens. The obligation of the State is

to extend protection to the citizens and on the other hand the obligation of

the citizens is to support the government by paying their taxes.

- This is a standard of equity/fairness often advanced in

evaluating tax laws. It calls for the tax burdens to be

apportioned in the same proportions as the benefits derived

by taxpayers from gov’t spending of tax revenues

Under this principle, if a citizen pays more taxes, is there an

obligation on the part of the State to afford more protection to the said

citizen? No. Whether you pay more or less the government shall give similar

protection and benefits among its citizens. This is based on the othe

principle of taxation which is the ABILITY TO PAY.

- Reason: protection in the enjoyment of his rights is a duty

owed by the State to every citizen.

- From the contribution received, the gov’t renders no special/

commensurate benefit to any particular property/person.

- A tax is a compulsory payment to the gov’t in return for

which the taxpayer gets no definite, specific

commodity/service.

- The only benefit to which a taxpayer is entitled is tha

derived from his enjoyment of the privileges of living in an

organized society established and safeguarded by the

devotion of taxes to public purposes.

- What matters is that it is for public purpose




Aspects or Phases of Taxation:

1. Levying or the assessment stage- It is the exercise of the power

of taxation through its legislative body. The Congress does not

implement the tax law.

2. Collection and payment of taxes-TAX ADMINISTRATION-

Executive in character. The executive shall implement the taxlaws.

What is the extent of the Power of the Law-making body with regards to

taxation?

1. Determination of what would be the subject of tax.

- A state is free to select the subject of taxation and it has

been repeatedly held that the inequalities w/c result from a

singling out of one particular class for taxation/ exemption is

reasonable and not arbitrary.

- Power to tax carries with it the power to grant tax exemption

- LGUs, there must be a law; no power on real property tax

2. Determination of the purpose for the said tax so long as it is for

public purpose.

-its determination is not conclusive, courts can inquire WON the

purpose is really public/private

-but once settled that it is for public purpose, courts can no longer

inquire into the objective of the legislature in imposing a

tax/wisdom, advisability/ expediency of the tax.

-judicial action is limited only where it involves: 1) determinationof the validity of the tax in relation to constitutional precepts or

provisions; 2) determination of the application of the tax law

3. Determination of the tax amount or rate.

-if taxes are oppressive/unjust, the only remedy is the ballot box

and the election of new representatives

“McCulloch vs. Maryland: the power to tax is the power to destroy

is to describe not the purpose for which the taxing power may be

used but the extent to which it may be employed in order to raise

revenues.”

- Even if a tax should destroy a business, such fact could not

invalidate the tax.

- As long as exercised w/n the bounds of constitutional

limitations, a tax cannot be invalid merely because the

power which is manifested by its imposition may involve the

power to destroy

4. Determination of the manner, the means agencies of the

collection of tax.

Can one go to the Court and question the motive of the legislature on the

levy?

In one case, a certain person filed before the RTC of Manila

questioning on the imposition of tax under the NIRC on the jewelleryindustry. Because according to him the jewellers from Thailand, Vietnam

and other Asian countries are taxed less how come they are taxed with a

higher rate. Going back to the question, can one go to the Court and

question the motive of the legislature on the levy? The answer is NO!

Because the wisdom upon determining the subject of tax is upon the

legislature for as long as it is for public purpose.

However, if the question involves the inherent or constitutional limitations o

the tax law then you go to the Court.

“Power to Tax involves the Power to Destroy”-This principle came ou

because of the extent of the power of the State which is very comprehensive

and unlimited BUT the said principle was debunked when another principlecame out- “Power to tax is not the Power to Destroy while the Supreme

Court sits.”

Non-Revenue Objectives of Taxation:

1. Taxation can be used as a device for Regulation- Taxation may

go hand with hand with the police power. Police power could be

used to exercise the power of taxation.

****Lutz vs Araneta- It involves the imposition of CA 567 or the SugaAdjustment Act. It was questioned how come such act was only imposedupon the sugar industry when the purpose of taxation is public purposeAccording the SC, the Sugar Adjustment Act , the tax which will be collected

is a tax levied with a regulatory purpose, to provide means for therehabilitation and stabilization of the threatened sugar industry. In othe words, the act is primarily an exercise of the police power. The protectionand promotion of the sugar industry is a matter of public concern, it followsthat the Legislature may determine within reasonable bounds what isnecessary for its protection and expedient for its promotion. Here, thelegislative discretion must be allowed fully play, subject only to the test oreasonableness; and it is not contended that the means provided in section 6of the law (above quoted) bear no relation to the objective pursued or areoppressive in character. If objective and methods are alike constitutionallyvalid, no reason is seen why the state may not levy taxes to raise funds fotheir prosecution and attainment. Taxation may be made the implement othe state's police power. So CA 567 is a tax measure in aid and in supporfor the Sugar Industry. So if a tax law is addressed only for the benefit of aparticular industry it does not mean that it will violate public purpose because

tax power may go hand with hand with police power.

****Tio vs VRB- This is prior to the Optical Media Board, the video industry was taxed under PD 1987 or An Act Creating the Videogram RegulatoryBoard" with broad powers to regulate and supervise the videogram industrySo it was asked in that case whether taxing the video industry was a tax or aregulatory measure. The SC said that taxing the video industry is both a taxand a regulatory and revenue measure. Likewise, the imposition is also fopublic purpose. The taxation the video industry is to regulate and rationalizethe uncontrolled distribution of videograms. PD 1987 is not only a regulatorymeasure but also a revenue measure prompted to realize earnings fromvideograms establishment around 600 million per annum which was nosubject to tax which deprived the government of additional sources o




- tax laws should close up loopholes for tax evasion and deter theunscrupulous officials from committing frauds in the assessment and collection of taxes, otherwise, they become an invitation tobreak the law/ much of the revenue the system produces must bespent in the collection process.

“non-observance of the above principles will not necessarily render thetax imposed invalid except to the extent that specific constitutional limitations are violated.”

TAX- The burdens or charges imposed by the State. It is an enforcedproportional burden from person or property levied by the law-making bodyof the Sate by virtue of its sovereignty for the support of the government andfor public needs.

Characteristics of Tax:

1. It is an enforced contribution: not a voluntary payment/donation

2. It is generally payable in money: unless qualified by law (back pay certificates under sec. 2 RA 304)

3. It is proportionate in character: based on ability to pay

4. It is levied upon person, property or property rights.: ONLY APERSON PAYS TAX; property is resorted to for the purpose of ascertaining the amount of tax that must be paid and of enforcing payment in case of default of the taxpayer

5. It is levied by the law-making body: only CONGRESS canexercise through the enactment of tax statutes; obligation is astatutory liability

LGUs, have direct authority pursuant to Constitutionsubject to such guidelines and limitations as may be provided by law.

6. It is levied by the State which has jurisdiction: in order that the tax can be enforced; taxing power stops at the state boundary lines

7. It is levied for public purpose.: the support of the government,administration of the law and payment of public expenses; such isimplied in the levy of tax

Classifications:

a. Subject-matter

1. Poll Tax/ Personal Tax

2. Property Tax

3. Excise Tax

b. Who bears the burden

1. Direct Tax-Whereby the statutory taxpayer pays the tax andshoulders burden of tax like income tax etc.

2. Indirect Tax- Where the statutory tax payer, the person whois liable to pay the tax s allowed to pass or shift the burdenof tax to another like VAT

CLASSIFICATIONS AND DISTINCTIONS: San Beda reviewer

Classification of Taxes

A. As to Subject matter

1. Personal, capitation or poll taxes – taxes of fixed amount upon

all persons of a certain class within the jurisdiction of the taxingpower without regard to the amount of their property or occupationsor businesses in which they may be engaged in.

example: community tax

-taxes of specified amount imposed upon each person

performing a certain act or engaging in certain business or

profession are not poll taxes

2. Property Taxes – taxes on things or property of a certain class within the jurisdiction of the taxing power.; whether real or personal

example: real estate tax

- Obligation to pay the tax is absolute and unavoidableand not based upon voluntary action of the person

assessed.

3. Excise Taxes – charges imposed upon the performance of anact, the enjoyment of a privilege, or the engaging in an occupation.

examples: income tax, value-added tax, estate tax o

donor’s tax

-the obligation to pay this tax is based on the voluntary

action of the person taxed in performing the act/ engaging in the

activity which is subject to the excise.

-synonymous with “privilege tax”

- note: not to be confused w/ excise tax imposed on certain

specified articles manufactured/produced in, or imported into the

Philippines, “for domestic sale/consumption/ for any other

disposition.”

B. As to Burden

1. Direct Taxes – taxes wherein both the “incidence” as well as the“impact” or burden of the tax faces on one person.

- Demanded and exacted from the very person whoalso shoulders the burden of the tax - Taxpayer is directly liable/ which he cannot shift to

another examples: income tax, community tax, donor’s tax, estate

tax, corporate and individual income taxes

2. Indirect Taxes – taxes wherein the incidence of or the liability forthe payment of the tax falls on one person, but the burden thereofcan be shifted or passed to another person.

- Tax imposed upon goods before they reach theconsumer who ultimately pays for it not as a tax but




as part of the purchase price of goods sold/servicesrendered.

- Practically, all business taxes are indirect examples: VAT, percentage taxes, customs duties excise

taxes on certain specific goods, excise taxes on certain specific

goods (differs from EXCISE TAX)

Important Points to Consider regarding Indirect Taxes:

1. When the consumer or end-user of a manufacturer product istax-exempt, such exemption covers only those taxes for which suchconsumer or end-user is directly liable. Indirect taxes are notincluded. Hence, the manufacturer cannot claim exemption from thepayment of sales tax, neither can the consumer or buyer of theproduct demand the refund of the tax that the manufacturer mighthave passed on to him. (Phil. Acetylene Co. inc. vs Commissioner of Internal Revenue et. al., L-19707, Aug.17, 1987)

2. When the transaction itself is the one that is tax-exempt butthrough error the seller pays the tax and shifts the same to the buyer,

the seller gets the refund, but must hold it in trust for buyer.(American Rubber Co. case, L-10963, April 30, 1963)

3. Where the exemption from indirect tax is given to the contractee,but the evident intention is to exempt the contractor so that suchcontractor may no longer shift or pass on any tax to the contractee,the contractor may claim tax exemption on the transaction(Commissioner of Internal Revenue vs John Gotamco and Sons,Inc., et.al., L-31092, Feb. 27, 1987)

4. When the law granting tax exemption specifically includes

indirect taxes or when it is clearly manifest therein that legislativeintention to exempt embraces indirect taxes, then the buyer of theproduct or service sold has a right to be reimbursed the amount ofthe taxes that the sellers passed on to him. (Maceda vsMacaraig,supra)

C. As to Purpose

1. General/Fiscal/Revenue – tax imposed for the general purposesof the government, i.e., to raise revenues for governmental needs.

Examples: income taxes, VAT, and almost all taxes

2. Special/Regulatory – tax imposed for special purposes, i.e., toachieve some social or economic needs., irrespective of whether revenue is actually raised or not

Examples: educational fund tax under Real Property

Taxation, protective tariffs/ customs duties on imported goods to

enable similar products manufactured locally to compete w/ such

imports in the domestic market.

D. As to Measure of Application

1. Specific Tax – tax imposed per head, unit or number, or bysome standard of weight or measurement and which requires noassessment beyond a listing and classification of the subjects to betaxed.

Examples: taxes on distilled spirits, wines, and fermented

liquors

2. Ad Valorem Tax – (according to value) tax based on the value othe article or thing subject to tax.; requires the intervention oassessors/ appraisers to estimate the value of such property beforethe amount due from each taxpayer can be achieved.

example: real property taxes, customs duties

E. As to Date

1. Progressive Tax – the rate or the amount of the tax increases asthe amount of the income or earning (tax base) to be taxedincreases.

examples: income tax, estate tax, donor’s tax

2. Regressive Tax – the tax rate decreases as the amount ofincome or earning (tax base) to be taxed increases.

Note: We have no regressive taxes (this is according to De

Leon)

3. Mixed Tax – tax rates are partly progressive and partlyregressive.

4. Proportionate Tax – tax rates are fixed on a flat tax base.examples: real estate tax, VAT, and other percentage

taxes

F. As to Scope or authority imposing the tax

1. National Tax – tax imposed by the National Government.examples: national internal revenue taxes, customs duties

2. Municipal/Local Tax – tax imposed by Local Government units.examples: real estate tax, professional tax

• Regressive System of Taxation vis-à-vis Regressive Tax

A regressive tax, must not be confused with regressive

system of taxation.

Regressive Tax: tax the rate of which decreases as the

tax base increases.




Regressive System of Taxation: focuses on indirect

taxes, it exists when there are more indirect taxes imposed than

direct taxes.

Taxes distinguished from other Impositions

a. Toll vs Tax

Toll – sum of money for the use of something, generally

applied to the consideration which is paid for the use of a road,

bridge of the like, of a public nature.

Tax vs Toll

1. demand of sovereignty 1. demand of proprietorship

2. paid for the support of thegovernment

2. paid for the use of another’sproperty

3. generally, no limit as toamount imposed

3. amount depends on the costof construction or maintenanceof the public improvement used

4. imposed only by thegovernment

4. imposed by the governmentor private individuals or entities

b. Penalty vs TaxPenalty – any sanctions imposed as a punishment for

violations of law or acts deemed injurious.

Tax vs Penalty

1. generally intended to raiserevenue

1. designed to regulate conduct

2. imposed only by thegovernment

2. imposed by the governmentor private individuals or entities

c. Special Assessment vs Tax

Special Assessment – an enforced proportionalcontribution from owners of lands especially or peculiarly benefited

by public improvements.

Tax vs Special Assessment

1. imposed on persons,property and excise

1. levied only on land

2. personal liability of theperson assessed

2. not a personal liability of theperson assessed, i.e. his liability

is limited only to the landinvolved

3. based on necessity as wellas on benefits received

3. based wholly on benefits

4. general application (seeApostolic Prefect vs Treas. OfBaguio, 71 Phil 547)

4. exceptional both as time andplace

Important Points to Consider Regarding Specia

Assessments:

1. Since special assessments are not taxes within the constitutionaor statutory provisions on tax exemptions, it follows that theexemption under Sec. 28(3), Art. VI of the Constitution does notapply to special assessments.2. However, in view of the exempting proviso in Sec. 234 of theLocal Government Code, properties which are actually, directly andexclusively used for religious, charitable and educational purposesare not exactly exempt from real property taxes but are exempt from

the imposition of special assessments as well.( see Aban)3 .The general rule is that an exemption from taxation does not

include exemption from special assessment.

d. License or Permit Fee vs TaxLicense or Permit fee – is a charge imposed under the

police power for the purposes of regulation.

Tax vs License/Permit Fee

1. enforced contributionassessed by sovereign authorityto defray public expenses

1. legal compensation oreward of an officer for specificpurposes

2. for revenue purposes 2. for regulation purposes

3. an exercise of the taxingpower

3. an exercise of the policepower

4. generally no l imit in theamount of tax to be paid

4. amount is l imited to thenecessary expenses oinspection and regulation

5. imposed also on personsand property

5. imposed on the right toexercise privilege

6. non-payment does not

necessarily make the act orbusiness illegal

6. non-payment makes the ac

or business illegal

Three kinds of licenses are recognized in the law:

1. Licenses for the regulation of useful occupations.2. Licenses for the regulation or restriction of non-usefuoccupations or enterprises3. Licenses for revenue only




Importance of the distinctions between tax and license

fee:

1. Some limitations apply only to one and not to the other, and thatexemption from taxes may not include exemption from license fees.2. The power to regulate as an exercise of police power does notinclude the power to impose fees for revenue purposes. (see

American Mail Line vs City of Butuan, L-12647, May 31, 1967 and related cases)3. An extraction, however, maybe considered both a tax and alicense fee.4. But a tax may have only a regulatory purpose.5. The general rule is that the imposition is a tax if its primarypurpose is to generate revenue and regulation is merely incidental;but if regulation is the primary purpose, the fact that incidentallyrevenue is also obtained does not make the imposition of a tax. (seeProgressive Development Corp. vs Quezon City, 172 SCRA 629)

e. Debt vs Tax

Debt is based upon juridical tie, created by law, contracts,delicts or quasi-delicts between parties for their private interest or

resulting from their own acts or omissions.

Tax vs Debt

1. based on law 1. based on contracts, expressor implied

2. generally, cannot beassigned

2. assignable

3. generally payable in money 3. may be paid in kind

4. generally not subject to set-off or compensation

4. may be subject to set-off orcompensation

5. imprisonment is a sanctionfor non-payment of tax exceptpoll tax

5. no imprisonment for non-payment of debt

6. governed by specialprescriptive periods provided forin the Tax Code

6. governed by the ordinaryperiods of prescriptions

7. does not draw interestexcept only when delinquent

7. draws interest when sostipulated, or in case of default

General Rule: Taxes are not subject to set-off or legal

compensation. The government and the taxpayer are not creditors

and debtors or each other. Obligations in the nature of debts are due

to the government in its corporate capacity, while taxes are due to

the government in its sovereign capacity (Philex Mining Corp. vs

CIR, 294 SCRA 687; Republic vs Mambulao Lumber Co., 6 SCRA

622)

Exception: Where both the claims of the government and the

taxpayer against each other have already become due and

demandable as well as fully liquated. (see Domingo vs Garlitos, L-

18904, June 29, 1963)

Pertinent Case:

Philex Mining Corp. vs Commissioner of Internal Revenue

G.R. No. 125704, Aug. 28, 1998

The Supreme Court held that: “We have consistently ruled

that there can be no offsetting of taxes against the claims that the

taxpayer may have against the government. A person cannot refuse

to pay a tax on the ground 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.”

f. Tax Distinguished from other Terms.

1. Subsidy – a pecuniary aid directly granted by the government toan individual or private commercial enterprise deemed beneficial tothe public.

2. Revenue – refers to all the funds or income derived by thegovernment, whether from tax or from whatever source and whateve

manner.

3. Customs Duties – taxes imposed on goods exported from oimported into a country. The term taxes is broader in scope as iincludes customs duties.

4. Tariff – it may be used in 3 senses:a. As a book of rates drawn usually in alphabetical orde

containing the names of several kinds of merchandise with thecorresponding duties to be paid for the same.

b. As duties payable on goods imported or exported (PD No. 230)

c. As the system or principle of imposing duties on theimportation/exportation of goods.

5. Internal Revenue – refers to taxes imposed by the legislativeother than duties or imports and exports.

6. Margin Fee – a currency measure designed to stabilize thecurrency.




7. Tribute – synonymous with tax; taxation implies tribute from thegoverned to some form of sovereignty.

8. Impost – in its general sense, it signifies any tax, tribute or duty.In its limited sense, it means a duty on imported goods andmerchandise.

Inherent Powers of the State

1. Police Power2. Power of Eminent Domain3. Power of Taxation

Distinctions among the Three Powers

Taxation Police Power Eminent Domain

PURPOSE

- levied for the

purpose of

raising revenue

- exercised to

promote public

welfare thru

regulations

- taking of property for

public use

AMOUNT OF EXACTION

- no limit - limited to the

cost of

regulations,issuance of the

license or

surveillance

- no exaction,

compensation paid by

the government

BENEFITS RECEIVED

- no special or

direct benefits

received but the

enjoyment of

the privileges of

living in anorganized

society

- no direct

benefits but a

healthy economic

standard of

society or

“damnumabsque injuria” is

attained

- direct benefit results

in the form of just

compensation

NON-IMPAIRMENT OF CONTRACTS

- the impairment

rule subsist

- contract may be

impaired

- contracts may be

impaired

TRANSFER OF PROPERTY RIGHTS

- taxes paid - no transfer but - property is taken by

become part of

public funds

only restraint on

the exercise of

property right

exists

the gov’t upon

payment of just

compensation

SCOPE

- affects all

persons,

property and

excise

- affects all

persons,

property,

privileges, and

even rights

- affects only the

particular property

comprehended

BASIS

- public

necessity

- public necessity

and the right of

the state and the

public to self-

protection andself-preservation

-public necessity,

private property is

taken for public use

AUTHORITY WHICH EXERCISES THE POWER

- only by the

government or

its political

subdivisions

- only by the

government or its

political

subdivisions

- may be granted to

public service,

companies, or public

utilities




June 25, 2013

LIMITATIONS OF THE POWER OF TAXATION

Remember that the power of taxation or the power to tax is inherent in the

sovereign. That this power is legislative in character but the power to tax is

subject to limitations. Where the power to tax has a comprehensive scope

and far-reaching still having said the power to tax is subject to limitations. We

can classify these limitations into:

1. Inherent

2. Constitutional

So these limitations posed restrictions in the exercise of that power. So we

go back to that principle that the power to tax involves the power to destroy

To safeguard the exercise of this power it was subject to some limitations.

So what are the INHERENT LIMITATIONS?

1. You have the requirement of PUBLIC PURPOSE. This means

that taxes must be levied for public purpose. So when the powe

of taxation is exercised for public purpose. The requirement o

public purpose is the heart and soul of the power to tax. So if the

power to tax is exercised for public purpose then whatever will be

enacted that would be the inherent limitation.

So what is this concept of public purpose? Anything that is related to

governmental purpose; a purpose affecting the inhabitants of the state o

taxing district as a community and not merely as individuals. Because the

concept of purpose is very broad we could dissect this through decisions

which would determine whether or not such law complies with the

requirement of public purpose.

***Lutz vs. Araneta-This case involves the enactment of CA 567

or the Sugar Adjustment Act. The taxes imposed under CA 567

are funds collected which are used for the rehabilitation and

stabilization of the Sugar Industry. The purpose of the exaction is

for public purpose. Although such law was enacted for the Suga

industry it does not violate the idea of public purpose because i

was enacted for the rehabilitation and stabilization of the Suga

Industry which is also a national concern.

We also have the case of Gaston vs Republic Planters Bank.

***Gaston vs Republic Planters Bank- This time it is about the fee

collected by the Planters Bank from the millers. And the issue

that was brought is whether or not such fee is for public purpose

It is for public purpose since the stabilization fees in question are

levied by the State upon sugar millers, planters and producers fo

a special purpose — that of "financing the growth and

development of the sugar industry and all its components

stabilization of the domestic market including the foreign marke




the fact that the State has taken possession of moneys pursuant

to law is sufficient to constitute them state funds, even though

they are held for a special purpose. The tax collected is not in a

pure exercise of the taxing power. It is levied with a regulatory

purpose, to provide means for the stabilization of the sugar

industry. The levy is primarily in the exercise of the police power

of the State.

***Citizens Alliance vs ERB-The issue of this case is whether or

not the establishment of the Oil Price Stabilization Fund is for

public purpose. And what is the justification for it? The

establishment of the OPSF is within the pervasive power of the

government and its responsibility to secure to secure the

of the community. That comprehensive sovereign

authority may designate . The reduction of the

price of the petroleum, crude oil etc. clearly critical in importance

considering among other things the continuing dependence to

such commodity as a public purpose. Now if it benefited the oil

companies because of the continuing high level of dependence ofthe country to crude oil then it does not mean that the OPSF was

not created for public purpose (Please read the full text of the

case because the recording for this part is not that audible) .

***COCOFED vs. PCGG- Are the COCO levy funds public funds?

In this case, the PCGG wants to sequester the funds of

COCOFED but the COCOFED contends that such funds they

have were private funds. So the issue here is whether or not the

COCO levy funds are public funds. The Nature of the COCO levy

funds are in the nature of public funds. The proper management

of the COCO levy funds are within the government they werecollected through the police and taxing power of the State. It

cannot be denied that it is the welfare of the entire nation which is

one of the main factors of the imposition of the COCO levy fund. It

could not be denied that the Coconut industry is one of the major

industries supporting the national economy. It is not only a

livelihood of a significant segment of the population but also the

export earnings which is one of the imperatives of economic

stability which clearly affects the public industry. The Court ruled

that the COCO levy funds are subject to sequestration

proceedings (Please read the full text of the case for more details

on the ruling because the recording for this part is not that

audible).

***Planters Product Inc. & Fertifil vs. (548

SCRA 485)- Planters Products Inc and Fertifil are private

corporations which import pesticides, fertilizers and the like.

Marcos came out with a Letter of Instruction directing the FPA

(Fertilizers and Pesticides Authority) to impose a 10-peso levy for

every bag of fertilizer being sold. The proceeds of such levy will

go to PPI. Fertifil pays 10 pesos per bag for every sale of

fertilizer. The FPA will give the amount (10 peso levy) to PPI. Now

after the 1986 EDSA, Fertifil now demanded the return of the

amount it paid to PPI under the LOI but PPI refused. So the issue

here is whether or not the 10-peso levy under the LOI was a valid

tax collection? Remember now that you will go back to the basics

that no matter whether the president has the taxing power like in

the case of Marcos it must be remembered that in the imposition

of tax it should always be for public purpose. So the 10-peso levy

was not a valid tax imposition nor was it regulatory (Please read

the full text of the case for more details on the ruling because the

recording for this part is not that audible).

The Supreme Court said that public purpose is the heart of tax law. It is the

consent that can be hammered to fit the modern standards and it does no

only pertain to purposes which are traditionally considered as governmenta

functions such as construction of roads delivery of public services etc. but i

also includes social justice like for the use of the relocation of squatters, you

have low-cost housing and urban housing as well as agrarian reform. Wha

constitutes public purpose is in the light of the expansion of governmenta

functions. The meaning of public purpose continually evolves. The meaningcontinues to expand. So it does not only refer to governmental functions. So

this brings us to the case of Binay vs. Domingo.

***Binay vs. Domingo-Then the Mayor of Makati Jejomar Binay

has this pauper burial assistance kung saan kapag namatayan ay

covered ng burial assistance. This generous effort was put into

question. COA co-objected with such expenditure claiming that i

was an illegal exaction of government funds and this was not fo

public purpose. So the matter went to the Supreme Court

Whether or not the pauper burial assistance program was a valid

program which is for public purpose. According to the SupremeCourt it is a valid program within the scope of public purpose

(Please read the full text for the reason of the ruling of SC

However, there is a caveat for the pauper burial assistance

program of Makati to be within the scope of public purpose-i

should only be applicable to the Municipality of Makati.

“Justice Isagani Cruz, public purpose is embracing not merely

public benefit/advantage but also indirect public benefit.”

- It is the purpose which determines the public character of

the law, not the number of persons benefited, as long as theultimate result favors the welfare of the public in general

- Cases for public purpose:

• Public improvement

• Unemployment relief

• Buildings and roads/infrastructure

• Local police forces (subsidies) under RA 6141




• Industries classified as indispensible under PD

1987

• Construction of home sites

• Promotion of science and invention

• Upliftment of the underprivileged

• Rehabilitation of sugar industry

• Pensions to deserving retirees

• Oil industry’s protection

• Socialized housing

• Educational subsidy

“the rule is that, if the public advantage/benefit is merely

incidental in the promotion of a particular enterprise, such defect

shall render the law invalid. On the other hand, if what is

incidental is the promotion of a private enterprise, the tax law

shall be deemed for a public purpose.”

2. The second limitat ion is the NON-DELEGATION OF THE

LEGISLATIVE POWER OF TAXATION-In other words the power

of taxation is exclusively legislative.

So remember that this limitation is subject to some exceptions:

a. Under the Constitution: Congress may expressly 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 (Sec.

28 (2), Article VI, 1987 Constitution)

***In the case of Garcia vs. Executive Secretary-

Congressman Garcia questioned the Executive Order on

importation levy implemented by its either President Ramos

or Aquino. Garcia claimed that the President has no taxing

power because power of taxation is legislative in character.

So this was brought before the SC. The SC said that the

President has taxing powers under Article VI of the 1987

Constitution.

The Tariff and Customs Code also provides the mechanism

of the exercise of this taxing power. Which is reflected by

the flexible tariff laws. Under this the Congress may

increase tariffs or decrease customs duties.

b. Another exception is in the case of the local taxing power

The Constitution on this point states: “Each loca

government unit shall have the power to create its ownsources 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 loca

autonomy. Such taxes, fees, and charges shall accrue

exclusively to the local government (Sec. 5, Article X, 1987

Constitution)-The LGUs has the power to tax through a

Constitutional grant. There are two ways of granting the

local government units the power of taxation either:

I. Constitutional Grant

II. Legislative Grant.

In our jurisdiction the power of taxation is granted to the LGUs by

Constitutional Grant. This is found in Article X, Section 5 of the

987 Constitution.

So remember that tax laws are legislative in character once it is enacted the

executive shall implement the said tax laws. Moreover, it is also the duty o

the executive to promulgate Implementing Rules and Regulations regarding

such law. So there is a need for tax laws to enacted by the legislative bodyso the initiative should come from the Congress however there is anothe

exception with this general rule that the Congress has the sole power to

initiate tax laws is the People’s Initiative and Referendum or RA 6735. Unde

RA 6753 there are two ways whereby citizens can initiate laws particularly

tax laws without violating the non-delegation of the taxing power. When we

talk about RA 6735 when we proposed people’s initiative and referendum

initially we have to gather signatures, now when it is enacted either revenue

or a non-revenue measure it is not merely taxation puwede other initiatives

So whether you propose, you may amend or repeal a law through people’s

initiative and referendum. So first you gather the needed signatures then

you go to the COMELEC after that if the signatures were able to reach the

required number by the COMELEC then the COMELC will have a plebiscite

So the proposal now is given to the electorate then there will be voting o

whether they are in favour or not and if there’s yes vote that would become

people’s initiative and referendum. However, there is also another mean

provided by the same law however this one is not that popular, the indirect

initiative whereby there is this certain group of people (Petitioners) who wil

file a petition for indirect initiative with the House of Representatives then

such initiative bill will undergo the normal legislative measure but it will not

be the Congressman who will be the sponsor of the said initiative bill but the

petitioners who submitted such petition. So these are the two modes

under RA 6735.




3. TERRITORIALITY OR SITUS OF TAXATION-Which the power to

tax is limited only within the territory or boundary of jurisdiction to

tax. In other words, the State has no extra-territorial jurisdiction

because we go back to the rule that it is the law-making body

which has the discretion in determining the situs of taxation.

However, this limitation admits an exception the personal tax. TheOFWs in 1998, we do not tax anymore the income of the OFWs

because they are already classified as non-residents Filipinos

since they are in abroad and it was stated in the new law that the

State shall not tax the income of non-residents so this is an

example when the state exercises jurisdiction. So even if the

subject or object of tax is outside State, the State can pursue or

exercise personal jurisdiction over that subject even if that subject

is outside the territory the State shall afford to it similar protection

and it should also have similar benefits. So this is how the state

exercises jurisdiction.

RULE: irrespective of owner, donor’s tax/ estate tax can be

imposed upon these properties

EXCEPT: where the foreign country grants exemption or does not

impose taxes on intangible properties of Filipino citizens

4. INTERNATIONAL COMITY- This is in accordance with the

principle that a sovereign cannot tax another sovereign. Now Sec.

12 Art. II of our Constitution declares that the Philippines “adopts

the generally accepted principles on international law as part of

the law of the land and adherence to the policy of peace, equality, justice, freedom, cooperation and amity with all nations”. Since

the power of tax is inherent among States then we could not tax

other sovereign. Moreover, there is also the principle common

usage among states that when one enters the territory of another,

there is an implied understanding that the former does not intend

to degrade its dignity by placing itself under the jurisdiction of the

latter and there is also the principle of the non-suability of states

where it is useless to assess tax. This is a self -imposed limitation

due to public policy and for practical consideration. So yung mga

income ng diplomatic corps at dahil sa US-RP Agreement yung

mga income ng service men sa Subic are not taxable.

“Par in parem non habet imperium; where even the strongest

state cannot assume jurisdiction over another state, no matter how weak/

question the validity of its acts in so far as they are made to take effect

w/n its own territory. All states, including smallest and least influential, are

also entited to their dignity and the protection of their honor and

reputation.”

5. EXEMPTION OF THE GOVERNMENT AGENCIES OR

INSTRUMENTALITIES- In other words, the State does tax itself

This is a self-imposed limitation by reason of public policy and

some practical considerations. While there is no law or prohibition

that the State may not tax itself, it is absurd and impractical for the

State to tax itself so there is this self-imposed limitation. This

immunity from taxation only applies for the governmenta

functions whereby an agency exercises governmental o

sovereign functions. But when an agency exercises proprietary

functions like the GOCCs operates public utilities and the charte

of such GOCC provides for a tax exemption then it has an

immunity from taxation but if the charter of any GOCCs which has

proprietary function does not provide for tax exemption then such

agency or instrumentality does not have any immunity from

paying taxes.

GOCCs perform proprietary functions, are subject to taxation

however, certain corporations have been granted exemption

under Section 27(c) of RA 8424 as amended by RA 9337 whichtook effect on July 1, 2005:

• GSIS

• SSS

• PHIC

• PCSO

- Instrumentality of the national government is exempt fromlocal taxation (MIAA vs. CA: real properties are owned by

RP, thus exempt from real estate taxes.)

- Exemption from taxation is not favoured and exemptions in

tax statues are never presumed.

- Exemption from taxation are construed strictly against the

taxpayer and liberally in favour of taxing authority.

ONLY JULY 2, 2013, MISSING JULY 3 & JUNE 26

Constitutional Limitations

(Refer to ABAN for cases p.66)

1. Due Process of Law

a. Basis: Sec. 1 Art. 3 “No person shall be deprived of life,liberty or property without due process of law x x x.”




Requisites :

1. The interest of the public generally asdistinguished from those of a particular class require the interventionof the state;

2. The means employed must be reasonablynecessary to the accomplishment for the purpose and not undulyoppressive;

3. The deprivation was done under the authority ofa valid law or of the constitution; and

4. The deprivation was done after compliance withfair and reasonable method of procedure prescribed by law.

In a string of cases, the Supreme Court held that in

order that due process of law must not be done in an arbitrary,

despotic, capricious, or whimsical manner.

“when the constitutionality of a legislative taxing act is

questioned on the ground that there is denial of due process, an

actual case or controversy must first exist before the courts can be

called upon to rule on the said issue.”

“when a tax turns out to be confiscatory in nature,

such imposition could very well be considered as being violative of

the due process principle.”

“classification for taxation must not be prompted by a

reason of hostility/ discrimination that finds no support in reason.”

2. Equal Protection of the Law

a. Basis: Sec.1 Art. 3 “ xxx Nor shall any person be denied the equal protection of the laws.Important Points to Consider:

1. Equal protection of the laws signifies that all

persons subject to legislation shall be treated under circumstances

and conditions both in the privileges conferred and liabilities imposed

2. This doctrine prohibits class legislation which

discriminates against some and favors others.

b. Requisites for a Valid Classification1. Must not be arbitrary

2. Must not be based upon substantial distinctions

3. Must be germane to the purpose of law.

4. Must not be limited to exiting conditions only; and

5. Must play equally to all members of a class.

“classification must be based upon real and substantia

differences between the person, property or privileges and those not

taxed must be bear some reasonable relation to the object/ purpose

of legislation/ to some permissible governmental policy/ legitimate

end of governmental action.”

- Congress can make distinctions and classifications.

- “preferential tax rates are no longer applicable on

income of non-resident citizens abroad. Under the TAX REFORM

ACT of 1997, non-resident citizens are taxable only on income

derived from sources w/n the Philippines. Hence, beginning Jan. 1,

1998, income of non-resident citizens from foreign sources are not

subject to Philippine tax.”

3. Uniformity, Equitability and Progressivity of Taxation

a. Basis: Sec. 28(1) Art. VI. The rule of taxation shall beuniform and equitable. The Congress shall evolve aprogressive system of taxation.b. Important Points to Consider:

1. Uniformity (equality or equal protection of the laws)

means all taxable articles or kinds or property of the same class shal

be taxed at the same rate. A tax is uniform when the same force and

effect in every place where the subject of it is found.

“different articles may be taxed at different amounts provided

that the rate is uniform on the same class everywhere with all people

at all times.”

2. Equitable means fair, just, reasonable and

proportionate to one’s ability to pay.

3. Progressive system of Taxation places stress on

direct rather than indirect taxes, or on the taxpayers’ ability to pay

4. Inequality which results in singling out one particula

class for taxation or exemption infringes no constitutional limitation

(see Commissioner vs. Lingayen Gulf Electric, 164 SCRA 27)

5. The rule of uniformity does not call for perfec

uniformity or perfect equality, because this is hardly attainable.

4. Freedom of Speech and of the Press




a. Basis: Sec. 4 Art. III. No law shall be passed abridging thefreedom of speech, of expression or of the pressx x x “b. Important Points to Consider:

1. There is curtailment of press freedom and

freedom of thought if a tax is levied in order to suppress the basic

right of the people under the Constitution.

2. A business license may not be required for the

sale or contribution of printed materials like newspaper for such

would be imposing a prior restraint on press freedom

3. However, an annual registration fee on all

persons subject to the value-added tax does not constitute a restraint

on press freedom since it is not imposed for the exercise of a

privilege but only for the purpose of defraying part of cost of

registration.

5. Non-infringement of Religious Freedom

a. Basis: Sec. 5 Art. III. “No law shall be made respecting anestablishment of religion or prohibiting the free exercisethereof. The free exercise and enjoyment of religiousprofession and worship, without discrimination or preference,shall be forever be allowed. x x x”

You have also Section 5 (2b) Article 8. This is the power of

the Supreme Court in connection with tax cases including other

cases. This defines the extent of the power given by the

Constitution the Supreme Court under Article 8 Section 5 (2b).Now in this provision the Supreme Court shall have the power

to review, revise, reverse, modify, or affirm on appeal or

certiorari, as the law or the Rules of Court may provide, final

judgements and orders of lower courts in all cases involving

the legality of any tax, imposts, assessment, or toll, or penalty

imposed in relation thereto. In other words, in connection with

tax cases it is still the Supreme Court which is the final arbiter.

All tax cases whether it emanates administratively through the

executive branches or through the executive part of the

government then it is brought from exhaustion of administrative

remedies to the judicial action still the final say will be given to

the Supreme Court. Because they have that power to review,

revise, reverse, modify, or affirm on appeal or certiorari as thelaw or the Rules of Court may provide, final judgements and

orders of lower courts all final judgement in all cases so this

include tax cases legality of any tax, imposts, assessment, or

toll, or penalty imposed in relation thereto. So all these matters

should be brought before the Supreme Court for its final

adjudication unless the party did not bring it, it will attain its

finality as law but nevertheless anyone who bring it up ad

pursue his cause for further remedies the Supreme Court will

have the final say. In other words, for the purposes of

assessment and collection of the payment of the tax Congress

therefore cannot legislate that whatever the decision of the BIR

in so far as in assessing how much tax will be paid by the

taxpayer it will not legislate that the decision of the BIR will be

final and executory and no longer could not be appealed o

even review for certiorari because that will be an

encroachment of Section 5 (2b) Article 8 of the Constitution. In

other words, the Supreme Court could not be deprived of that

power otherwise if you allowed that the executive that their

decision involving tax would be final and could not be longe

appealed, review before the Supreme Court that is null and

void because that is unconstitutional. A violation of tha

provision.

Now other Constitutional limitation is Article 3 Section

5.xxxxxxxxxxxxxxx. The free exercise and enjoyment o

religious profession and worship, without discrimination or

preference, shall forever be allowed . xxxxxxxxxxxxxxxxx . In

other words as ruled in American Bible Society vs. City o

Manila (101 PHIL 386) the power of taxation yields to the free

exercise of the religious profession and worship. So freedom o

religion is superior to the power of taxation. Now in the

American Bible Society case the sale of Bibles and othe

religious literature by religious organizations although have a

little profit could not be consider taxable transaction for it wil

be violative of the Constitutional provision which guarantees to

freedom of religious profession and worship. Now when you

relate the American Bible Society case to Tolentino vs

Secretary of Finance (235 SCRA 613) and the ruling for the

MR is 249 SCRA 628. One of the petitioners in the case of

Tolentino because there are 9 consolidated cases yung title

lang is Tolentino vs. Secretary of Finance. These were also

decided and related. So one of the petitioners there was the

Philippine Bible Society and under RA 7716 in the expansion

of the Value Added Tax one of the transactions which wherein

it covered the taxation on the imposition of the VAT on the sale

of publications, published works and articles, magazines and

newspapers and etc. together with the Philippine Bible Society

we also have the Philippine Press Club which questioned the

taxation or the imposition of the VAT on the sale o

newspapers which will encroach upon the freedom of speech

Now the case of Philippine Bible Society the tax imposition on

the sales of the Bibles will now violate the Constitutiona

provision on the freedom of religion against taxation. The ruling

rendered in that case of Tolentino, it abandoned the decision o

the American Bible Society case. Because this time the VAT

now is imposed upon the sale of publications, articlesmagazines including the Bibles. See this now is a violation of

the freedom of religion thus, you may now abandon the

American Bible Society case. The Court said no while it is

directly not saying that we abandon the American Bible Society

case is still a valid ruling. In other words, there was no

abandonment of the ruling of American Bible Society case bu

can we still tax without abandoning the American Bible Society

case, can the government still tax the sale of the Bibles by

PBS without violating the freedom of religion? Now how did

the Court rule on this? Now the withdrawal of the exemption

did not violate freedom of religion so when the VAT now under




RA 7716 included the VAT on the sale of books, articles,

including the Bibles such withdrawal of exemption did not

violate the freedom of religion. As in the case of the Philippine

Bible Society on religious articles as the free exercise of the

free religion clause does not prohibit imposing generally

applicable sale of tax in the sale of religious materials by

religious organization as held by the US Supreme Court in the

case of Jimmy Swaggart Ministries vs. Court of

Equalization because in 1990 the US Supreme Court ruled

that the religious organizations in the US would be subject to

tax as held by the US Supreme Court in the case of Jimmy

Swaggart Ministries vs. Court of Equalization. So you could tax

them without violating freedom of religion because imposing a

generally applicable sale or use of tax of the sale of religious

articles by religious organization is not violating the free

exercise of religious laws so it will not result to a prohibition

following that US ruling. Now the VAT registration fee did not

constitute censorship of such freedom of press and freedom of

religion as held in the American Bible Society case. The fee is

mere administrative fee and not imposed on the exercise of

privilege much less as a Constitutional right but for the purpose

of mere cause of registration which is a requirement and

central picture of the VAT system so as to provide tax records,

tax credits because when you are under the VAT system the

VAT taxpayers are required to register and they are made to

pay a registration fee so it was the contention by the Philippine

Bible Society that the VAT registration fee aside from the tax

would also result for the violation of the freedom of religion but

imposing upon them the VAT registration fee which would

render a violation of the free exercise of religion guaranteed by

the Constitution again the Supreme Court ruled otherwise that

the registration fee does not constitute censorship to such

freedom. The fee is a mere administrative fee and not imposedon the exercise of freedom much less a Constitutional right but

for the purpose of praying cause of registration and a

requirement of the VAT system. Now, however, after this ruling

the Congress reviewed insofar as the VAT on books,

newspapers and other publications noh reviewed and removed

from the VAT system the taxation on the sale of books instead

they came out with another legislation on the treatment on the

treatment of so far books and other publications, newspapers,

printing and publication of books etc. so they were taken out

from the VAT system.

b. Important Points to Consider:1. License fees/taxes would constitute a restraint on the

freedom of worship as they are actually in the nature of a condition or

permit of the exercise of the right.

2. However, the Constitution or the Free Exercise of

Religion clause does not prohibit imposing a generally applicable

sales and use tax on the sale of religious materials by a religious

organization. (see Tolentino vs Secretary of Finance, 235 SCRA

630)

6. Non-impairment of Contracts

a. Basis: Sec. 10 Art. III. “No law impairing the obligation ocontract shall be passed.”

b. Important Points to Consider:1. A law which changes the terms of the contract by

making new conditions, or changing those in the contract, o

dispenses with those expressed, impairs the obligation.

2. The non-impairment rule, however, does not apply to

public utility franchise since a franchise is subject to amendment

alteration or repeal by the Congress when the public interest so

requires.

-“to impair is to alter/ change the terms or effect of the contractand thus in contemplation of law, to weaken the position or

rights of one or all of the parties to it.” - it is not important that the impairment is slight, if it exists atall, if there is any impairment, the provision of the Constitutionis violated and the courts will interfere.- not applicable to public utility franchises, since a franchise issubject to amendment, alteration/ repeal by the Congresswhen public interest so requires.

We are still on the limitations on the power to tax. We have

taken so far the constitutional limitations on due process, the

limitation on equal protection for requiring taxation, togethe

with this limitation on the rule of uniformity and equity o

taxation and that directive that upon Congress to evolve a

progressive system of taxation. We also covered the non

impairment clause-this limitation is superior to the power o

taxation meaning the non-impairment clause yields or the

taxation laws yield to the non-impairment clause but no

applicable in the case of franchise because franchise is subjec

to amendment, alteration by Congress on other words we

could not invoke the non-impairment clause when it involves

franchises. Then you have also the limitation on the non

payment of poll tax that no person will be imprisoned for the

non-payment of poll tax.

7. Non-imprisonment for non-payment of poll tax

a. Basis: Sec. 20 Art. III. “No person shall be imprisoned fodebt or non-payment of poll tax.”

“the prohibition is dictated by a sense of humanity and sympathyfor the plight of the poorer elements of the population whocannot even afford to pay their cedula/poll tax. ”




b. Important Points to Consider:1. The only penalty for delinquency in payment is

the payment of surcharge in the form of interest at the rate of 24%

per annum which shall be added to the unpaid amount from due date

until it is paid. (Sec. 161, LGC)

2. The prohibition is against “imprisonment” for“non-payment of poll tax”. Thus, a person is subject to imprisonment

for violation of the community tax law other than for non-payment of

the tax and for non-payment of other taxes as prescribed by law.

8. Origin or Revenue, Appropriation and Tariff Bills

a. Basis: Sec. 24 Art. VI. “All appropriation, revenue or tariffbills, bill authorizing increase of the public debt, bills of localapplication, and private bills shall originate exclusively in the

House of Representatives, but the Senate may propose orconcur with amendments.”b. Under the above provision, the Senator’s power is not only

to “only concur with amendments” but also “to proposeamendments”. (Tolentino vs Sec. of Finance, supra)

9. Delegation of Legislative Authority to Fix Tariff Rates,Imports and Export Quotas

a. Basis: Sec. 28(2) Art. VI “x x x The Congress may, by law,authorize the President to fix within specified limits, and subjectto such limitations and restrictions as it may impose, tariff rates,import and export quotas, tonnage and wharfage dues, andother duties or imposts within the framework of the nationaldevelopment program of the government.

-“the president may increase tariff rates as authorized by law even for revenue purposes only.”

10. Tax Exemption of Properties Actually, Directly andExclusively used for Religious, Charitable and EducationalPurposes

a. Basis: Sec. 28(3) Art. VI. “Charitable institutions, churchesand parsonages or convents appurtenant thereto, mosques,non-profit cemeteries, and all lands, building, andimprovements actually, directly and exclusively used forreligious, charitable or educational purposes shall be exemptfrom taxation.”

Now to cover other Constitutional limitations you have Article

6 Section 28 (3) of the Constitution provides that 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. ***So this time we have a direc

provision in the Constitution in connection in taxation however

this time the provision, it grants tax-exemptions. Now, when

you dissect the provision you have here an enumeration of

properties and you could notice that these properties, in its

generic sense are real properties because it involves lands

buildings and improvements. Now the concept of rea

properties as provided in the Constitution is the same as to

your property. In the study of property you have the

enumeration of what are immovables, what are the kinds o

real properties. So what is the grant of exemption here is the

tax on the property but what is the nature of the exemption?

The property that would be exempted from tax, when will it be

used? Actually, directly and exclusively one for religious

second for charitable purpose and for educational purpose. In

other words, the grant of tax exemption refers to property tax

exemption. The property tax on these immovables but the

exemption may come in when they will be used for these

purposes either for religious, charitable or educational so tha

is the nature of the tax exemption. Now remember while the

power to tax is inherent that power involves also the power to

grant tax exemptions. Now in the Constitution there is a grant

of tax exemption. So what is the nature of tax exemption grant

in the Constitution? This does not need what we call an

enabling law; there is no need for legislation. Tax exemptions

in the Constitution are self-executory. You don’t have to go to

Congress for them to have an enabling act of legislation to

grant the exemption because the Constitution already grants

the exemption but take note of the restrictions of the limit of the

exemptions. In other words, in connection with this exemption

it is not the ownership that determines the exemption so even ithe building is owned by the Archdiocese but it is being rented

to others for a lease or for a rental or for a fee then that

property despite ownership is by the religious is not covered by

the tax exemption because the use is not for religious it is

being rented for commercial use so it will be not given an

exemption. In the same way that a non-stock, non-profi

educational institution owning a piece of building but some

portions of the building are being rented for fees and lessees

pay rentals for the use so even though owned by a non-stock

non-profit institution educational institution which is engaged

for educational purposes still that property would not be

covered by the exemption because of the use it was no

actually, directly and exclusively use for educational purpose, iis not then covered by the exemption.

Now take note also, the grant of exemption while they are or

covers actually, directly and exclusively use for religious

charitable or educational purposes the exemption extends to

those incidental to the purpose.

***You have that case of Abra Valley College vs. Aquino

(162 SCRA 106) where it has been asked in the bar. Where

the ground floor is being rented, the second floor is being used

as residence of the School Director, the third and the uppe




floors were used as classrooms so the question is the property

exempted from real property tax? In so far as to the third and

the upper floors they are covered by the tax exemption

because the use is for educational. In so far as the second

floor being used as the residence of the school director the

Court said that it is still covered by the exemption because it

includes those which are incidental to the purpose while being

used as residence the or that residential use is inclusive or

incidental to the educational purpose of the institution so it is

still covered by the exemption. You also have the ground floor;

the ground floor will not be exempted because it is not

educational nor even incidental for the educational purpose. So

it will be taxable. The same with the cases of Herrera vs.

Quezon City Board of Assessment (3 SCRA 186)

And the case of Hospital de San de Dios vs. Pasay City

(16 SCRA 226) wherein you have the charitable hospital or

institution which provides for living quarters, recreational

facilities for their doctors, nurses including the medical staff so

for their, for their goodwill of the hospital of the medical staff of

the hospital they provide playing facilities like swimming pool,

living quarters so it was whether these facilities were covered

by the exemption. The Supreme Court said yes they are

because they are incidental to the purpose.

Now in the recent case of Lung Center where the Quezon City

assessed the Lung Center for real property tax and within the

Lung Center, you have the facilities of the hospital and portions

of the buildings were being rented to the doctors of the hospital

so they have their clinics there and they pay rent to the

institution so Quezon City assessed the Lung Center for real

property tax so the Lung Center claimed for the exemption

under Section 28 (3) in the template the clinics, the portions

being occupied are being used by the doctors as their clinics

are still covered by this section. The Supreme Court said no

because the use of the clinics are for the charitable purpose of

the hospital and they are clinics being rented by the doctors so

they are subject to real property tax. They are not covered by

the exemption.

We also have the case of YMCA. Wherein the YMCA a

charitable institution allows the non-member of YMCA to use

the parking lot for a fee and it also grant lease to those

interested lessees to rent out some portions of the YMCA

building so the fees and the rentals were collected and they

claim the exemption so when this matter reached the Supreme

Court, the Supreme Court said that they are not covered by the

exemption and they are not use for the purpose so they are

subject to tax.

Now take note that the exemption again while the scope of

property tax exemption covers those actually, directly and

exclusively use for religious, charitable or educational

purposes the extension of the exemption includes those that

are incidental to the purpose.

b. Important Points to Consider:1. Lest of the tax exemption: the use and no

ownership of the property

2. To be tax-exempt, the property must be actually

directly and exclusively used for the purposes mentioned.

3. The word “exclusively” means “primarily’.

4. The exemption is not limited to property actually

indispensable but extends to facilities which are incidental to and

reasonably necessary for the accomplishment of said purposes.

5. The constitutional exemption applies only to

property tax.

6. However, it would seem that under existing law

gifts made in favor or religious charitable and educationa

organizations would nevertheless qualify for donor’s gift tax

exemption. (Sec. 101(9)(3), NIRC)

- applicable only to PROPERTY and REALTY TAXES

- tax exemption privilege is also granted to donations made by a non-

resident who is not a citizen of the Philippines (Sec. 94 (b)(2), now

sec. 10 [B] [2], 1997 NIRC)

-the purpose of tax exemption “use” overrides “ownership” such that

if property, although actually owned by a religious, charitable or

educational institution, is actually used for a non-exempt purpose,

the exemption from tax of said property vanishes.

11. Voting Requirements in connection with the LegislativeGrant for tax exemption

a. Basis: Sec. 28(4) Art. VI. “No law granting any taxexemption shall be passed without the concurrence of amajority of all the members of the Congress.”b. The above provision requires the concurrence of a majoritynot of attendees constituting a quorum but of all members othe Congress.

Now another grant of exemption but a constitutiona

limitation, you have Article 6 28 (4) which provides that no law

granting any tax exemption shall be passed without the

concurrence of a majority of all the Members of the Congress.

***This pertains now to the enactment of a tax exemption

statute, this the ratification requires upon Congress. Now the

set-up in our case is that you have two houses, the Senate and

the House of the Representatives so what is the Constitutiona

requirement for ratification? In the event that a tax exemption is

passed the voting requirement is the concurrence of the




majority of all Members of Congress. To determine the

majority, you don’t have to add all the members of the Senate

and the House and determine the concurrence of the majority

vote of all. In other words, we are not talking about the majority

of the quorum but the majority of all the members of Congress.

Now if you did not construe the concurrence of the majority of

the members by adding the members of the Senate and the

House of Representatives but the two houses voting

separately. So there must be a concurrence of all the majority

members of the House of the Representatives as well as the

concurrence of all the majority members of the Senate. To

have this tax exemption statute to be allowed or to be passed

otherwise, it will not become a law. It will not be apply because

of that requirement. So that is the voting for tax exemption.

Now if it is just a regular revenue measure you do not require

anymore of the concurrence of the majority members of the

Congress but the majority of the members constituting its

quorum because when the 2 houses meet there is a quorum

then if there is a quorum then it will do business. And it will

pass that piece of bill or legislation for approval it will require

the majority of the vote unlike a tax exemption.

Now other Constitutional limitation is Section 19 Article 7 the

power of the President. Except in cases of impeachment, or as

otherwise provided in this Constitution, the President may

grant reprieves, commutations, and pardons, and remit fines

and forfeitures, after the conviction of final judgment. He shall

also have the power to grant amnesty with the concurrence of

the majority of all the Members of the Congress. ***So a grant

of amnesty may be done through executive action or if the

executive asks permission under Section 19 Article 7 of the

Constitution.

12. Non-impairment of the Supreme Courts’ jurisdiction inTax Cases

a. Basis: Sec. 5 (2) Art. VIII. “The Congress shall have thepower to define, prescribe, and apportion the jurisdiction of thevarious courts but may not deprive the Supreme Court of its

jurisdiction over cases enumerated in Sec. 5 hereof.”Sec. 5 (2b) Art. VIII. “The Supreme Court shall have

the following powers: x x x(2) Review, revise, modify or affirm

on appeal or certiorari x x x final judgments and orders of lower

courts in x x x all cases involving the legality of any tax, impost,

assessment, or toll or any penalty imposed in relation thereto.”

13. Tax Exemptions of Revenues and Assets, includinggrants, endowments, donations or contributions to EducationalInstitutions

a. Basis: Sec. 4(4) Art. XIV. “Subject to the conditionsprescribed by law, all grants, endowments, donations ocontributions used actually, directly and exclusively foeducational purposes shall be exempt from tax.”b. Important Points to Consider:

1. The exemption granted to non-stock, non-profit educationa

institution covers income, property, and donor’s taxes, and custom

duties.

2. To be exempt from tax or duty, the revenue, assets, property

or donation must be used actually, directly and exclusively fo

educational purpose.

3. In the case or religious and charitable entities and non-profi

cemeteries, the exemption is limited to property tax.

4. The said constitutional provision granting tax exemption to

non-stock, non-profit educational institution is self-executing.

5. Tax exemptions, however, of proprietary (for profiteducational institutions require prior legislative implementation. Their

tax exemption is not self-executing.

6. Lands, Buildings, and improvements actually, directly, and

exclusively used for educational purposed are exempt from property

tax, whether the educational institution is proprietary or non-profit.

c. Department of Finance Order No. 137-87, dated Dec. 161987

The following are some of the highlights of the DOF orde

governing the tax exemption of non-stock, non-profit educationa

institutions:

1. The tax exemption is not only limited to revenues and

assets derived from strictly school operations like income from tuition

and other miscellaneous feed such as matriculation, library, ROTC

etc. fees, but it also extends to incidental income derived from

canteen, bookstore and dormitory facilities.

2. In the case, however, of incidental income, the facilities

mentioned must not only be owned and operated by the school itselbut such facilities must be located inside the school campus

Canteens operated by mere concessionaires are taxable.

3. Income which is unrelated to school operations like income

from bank deposits, trust fund and similar arrangements, royalties

dividends and rental income are taxable.

4. The use of the school’s income or assets must be in

consonance with the purposes for which the school is created; in

short, use must be school-related, like the grant of scholarships




faculty development, and establishment of professional chairs,

school building expansion, library and school facilities.

Other Constitutional Provisions related to Taxation

1. Subject and Title of Bills (Sec. 26(1) 1987 Constitution)

“Every Bill passed by Congress shall embrace only

one subject which shall be expressed in the title thereof.”

→ in the Tolentino E-VAT case, supra, the E-vat, or the

Expanded Value Added Tax Law (RA 7716) was also questionedon the ground that the constitutional requirement on the title of abill was not followed.

2. Power of the President to Veto items in an Appropriation,Revenue or Tariff Bill (Sec. 27(2), Art. VI of the 1987Constitution)

“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.”

3. Necessity of an Appropriation made before money maybe paid out of the Treasury (Sec. 29(1), Art. VI of the 1987Constitution)

“No money shall be paid out of the Treasury except in

pursuance of an appropriation made by law.”

4. Appropriation of Public Money for the benefit of anyChurch, Sect, or System of Religion (Sec. 29(2), Art. VI of the1987 Constitution)

”No public money or property shall be appropriated,

applied, paid or employed, directly or indirectly for the use, benefit,

support of any sect, 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.”

Another Constitutional limitation is Section 29 (2) Article 6 o

the Constitution which provides for the prohibition o

appropriation for religious purposes. So cause for the

separation between the Church and the State, the State

therefore could not appropriate money or set aside money fo

religious purposes because that would be unconstitutional so

there is a prohibition against appropriation for religious

purposes however not in cases to those employed in the

Armed Forces, to the leprosariums, and other governmen

facilities and institution. What about the payment of the wages

does this now infringe upon the Constitutional provision? The

Supreme Court said no. Because the payment of wages to the

religious kasi nga may mga pari sa Armed Forces, may mga

pari sa mga penal colonies, sa mga leprosariums and other

government facilities and institutions so may suweldo sila so

money is appropriated para bayaran sila and that is not withinthe context of the prohibition under Section 29 (2) because

they are in payment for services rendered without violating the

prohibition. And of course, you have to pay their wages, thei

food, their shelter, their clothing so they are payment fo

services rendered.

5. Taxes levied for Special Purpose (Sec. 29(3), Art. VI othe 1987 Constitution)

“All money collected or any tax levied for a specia

purpose shall be treated as a special fund and paid out for such

purpose only. It 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.”

→ An example is the Oil Price Stabilization Fund created unde

P.D. 1956 to stabilize the prices of imported crude oil. In a decidecase, it was held that where under an executive order of the

President, this special fund is transferred from the general fund toa “trust liability account,” the constitutional mandate is noviolated. The OPSF, according to the court, remains as a speciafund subject to COA audit (Osmeňa vs Orbos, et al., G.R. No.99886, Mar. 31, 1993)

6. Allotment to Local Governments

→ Basis: Sec. 6, Art. X of the 1987 Constitution




“Local Government units shall have a just share, as

determined by law, in the national taxes which shall be

automatically released to them.”

So you have also Section 4 (3) and (4) Article 14 of the

Constitution. The prohibition against taxation of non-stock,

non-profit educational institutions. Now that is under Article 14

the exemption of non-stock, non-profit institutions now under

Section 4 (3) of Article 14, all revenues and assets of all non-

stock, non-profit institutions use actually, directly, and

exclusively for educational purposes shall be exempt from

taxes and duties. Upon the dissolution or cessation o]f the

corporate existence of such institutions, their assets shall be

disposed of n the manner provided by law. The first paragraph

deals with the non-stock, non-profit educational institution and

it grants exemption from tax on their revenues and assets and

duties which are use actually, directly, and exclusively for

education purposes. This is a grant of tax exemption for non-

stock, non-profit educational institutions. Question: Is the grant

of tax exemption under this article or does this grant more

exemption than the grant of exemption under Article 6 Section

28 (3) on property tax on educational institutions? Now, if

educational institutions are removed from Section 28 (3) Article

6 do they still enjoy property tax exemption under Section 4(3)

of Article 14? Now, in so far as the scope of exemption Section

4 (3) of Article 14 grants more exemptions in so far as non-

stock, non-profit educational institutions. Unlike in Section 28

(3) of Article 6 yung exemption diyan is property tax lang pero

yung grant ng non-stock, non-profit educational institutions

grants more kaysa yung nasa Article 6 Section 28 (3). Now,

yung exemptions cover all revenues so what are these assets?

Mga properyt ng mga non-stock, non-profit institutions if they

are use for educational purposes exempted in other words,

even if they were excluded insofar as educational institutions in

Section 28 (3) Article 6 maski wala sila doon meron din naman

sila dito sa Section 4 (3) they are entitled for property tax

exemptions and more pa. It includes income tax and others for

long as the revenues and assets are used for educational

purposes. So does this include indirect tax? So when a non-

stock, non-profit educational institution would purchase

materials for the construction of building while they may be

removed from the VAT? The answer is no they are still coveredby the VAT because that is an indirect tax, it would be charged

and pass on to them. But not in the case of direct tax, insofar

as direct taxes that is their exemption. For direct taxes they are

covered by the exemptions but not for the indirect. Now, what

about importation, when they are made to pay customs duties

still it includes the generic for taxes so their exemption covers

as well as tariffs and customs duties so when they import for

as long as they are for educational purposes that is covered by

the exemptions. Now the grant of exemption here, granted by

the Constitution is automatic even if you don’t have any action

of legislation to grant exemption but to avail of the exemption

you could not just go and invoke, “I am invoking Article 14

Section 4 (3) and I should be exempted.” No! But to apply for a

tax ruling you write to the Secretary of Finance, let us say the

school for their buildings instead of buying steels locally we

would like to import steels from abroad so their imports came

from abroad they will write now to the Department of Finance

and ask for a tax ruling that they are importing as this much

and they will ask for exemptions, the DOF will reply of course

the school will invoke Section 4 (3) Article 14 because this

section refers to all revenues and assets for the exemption o

taxes and duties so whenever you import like for example

bakal hindi naman yan for educational purpose yes, but we are

putting up a building which is for educational purposes and tha

is covered by the exemptions the DOF would grant the tax

ruling given the tax exemption so what they import now and if

there is tax ruling then hindi na kayo i-aasess for tax duties

The same way also what about for income tax noh so you have

now a building the ground floor and the second floor are used

lease, pinaparentahan, pinapaupahan, incomes are earned, is

their income taxable? So now, what is the grant of exemption?

The grant of exemption refers to all revenues and assets which

to be used for educational purposes. So yung kita nila from

commercial spaces and they are brought in back to the

institution and used for scholarships, used to purchase buses

used to construct classrooms then it will be covered by the

educational purpose then it will be exempted but if the income

will not be used for educational purposes then it will be

covered, it will be now taxable. Now in the YMCA case the

Supreme Court laid down the 2 requisites for the grant of

exemption under Article 14 Section 4 (3):

1. It is a non-stock, non-profit educationa

institution.

2. The income, the revenues and assets were used

for educational purposes.

So having been utilized for education purposes then it is

covered by the exemption. Now tuition fees collected or even

rentals generated for its commercial activities co-mingled and

deposited in the bank and earned interests, that interes

income will also be covered by the tax exemption because the

scope is very comprehensive, all the revenues and assets it

includes therefor its interests income from bank deposits, when

it uses their incomes to provide for its needs, buy shares of

stocks and they have their money market and income is

earned and the income is still use for educational purpose then

it is tax exempted because the key there is ano ang utilization

ng lahat ng kita, if the utilization or the use is for educationa

purposes then it is covered according to this section otherwise

if it is for other use then it will be taxable. At the end of the

school year insofar as non-stock, non-profit educationa

institutions they are, as part of their reportorial requirements

when they file income tax returns of course they are exempted

but they still have to file information return because when you

are exempted from tax it does not follow that you are exempted

from filing an information return. When we go to the




exemptions you will learn that exemptions are construed

strictly so if exempted ka sa tax, yun lang ang exemption mo, it

does not cover filing for the requirements. So you have still to

file a return unless the law gives you that exemption from filing

tax returns so they file tax returns but they don’t pay the tax

because the utilization of all the income that they have derived

from educational and non-educational income and if they are

used for educational purposes then it will be covered by tax

exemption. So that is the scope of tax exemption. Now big

schools are assessed by BIR for income tax, for VAT, for etc.

kasali yata ang Ateneo, there were cases but all of these cases

were dismissed because the schools were able to show the

utilization even if you have earned income from your non-

educational activity, you have commercial spaces being rented

by others for as long as the income is utilized for educational

purposes then it satisfies the Constitutional grant of tax

exemption.

Taxation for EXAM

Documents

Transcript of Taxation for EXAM