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EXECUTIVE COMMITTEE: MIKHAIL MAVERICK TUMACDER overall chairperson, ARTHUR JOHN ARONGAT chairperson for academics, JASSEN RALPH LEE chairperson for hotel operations, KIMBERLY JOY BARAOIDAN vice-chairperson for operations, KATRINA AYN AYZA FALLORINA CUE vice-chairperson for secretariat, IAN MICHEL GEONANGA vice-chairperson for finance, JOSE ANGELO DAVID vice-chairperson for electronic data processing, IAN LUIS AGUILA vice-chairperson for logistics SUBJECT COMMITTEE: RAHABANSA DAGALANGIT subject chair, ARIANNE MALABANAN assistant subject chair, ARMIDA GERONIMO edp, DIANA FAJARDO general principles, AVRIL ELAINE GAMBOA income taxation, MADONNA LYN CASARES tax administration and enforcement, BRYANT CANASA value-added tax, SHERWIN MARASIGAN transfer taxes, APRIL MANUEL and GABRIEL GUY OLANDESCA nirc remedies, ARNALDO MALABANAN JR. court of tax appeals, JOSE MARI ANGELO DIONIO real property and local taxation, RAY ANN CO tariff and customs laws MEMBERS: Baby Perian Arcega, Ethel Joy Arriola, Adrian Aumentado, Paula Tricia Bagnes , Benedicto Beley, Jingle Chua, Luis Voltaire Formilleza, Aiza Gonzales, Roniel Muñoz, Gerwin Panghulan, Maria Katrina Rivera, April Salamatin, Eve Hazel Santos, Salvador Andrew Tugade, Neo Valerio, and Janice Ivy Valparaiso

General Principles | TAXATION LAW

DEFINITION TAXATION is the power by which the sovereign, through its law-making body, raises revenue to defray the necessary expenses of the government. It is merely a way of apportioning the costs of government among those who in some measure are privileged to enjoy its benefits and must bear its burdens (51 Am. Jur. 34) It being inherent to the State, no constitutional conferment is necessary for its exercise. The Constitution merely provides the limitations on how the same will be exercised (Recalde, A Treatise on Tax Principles and Remedies, p.1). Two Concepts of Taxation 1. Power to tax. 2. The act or process by which the taxing

power is exercised. PURPOSES AND OBJECTIVES A. Revenue – to raise revenue to support the

existence of State and to enable the State to promote the general welfare and protection of its citizens.

B. Non-Revenue/Sumptuary Purposes

(PR2EP)

1. Promotion of General Welfare – taxation may be used as an implement of police power in order to promote the general welfare of the people.

Illustration: In the case of Lutz v. Araneta (G.R. No. L-7859, December 22, 1955), the Supreme Court upheld the validity of the Sugar Adjustment Act, which imposed a tax on milled sugar since the purpose of the law was to strengthen an industry that is so undeniably vital to the economic sugar industry.

2. Regulation - as in case of taxes levied on excises or privileges like those imposed on tobacco and alcoholic products, or amusement places like night clubs, cabarets, cockpits, etc.

Illustration: In Caltex Philippines v. COA (G.R. No. 92585, May 8, 1992) , it was held that taxes may also be imposed for a regulatory purpose as, for instance, in the rehabilitation and stabilization of threatened industry which is affected with public interest, like the oil industry.

3. Reduction of social inequality – also

known as compensatory purpose. This is made possible through the progressive system of taxation in the Philippines which prevents the undue concentration of wealth in the hands of few individuals. Progressivity is based on the principle that those who are able to pay more should shoulder the bigger portion of the tax burden.

Illustration: Present rates on income, estate, and gift taxes

4. Encourage economic growth – In the

realm of tax exemptions and tax reliefs, the purpose is to grant incentives or exemptions to encourage investments and thereby promote economic growth.

5. Protectionism – In case of foreign

importations, protective tariffs and customs are imposed for the benefit of local industries.

THEORY AND BASES OF TAXATION A. Life-blood theory - without taxes, the

government would be paralyzed for lack of motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one’s earned income to the taxing authorities, every person who is able must contribute his share in the

POWER OF TAXATION

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TAXATION LAW | General Principles

running of the government.‖ (CIR v. Algue, G.R. No. L-28896, Feb. 17, 1988)

B. Necessity Theory – the existence of the government is a necessity. It cannot continue without a means to pay its expenses and therefore has a right to compel all citizens and property within its power to contribute.

C. Benefits-Protection/Reciprocity Theory

(Doctrine of Symbiotic Relationship) - The State demands and receives taxes from the subjects of taxation within its jurisdiction so that it may be enabled to carry its mandate into effect and perform the functions of Government, and the citizen pays from his property the portion demanded in order that he may, by means thereof, be secured in the enjoyment of the benefits of organized society.

This theory spawned the DOCTRINE OF

SYMBIOTIC RELATIONSHIP: Taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of 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 must contribute his share in the burden of running 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 material and moral values. (CIR v. Algue, supra)

Thus, the taxpayer cannot question the

validity of the tax law on the ground that payment of such tax will render him impoverished, or lessen his financial or social standing, because the obligation to pay taxes is involuntary and compulsory, in exchange for the protection and benefits he receives from the government.

Special benefits to taxpayers are not required. A person cannot object to or resist the payment of taxes solely because no personal benefit to him can be pointed out arising from the tax. (Aban, Law on Basic Taxation in the Philippines, citing Lorenzo v. Posadas, etc., 64 Phil. 353)

CHARACTERISTICS OF A SOUND TAX SYSTEM (FAT) 1. Fiscal Adequacy – sources of

government revenue must be sufficient to

meet government expenditures and other public needs. Neither an excess nor a deficiency of revenue vis-à-vis the needs of government would be in keeping with the principle.

2. Administrative Feasibility – tax laws must be capable of being effectively enforced with the least inconvenience to the taxpayer.

3. Theoretical Justice – a sound tax system must be based on the taxpayers’ ability to pay (Ability to Pay Theory). Our laws mandate that taxes must be reasonable, fair, just, and conscionable. The Constitution provides that taxation must be uniform and equitable and that the State must evolve a progressive system of taxation.

Will a violation of these principles invalidate a tax law? It depends. A tax law will retain its validity even if it is not in consonance with the principles of fiscal adequacy and administrative feasibility because the Constitution does not expressly require so. These principles are only design to make our tax system sound. However, if a tax laws runs contrary to the principle of theoretical justice, such violation will render the law unconstitutional considering that under the Constitution, the rule of taxation should be uniform and equitable. (Sec.28(1), Art. VI, 1987 Constitution) Broad spectrum of taxation - it is supreme, plenary, all encompassing, unlimited, awesome, pierces all kinds of properties, rights and activities, subject to the no-injunction rule and it is the power of destroy.

I. Inherent Attribute of Sovereignty The moment the State exists, the power to

tax automatically exists. A. Basis: Life blood theory B. Manifestations:

1. Imposition even in the absence of constitutional grant;

2. State’s right to select objects and subjects of taxation;

3. Rule: No injunction to enjoin collection of taxes (see Court of Tax Appeals chapter, p. 261 for further discussion of the No Injunction Rule);

NATURE OF THE TAXING POWER




4. Rule: Taxes could not be the subject of set-off or compensation; (see Domingo v. Garlitos, p. 8 for lone exception)

5. Taxation is an unlimited or plenary power.

C. Distinction between National

Government and Local Government Unit (LGU) 1. National Government - inherent 2. Local Government Unit - not

inherent since it is merely an agency instituted by the State for the purpose of carrying out in detail the objects of the government; can only impose taxes when there is: a. Constitutional Grant b. Legislative Grant

D. Grant of Taxing Power of LGU

Constitutional Grant

Power is derived from Article X, Section 5 of the 1987 Constitution, which is self-executing.

The taxing power of the Autonomous Regions is conferred by Congress through law. Art. X No. 2, Sec. 20 of the Constitution which is a non-self-executing provision. Thus the power is granted by Congress because said provision requires an enabling law.

II. Legislative in Character

A. Basis: “Taxes are a grant of the people who are taxed, and the grant must be made by the immediate representatives of the people. And where the people have laid the power, there it must remain and be exercised.‖ (1 Cooley Taxation, 3

rd

ed., p.43)

B. Scope of Legislative Power 1. Determine:(SM PARKS)

a. Subjects of taxation (persons, property, occupation, excises or privileges to be taxed, provided they are within the taxing jurisdiction);

b. Method of collection; c. Purposes for which taxes shall

be levied provided they are for public purposes;

d. Apportionment of the tax (whether the tax shall be of general application or limited to a particular locality, or partly general and partly local);

e. Amount or Rate of tax; f. Kind of tax to be collected;

and g. Situs of taxation .

2. Grant tax exemption or

condonations; and 3. Specify or provide for the

administrative as well as judicial remedies that either the government or the taxpayers may avail themselves improper implementation of the tax measure (Petron v. Pililla, G.R. No. 158881, April 16, 2008)

Note: As a general rule, the power to tax is plenary and unlimited in its range, acknowledging in its very nature no limits, so that the principal check against its abuse is to be found only in the responsibility of the legislature (which imposes the tax) to its constituency who

are to pay it. Nevertheless, it is

circumscribed by constitutional limitations. At the same time, like any other statute, tax legislation carries a presumption of constitutionality. (CREBA Inc. v. Romulo, G.R. No. 160756, March 9, 2010)

Is the Power to Tax the Power to Destroy? Two Views: 1. U.S. Chief Justice Marshall in

McCulloch v. Maryland (4 Wheat, 316 4 L ed. 579, 607) opined that “the power to tax involves 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.

2. Justice Holmes declared in Panhandle Oil Co. v. Mississippi (277 US 218) that “the power to tax is not the power to destroy while this court sits.”

Reconciliation of the two views:

Marshall’s view refers to a valid tax while

the Holmes’ view refers to an invalid tax. The imposition of a valid tax could not be

judicially restrained merely because it would prejudice taxpayer’s property.

An illegal tax could be judicially declared

invalid and should not work to prejudice a taxpayer’s property.




The power to tax includes the power to destroy if it is used validly as an implement of the police power in discouraging and in effect, ultimately prohibiting certain things or enterprises inimical to the public welfare. But where the power to tax is used solely for the purpose of raising revenues, the modern view is that it cannot be allowed to confiscate or destroy. If this is sought to be done, the tax may be successfully attacked as an unconstitutional exercise of the discretion usually vested in the legislature in ascertain the amount of the tax. (Cruz, Constitutional Law, 2002, p. 88)

The power to tax is sometimes called the power to destroy. Therefore, it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. (Roxas v. CTA, G.R. L-25043, April 26, 1968)

Comparison of Power of Taxation with Other Inherent Powers

Taxation Police Power

Eminent Domain

Purpose

To raise revenue

To promote public welfare

through regulations

To facilitate the taking of private

property for public use

Amount of Exaction

No limit, but as much as

possible, must be equal to the needs of Gov’t. in

order to avoid a deficit

scenario for the State.

Limited to the cost of

regulation, issuance of

the license or surveillance

(fee)

No amount imposed but

rather the owner is paid

the market value of the

property taken

Benefits Received

No special or direct benefit is received by the taxpayer;

merely general

benefit of protection

No direct benefit is

received; a healthy

economic standard of society is attained

A direct benefit results in the form of just

compensation to the property

owner

Non-Impairment of Contracts

Contracts may not be

impaired

Contracts may be impaired

Contracts may be impaired

Transfer of Property Rights

Taxes paid become part

of public funds

No transfer but only

restraint in its exercise

Transfer is effected in favor of the

State

Taxation Police Power

Eminent Domain

Scope

All persons, property and

excises

All persons, property, rights and privileges

Only upon a particular property

Who Exercises the Power

May be exercised only by the government or its political subdivisions

May be exercised

only by the government or its political subdivisions

May be: a) Exercised

by the government or

its political subdivisions; b) Granted to public service companies or public utilities

Taxes are the enforced proportional contributions from persons and property levied by the law-making body of the State by virtue of its sovereignty for the support of the government and for public needs. (1 Cooley 62)

The term "tax" frequently applies to all kinds of exactions of monies which become public funds. It is often loosely used to include levies for revenue as well as levies for regulatory purposes such that license fees are frequently called taxes although license fee is a legal concept distinguishable from tax: the former is imposed in the exercise of police power primarily for purposes of regulation, while the latter is imposed under the taxing power primarily for purposes of raising revenues. (Progressive Development Corp. v. Quezon City, G.R. No. L-36081, April 24, 1989).

Essential Characteristics (SLEP6) 1. It is imposed by the State which has

jurisdiction over the person, property, or excises;

2. It is levied by the Law-making (legislative) body of the state;

3. It is an Enforced contribution – not dependent on the will of the person taxed, not a contract but a positive act of the government;

4. It is generally Payable in money – Generally, it is a pecuniary burden payable in money, but backpay certificates may be used in payment of tax. (Borja v. Gella, G.R. No. L-18330 July 31, 1963) Rationale: the taxpayer is not allowed to settle his tax liability by conveying property

TAXES




in view of the problem of assigning value to such property;

5. It is Proportionate in character – taxes must be based on ability to pay in accordance with the constitutional mandate to Congress to evolve a progressive system of taxation;

6. It is levied on Persons, property, and excise;

7. It is levied for Public purpose/s; 8. It is paid at regular Periods or intervals; 9. It is Personal to the taxpayer.

Examples: 1. Restitution by the heirs in case of

estate tax deficiency. (Sec. 91(c), NIRC)

2. A corporation's tax delinquency cannot be enforced against its stockholders.

Exception: stockholders may be held liable for the unpaid taxes of a dissolved corporation if it appears that the corporate assets have passed into their hands.

Requisites of a Valid Tax (JAPUL) 1. That either the person or property taxed

be within the Jurisdiction of the taxing

authority;

2. That the Assessment and collection of

certain kinds of taxes guarantee against injustice to individuals, especially by providing notice and opportunity for hearing;

3. That it should be for a Public purpose;

4. The rule of taxation shall be Uniform;

5. The tax must not impinge on the inherent

and Constitutional Limitations on the

power of taxation

Classification of Taxes

I. As to subject matter A. Personal, poll or capitation – tax of

a fixed amount imposed upon persons residing within a specified territory, whether citizens or not, without regard to their property, occupation or business in which they may be engaged (e.g. Community tax).

B. Property – tax imposed on property, whether real or personal, in proportion either to its value or some other reasonable rule of apportionment (e.g. Real property tax).

C. Excise or Privilege – charge imposed upon the performance of an act, the

enjoyment of a privilege or engaging in an occupation, profession or business (e.g. donor’s tax, estate tax, VAT, income tax).

II. As to who bears the burden and incidence

A. Direct – tax which is exacted from the very persons who are primarily liable to pay them; the taxpayer cannot shift the burden of its payment to another. The liability for the payment of the tax (incidence), as well as the impact (or burden) of the tax, falls on the same person (e.g. income tax, community tax).

B. Indirect – tax wherein the incidence

or liability for the payment falls on one person but the burden can be shifted or passed on to another (e.g. VAT, percentage tax).

The Constitution does not prohibit the imposition of indirect taxes like the VAT. The Constitution has been interpreted to mean simply that direct taxes are to be preferred and as much as possible, indirect taxes should be minimized (Tolentino v. Secretary of Finance, G.R. No. 115455, October 30, 1995).

The imposition of indirect taxes is NOT a violation of the principle that taxes are personal liabilities, the payment of which cannot be transferred to another person. When the seller passes on the tax to his buyer, he is only shifting the tax burden (not the liability to pay it) to the purchaser as part of the costs of the goods sold or services rendered. (Aban, Law of Basic Taxation in the Philippines, p. 24)

III. As to purpose A. General, fiscal or revenue – tax

imposed for the general or ordinary purposes of the Government, to raise revenue for governmental needs. (e.g. income tax)

B. Special, regulatory or sumptuary – tax imposed for a special purpose, to achieve some social or economic ends irrespective of whether revenue is actually raised or not. (e.g. countervailing and dumping duties under the TCC)

IV. As to how amount is determined A. Specific – tax of a fixed amount

imposed by the head or number or by




some standard of weight or measurement; it requires no valuation other than a listing or classification of the objects to be taxed. (e.g. tax on fermented liquors, cigars, distilled spirits)

B. Ad Valorem (Value) – tax of a fixed portion of the value of the property with respect to which the tax is assessed; it requires the intervention of assessors or appraisers to estimate the value of such property before the amount due from each taxpayer can be determined. (e.g. real property tax)

V. As to taxing authority A. National – levied by the National

Government. (e.g. NIRC taxes, customs duties)

B. Local or Municipal – levied by the local government (e.g. Real property tax, occupation tax)

VI. As to rate

A. Progressive or graduated – the tax rate increases as the tax base or bracket increases. (e.g. income tax on individuals, estate tax and donor’s tax)

B. Regressive –the tax rate decreases as the tax base increases.

C. Proportionate – tax rate is based on a fixed percentage of the amount of the property, receipts or other bases to be taxed. (e.g. real property tax, VAT and 3% percentage tax)

Distinctions of Tax from Other Impositions

I. Tax vs. Debt

Taxes Debt Basis

Based on law Based on contract or

judgment

Failure to Pay

Failure to pay tax (other than poll tax)

may result in imprisonment.

No imprisonment for non-payment of debt

Mode of Payment Generally payable in

money Payable in money,

property, or service.

Assignability

Not assignable

Assignable

Taxes Debt Payment

Not subject to compensation or set-off (see Domingo v.

Garlitos, p. 8)

May be subject to compensation or set-

off

Interest

Tax does not draw interest unless

delinquent

Debt draws interest if stipulated or delayed

Authority

Imposed by public authority

Imposed by private individuals

Prescription

Determined by NIRC Determined by Civil

Code

II. Tax vs. Toll

Taxes Toll Definition

Demand of sovereignty for the purpose of

raising public revenue

Demand of ownership—an amount

charged for the cost and maintenance of

property used

Purpose

Taxes are levied for the support of the

government

Tolls are compensation for the use of another’s

property

Determination of Amount

The amount of tax is determined by the

sovereign

The amount of the toll is determined by the

cost of the property or of the improvement

Who may impose

May only be imposed by the State

Imposed by the government or private

individual.

III. Tax vs. Special Assessment

Taxes Special

Assessments Definition

Imposed only on persons, properties,

and excises

Special levy on the

lands comprised within the territorial

jurisdiction of a province, city, or

municipality specially benefited by the public

works projects or improvements funded by the LGU concerned

Subject Taxes are levied on

land, persons, property, income,

business, etc.

Levied on land

Liability

Personal liability of the




Taxes Special

Assessments taxpayer Cannot be made a

personal liability of the person assessed

Basis

Based on necessity and partially on

benefits

Based solely on benefits

Application

General application

Special application

only as to a particular time and place

IV. Tax vs. License fee

Tax License Fee Basis

Based on the power of taxation

Based on police power

Purpose

Purpose is revenue Purpose is regulation

Limitation on Amount

Amount is unlimited

Amount is limited to the cost of:

1. Issuance of license

2. Inspection and surveillance

When paid

Normally paid the start of business

Normally paid before the commencement of

business

Surrender

Taxes, being the lifeblood of the State,

cannot be surrendered except for lawful

consideration

License fee may be with or without consideration

Effect of non-payment

Non-payment does not make the business illegal but may be ground for criminal

prosecution

Non-payment makes the business illegal.

If the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidental revenue is also obtained does not make the imposition a tax (Progressive Development Corp. v. Quezon City, G.R. No. L-36081, April 24, 1989). If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax (PAL v. Edu, G.R. L-41383, August 15, 1988).

It is possible for an exaction to be both tax and regulation. License fees are looked to as a source of revenue as well as a means of regulation (Sonzinky v. U.S., 300 U.S. 506) This is true, for example, of automobile license fees (ibid.) Importance of Distinction of Tax from Fee: 1. The government instrumentality that

imposes the exaction may have no authority to collect the tax but is authorized to collect the fees.

3. The person, who is required to pay the

exaction, may be exempt from tax but not from the payment of fees.

3. For income tax purposes, the tax, not fees, may be claimed as income tax deduction. (Recalde, A Treatise on Tax Principles and Remedies, pp.7-9).

V. Tax vs. Penalty

Tax Penalty

Definition

Enforced proportional contributions from

persons and property

Sanction imposed as a punishment for

violation of law or acts deemed injurious;

violation of tax laws may give rise to

imposition of penalty

Purpose

Intended to raise revenue

Designed to regulate conduct

Authority

May be imposed only by the government

May be imposed by the:

1. Government 2. Private individuals

or entities

VI. Tax vs. Tariff

Tax Tariff All embracing term to include various kinds

of enforced contributions upon

persons for the attainment of public

purposes

A kind of tax imposed on articles which are traded internationally

VII. Tax vs. Compromise Penalty

Tax Compromise

Penalty

Basic imposition on persons, property, and

excises

Collected as a compromise in cases involving violations of the Tax Code, rules or




regulations.

VIII. Tax vs. Subsidy

Tax Subsidy Levied by the law-making body of the

State for the support of the government and for

public needs.

A legislative grant of money in aid of a private enterprise

deemed to promote the public welfare.

IX. Tax vs. Revenue

Tax Revenue

A source of revenue of the government

A broad term that includes not only taxes but income from other

sources as well.

Special Principles in Taxation I. Doctrine of Equitable Recoupment -

Where the refund of a tax illegally or erroneously collected or overpaid by a taxpayer is barred by prescription, a tax presently being assessed against a taxpayer may be recouped or set-off against the tax whose refund is not barred by prescription.

This is a case where the taxpayer has a claim for refund but he was not able to file a written claim due to lapse of the prescription period within which to make a refund is allowed. Under this doctrine, the taxpayer is allowed to credit such refund to his existing tax liability.

Note: Equitable recoupment is allowed only in common law countries, not in the Philippines. This rule is absolute, there is no exception at all.

Rationale: If allowed, both the collecting agency and the taxpayer might be tempted to delay and neglect the pursuit of their respective claims within the period prescribed by law

II. Compensation or Set-off – Compensation shall take place when two persons, in their own right, are creditors and debtors of each other (Article 1278, New Civil Code).

This presupposes mutual obligations between the parties, and that they are mutual creditors and debtors of each other.

In taxation, the concept of setoff arises where a taxpayer is liable to pay tax but the

government, for one reason or another, is indebted to the said taxpayer. Rule: No set-off is admissible against the demands for taxes levied for general or local governmental purposes. Rationale: Taxes are not in the nature of contracts between the parties but grow out of duty to, and are positive acts of the government to the making and enforcing of which, the personal consent of the individual taxpayer is not required. (Republic v. Mambulao, G.R. No. L-17725 February 28, 1962).

Exception: Compensation was allowed in one exceptional case where the Supreme Court held that the doctrine of set-off may be applied. (Domingo v. Garlitos, G.R. No. L-18849, June 29, 1963), Reason: Compensation was recognized in this case because both the claim of the Government for inheritance tax and the claim of the estate for services rendered have already become overdue and demandable and fully liquidated. Further, an amount for the claim of the estate had already been appropriated by the Government by virtue of a law, R.A. 2700 (General Appropriations Act of 1960). There can be legal compensation for tax purposes as long as all the requisites under Article 1279 of the Civil Code are present. The claims of the taxpayer and the Government in such case must be brought before a court where the aforementioned claims must be pleaded and proved. If all the requisites under Article 1279 are present, then there is no reason why the court cannot declare set-off. (Recalde, A Treatise on Tax Principles and Remedies, p.32).

III. Taxpayer’s Suit

A taxpayer has the right to file an action to question the validity, or constitutionality, of a statute or law. The right is based on the fact that expenditure of public funds by an officer for the purpose of administering or implementing an invalid or unconstitutional law is a misapplication of such funds.

It is only when an act complained of, which may include a legislative enactment, directly involves the illegal disbursement of




public funds derived from taxation that the taxpayer’s suit may be allowed (Vitug and Acosta, Tax Law and Jurisprudence citing Pascual v. Secretary of Public Works, G.R. No. L-10405, December 29, 1960).

Requisites of a Taxpayer’s Suit 1. Public funds derived from taxation are

disbursed by a political subdivision or instrumentality and in doing so, a law is violated or some irregularity is committed; and

2. Petitioner is directly affected by the alleged act (Mamba v. Lara, G.R. No. 165109, December 14, 2009).

In Mamba v. Lara, although the construction of the town center would be primarily sourced from the proceeds of the bonds, which respondents insist are not taxpayer's money, a government support in the amount of P187 million would still be spent for paying the interest of the bonds. Records also show that the governor requested the Sanggunian to appropriate an amount of P25 million for the interest of the bond. Clearly, the first requisite has been met. As to the second requisite, the court, in recent cases, has relaxed the stringent "direct injury test" bearing in mind that locus standi is a procedural technicality. In cases where serious legal issues were raised or where public expenditures of millions of pesos were involved, the court did not hesitate to give standing to taxpayers. The Court finds no reason to deviate from the jurisprudential trend. The amount involved in this case is substantial. Under the various agreements ratified by the Sanggunian, the province would incur costs totalling P231,908,232.39.

IV. Rule of NO Estoppel Against the

Government Rule: The Government is not estopped by the mistakes or errors of its agents; erroneous application and enforcement of law by public officers do not bar the subsequent correct application of statutes (E. Rodriguez, Inc. v. Collector, G.R. No. L-23041, July 31, 1969).

Rationale: Upon taxation depends the Government’s ability to serve people for whose benefit taxes are collected. To safeguard such interest, neglect or omission of government officials entrusted with the collection of taxes should not be

allowed to bring harm or detriment to the people. (Recalde, A Treatise on Tax Principles and Remedies, p.33).

Exception: In the interest of justice and fair play, as where injustice will result to the taxpayer (See CIR v. CA, G.R. No. 117982, Feb. 6, 1997; CIR v. CA, G.R. No. 107135, Feb. 3, 1999). The Commissioner is precluded from adopting a position inconsistent with the one previously taken where injustice would result therefrom or where there has been a misrepresentation to the taxpayer. (Balmaceda v. Corominas and Co., Inc., G.R. No. L-21971, September 5, 1975)

The power to tax is the strongest of all the powers of government. Nevertheless, effective limitations thereon may be imposed by the people through their constitution. Accordingly, no matter how broad and encompassing the power of taxation, it is still subject to inherent and constitutional limitations.

I. Inherent Limitations – they proceed

from the very nature of the taxing power itself. They are otherwise known as elements or characteristics of taxation. (SPINE) A. Territoriality or Situs B. Public Purpose C. International Comity D. Non-delegability of the taxing power E. Exemption of the Government A violation of the inherent limitations constitutes taking without due process of law. (Vitug and Acosta, Tax Law and Jurisprudence, p.4, citing Pepsi Cola v. Municipality of Tanauan, G.R. No. L-31156 February 27, 1976)

II. Constitutional Limitations –

restrictions imposed by the Constitution.

A. General or indirect 1. Due process requirement; 2. Equality of taxation and

requirement of uniformity and equitability of taxation;

3. Freedom of speech and expression;

4. Freedom of religion;

LIMITATIONS OF TAXATION




5. No taking of private property without just compensation;

6. Non-impairment of obligations of contract;

7. Law-making process; 8. Presidential power to grant

reprieves, commutations and pardons, and remit fines and forfeitures after conviction by final judgment.

B. Specific or direct

1. Uniformity and equitablility; 2. Progressive system of taxation; 3. Non-imprisonment for non-

payment of poll tax; 4. Origin of revenue or tariff bills; 5. Veto power of the President; 6. Delegated authority of President

to impose tariff rates, import and export quotas, tonnage and wharfage dues;

7. Tax exemption of 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;

8. Voting requirement; 9. No use of public money or

property for religious purposes; 10. Prohibition on use of tax levied for

special purpose or special assessments;

11. Supreme Court’s power to review judgments or orders of lower courts;

12. Grant of authority to LGUs; 13. Tax exemption granted to

nonstock, non-profit educational institutions;

INHERENT LIMITATIONS (PINGS) A. Territoriality or Situs of Taxation

Situs of taxation – or ―place of taxation‖. It is the place or authority that has the right to impose and collect taxes (CIR v. Marubeni Corp., G.R. No. 137377, Dec. 18, 2001). Rule: A state may not tax property lying outside its borders or lay an excise or privilege tax upon the exercise or enjoyment of a right or privilege derived from the laws of another state and therein exercised or enjoyed (51 Am. Jur. 87-88).

Rationale: 1. Taxation is an act of sovereignty

which could only be exercised within a country’s territorial limits.

2. This is the result of the concept that taxes are paid for the protection and services provided by the taxing authority which could not be provided outside the territorial boundaries of the taxing state (Benefits-Protection Theory).

Exceptions: 1. Where tax laws operate outside

territorial jurisdiction. Example: Taxation of resident citizens and domestic corporations on their income from sources without the Philippines.

2. Where tax laws do not operate within the territorial jurisdiction of the state. a. When exempted by treaty

obligations; b. When exempted by international

comity.

Factors that Determine Situs: (K-PRICE) 1. Kind or classification of the tax being

levied 2. Situs of the thing or Property taxed 3. Citizenship of the taxpayer 4. Residence of the taxpayer 5. Source of the Income taxed 6. Situs of the Excise, privilege, business

or occupation being taxed

Situs of Subjects of Tax 1. Persons – poll, capitation or community

taxes are based upon the residence of the taxpayer, regardless of the source of income or location of the property of the taxpayer.

2. Property

a. Real property – Lex rei sitae or lex situs (where the property is located).

b. Tangible personal property – where

the property is physically located although the owner resides in another jurisdiction (51 Am. Jur. 467).

c. Intangible Personal Property –

i. General Rule: Mobilia sequuntur personam (movables follow the person). The situs is the domicile of the owner.




ii. Exceptions:

When the property has acquired a business situs in another jurisdiction; or

When the law provides for the situs of the subject of tax (e.g., see Sec. 104, NIRC)

d. Income – Factors that determine the

situs of income tax: (see Sec. 23, NIRC) i. Nationality or citizenship of the

taxpayer; ii. Residence or domicile of the

taxpayer; and iii. Source of the income

e. Excise or Privilege (upon the

performance of an act or the engaging in an occupation) - depends upon the place where the act is performed or occupation is engaged in (not upon the domicile of the person subject to the excise nor upon the physical location of the property and in connection with the act or occupation taxed) (Allied Thread v. City Mayor of Manila, G.R. No.40296, Nov. 21, 1984)

f. Gratuitous Transfer – the

transmission of property from a donor to a donee, or from a decedent to his heirs may be subject to taxation in the state where the transferor is (was) a citizen or resident, or where the property is located in case of a non resident.

B. Public Purpose Public purpose embraces not merely direct public benefit advantage but also indirect public benefit. (Cruz, Constitutional Law, 2002) The power to determine public purpose is a legislative prerogative. The proceeds of the tax must be used for: 1. The support of the State; or 2. Some recognized object of

government or directly to promote the welfare of the community. (Vitug and Acosta, Tax Law and Jurisprudence, p.5)

The legislature is without power to appropriate public revenues for anything but a public purpose. (Sababan, Taxation Law Review, p.5)

It is the essential character of the direct object of the expenditure which must determine its validity. Incidental advantage to the public or the State, which results from the promotion of private interests, does not justify their aid by the use of public money (Pascual v. Secretary of Public Works, G.R. No. L-10405, December 29, 1960)

Tests to Determine 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 to provide.

2. Promotion of General Welfare Test – whether the proceeds of the tax will directly promote the welfare of the community in equal measure. (Aban, Law of Basic Taxation, pp.53-54)

Cases of Public Purpose 1. Public improvement 2. Unemployment relief 3. Buildings and roads/infrastructure 4. Subsidies for local police forces under

R.A. 6142 5. Industries classified as indispensable

under P.D. 1987 (An Act Creating the Videogram Regulatory Board)

6. Construction of home sites 7. Promotion of science and invention 8. Upliftment of the underprivileged 9. Rehabilitation of the sugar industry 10. Pensions to deserving retirees 11. Oil industry's protection 12. Socialized housing 13. Educational subsidy

C. International Comity

Basis: Sec. 2, Art. II, 1987 Constitution which provides that the Philippines ―adopts the generally-accepted principle of international law as part of the law of the land.‖ Comity – the respect accorded by nations to each other because they are sovereign equals. If a tax law is passed imposing taxes on the income of foreign ambassadors or imposing real property tax upon foreign embassies, this is not a valid law because the imposition is in violation of the universal principles of international law.




Bases of the rule: 1. In par parem non habet imperium - as

between equals there is no sovereign (Doctrine of Sovereign Equality).

2. The rule of international law that a foreign government may not be sued without its consent. Thus, it would be useless to impose a tax which could not be collected

3. The concept that when a foreign sovereign enters the territorial jurisdiction of another, it does not subject itself to the jurisdiction of the other.

D. Non-Delegation of Taxing Power

Rule: Delegata potestas non potest delegari. (A delegated power cannot be further delegated.) Since the power of taxation is a power that is exercised by Congress as delegates of the people, then as a general rule, Congress could not re-delegate this delegated power.

Exceptions: 1. Local governments’ power of taxation 2. When allowed by the constitution

(TEE)

Delegation of Tariff powers by

Congress to the President under

the flexible tariff clause. (Sec.

28(2), Art. VI, 1987 Constitution)

Delegation of Emergency powers

to the President (Sec. 23(2), Art.

VI, 1987 Constitution)

Delegation to the President to

enter into Executive agreements,

and to ratify treaties which may

contain tax exemption provisions

subject to the concurrence by the

Senate in the ratification made by

the President;

3. When the delegation relates merely to administrative implementation that may call for some degree of discretionary powers under a set of sufficient standards expressed by law or implied from the policy and purposes of the act.

Limitations of the exceptions 1. The delegation shall not contravene

any constitutional provisions or the inherent limitations

2. The delegation is effected either by the Constitution or by validly enacted legislative measures or statutes. And

3. The delegated levy power, except when the delegation is by an express provision of the constitution itself, should only be in favor of the local legislative body of the local or municipal government concerned.

Stages/Aspects of a System of Taxation 1. Tax legislation (levy) – This refers to

the enactment of a law by Congress authorizing the imposition of tax. a. Determination of the subject of

taxation b. Determination of the purposes for

which taxes shall be levied; c. Fixing the rate of taxation; d. Rules of taxation in general

(manner, means and agencies of collection)

2. Tax administration – This is the act

of administration and implementation of the tax law by executive through its administrative agencies. a. Assessment; b. Collection;

3. Payment – This is the act of

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

Rule: a. If what is delegated is tax

legislation, the delegation is invalid;

b. If what is delegated is tax administration, the delegation is valid.

E. Exemption of the Government

Rule: Properties of the national government as well as those of the local government units are NOT subject to tax, otherwise it will result in the absurd situation of the government ―taking money from one pocket and putting it in another‖ (Cooley on Taxation, Sec. 621, 4th ed. as cited in Board of Assessment Appeals of Laguna v. CTA, G.R. No. L-18125, May 31, 1963).

As a matter of PUBLIC POLICY, property of the State and of its municipal subdivisions devoted to government uses and purposes is generally deemed to be exempt from taxation although no express




provision in the law is made therefore (51 Am. Jur. 503). As a rule, agencies performing governmental functions are tax exempt unless expressly taxed. On the other hand, agencies performing proprietary functions are subject to tax unless expressly exempted. GOCC perform proprietary functions hence are subject to taxation, except: 1. GSIS 2. SSS 3. PHIC 4. PCSO

Instrumentality of the National Government is exempt from real property tax. Example:

Manila International Airport Authority (MIAA)

Philippine Fisheries Development Authority (PFDA)

The Supreme Court held in Manila International Airport Authority v. Court of Appeals (G.R. No. 155650, July 20, 2006) that the real properties of MIAA are owned by the national government and thus exempt from real estate tax. It considered MIAA as a government instrumentality under Sec. 133(o) of the LGC which provides that exercise of the taxing powers…shall not extend to the levy of : “taxes, fees or charges of any kind on the National government, its agencies and instrumentalities and local government units.”

Note: See case of Mactan Cebu International Authority v. Marcos (G.R. No. 120082, September 11, 1996) where MCIAA was considered as a GOCC and thus not tax exempt.

This has been echoed in the case of Phil. Fisheries Development Authority v. The Municipality of Navotas (G.R. No. 150301, October 2, 2007) wherein the SC ruled that PFDA, being an instrumentality if the national government, is exempt from real property tax. (Dimaampao, Tax Principles and Remedies, pp.55-56)

Other reasons for the rule: 1. So that the functions of the

government shall not be unduly impeded (51 Am. Jur. 550-51)

2. To reduce the amount of money that has to be handled by the government in the course of its operations (Maceda v. Macaraig, G.R. No. 88291, June 8, 1993).

HOWEVER, the Constitution is silent on whether Congress is prohibited from taxing the properties of the agencies of the government. Therefore, nothing can prevent Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax. (MCIAA v. Marcos, G.R. No. 120082, Sept. 11, 1996)

Pursuant to the provisions of the NIRC, the National Government may levy income tax upon corporations, agencies and instrumentalities owned or controlled by the government subject to exceptions as provided therein (Sec. 27(C). However, under Sec. 32(B)(7)(b), NIRC, income derived by the government from any public utility and from the exercise of any essential governmental functions are exempt from income tax.

UNLESS OTHERWISE PROVIDED BY LAW, the exemption applies only to government entities through which the government immediately and directly exercises its government powers. (Infantry Post Exchange v. Posadas, G.R. No. 33403, Sept. 4, 1930)

CONSTITUTIONAL LIMITATIONS A. General or Indirect Constitutional

Limitations 1. Due Process Clause (Sec. 1, Art. III,

1987 Constitution)

Any deprivation is with due process if it is done: a. Under the authority of a law that is

valid or under the Constitution itself, and that it must be reasonable, fair and just (Substantive Due Process); and

b. After compliance with fair and reasonable methods of procedure prescribed by law, with notice or hearing, or at least an opportunity to be heard whenever necessary (Procedural Due Process).

Must the adverse party always be notified?




No. As a rule, notice and hearing or the opportunity be heard is necessary only when expressly required by law. Where there is no such requirement, notice and the opportunity to be heard are dispensable.

Due process in taxation REQUIRES: a. Tax must be for a public purpose; b. Imposed within territorial jurisdiction; c. No arbitrariness or oppression in

assessment or collection. Due process in taxation DOES NOT REQUIRE: a. Determination through judicial inquiry

of the property subject to tax or the amount of tax to be imposed;

b. Notice and hearing as of amount of the tax or the manner of apportionment.

Where the due process clause is invoked, considering that it is not a fixed rule but rather a broad standard, there is a need for proof of such persuasive character. The taxing power has authority to make reasonable classifications for purposes of taxation. Inequalities resulting from a singling out of one particular class for taxation or exemption do not infringe any constitutional limitation. The real estate industry is, by itself, a class and can be validly treated differently from other business enterprises. (Chamber of Real Estate and Builders' Associations, Inc. v. The Hon. Executive Secretary Alberto Romulo, G.R. No. 160756, March 9, 2010)

Illustration of violations of the due process clause: a. If the tax amounts to a confiscation of

property b. If the subject of confiscation is outside

the jurisdiction of the taxing authority c. If the law is imposed for a purpose

other than a public purpose d. If the law which is applied retroactively

imposes unjust and oppressive taxes e. Where the law is in violation of

inherent limitations 2. Equal Protection Clause (Sec. 1, Art.

III, 1987 Constitution)

Equal protection neither requires equal rates of taxation on different classes of property, nor prohibits unequal taxation so long as the inequality is not based upon arbitrary classification. It merely

requires that all persons (or property, of the same class) subjected to such legislation shall be treated alike, under like circumstances and conditions, both in the privileges conferred and in the liabilities imposed (Cooley, cited in Sison, Jr. v. Ancheta, G.R. No. 59431 July 25, 1984).

The equal protection clause may be VIOLATED IN TWO WAYS: a. When classification is made

where there should be none (i.e. where classification does not rest upon substantial differences); and

b. When classification is called for (i.e., when substantial distinctions exist but no corresponding classification is made on the basis thereof.) (Villegas v. Hiu Chiong Tsai Pao Ho, G.R. No. L-29646, November 10, 1978)

The power to select subjects of taxation and apportion the public burden among them includes the power to make classifications. For the classification to be valid, the following REQUISITES must concur: a. It must be based on

substantial distinctions; b. It must apply both to present

and future conditions; c. It must be germane to the

purposes of the law; and d. It must apply equally to all

members of the same class (Ormoc Sugar Company v. Treasurer of Ormoc, G.R. No. 23794, February 17, 1968).

Vertical Equity vs. Horizontal Equity

Vertical equity connotes a difference in the tax treatment between those who are financially well-off and those who have relatively less.

Horizontal equity implies that those who are similarly situated in life should be taxed similarly.

3. Freedom of the Press (Sec. 4, Art.

III, 1987 Constitution)

There is curtailment of press freedom and freedom of thought and expression if a tax is levied in




order to suppress this basic right and impose a prior restraint. (Tolentino v. Secretary of Finance, Supra)

In the case of Grossjean v.

American Press (297 U.S. 233, 1936), it was held that

the separate sales tax on

newspapers with circulation of over 20,000 imposed was a deliberate and calculated device in the guise of tax to limit the circulation of information to which the public is entitled in virtue of the Constitutional guarantees.

In People v. Korins (385 N.Y.S.

2D 474 [1976]), the U.S. Supreme Court held that to apply an ordinance requiring a business license to be obtained before a person could sell newspapers in the streets would be to impose a prior restraint on press freedom because a newspaper is not in the same category as a pineapple or a soap powder, or a pair of shoes whose sale may be conditioned on the possession of a business license.

However, if the fee imposed is not for the exercise of a privilege but only for the purpose of defraying part of the cost of registration, the Constitution is not violated. In Tolentino E-VAT case, it was held that the requirement to pay P1,000 (now P500) as annual registration fee on all persons subject to VAT is not imposed for the exercise of a privilege but only for the purpose of defraying part of the cost of registration. It is thus, a mere administrative fee, one not imposed on the exercise of a privilege, much less a constitutional right.

4. Religious Freedom (Sec. 5, Art. III, 1987 Constitution)

This provision contains three clauses: (1) the non-establishment clause; (2) freedom to choose religion clause and (3) the free exercise clause. The latter is the basis of tax exemptions granted to religious institutions. The first covers the

prohibition to establish a national or official religion since in that case, there would be an appropriation from taxes paid by the people.

A municipal LICENSE TAX on the sale of bibles and religious articles by a non-stock, non-profit missionary organization at minimal profit constitutes curtailment of religious freedom and worship which is guaranteed by the Constitution. (American Bible Society v. City of Manila, G.R. No. L-9637, April 30, 1957)

Not every imposition of tax constitutes curtailment of religious freedom:

In the Tolentino E-VAT case, the

Court held that: ―What has been said above also disposes of the allegations of the PBS that the publication or importation of books and religious articles, as well as their printing and publication, likewise violates freedom of thought and conscience. For as the U.S. Supreme Court unanimously held in Jimmy Swaggart Ministries v. Board of Equalization (493 U.S. 378 [1978]), 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.‖

In the case of Tolentino v. Sec. of Finance, the Supreme Court distinguished between a ―license tax‖ and a ―revenue tax‖. Under the American Bible Society case, that was a license tax; the VAT under R.A. 7716 is a revenue tax.

Rules on Income of Religious Organizations (Sec. 30 (E), NIRC) Rule: Income Exempt from Taxation if: a. Non-stock corporation; b. Organized and operated

exclusively for religious, charitable, scientific, athletic or cultural, and social welfare purposes;




c. No part of the income inures to the benefit of any member, organizer, or any specific person.

Exception: Income of Such Organizations Taxable if Realized from: a. Productive use of property, real or

personal (i.e. rents, dividends, interests)

b. Profitable Business Pursuits Note: Regardless of the disposition made of such income.

5. No taking of private property without just compensation (Sec. 9, Art. III, 1987 Constitution)

6. Non-impairment Clause

To impair the obligation of a contract is to alter or change the terms or effect of the contract, and thus in contemplation of law, to weaken the position or rights of one or all of the parties to it. Rule: The power to tax is pursuant to law, therefore, the obligation to pay taxes is imposed by law, thus the non-impairment clause does not apply. Instance when the non impairment clause becomes a limitation to the power to tax? When the taxpayer enters into a agreement with the government. In this instance, the obligation to pay the tax is now based on the contract between the taxpayer and the government pursuant to their compromise agreement.

Rationale: When the State grants an exemption on the basis of a contract, consideration is presumed to be paid to the State, and the public is supposed to receive the whole equivalent therefrom.

The non-impairment clause applies to the power of taxation but not to police power and eminent domain.

Note: It applies only where one party is the Government and the other party, a private individual. (Sababan, Taxation Law Reviewer 2008 ed., p.13)

Examples:

a. When a tax exemption based on a contract is revoked by a later taxing statute (Cassanova v. Hord, G.R. No. 3473, March 22, 1907);

b. Application of the non-impairment clause depends on how the exemption was granted.

When the exemption is bilaterally agreed upon between the government and the taxpayer – it cannot be withdrawn without violating the non-impairment clause.

When it is unilaterally granted by law and the same is withdrawn by virtue of another law – no violation.

When the exemption is granted under a franchise – may be revoked because under the Constitution, a franchise is ―subject to amendment, alteration, or repeal‖ by Congress when the common good so requires. (Sec. 11, Art. XII, 1987 Constitution)

7. Law-making Process

Bill should embrace only one subject expressed in the title thereof;

Three (3) readings on three separate days;

Printed copies in final form distributed three days before passage.

8. Presidential power to grant

reprieves, commutations and pardons and remit fines and forfeitures after conviction by final judgment.

B. Specific or Direct Constitutional

Limitation

1. Taxation shall be uniform and equitable (Sec. 28(1), Art. VI 1987 Constitution) a. Uniformity – all taxable articles or

properties of the same class shall be taxed at the same rate. (City of Baguio v. De Leon, G.R. No. 24756, October 31, 1968);

Uniformity, not equality Rationale: the imposition of a single tax upon all persons, properties or transactions would




result in inequality. It is manifestly impractical.

b. Different articles or other subjects may be taxed at different rates provided that the rate is uniform on the same class everywhere. (De Villata v. Standley G.R. No. 8154 December 20, 1915);

c. Equitability – requires that the apportionment of the tax should consider the taxpayer’s ability to shoulder the tax burden, usually measured in terms of wealth, and, if warranted, on the basis of the benefits he receives from the government.

d. Taxation may be uniform but inequitable where the amount is excessive or unreasonable.

2. Progressive System of Taxation

(Sec. 28(1), Art. VI, 1987 Constitution) a. A Progressive System of

Taxation means that as the resources of the taxpayer become higher, his tax rate likewise increases.

b. It is based on the ability to pay

and in implementation of the social justice principle that the more affluent should contribute more for the community’s benefit, and is best exemplified by the increase of income tax rate as net taxable income increases.

c. The Constitution does not really prohibit regressive taxes. What it simply provides is that Congress shall evolve a progressive system of taxation. This is a mere directive upon Congress, not a justiciable right. (Tolentino v. Secretary of Finance, G.R. No. 115455, August 25, 1994)

d. In case of VAT, it is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of progressive taxation has no relation with the VAT System inasmuch as the VAT paid by the consumer or business for every goods bought or services enjoyed is the same regardless of income.

3. Non-imprisonment for non-payment

of poll tax (Sec. 20, Art. III, 1987 Constitution)

a. Poll Tax – tax imposed on a per head basis. The present ―poll tax‖ is the ―community tax.‖

b. One cannot be imprisoned for non-payment of poll tax because payment thereof is not mandatory.

c. While a person may not be imprisoned for non-payment of poll tax, he may be imprisoned for non-payment of other kinds of taxes where the law so expressly so provides.

4. Origin of Revenue or Tariff Bills

(Sec. 24, Art. VI, 1987 Constitution) a. It is not the law but the revenue

bill which is required by the Constitution to originate exclusively in the House of Representatives. A bill originating in the House may undergo such extensive changes in the Senate that the result may be a rewriting of the whole.

b. The Constitution simply means that the initiative for filing the bills must come from the House, on the theory that, elected as they are from the districts, the members of the House can be expected to be more sensitive to the local needs and problems (Tolentino v. Secretary of Finance, supra).

5. Veto Power of the President (Sec.

27(2), Art. VI, 1987 Constitution)

Any particular item or items in an: a. Appropriation bill; b. Revenue bill; c. Tariff bill.

Shall NOT affect item/(s) to which he does not object

6. Delegated authority of President to

impose tariff rates, import and export quotas, tonnage and wharfage dues (Sec. 28 par. 2, Art. VI, 1987 Constitution)

Flexible Tariff Clause The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the




Government. (Sec. 28 par. 2, Art. VI, 1987 Constitution)

7. Tax exemption of 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; a. Section 28(3), Art. VI, 1987

Constitution, exempts religious and educational institutions from real estate tax.

b. Test of Exemption: It is the use of the property, and not ownership.

c. Nature of Use: The properties must be actually, directly and exclusively used for the purposes mentioned.

d. ―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’s and the law. Solely is synonymous with exclusively. (Lung Center of the Philippines v. Quezon City, G.R. No. 144104, June 29, 2004) Note: The term extends to facilities which are incidental to or reasonably necessary for the accomplishment of said purposes. (Abra Valley College v. Aquino, G.R. No. L-39086, June 15, 1988).

8. Voting Requirement for Tax

Exemption a. Rationale: To prevent

indiscriminate grant of tax exemptions.

b. The phrase ―a majority of all the members of the Congress‖ means at least ½ plus 1 of ALL the members voting separately.

c. In granting tax exemptions, an absolute majority of the members of Congress is required, while in cases of withdrawal of such tax exemption, a RELATIVE MAJORITY is sufficient. Rationale: Taxation is the rule and exemption is the exception. Thus, the law makes it easier, by requiring a smaller number of votes, to withdraw exemption compared to its grant.

d. Tax amnesties, condonations and refunds are in the nature of tax exemptions, such being the case, a law granting them requires the vote of an absolute majority.

e. A constitutional grant of exemption may be self–executing or may require an act of Congress for its operation. Where a Constitutional provision granting an exemption is self-executing, the legislature can neither add nor detract from it. It may, however, prescribe a procedure to determine whether a claimant is entitled to the Constitutional exemption.

9. No use of public money or property

for religious purposes (par. 3, Sec. 28, 1987 Constitution) Except: If a priest is assigned to armed forces, penal institutions, government orphanages or leprosarium.

10. Prohibition on use of tax levied for special purpose or special assessments (par.3 Sec. 29, Art. VI, 1987 Constitution)

Money collected on tax levied for special purpose to be used only for such purpose.

The balance, if any, shall accrue to the general fund.

11. Supreme Court’s power to review

judgments or orders of lower courts (Sec. 5(b), Art. VIII, 1987 Constitution)

The Supreme Court can review judgments or orders of lower courts in all cases involving: a. The legality of any tax, impost,

assessment, or toll;




b. The legality any penalty imposed in relation to the above;

Under the Principle of Judicial Non-Interference, the courts cannot inquire into the wisdom of a taxing act, UNLESS there is a violation of constitutional limitations or restrictions.

12. Grant of Authority to Local

Government Units

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. (Sec. 5, Art. X, 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. (Sec. 6, ibid.)

Local governments shall be entitled to an equitable share in the proceeds of the utilization and development of the national wealth within their respective areas, in the manner provided by law, including sharing the same with the inhabitants by way of direct benefits. (Sec. 7, ibid)

13. Tax exemption granted to non-

stock, non-profit educational institutions Constitutional and statutory provisions

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. (Sec. 4(3), Art. XIV, 1987 Constitution)

Notes: a. See Section 30, NIRC last

paragraph. Note that its provisions, particularly the phrase ―regardless of disposition made of such income‖ is in conflict with

Sec. 4(3), Art. XIV, 1987 Constitution.

b. This conflict, however, has already been settled. Section 1 of DOF Order No. 149-95, which amended DOF Order No. 92-88 and DOF Order No. 137-87, provides that these non-stock, non-profit educational institutions shall “be subject to internal revenue taxes on income from trade, business or other activity the conduct of which is NOT RELATED to the exercise or performance by such educational institution of its educational purpose of function.”

Proprietary educational institutions, including those cooperatively owned, MAY likewise be entitled to such exemptions subject to limitation: a. Provided by law b. Provisions for reinvestments

All grants, endowments, donations, or contributions used actually, directly, and exclusively for educational purposes shall be exempt from tax. (Sec. 4(4), ibid.)

Article XIV and Article VI compared

Art. XIV, Sec. 4(3) Art. VI, Sec. 28(3) Grantee

Non-stock, non-profit educational institution

Religious, educational, charitable

Taxes Covered

1. Income tax 2. Custom duties, 3. Property tax (DECS

Order No. 137-87)

Property

Summary of Rules on Exemption of Assets and Revenues a. Non-stock, Non-Profit Educational

Institution whose income is actually, directly, and exclusively used for educational purposes

EXEMPT (See Sec. 30(H), NIRC)

Rationale: Constitutional provision is self-executing.

b. Proprietary Educational Institution

TAXABLE under Sec 27(B), NIRC Predominance theory - if the predominant income (more than 50%) comes from school related activities, the 10% tax on taxable income applies. Conversely, it is subject to 30% tax if its gross income from unrelated trade,




business or activity exceeds 50% of its the total gross income.

Rationale: Constitutional provision used the word MAY, which gives Congress discretion to grant tax exemption.

c. Grants, Endowments, Donations or

Contributions used actually, directly and exclusively for educational purposes to:

TAXABLE: Proprietary educational institution

EXEMPT : Non-Stock, non-profit educational institution

DEFINITION Taxing the same person [same subject or object] twice by the same jurisdiction over the same thing (Victoria Milling v. Mun. of Victoria, Negros Occidental, G.R. No. L-21183, Sept. 27, 1968). According to the Supreme Court there is no constitutional prohibition against double taxation in the Philippines (Villanueva v. City of Iloilo, G.R. No. L-26521, December 28, 1968). It is something not favored, but is nevertheless permissible. KINDS OF DOUBLE TAXATION A. Direct Duplicate Taxation / Obnoxious

(Strict sense) – The objectionable kind or double taxation in its prohibited sense. This violates the equal protection clause of the Constitution, and is prohibited.

Double taxation means taxing the same property twice when it should be taxed only once; that is, ―taxing the same person twice by the same jurisdiction for the same thing.‖ It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as ―direct duplicate taxation.‖ (The City of Manila, Liberty M. Toledo In Her Capacity as the Treasurer of Manila v. Coca-Cola Bottlers Philippines, Inc., G.R. No. 181845, August 4, 2009.) Elements: 1. The same property or subject matter is

taxed twice when it should be taxed only once;

2. Both taxes are levied for the same purpose;

3. Imposed by the same taxing authority; a. Within the same jurisdiction; b. During the same taxing period; c. Covering the same kind or

character of tax (Villanueva v. City of Iloilo, supra)

B. Indirect Duplicate Taxation (Broad

sense) – The permissible kind of double taxation, this arises in the absence of one or more of the above-mentioned elements of direct double taxation. There is no double taxation if the tax is levied by the LGU and another by the national government. The two (2) are different taxing Authorities. (Pepsi-Cola Bottling Co. v. Municipality of Tanauan, Leyte, G.R. L-31156, February 27, 1976 Examples of Indirect Duplicate Taxation: 1. A tax upon a corporation for its

property and upon its shareholders for their shares.

2. A tax upon the same property imposed by two different states.

3. A tax on a mortgage as personal property and upon the mortgaged property as real estate.

C. International Juridical Double Taxation

– the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods. (Commissioner v. SC Johnson & Sons, Inc., G.R. No.127105, June 25, 1999).

This double taxation usually takes place when a person is a resident of the first contracting State and derives income from, or owns capital in the second contracting State and both States impose taxes on such income or capital. In order to eliminate double taxation, a tax treaty is entered into by the two contracting States.

International juridical double taxation only occurs when the State of residence of the taxpayer imposes tax on the income of said taxpayer from sources within and without their State. There is no international juridical double taxation if the citizens or nationals are only taxed on their income from sources within.

See Section 23, NIRC: Except for income earned by resident citizens and domestic corporations, only income from

DOUBLE TAXATION




Philippine sources is taxable by the government.

D. Local Double Taxation- the imposition of

taxes of similar nature both by the national government and the local government unit where the object of tax is located (Recalde, A Treatise on Tax Principles and Remedies, p.79).

The Phil. tax system provides for certain schemes in order to avoid or minimize the harsh or burdensome effects of double taxation. The means, however, depend on whether there is international double taxation or local double taxation. (ibid, p.75).

METHODS OF REDUCING THE RIGORS OF DOUBLE TAXATION (CD – RET) 1. Tax Credits – an amount subtracted from

an individual’s or entity’s tax liability to arrive at the total tax liability.

2. Tax Deductions – tax write-off or reduction in the gross amount on which a tax is calculated. (refer to illustration of Tax Credit v. Deduction, last page of this section)

3. Reduction of the Philippine income tax rate

Example: Tax Sparing Rule – the dividend earned by a non-resident foreign corporation (NRFC) within the Phil. is reduced by imposing a lower rate of 15% (in lieu of the 30%), on the condition that the country to which the NRFC is domiciled shall allow a credit against the tax due from the NRFC, which taxes are deemed to have been paid in the Phil. (Sec.28 [B] [5] b) (CIR v. Procter & Gamble G.R. No 66838 December 2, 1991)

4. Tax Exemptions – a grant of immunity to particular persons or corporations from the obligation to pay taxes.

5. Tax Treaties – Agreement between two countries specifying what items of income will be taxed by the authorities of the country where the income is earned.

METHODS RESORTED TO BY A TAX TREATY IN ORDER TO ELIMINATE DOUBLE TAXATION: First method: An exclusive right to tax is conferred in 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.

Second method: The state of source is given a full or limited right to tax together with the state of residence. In this case, the treaty makes it incumbent upon the state of residence to allow relief in order to avoid double taxation. There are 2 ways under the 2nd method: 1. The exemption method – the income or

capital which is taxable in the state of source or situs is exempted in the state of residence, although in some instances it may be taken into account in determining the rate of tax applicable to the taxpayer’s remaining income or capital. (This may be done using the tax deduction method which allows foreign income taxes to be deducted from gross income, in effect exempting the payment from being further taxed.) The focus here is on the income or capital itself.

2. The credit method – although the income

or capital which is taxed in the state of source is still taxable in the state of residence, the tax paid in the former is credited against the tax levied in the latter. (CIR v. S.C Johnson and Son, G.R. No.127105, June 25,1999) The focus is on the tax.

Most Favored Nation Clause in Tax Treaties The purpose of the most favored nation clause is to grant to the contracting party treatment not less favorable than that which has been or may be granted to the ―MOST FAVORED‖ among other countries. The most favored nation clause is intended to establish the principle of equality of international treatment by providing that the citizens or subjects of the contracting nations may enjoy the privileges accorded by either party to those of the most favored nation.

6 FORMS OF BASIC ESCAPE FROM

TAXATION:

1. Shifting - The transfer of the burden of

tax by the original payer or the one on whom the tax was assessed (impact of taxation/statutory taxpayer) or imposed to

FORMS OF ESCAPE FROM TAXATION




another or someone else (incidence of taxation).

Direct tax cannot be shifted – a tax cannot be shifted when it is purely personal or when it has no relation to any business dealings of the taxpayer. (Schultz and Harris, American Public Finance)

Impact of Taxation – point on which tax is originally imposed or the one on whom the tax is formally assessed.

Incidence of Taxation – point on which the tax burden finally rests or settles down.

Illustration: Value added tax. The seller is required by law to pay tax, but the burden is actually shifted or passed on to the buyer.

Kinds of shifting a. Forward shifting – when the burden

of tax is transferred from a factor of production through the factors of distribution until it finally settles on the ultimate purchaser or consumer

b. Backward shifting – when the burden is transferred from the consumer through the factors of distribution to the factors of production

c. Onward shifting – when the tax is shifted 2 or more times either forward or backward

2. Capitalization – The reduction in the

price of the taxed object equal to the capitalized value of future taxes which the purchaser expects to be called upon to pay.

3. Transformation – The manufacturer

or producer upon whom the tax has been imposed, fearing the loss of his market if he should add the tax to the price, pays the tax and endeavors to recoup himself by improving his process of production, thereby producing his units at a lower cost.

4. Tax Exemption - is the grant of

immunity to particular persons or corporations or to persons or corporations of a particular class from a tax which persons or corporations generally within the same state or taxing district are obliged to pay. (51 Am. Jur. 503)

Principle of Strictissimi Juris Laws granting tax exemption are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The law does not look with favor on tax exemptions and that he who would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted (SeaLand Service v. CA, G.R. No. 57828 June 14, 1993).

Rationale for the Application of Strictissimi Juris 1. Lifeblood theory 2. To minimize differential treatment and

foster impartiality, fairness and equality of treatment among taxpayers (Maceda v. Macaraig, G.R. No. 88291, June 8, 1993).

3. Taxation is a high prerogative of sovereignty whose relinquishment is never presumed (Luzon Stevedoring v. CA, G.R. No 58897, Dec. 3, 1987)

Exceptions to the Application of Strictissimi Juris 1. When the statute granting exemption

provides for liberal construction thereof

2. In case of special taxes relating to special cases and affecting only special classes of persons

3. If exemptions refer to the public property

4. In cases of exemptions granted to religious, charitable and educational institutions or their property

5. In cases of exemptions in favor of the government, its political subdivisions or instrumentalities

6. If there is an express mention or if the taxpayer falls within the purview of the exemption by clear legislative intent. (CIR v. Arnoldus Carpentry Shop, Inc., G.R. No. 71122, March 25, 1988)

Kinds of Tax Exemption 1. Express – expressly granted by

organic or statute law 2. Implied – whenever particular

persons, properties or excises are deemed exempt as they fall outside the scope of the taxing provision itself

3. Contractual – tax exemption in consideration of a contractual agreement with the government.




Revocation of Tax Exemptions Since taxation is the rule and exemption is the exception, the exemption may thus be withdrawn at the pleasure of the taxing authority. (Mactan Cebu Int’l Airport Authority v. Marcos, supra) Restrictions on Revocation 1. Non–impairment clause – Where the

exemption was granted to private parties based on material consideration of a mutual nature, it then becomes contractual and is covered by the non-impairment clause of the Constitution.

2. Adherence to form – If the tax exemption is granted by the Constitution, its revocation may be effected through constitutional amendment only.

3. Where the tax exemption grant is in the form of a special law and not by a general law even if the terms of the general act are broad enough to include the codes in the general law unless there is manifest intent to repeal or alter the special law. (Province of Misamis Oriental v. Cagayan Electric Power & Light Co. Inc., G.R. No. 45355, Jan. 12, 1990)

Nature of Tax Refunds Tax refunds are in the nature of tax exemptions. They are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption. The burden of proof is upon him who claims the exemption in his favor and he must be able to justify his claim by the clearest grant of organic or statute law (CIR v. Court of Appeals, G.R. No. 104151, March 10, 1995) Nature of Tax Amnesty 1. General or intentional overlooking by

the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law.

2. Partakes of an absolute forgiveness or waiver of the government of its right to collect.

3. To give tax evaders, who wish to relent and are willing to reform a chance to do so.

Rules on Tax Amnesty a. Tax amnesty

a. Like tax exemption, it is never favored nor presumed

b. construed strictly against the taxpayer (must show complete compliance with the law)

b. The government is not estopped from

questioning the tax liability even if amnesty tax payments were already received. Rationale: Erroneous application and enforcement of the law by public officers do not block subsequent correct application of the statute. The government is never estopped by mistakes or errors of its agents. Note: There could be no tax amnesty granted by the President of the Philippines because the same is in the nature of tax exemption which could be granted only by a concurrence of Congress.

Basis: Lifeblood Theory

c. Defense of tax amnesty, like insanity,

is a personal defense. Rationale: Relates to the circumstances of a particular accused and not the character of the acts charged in the information.

5. Tax Avoidance – also called tax

minimization. The exploitation by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income, in order to avoid or reduce tax liability.

Tax avoidance is the tax saving device within the means sanctioned by law. This method should be used by the taxpayer in good faith and at arm’s length. (CIR v. Estate of Benigno Toda Jr.,G.R. No. 30554, Feb.28, 1983)

A taxpayer has legal right to decrease the amount of what would otherwise be his taxes or altogether avoid them by means which the law permits. (Delpher Trades v. IAC, G.R. No. 69259, Jan. 26, 1988)

Example: Availing of all deductions allowed by law or refraining from engaging in activities subject to tax.

(see p. 26 for illustrative example of difference between tax credit and avoidance)




6. Tax Evasion – an illegal means of

escaping taxation. It connotes fraud through the use of pretenses and forbidden devices to lessen or defeat taxes. (Yutivo Sons Hardware v. CTA, G.R. No. L-13203, January 28, 1961) A scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to (further or additional) civil or criminal liabilities. (CIR v. Estate of Benigno Toda Jr., G.R. No. 78583, March 26, 1990.) Factors of Tax Evasion (ESC) 1. The End to be achieved, i.e. payment

of less than that known by the taxpayer to be legally due, or paying no tax when it is shown that the tax is due.

2. An accompanying State of mind which is described as being evil, in bad faith, willful, or deliberate and not coincidental.

3. A Course of action which is unlawful.

Proof of tax evasion a. Failure to declare for taxation

purposes true and actual income derived from business for 2 consecutive years. (Republic v. Gonzales, G.R. No. L-17962, April 30, 1965)

b. Substantial under-declaration of income in the tax returns of the taxpayer for 4 consecutive years coupled with intentional overstatement of deductions. (CIR v. Reyes, Nos. G.R. L-11534 and G.R. L-11558, November 25, 1958)

Tax Avoidance Tax Evasion Validity

Legal and not subject to criminal penalty

Illegal and subject to criminal penalty

Effect

Minimization of taxes Almost always results in

the absence of tax payments

NATURE OF TAX LAWS 1. Not political in character; effective even

under belligerent occupation (Hilado v. CIR, G.R. No. L-9408, October 31, 1956)

2. Civil in nature, not subject to ex post facto law prohibitions;

3. Not penal in character. CONSTRUCTION OF TAX LAWS 1. Tax laws are prospective in operation

(subject to exceptions). 2. Legislative intention must be considered –

Tax statutes are to receive a reasonable construction with a view to carrying out their purpose and intent (51 Am. Jur. 361).

3. Where there is doubt – In every case of doubt, in tax statutes imposing payment of tax, laws are construed strictly against the government and liberally in favor of the taxpayer (Manila. Railroad v. Collector of Customs, G.R. No. 10214, Nov. 4, 1915). Taxes, being burdens, are not to be presumed beyond what the statute expressly and clearly declares.

4. Where language is plain – Rule of strict construction against the government does not apply where the language of the tax law is plain and there is no doubt as to the legislative intent (51 Am. Jur. 368). The words employed are to be given their ordinary meaning.

5. Where taxpayer claims exemption – Exemptions are construed strictly against the one who asserts the claim of exemption. Public purpose is always presumed.

6. Provisions of the taxing act are not to be extended by implication.

7. Tax laws are special laws and prevail over general laws.

Hornbrook Doctrine - the interpretation of

tax laws that ―(a) statute will not be construed as imposing a tax unless it does so clearly, expressly, and unambiguously.‖ x x x (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.‖ Parenthetically, in answering the question of who is subject to tax statutes, it is basic that ―in case of doubt, such statutes are to be construed most strongly against the government and in favor of the subjects or citizens because burdens are not to be imposed nor presumed to be imposed beyond what statutes expressly and clearly import.‖ (CIR v. CA, G.R. No. 115349, April 18, 1997) APPLICATION OF TAX LAWS Rule: Tax laws are prospective in operation.

TAX LAWS




Exception: While it is not favored, a statute may nevertheless operate retroactively provided it is expressly declared or is clearly the legislative intent (Cebu Portland Cement v. CIR, G.R. No. 18649, Feb. 27, 1965). APPLICATION OF TAX RULINGS (Sec. 246, NIRC) Rule: Any revocation, modification or reversal of any of the rules and regulations promulgated (in accordance with the preceding Sections) or any of the rulings or circulars promulgated by the CIR shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers. Exceptions to non-retroactive application of tax rulings to taxpayers: 1. Where the taxpayer deliberately misstates

or omits material facts from his return or any document required of him by the BIR;

2. Where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based, or

3. Where the taxpayer acted in bad faith

KINDS OF PROVISIONS OF TAX LAWS 1. Mandatory – those provisions intended for

the security of the citizens or which are designed to insure equality of taxation or certainty as to the nature and amount of each person’s tax.

2. Directory – those provisions designed merely for the information or direction of officers or to secure methodical and systematic modes of proceedings.

Importance of Distinction The omission to follow mandatory provisions renders invalid the act or proceeding to which it relates while the omission to follow directory provisions does not involve such consequence. SOURCES OF TAX LAWS 1. Constitution 2. Legislation or statutes, including

presidential decrees and executive orders on taxation and tax ordinances, tax treaties and conventions with foreign countries

3. Contemporaneous Construction by Executive or Administrative Officers, including Revenue Regulations by the Department of Finance and Administrative issuances by the BIR or the BOC.

4. Administrative rules and regulations, rulings and opinions of tax officials

particularly the CIR, including opinions of the Secretary of Justice

5. Judicial Decisions – decisions of the Supreme Court applying or interpreting existing tax laws are binding on all subordinate courts and have the force and effect of law. They form part of the legal system of the Philippines (Art. 8, Civil Code). They constitute evidence of what the law means (People v. Licera, G.R. No. L-39990, July 22, 1975).




Illustration: The amount of foreign income taxes paid incurred by a resident citizen may be claimed as a tax credit or deduction from gross income, at the option of the taxpayer (Sec. 34 (C) of NIRC). Given:

Tax Deduction Tax Credit

Gross Income P500,000.00 P500,000.00 Less: Deductions excluding

foreign income tax paid P100,000.00 P100,000.00

Foreign income tax paid P 50,000.00 ----------------------- Personal exemptions P 50,000.00 P 50,000.00

Net Income:

P300,000.00

P350,000.00

Tax Liability: P 45,000.00 Tax Liability before credit: P80,000.00

Less: Tax Credit P50,000.00 Tax Liability: P30,000.00

Rate: Over P250,000.00 but not over P500,000.00 = P50,000.00 + 30% of the excess over P250,000.00 P50,000.00 P500,000.00 P15,000.00 (30% of P500,000.00 P 15,000.00 (30% of P100,000.00) = P45,000.00 P 80,000.00 Note: This is also an illustration of tax avoidance, if the taxpayer chose the tax credit he will be liable only for P30,000.00 compared to P45,0000.00 if the taxpayer chose tax deduction

TAX CREDIT V. TAX DEDUCTION

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