taxation 1 transcription part1

8/13/2019 Taxation 1 Transcription Part1

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T A X A T I O N I T R A N S C R I P T I O N S 20102011 of Atty. Emery Tiu Page | 1

June 15, 2010 Tuesday

What do you understand of the power of the government to impose taxes? This is simply Constitutional law. So youre saying that theexistence of the Constitution is not to grant the power of taxation because it is already inherent in every sovereignty?

What is taxation?

- Taxation is the inherent power of every sovereign government exercised through the legislative body or the Congress to imposeor exact burdens, which we call as taxes, upon not only persons but upon subjects or objects of taxation for the purpose of

raising revenues in order to address the legitimate needs of the government.

- It is a symbiotic relationship between the people and the government. The government cannot exist without the people andthe people cannot exist without the government protecting to help them.The nature of the power of taxation is:

1. It is legislative in character.- Who can actually exercise the power to impose tax?

o Only Congress- How about the President?

o As a rule, no.2. It is inherent.- Even the Constitution does not grant the power to tax because the power to tax is already a right in itself by the sovereign.3. It is subject to inherent and constitutional limitations.- So whenever you see the word tax or taxation in the Constitution, you will know that it is not a grant of power but simply it is a

limitation to the unlimited, plenary and supreme power of the government to impose taxation.

The inherent power to tax simply arose because there is a need of the government to raise revenues in order to support its activities.

- If you are reading the business section of the newspaper, it talks about budgets for the government to meet. The budget of the

Commissioner of the BIR to raise.

So taxation actually plays a major part or a big part in running the entire government. Its basis is the basis of necessity the need of thegovernment to protect the people and the need of the government to serve the people. And it is actually on what we call the famous

doctrine of taxationthe lifeblood doctrine.

So, what is the lifeblood doctrine? Ryan answers. So without taxes, the government cannot exist?

- 99% of the countries or nations impose taxes in order to survive. Government cannot exist without taxes. But I think there isone state which does not it mainly subsists in gambling activities. So that is an exception to the rule but most of us especiallythe Philippines would survive on the generation of taxes in order to raise revenues and meet the needs of the government and

its people.

- So whenever you have doubts, if there is a bar question asking if whether or not an object or a person or an activity is taxable,you think of the lifeblood doctrineit should be taxable because the government needs taxes. But the lifeblood doctrine is onlythe last recourse. You should not reach such point because you should know the answer beforehand. Otherwise, you would just

bet tackling legal ethics wherein youre last recourse answer would be good moral character. The lifeblood doctrine answer isonly to support your first answer, which should be the legal provision of the law.

Taxation as a theory, which we call as the symbiotic relationship between the government and its people. It is also called the benefitsreceived theory or the compensation theory. These three theories are actually almost the same.

What do you know of the symbiotic relationship theory between the government and its people? What is the need of the government

and what is the need of the people in so far as taxation is concerned?

- When you say symbiotic relationship the one needs the other. In so far as taxation is concerned, what the government canoffer to the people is protection and general welfare while what the people can offer to the government is the funds to operate

the government. So taxes by the people to the government in exchange for the governments protection and regulation of theentire nation. So it is symbiotic in the sense that one needs the other. It is a benefits-received theory because it is for the

benefit of both and compensation for the activity (compensation theory).

- There are three theories actually. It is a compensation theory for the people. It is a compensation to the government for thesupport to the people.


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What is the main or primary objective of taxation?

- The primary purpose of the power of taxation is to raise revenues. Whenever there is a law for which the purpose is raisingrevenue, then you have no doubt that it is in the exercise of the power of taxation.

But there are secondary purposes. What do you think are the secondary purposes of the power of taxation?

- To regulate businesseso Speaking of gambling, are winnings from gambling taxable? Winnings from lotto (PCSO) are exempt. Let us say illegal

gambling or games from cockfighting? Even illegal winnings or gains from illegal gambling are as a rule taxablebecause subject to income tax because the definition of income tax is a tax on any income from whatever source.

Because of the phrase whatever source, it includes both legal and illegal games. But then again since it is illegal, dont expect you to declare it. If you dont declare it, you become not subject to tax by virtue of your own decision.

o Are cigarettes subject to tax? Yes. What kind of tax? Sin taxes or excise taxes. Excise taxes are those taxes which are imposed on items which

are not essential. Cigarettes are not essential, in fact, dominant is the phrase, cigarette smoking is

dangerous to your health. It is taxable not only to income tax but as well as to excise tax. If you notice in a

pack of cigarettes, there is a documentary stamp but it is actually a proof that it has been paid of excise

taxes. It is the same as liquors.

Whenever you withdraw non-essential items or goods from the warehouse, it is expected that at that pointit will have to be paid of excise taxes or sin taxes. So that is proof that it has been paid.

If it is imported from abroad then that is another kind of tax and what tax is that? Customs tariffs andduties.

If there is a business which is rendering non-essential services, such as movie theaters whenever youwatch a movie, you expect that 30% of what you pay goes to amusement taxes payable to the loca

government. So these are types of activities that are not really necessary therefore, in order to regulate and

at the same time raise revenues, the government imposes larger taxes.

So when you say that the power to tax is also used as the power to regulate, there comes in the famouswordsthat the power to tax also involves the power to destroy

What do you mean by the power to tax involves the power to destroy? Is it not that this phrase is inconflict with the provisions on the Constitution regarding due process of law and no taking of life, liberty

and property?

The power to tax involves the power to destroy is not necessarily an invalid premise. Therefore, itis not invalid to say that. The power to tax involves the power to destroy if the purpose of taxation

is the secondary purpose which is the purpose for regulation such as trying to regulate an illegaactivity, it has to impose taxes but not really for the purpose of raising revenue but for the

purpose of regulating even to the extent of closing the business if it is illegal. But it (the closing or

destruction of the business or taking of the property through the imposition of taxes) becomesonly valid if there is compliance with substantive and procedural requirements as required by the

Constitution. That is why we said earlier that one of the nature of taxation is that it must always

follow the Constitutional and inherent limitations constitutional limitations as provided by theConstitution and inherent limitations as provided by your conscience because the power to tax is

inherent.

What are the other secondary purposes?

- To promote the general welfare, public health, public safety, public morals, and order in the community.o This power of taxation is exercised hand-in-hand with the police power of the state.

- Another secondary purpose is to reduce social inequality. Reduction of social inequality means that we impose taxes withescalating rates to those who are earning income more than the others. You notice a provision in the Constitution that

Congress shall evolve a progressive system of taxation. This simply means that we, as much as possible, should try to enact a

law which exacts taxes on those who have the ability to pay.o Example: If you earn P5, youll be taxed of 5% income tax. If you earn 1M, you belong to that category of income

earners subject to an income tax of 32%. So it is based on your ability to pay.

o If you purchase an egg, raw meat that has not been processed, mango (not the dried mango) from the grocery store,it is not subject to VAT. You notice the receipt you received from the grocery store, at the bottom, there is a

breakdown of what is vatable and what is not vatable.

o But if youre sosyal and you buy egg from the restaurant, even if it is just hard -boiled egg, it is imposed a VAT. So iis based on the ability to pay principle. Why? Because if you cant afford, then why would you buy eg g from therestaurant.

o But we cannot achieve a perfect system of taxation. Even the Constitution does not require but only encouragesprogressive system of taxation.

- Finally, another secondary purpose is to encourage economic growth by imposing tax or granting fiscal incentives or exceptionsNotice that to encourage investors from abroad, we give them income tax holiday or exemption for the first four or six years o


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operation. Now, are we really giving an exemption in order to raise revenue? No, because we are actually giving up our right to

collect taxes but it encourages economic growth in the long run.

The scope of taxation is unlimited in scope. Even the amount and rate of taxes can be determined alone by Congress. But Congress is

voted as representatives of the people so it actually comes from the people indirectly.

Taxation is comprehensive, plenary and supreme. So what makes it comprehensive, unlimited, plenary and supreme? It is because when

the power of taxation is exercised by both the House and the Senate, they can determine who the subjects and objects of taxation are so

long as these objects and subjects are within its jurisdiction.

So are you class subject to US federal taxes? No because you are not within the jurisdiction of the US. But are you subject to Philippinetax, even if you are not yet income earners? Yesexample is VAT (such as when you purchase gasoline).

So you will notice that the power of Congress to enact tax law is unlimited because whatever they can think of, they can actually enact a

law and impose tax on it, which may be a person, a property or an activity.

Taxes are imposed not only in persons or properties but also activities. So more or less everything is covered. Congress has a leeway to

enact the law imposing tax on such activity so long as it is within its jurisdiction.

Scope of the Legislative Taxing Power:

1. Determination of Purposes- Who determines the purpose of taxation? Is it Congress or the President?

o Congress then approved by the President.o Every tax law must have for its purpose a public purpose. The absence of a public purpose makes the law invalid and

unconstitutional.

o Who determines whether the purpose is public or not? It belongs to Congress.

o So whenever, a law is approved by Congress and the President and it comes out as a valid law and there is a doubt asto its constitutionality, to whom do you go to?

Judiciaryo So remember the roles of the three branches of the government.o Again, the scope of the Congress taxing power is to determine the purpose. Dont give it to the President. It is not

even for the SC to give. What the SC does is actually to know whether the law is constitutional or not according to the

substantive and procedural requirements.

o Determination of the public purpose is the wisdom alone of Congress. It belongs to Congress.2. Determination of the subject and objects of taxation (within its jurisdiction)- This is the determination of who the person will be, what property and what activity. It still belongs to Congress.3. Determination of the amount and rate of tax to be collected- You may notice that in the tax code and other tax laws, some of the taxes imposed are given in rates, of course in digits, some

in figuresfixed amount. In more cases than not, we usually have percentages so it is easier to memorize than the fixed rates.o Example: Youre income tax ranges from 5-32%. What I can think of as a fixed amount of tax under the Tax Code is fo

common carriers tax, which includes shipping vessels, airplanes and jeepneys and taxis.o So if you look at the Tax Code, jeepneys have different common carriers tax. It is fixed in amount depending on the

capacity of the vehicle. But as far as the shipping vessel is concerned and those aircrafts, it is not subject to a fixed

amount of tax, but rather it is subject to VAT, which is equivalent to common carriers tax. So if you travel by boat orby plane, you pay 12% VAT. But whenever you travel by land, you only pay nothing in tax. You dont pay taxes in

traveling by land, but it is the operator of those vehicles who pay for common carriers tax. o Why dont jeepney drivers impose tax? Because it is difficult to monitor or regulate jeepney drivers because for VAT

purposes, you have to have a receipt. So on their part, it is so diff icult to issue a receipt.

4. Determination of the kind of tax to be collected- At any point in this lifetime that you have, it may happen that Congress will always either increase the existing tax rate or enac

a new law imposing a new tax.

- Whenever the government cannot reach its budget to support all branches and departments of the government, their nextrecourse if they dont go for borrowings and subsidies, they increase tax rates.

5. Determination of apportionment of the tax


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- This also belong to Congress6. Determination of the situs of taxation- The situs of taxation also belongs to Congress.7. Determination of the manner and mode of enforcement and collection- The other scope of the taxing power is left to the executive branch of the government, which is the enforcement the means

manner and method of how to collect the tax.

There are two aspects of taxation:

1. Levy (impose the tax)- So, the power of Congress is simply to enact a law it is the levying or the imposition of the tax law. But it stops there. They

cannot go forward to the point of collecting the tax themselves because the existence of Congress is simply to enact a law.

2. Administration of the tax- Taxation would not be successful without the administration aspect.- It is upon the executive branch on how to collect the taxes.- The role of the SC as one of the three branches of the government is to know whether a law is constitutional or not.- So the power of taxation is not solely in the exercise of Congress but other 2 branches play their own roles.- To which department of the government does the BIR belong to?

o Executive branch under the Department of Financeo The President has for his alter-egos the different secretaries of the departments.o Under the department of Finance is the BIR and Bureau of Customs (BOC)o Local treasuries belong to political subdivision units. Theyre not part of the Department of Finance.

- Who has more authority? Is it the Secretary of Finance or the Commissioner of the BIR?o Secretary of Finance is the boss of the Commissioner of BIR.o Under the Sec. of Finance is the Commissioners of both BIR and BOC.

How do we develop a sound tax system?

1. It must be equitable or in technical terms, there must be theoretical justice or equality.- What it simply says is that taxation must be based on the ability of the people to pay the taxes vis--vis their income.- You cannot actually impose taxes inequitably, oppressively. It is tantamount to confiscation of property.2. To have your tax laws administratively feasible. (administrative feasibility)- It is not enough to enact a tax law. The tax law must provide for means and methods which makes it effective and efficient for

management. Meaning, the collection of taxes must be made easier.

3. Fiscal adequacy- Your collection of taxes must be reasonable in terms of how much you will spend for the entire nation.- Tax collection and tax imposition must be so flexible as to expand and contract according to the needs of the government.- Example:

o Can we say that our tax system is sound if the budget or the needed expense is 100B but the collection of tax is 60B,short of 40B?

No, since fiscal adequacy is not satisfied.o How about if the needs of the government is only 60B and the tax collected is 100B?

No, since theoretical justice is not satisfied.- More or less, if there is a big disparity between the needs of the government and the services that it is giving to the people,

meaning, the expenses that it has incurred to provide the basic needs of the people. Then, we do not have a sound tax systembecause in that case, if the collection is 100B and the services delivered is only 60B, then the government is underdelivering the

basic needs to the people. It is not a sound tax system.

- If we say that we dont have a sound tax system because it is not fiscally adequate, does thatmake all the tax laws invalid?o No. If it is not fiscally adequate because both the budget and the collection do not meet, although we can say that it is

not a sound tax system, but it doesnt make the existing tax laws invalid. Having passed both the substantive andprocedural requirements, it is still a valid tax law. It is up to the government on how to make the tax system sound. Al

that the government has to do is to create balance between the collection and expenses.

- If there is difficulty in collecting the taxes, the tax system becomes unsound (violation of administrative feasibility). Does thatmake the law invalid?


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o No because tax law is made by Congress and the means and methods of collecting taxes is formulated by theexecutive. So if there is a difficulty in the collection of taxes, it is not the fault of Congress. If you notice tax laws, at

the end of the law, you will find there rules and regulations will be drafted by the Secretary of Finance. So if there is

difficulty in collecting, it is the fault of the executive branch of the government. It does not make the tax law as

invalid. All it has to do is to loosen-up and formulate new rules and regulations or you can e-pay taxes (e-facility paying taxes through the internet or online) or enhance the collection process or draft another manner, means and

methods of collecting tax.

- If the ability-to-pay principle is not followed, meaning (violation of theoretical justice or equality), the tax system is notprogressive, thus, not developing a sound tax system, does that make the tax laws existing at that point invalid?

o If the progressive system of taxation is reversed, it makes the tax law inequitable. Thus, it result to invalidity orunconstitutionality of the law because it would result to confiscation of property in the form of taxes against thepeople.

Distinguish taxation from police power and eminent domain:

Taxation Eminent Domain Police Power

Authority which

exercises the

power

May be

exercised only by

the government

or its political

subdivisions

(LGUs)

May be:

1)Exercised by

the government

or its political

subdivisions

2)Granted to

public servicecompanies or

public utilities

May be

exercised only by

the government

or its political

subdivisions

(LGUs)

Purpose The property

(generally in the

form of money)

is taken for the

support of the

government

The property is

taken forpublic use; it

must be

compensated

The use of the

property is

regulated forthe purpose of

promoting the

general welfare;

it is not

compensable

Persons affected Operates upon a:

1)Community; or

2)Class of

individuals

Operates on an

individual as the

owner of a

particularproperty

Operates upon a:

1)Community; or

2)Class of

individuals

Effects The money

contributed

becomes part of

the public funds

There is a

transfer of the

right to property

There is no

transfer of title

At most, there is

restraint on the

injurious use of

property

Benefits

received or

compensation

It is assumed

that the

individual

receives the

equivalent of the

tax in the form of

protection and

benefits he

receives from

the government

He receives the

market value of

the property

taken from him

The person

affected receives

indirect benefits

as may arise

from the

maintenance of a

healthy

economic

standard of

society

Amount of

imposition

Generally, there

is no limit on the

amount of tax

that may be

imposed

No amount

imposed but

rather the owner

is paid the

market value of

property taken

Amount imposed

should not be

more than

sufficient to

cover the cost of

the license and

necessary


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expenses

Relationship to

Constitution

Is subject to

certain

constitutional

and inherent

limitations

Including the

prohibition

against

impairment ofthe obligation of

contracts

Is subject to

certain

constitutional

limitations such

as due-process

clause and just

compensation

Inferior to the

impairmentprohibition;

government

cannot

expropriate

private property,

which under a

contract it had

previously bound

itself to purchase

from the other

contracting party

Relatively free

from

constitutional

limitations

Is superior to the

impairment of

contract

provision

- Can taxes be the subject of compensation or set-off or can the taxpayer refuse to pay taxes because it has an existing claimagainst the government?

o No, because you cannot subject the government to uncertainty in the collection of taxes. Notwithstanding that youhave an existing claim for refunds of taxes against the government, you cannot offer to set-off or exchange your

payables with your receivables from the government because the lifeblood of the government, the existence of the

government and its survival rests on the collection of taxes.

- Note: Sometimes, the power of taxation is used as the power to destroy. In that case, you can close up a business so long asyour purpose is not for revenue-raising but only for regulation.

- Note: Even if we take out the Constitution, does that make the power of taxation limitless? No because there are also inherentlimitations which attach to the power of taxation. These inherent limitations always follow the power to tax. So whether or not

the Constitution is there, still the power to tax is limited in some sense.

- GR: Taxes are payable in money.o Reason: Lifeblood doctrine Do you think the government can actually work and provide you with basic services if i

accepts property as payment? They have to liquidate it and sell it and if there is no takers or buyers, what will thegovernment do? Thus, their operations will be paralyzed because taxes are like blood which runs through the veins o

the government.

- So what are taxes?o Taxes are enforced proportionate contributions, in money, levied on persons, property or activities of the persons

and levied by the State which has jurisdiction over the subject or object of taxation and which is actually exercised by

the lawmaking body of the government for the purpose of raising revenues to meet the needs of the government.

- If you dissect the definition of taxes, you will arrive at the characteristics or elements or attributes of taxes:o It is an enforced contribution

If you have been paying taxes and you seek no concrete benefit from the government such as that you dontuse the roads, you have been living in the mountains, can you refuse to pay taxes considering that it is a

symbiotic relationship?

You cannot refuse to pay taxes simply because you do not get direct benefit from thegovernment. Otherwise stated, you cannot solely be the person to pay taxes simply because you

get more benefits than the rest. Purpose of taxation is public which is for the common good and

general welfare. So long as it addresses the common good of the people then taxation is proper.

o It is proportionate This is based on the principle of ability-to-pay principle, which is actually the principle in equitable payment

of taxes following the progressive system of taxation the higher the ability to pay taxes, the more isexpected of you by the government

o Taxes are generally payable in money Reason: It is only money that is the standard of measure. Everything else will rise and fall but not money. Exception:

When taxpayer becomes delinquent in paying taxes (distraining or levying properties). A lien iscreated on every property of a taxpayer once he fails to settle his tax liability. But as much as


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possible, government is not interested in taking properties because its hard to dispose of themBut up to the point wherein you cannot settle because you are not liquid, meaning no cash, it is

when the government will sell your properties in a public auction.

When you pay through tax credit certificates, which are certificates issued by the governmentitself. These are tax certificates issued by the BIR.

o Example: If you overpaid your taxes, you ask for a refund from the government but thegovernment will only give you a certificate which is called the tax credit certificate o

TCC showing that you have overpaid taxes.

o Why does the government not pay you in cash? Again, lifeblood doctrine.o So instead of giving back the money to you if the government realizes that indeed you

have overpaid the taxes then the government will simply give you certificates and youuse that as a taxpayer to pay out your other tax liabilities to that same agency of the

government.

o So if you have the certificate, next year you can use that certificate to pay out yourother taxes.

o So it is only this instance wherein government will not be receiving cash as tax paymento It is levied on persons, properties or activities (these are subjects of taxation)

Activities: The privilege to transmit property upon death is subject to estate tax but the privilege to receive

property as an heir is no longer subject to inheritance tax.

In the same way that donors are subject to donors tax for giving something but donees foreceiving are no longer subject to donees tax.

Property Real Property taxtax imposed against the property itself and not against a person

Person Income tax is more of like a tax against an activity in earning or generating an income because i

you dont engage in an activity, you arent subject to income tax. Community tax (cedula) is an example wherein tax is directed against a person himself with o

without an exercise of an activity.

o Levied by the state having jurisdiction over the subject matter or object of taxation It simply means to say that the power to tax, although supreme and unlimited in nature supposedly, it only

extends until the boundary of the country. Somewhat physical in nature that when you go abroad, or you

are an immigrant abroad and not living in the Philippines physically, then your income abroad is not subject

to Philippine income tax.

So nurses abroad earning thousands of dollars are not expected to remit taxes to the Philippinegovernment.

But if you are only a tourist abroad and still a resident in the Philippines, then you are subject to Philippineincome tax.

o It is exercised by the Congress or lawmaking body of the stateo Levied for a public purposes

- Taxes are divided into 4 categories:o Internal revenue taxesare those taxes imposed by the NIRC

Example: income tax, donors tax, estate tax, VAT, percentage taxes, common carriers tax, gross receiptstax, amusement taxes, documentary stamp tax, excise tax

So what is within the scope of the BIR? It is the enforcement of the taxes under the NIRC. In short, the taxcode.

o Local/Municipal taxestaxes found in the LGC, which comes in 2 types: Local taxeslocal transfer tax, amusement tax, franchise tax Real property taxes

o Tariffs and Customs Dutiesthose that are found in the Tariffs and Customs Code Examples: anti-dumping duties, retaliatory duties

o Taxes and tax incentives under special laws taxed found in different special laws, such as special laws for sugaindustry and coconut industry

June 22, 2010

Recap of Last Meetings Discussion starting of with is the definition of Taxation: It is an enforced contribution to the government. We said that 1 of the nature of the taxation power is that it is legislative in nature. In relation to fiscal adequacy as one of the basic

principles to make the tax system sound, just in case the basic needs and expenses is not met by the tax collector under the presen

taxing system, is it allowed that a tax or a fee will be collected without a law so as to meet the needs of the government?

o Without a law imposing a tax, no tax can be collected. Notwithstanding that there is a deficit in the budget or collection.o When taxation or the power of taxation is inherent in every sovereignty it simply means to say that every government or

every sovereign country can actually tax its people but through the legislative body. That there is no need for the


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Constitution or any law to grant the power to tax because it can tax but in order for it to be effective, collecting from the

people taxes, there must be a law imposed for the government to collect taxes.

o The constitution is just there to limit the power of taxation which is otherwise inherent. At any point in time, thegovernment through the legislative body can enact a law imposing the tax. The law imposing the tax will be enforced or

executed by the executive branch of the government collecting the tax from the people. If we make a short cut, for the

government collecting directly from the people without the law, it is not possible.

o Cannot use the life blood doctrine cannot be used because this situation is the opposite.o It will result in chaos and oppression. And it will be arbitrary for the government, exercised through government officials

that they collect the tax without any guidelines or without any law.

o Collection of taxes without any law will violate the basic provision of the Constitution- _________. That when the nature othe power of taxation is legislative in character it simply means to say that taxation is statutory in nature. Without astatute or law, no tax can be imposed or collected. Even if this is inherent, the power to tax, no collection can be made if

no law is made by Congress.

We discussed what taxation is all about, it is inherent in every society, it is legislative in character and it is limited by 2 typesinherent and constitutional limitations.

We also discussed what is the basis why there is an inherent power to tax in every government because there is that need of thegovernment to protect its people and serve its people. Having these needs of the government, this can only be addressed by the

people supporting the government through the payment of taxes which is a symbiotic relationship between the government and its

people. Taxes will be in monetary form while the other one is through serving and protecting its people.

In life blood doctrine, we say the government has a need for it to survive will need taxes coming from its people.o And we illustrated the life blood doctrine in an example, there can be no set off. Taxes can never be the subject of any set

off. No tax payer can offer can offer to set off his claimable against the government against his liability for taxes. For one

the government and its people are not creditors and debtors of each other. In civil law, compensation or set off can only

happen if there is that creditor-debtor relationship but taxes are not debts of the people they are civil obligations that are

actually enforced upon the people. If the tax payer will have a liability for taxes, the tax payer will have to settle that obligation and it cannot be off-

set against any right of the taxpayer, whether it be a right to be refunded of any tax, etc.

Only exception to the rule that there is no set off or compensation between taxes is the case ofDomingo v. Carlicos:

o There was a set off of the obligation of the tax payer and his claimable from the governmentBut this will only hold true if the receivable from the government is already LIQUIDATED and

DEMANDABLE.

o A claim for refund from the government is not as yet liquidated, then it is not demandable. Itwill have to be settled by the government and look into its validity. So there can be no set of

as a GENERAL RULE.

o Another illustration of the life blood doctrine, is when you cant enjoin the collection of taxes by filing a case in court. Sayfor example the government filed a civil case for collection of your unpaid taxes for prior years, you cannot file an

injunction against the government or BIR against the case filed.

You will see in last part of the Tax Code that there can be no injunction filed against a collection made by thegovernment for taxes. This is the GENERAL RULE.

Exception: there is only 1 to be discussed in remedies. Whenever the government undertakes a move to collect your taxes in any other type of remedy not only the tax

collection, administrative case, etc., whatever the remedy undertaken by the government, you cannot file an

injunction case as a general rule.

We also discussed last meeting the purposes of taxation, the scope of the power of the legislative department in which starts indetermining the purpose of the tax law down to the kind, amount, nature of tax, etc.

We also discussed the 2 aspects of taxation: the administration aspect and preceded by the levy aspect which is undertaken by thelegislative branch.

The 3 basic principles of the sound tax system and distinguished taxation from police power and eminent domain, the 2 othepowers of the government.

What is TAX? What are taxes? TAXES are enforced proportional contributions generally payable in money impose or levied againstpersons, properties or objects of taxation within the taxing jurisdiction levied through the legislative law making body of the state

for purposes of raising revenues to meet the legitimate objectives and public needs of the government and the people.

o It is an enforced contribution. It can never be voluntary as nobody will voluntarily pay taxes.o It is proportionate in contributions because it proportions the burden of taxes to those who are able to pay the taxes. It is

more based on the ability to pay principle.

o It is generally payable in money. However, TAX CREDIT CERTIFICATES (TCT) which are the certificates issued either by theBureau of Internal Revenue, Department of Finance or the Bureau of Customs, they are actually indications that you have

a receivable or overpaid taxes to the government and it symbolizes that you have advance payment to the government

and you can use this certificate to pay out your other tax liabilities. Thus, you are not paying in cash but through another

item.

If TCT is issued by the BIR, it can only be used to pay ta xes due to the BIR. So if its a TCT for income tax that youoverpaid, you can use that certificate to pay other taxes found in the IRC like documentary stamp taxes, donorstax. But you cannot use this TCT to pay off your real property tax before the LGU or to pay customs duties or VAT

before the BOC. It must only be against a tax of the issuing authority.


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o It is levied against persons, properties or objects of taxation so long as it is within the taxing jurisdiction.o It is the levied by the law making body of the state for public purposes.

Generally, for tax to be valid, it must have the following major requirements:o 1. The tax should be for public purpose.

In the Constitution, any tax levied by the government should not be appropriated for any private purpose butonly for public purpose.

o 2. Taxation should be uniform in nature. When we say uniform in nature, then it must be applied to all persons within thesame class similarly situated.

To be expounded when we reach equal protection clause and uniformity and equity in taxation.o 3. It must be within the jurisdiction of the taxing authority to be expounded when we reach citus of taxation.o 4. There must be due process in the assessment and collection of taxes. So fair and reasonable methods of collection.o 5. With porper observance of both inherent and constitutional limitations to the Power of Taxation (POT).

How are taxes classified? What are the classification of taxes?o The subject matter or object against which it is taxed is directed can be classified into 3:

Personal Tax: tax imposed on a person who is a resident of a particular place without regard to his citizenshipMaybe an alien national or without regard to the type of business or profession he is engaged in. He may be a

minimum wage earner or a president of a multi-national corporation, it does not matter. Personal tax is a tax

directed against a person who is a resident of a particular place.

When we say resident in a particular place, it means residence in the Philippines. Why cant we impose a personal tax against a residence of the US? Because he is outside ou

jurisdiction.

Property Tax: it is assessed on properties that lie within the jurisdiction of the taxing authority. Example: Real property tax. Who is liable to pay the tax? Example: This class formed a corporation, which can be incorporated by a minimum of 5 individuals

The corporation owns various real properties.o Since corporations have different personalities or distinct from the persons composing the

corporation or owning the corporation, the liability of the real property tax would actually

call on the corporation itself. Stockholders would not be liable.

Thats the reason why you only 3 types of businesses or organizations. It can becorporation, partnership, or sole proprietorship.

For purposes of protection of individual assets, you go for corporation because youcreate a separate and distinct personality and it cannot go after your persona

assets.

Now if the corporation has real properties, it is the corporation who pays for the real property tax(RPT).

The only instance wherein the stockholders will be liable to pay the RPT of the corporation is when thecorporation dissolves and properties are distributed to the tax holders without the tax having been

paid because the tax follows the property being a property tax. Property tax attaches to the property

itself whoever the owner is.

Excise Tax: it is a kind of tax which does not fall within the meaning of personal or property tax. It is a tax based,not on the persons residence or the persons property, but on the performance of an act or enjoyment of anactivity or privilege and the exercise or engaging of a particular profession. All others which do not fall under the

definition of a personal or property tax will have to be called an excise tax.

Example: Income tax an excise tax? Estate tax an excise tax?o Second classification, under who is burdened by the tax: Direct and Indirect taxes.

What do you call a person who is liable for tax as provided under a law? STATUTORY TAX PAYER (STP).o Is the STP always burdened by the tax imposed by the law? Not always. So we discuss, direct

and indirect taxes.

Direct: the burden falls directly on the tax payer who is mentioned in the law. We call every taxpayer or everyperson mentioned in the law as the one liable to remit the tax to the government as a STP. He is a taxpayer as

provided by the law. He is the one required to remit.

Is remittance to the government requirement equivalent to being burdened by the tax itself? Notnecessarily. In some cases where the STP is required to remit the tax that he himself is burdened by it

by which he can no longer pass the tax to anyone. We call the tax as the direct tax.

o Example: Income tax for your lawyer. And you received for your profession as a lawyer, youwill be liable, as a rule by income tax.

Can you shift income tax to your clients? No because income tax is only computedat the end of the year when you realize your income. If your expenses is lower than

your receipts from your clients. Since you can no longer shift the burden to anyone

else, you are liable to pay the direct tax. Because you are burdened to pay the tax

which you are required to remit to the government.

Indirect: the STP is found in the law can shift on or pass the burden to another person may he be a directconsumer or any other entity in the production chain.

Example: VAT. Under the law every person who sells, barters, exchanges goods, services, or propertiesare liable 12% VAT on the gross selling price or gross receipts.


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o If you are a seller of a property, you will be liable to pay the 12% VAT. You are a STP underthe law. But the VAT of 12% is added on to the selling price of the property which the

consumer pays. So the consumer actually pays the 12% vat to you for which you only conduit

and you remit the 12% vat to the government.

o So VAT is an indirect tax because the burden is shifted by the STP down to the next personmay he be an individual or an entity.

o It may be consumer like us or an entity.o Example: if you have a mango and you sell it to someone who will convert it to a dried mango

chip. After which it is sold to a wholesaler, to a retailer sold to a hotel. Every chain, in every

transfer of property or goods, there will be a 12% added on. Everyone becomes burdened by

tax. The last person, someone ate it in the hotel. That hotel also becomes a STP required toremit it to the government. But the burden was actually shifted to the one who ate it.

o That is why it is called VAT because it is a tax on every value added as it is distributed in aproduction chain or chain of distribution, its tax is added up.

o Classification as how the amount of tax is determined: Specific: tax imposed by the head or number, or by some standard of weight or measurement.

Excise taxes under the tax code imposed on non essential items, not totally though, that they are moreof specific taxes. Ad valorem taxes

Ad Valorem: are imposed on the value of the item or goods. Example: real property tax. Estate tax. Donors tax. They are always imposed on how much is the value

of the property that is transferred or so.

o As to purpose: Revenue raising, which is the general purpose of taxation. Regulatory purpose: imposed for a special purpose.

o As to the scope National: by national government Local or Municipal: by municipal corporations or local governments.

o As to graduation or rate of taxation: Progressive: taxes which escalate or increases as your income increase based on ability to pay principle. The tax

rate increase as the income increases.

This is more reasonable because you are imposing the buden of tax to those who are able to pay them. Regressive: the tax rate decreases as the income increases.

No regressive taxes in the Philippines because these are discouraged. Otherwise it will be unfair tothose whose income is not so much.

What is only argued as a regressive tax is the VAT. But it is a proportional tax. Proportional: it is neither regressive nor progressive. In between regressive and progressive taxes, is proportiona

taxes which is a fixed percentage of tax based on the amount of the property subject or object to be taxed. Wha

is fixed is the tax rate. What is increasing or decreasing is the value of the property, object, subject or income.

Progressive: tax goes up, income goes up. Regressive: tax goes up, income goes down. Proportionalstays as a fixed percentage whether the income is going up or income is going down.

Example: real property tax. Because RPT in cities and municipalities within the Metro Manila area isimposed at 2% of the assessed value of the property. Whether the assessed value is 1M or 1peso, the

RPT pays fixed at 2%

o Corporate Income Tax: stays at 30% flat income tax even if the income of the corporation isat 1B or 1peso.

When you have progressive income taxation, it simply means that the tax laws of the country or system of taxation is placingemphasis on more on direct taxes because equivalent to progressive system of taxation is the ability to pay principle. While

regressive system of taxation focuses more on the presence of indirect taxes as against direct taxes. What is encouraged by the

Constitution is for Congress to evolve a regressive system of taxation. This means, Congress would like to have as many direct taxes

as can be.

o But the Constitution does not prohibit indirect taxes. It only encourages a progressive system of taxation.o That is why when a case was field in the SC, on the Constitutionality of the EVAT law as being regressive in nature. The SC

upheld its constitutionality. The constitution does not prohibit the imposition of indirect taxes. Long ago, sales taxes were

there, indirect taxes were already present. The argument that VAT being regressive is that if you compute 12% as a fixed

amount against the purchases of a high income earner as against a VAT on low income earner, there would be a big

difference of the take home pay of the individual.

Example: Mr. A is earning 100,000 per month, if he uses 30% of that 100% for purchases imposed with VAT. AndMr. B whose income is and he uses 30% for purchases subject to VAT. His purchases per month is Php50,000

plus VAT of 12% which is equivalent 6000 as against the income component of Php 100,000. He actually paid VAT

of 6% only.

If Mr. B earning only 10,000 in a month and spends 80% of his income to purchase in order to subsist in his livingexpenses since we cannot say 5000 is enough. He will have to pay 8000 purchases plus VAT. VAT is Php 916. So

he actually spent for 9.6%.

Although both of them are subjected to a proportional tax of 12% because VAT belongs to the proportional taxbeing fixed in amount imposed in varying degrees of the property bought or sold, but in effect the burden of the


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tax is different as to Mr. A and Mr. B. There was a difference of 3.6%. Thus, argument is that it is regressive

because the burden decreases as your income increases.

SC: upheld the VAT as valid: 1. Indirect taxes is not prohibited by the Constitution. 2. Indirect taxes or sales tax, which VAT is a sales tax, has been there for a long time. It is impossible to

take it out.

3. Because low income earners are expected to purchase items which are not vatable. As provided forin Section 109 of your tax code, it lists down from A to Z items which are now exempt. It provides there

that items, which are original in stake or which has not been processed as yet are exempt from VAT

The SC is actually saying that this group of income earners will not spend on VAT because they will only

purchasing items which are not vatable. Therefore VAT is still a valid tax. Distinguish Taxes from License or Permit Fees. (If to distinguish, the best answer is to answer as to every distinction you can think of

Enumeration as to bullet points or numbers).

o As to source of power: Police Power for license and power of taxation for taxes.o As to purpose: License for regulation; Taxes for revenue.o As to amount: As to taxes, it is unlimited. It is for Congress to determine so long as provided under the law, you follow the

law. If its 50% tax, then its 50% tax. But for licenses, it is only to recover the cost of regulation. But sometimes if it is

exercised in consonance with the power of taxation, this may exceed the cost of regulation.

o As to when paid: Because every business before it starts would have to be licensed in order for it to be operative, thus it ispaid in the beginning. Taxes are only imposed if an income is earned or for other taxes, such as community tax, if there is

capital, etc.

o As to legal effect: Non-payment of licenses will make the business illegal while non-payment of taxes makes the businessstill valid but subject to civil and criminal liability.

Toll Fees vs. Taxes: Toll fees are payments for the use of property. It is not exercised in the power of taxation.o Toll fees are imposed for the use of the property for purposes of recovering the construction cost. It is not only the

government who has the right to collect toll fees but any private entity as well. The reason there being is that in some

cases the government of the Philippines cannot afford to have these kinds of structures. It will have another foreign

company to do the Construction and the spending and allow the private entity or corporation to recover the cost of

construction through told fees. In some cases, the government will enter into a BOT Agreement, Build-Operate-Transfer

wherein a private entity will build something, operate it and after recovering the full cost will transfer the entire property

to the government.

o Toll fees is a demand for the government or private entity for purposes other than governmental purposes.o As to demand: Tolls fees are a demand for ownership while taxes are a demand of the sovereignty.

Special Assessment vs. Taxeso Special Assessment is a levy on a parcel of land that has been directly benefited by the public.

Example: If a flyover, BTC flyover, can the government actually claim a levy against BTC? Can they say that thatparticular piece of land was benefited by the public improvement? Not all public improvements will entitle the

government to levy a special assesedment against the land surrounding the improvement.

SA is not personal in nature. It is directed against the parcel of land, directly benefited by the publicimprovement. It is more a property tax. When we said that there is only 1 kind of property tax, which is rea

property tax. You will notice that SA is a real property tax under the local government code. It is a property tax

against a land benefited directly by the public improivement wherein the government can directly collect to up

to 60% of the cost of the improvement from all surrounding properties. If no benefit is given, no special levy can

be collected.

o Tax is collected on a regular basis while SL is collected only after an ordinance has been passed by the LGU imposing suchlevy. And there can be no public improvement every now and then in the same area. For purposes of observance of due

process, public hearing is necessary so that all property owners is given the chance to object on whether or not they wil

be benefited.

Compromise Penaltyo Compromise Penalties are those granted by the government in lieu of a prosecution for the violation of the tax law. It is

still in relation to taxes. You will see in the tax code that for every violation of tax law, you will be subjected to fines,

imprisonments, surcharges, and interests. But if you want to escape criminal prosecution, if the government will offer to

impose and collect from you the compromise penalty in lieu of a criminal prosecution for the violation of the tax law. It is

allowed.

Example: you have a business and you earn 1M in income and spend 1M in sales, and 1M in expenses. You are aa lost of 1M. You were advised by your advisor that there is no need to file an income tax return because you did

not earn any income and thus not liable for any tax. Is this correct? NO.

As a rule, the tax code provides that every business has to file his income tax return whether it earnedincome or did not perform well. In this example, if you did not file an income tax return and its foundthat out, you will be liable for the non-filing of tax return which is criminal prosecution, violation of the

tax code but in lieu of this the government will offer you a compromise penalty of Php 10,000 for that

failure to file the tax return. But you will not be liable for interest or surcharge because you did no

earn income. Surcharge is only based on the tax that has not been paid, you are losing. You will not be

liable for interest because you did not earn income thus you are not liable for tax, no interest which to

base on.


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o So, the compromise penalty is monetary in nature. The government is not really interest in prosecuting tax payers butrather as much as possible into entering into compromise because taxes are the life blood of the state.

o Compromise penalty is for the government to determine and offer. There is another type of compromise which is not apenalty. The tax payer of the government wishes into compromise meeting and middle ground in the assessment and in

the capability of the tax payer to settle his past obligations. This is a compromise which must be decided upon by both

parties. But this compromise penalty here is the sole prerogative and offer of the government. If accepted, then taxpayer

has only to pay. But the government cannot force the tax payer to pay the compromise penalty. The only recourse left fo

the government is to criminally prosecute the tax payer.

Debt vs. Taxeso Debt is assignable but tax is not generally assignable. Taxes are generally not assignable tax. If you are the statutory tax

payer, it is only against you with whom the government will collect from, whether its direct or not. Say for example, inVAT, there is a different statutory tax payer and the tax payer burdened by the tax. If the purchaser of the property that

you sold did not pay VAT. You are still liable to pay the 12% VAT because you are the STP whether its a direct tax or not.The liability to remit the tax falls on the statutory tax payer.

Only in very few exceptional cases, wherein another person is liable for the tax of someone else. Example: estate tax. If a person Mr. A dies, he leaves an estate. The tax payer is the estate, the person

who died has no more personality. The estate left will be liable to pay the estate tax. If the peroperty is

distributed to the heirs before settling the estate tax, the government can actually proceed to run afte

the heirs not anymore against the estate because of the violation of the law that distribution can only

be made after payment or settlement.

o Debts can be paid other in money. While tax is generally paid in money.o In debtedness, as provided in the Civil Code, there can be no interest collected if it is not stipulated. Unless the promissory

note or written agreement or loan contract provides for interest, it cannot collect interest. But in taxation, interest would

only come in after you failed to your tax on due date. In every regular interval, if you are very prompt in paying taxes, you

dont have to pay interest. If you are very early in paying your taxes, for NIR taxes, no incentive because of the life blood doctrine, you are

not given any discount. But for LCG and real property taxes, you are given discount of 10% or 20% for real

property tax discount but not to exceed these rates.

o Debts can be compensated or offsetted against each other but not taxes because in taxes, the relationship of thegovernment and the tax payer is not that of a creditor-debtor. While in debts it can be compensated or offsetted.

(Philex Mining Corp. Case): Philex actually offered its VAT claims for refund in lieu of the governm ents liability onexcise taxes on mineral extracted. SC said no there can be no offset or compensation between the vat refund

filed and the excise tax due. Excise tax due is already a civil obligation of Philex mining while the claims for VAT

refund are simply inchoate or yet to be proven and is not yet liquidated and thus not yet demandable by the

corporation so there can be no offset.

(Another Case) There was allowed an offsetting. Between the salary of a government employee as against anestate tax liability.

Subsidy vs. Taxes:o Subsidies are those which is given or bounties given by the government of the Philippines while taxes are.o Revenue is the more general term. Revenue is that which is earned by the government through the tax imposition,

subsidies from other nations and tariffs.

o Whiles taxes and subsidies are part of the revenue of every government, taxes are actually imposed against itsconstituents while subsidies are voluntary received by the government.

o Revenue, that which enters the coffers of the government. It is more encompassing than taxes and subsidies.o Internal revenues are the revenues of taxes imposed by the BIR which is part under the NIRC or tax code.o Customs, duties and tariffs are those taxes imposed on goods coming in or out of the country. But, the tariff and customs

code focuses more on taxes on importation because these are the types of activities wherein we give up foreign exchanges

or currencies. Under economics, the Bangko Central cannot arbitrarily issue legal tenders of the Philippines without foreign

currencies. Therefore, we favor exportations rather than importations. As much as possible we utilize local products than

importing from abroad.

o Tariffs is a table of rates which is synonymously used with customs duties. Its like customs duties as well. Limitations to the power of taxation:

o Inherent Limitationso Constitutional Limitations

INHERENT LIMITATIONS:o First: For public purpose

When you say the purpose is public, it means that it affects the inhabitants of the state not merely the individualIt is more of directed to the common good of the people.

But there can be indirect benefits to particular individuals. It can only be appropriated for public purpose. But it can happen that incidentally or a few individuals who can

be benefited. So long as the main objective is for the common good of the people it is still for a purpose. The

wisdom of the tax law is for Congress to decide. The motive behind every law is also for Congress to determine.

So once a tax law is levied by Congress not for public purpose it violates not only the Constitutional limitationthat it must be for public purpose but the inherent nature as well of taxation that always it must be made for a

public purpose.


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A violation would actually result to a violation of the due process clause which is taking of property from theindividuals.

Example: Congress enacted a law which provides that there shall be levied Php1 for every sack of fertilizerproduced by every fertilizer producer. Proceeds of which is to rehabilitate Company B an ailing fertilizer

company. Lets say it is a private corporation. Is this valid? The law enacted by Congress, according to a SC decision, levying tax of every sack of fertilizer produced

for the purpose of funding and rehabilitating an ailing company which is a private company is invalid

because the purpose is not public. The tax collected or the tax levied is directed to rehabilitate a

private corporation which is actually a direct benefit on a particular entity which is not for the common

good.

It made the law void and unconstitutional because of violating the inherent limitation that every taxlaw must be for a public purpose.

But it is not so general as to say that a law cannot be enacted to impose a tax in order to fund a particulaindustry of the country. Example, the levying of fees and taxes to support the sugar industry is valid because it

was for the common good of the entire industry. It is for public purpose to support that industry, to support the

entire government.

But if it is only for 1 entity or a few individuals or few entities and so it is not for public purpose. You identifysomeone to be directly benefited from the tax it is invalid.

To test whether a tax law is for public purpose or not determine whether the proceeds will be used for thesupport of the government or any of the government activities which is governmental in character and whether

or not its proceeds is used to promote the general welfare of the government. Other than that, if the main

purpose is not any of those, then it becomes for private purpose and an invalid tax law.

If you are a tax payer, as a student of a class, if you realize that a law has been enacted imposing a tax but theproceeds is used by the public official or the government to fund private purposes, your recourse is through a

taxpayers suit. To be able to file a tax payers suit, the requisites are:

o A taxpayers suit is for the discretion of the courts. The courts may not at all times grant you to file a

taxpayers suit. But the basis of filing that case is generally because public funds are illegally disbursedfor purposes other than for public purpose.

Public purpose should be determined at(2:01:00) We said that the scope of the taxing power of every legislativedepartment of a country is that they have this exclusive power of determining the wisdom of the law, the

motive, and the expediency and necessity of enacting that tax law. So courts in that point have no power to

inquire into the law, unless, a tax payer comes in to question the wisdom or purpose of the law.

In determining whether a law is valid or not or having violated the inherent limitation that a tax law must be fora public purpose, public purpose must exist at the time that the law is enacted. If at the time the law is enacted

it will be there in the deliberations in Congress and it is for public purpose then the law is valid at that point.

If at the time of the implementation of the law, we dont have any control over that. But if and when itis actually proven that the proceeds of the imposition of that law is not utilized for the public purposedetermined at the time of the enactment of the law, that is when the taxpayer comes in. You question

the illegal disbursement.

o Second: Non-delegation by the taxing authority: As a general rule, the power of taxation cannot be delegated. The powerto impose a tax law remains exclusive to the legislative branch of the government as a general rule. The tax law cannot be

delegated by Congress except in 3 instances:

1. The president who does not belong to the legislative branch is also given the power to do something with thetarrif rates. Like increase, decrease, or remove protective tariff rates, impose bonds on imports or increase the

customs duty rates by not more than 10%, which are exceptions as provided for in the Constitution.

When it allows the executive branch of the government to enforce the law through revenue regulationmaking. It is the Secretary of Finance who makes a revenue regulation enforced in a tax law with the

recommending approval of the Commissioner of Internal Revenue. Since certain regulations as we said

forms part of the law therefore it is as if Congress is delegating that power to the executive part of the

government. But very limited because the executive branch can only execute rules and regulations

within the bounds and parameters provided for and already identified by Congress in the law.

Flexible Tariff Clause in the Constitution provides: Wherein the president can actually, under this tariffclause, in the Constitution it provides the Congress may authorize by virtue of a law the president to fix

the tariff rates whether to remove existing protective tariff duties, to increase it, to reduce it

according to the needs of the country and to impose import or export quota bands, and to impose

additional custom duties by not more than 10%. The constitution itself says that Congress can delegate

through the president, the law making power not only in so far as tariff or custom duties is concerned.

This provision is not self-executing. By the first phrase it says, Congress mayauthorize by law. As provided, Congress can authorize but it has to make a law first

before the President can actually exercise the right.

Congress already enacted a law with the Tariff and Customs Code and its part othe Tariff and Customs Code.

WHY: The president is delegated with such power because:


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The primary reason being, the president is actually involved ineverything, not only in importation and exportation but also with the

budget, the annual budgets that we have.

Can the president actually say that VAT should be 100% or 50%? NoBecause there is no law providing the president such delegated power

The

The reason why this was delegated is for EXPEDIENCY purposesImportation will cause a major change in our economy vis a vis world

trade. If many goods will come in without proper regulation, loca

industries will be affected. If we do not impose import bands or quotas in

importation, automatically by will of the president, for us to be waiting byCongress to enact a law, 3 separate readings, etc, then our economy wil

be greatly affected like the influx of China made items, the influx of Ukay

ukay which is not actually taxed cannot be regulated properly. Its for the

president, and only 1 person who decides, you can say that anti-dumping

duties or retaliatory duties will be 100% more than what is existing in

order to prevent the flow of that particular item that we do not like in the

Philippines.

The word flexible is so flexible as to this matter so long as the president will followthe rule that the protective rates can be increased or reduced by not more than

100% additional duties on top of the existing may be increased by not more than

10%. These are the guidelines Congress has provided the president and the

president is so flexible as to move within these limits and boundaries.

The reason is for expediency, necessity and flexibility. But this can only be donewith NEDA recommendation for purposes of national economy, general welfareand national security.

Info: We have custom duties which we impose normally. If we have importations that we do not likecoming from a country which discriminates against our products or anything about the Philippines, we

can impose on top of the regular custom duties, a discriminatory tax as well. This is where the

president can move about.

2. LGU. The local government unit has been given by the Constitution as well the power to raise its own sourcesof revenue.

Every local government unit has the power to raise its own right to raise its own source of revenue byimposing taxes, fees and charges against its constituents as provided under the Constitution.

This is NOT self-executory. Just like the power of the president to do something with the custom dutieand tariff rates by virtue of a law granted by Congress, then LGU as well, needs a law coming from

Congress so it can fully execute that provision in the Constitution.

Congress has made a law granting this power through the Local Government Code of 1991. This is thelaw enacted by Congress granting the local government units its power to raise all sources of revenue.

Municipal corporations are mere creatures of the Congress so as the inherent power to tax. If Congresdecides to take away this power from the municipalities or cities and do with centralized and nationa

taxing system, then LGUs will be left without recourse but to simply surrender its power to tax and let

the BIR do the collection of taxes. But we are for local autonomy. So still, we have the LGUs taxing.

3. Exemption of government agencies. If the government will tax itself for the purpose of of using it to fund itsoperations, it is superfluous and circuitry wherein you simply remove money from 1 pocket and transfer it to

another. It will also encourage or allow an opportunity for corruption during the transfer. Also, immunity from

tax for the government is necessary so as not to impede the normal operations of the government.

When are government agencies or corporations exempt?o National government is exempt from tax.o Municipal governments, as a rule are exempt from tax, because they are politica

subdivisions which are provinces, cities, municipalities and barangay. They are taxable, if and

when a government agency is performing proprietary functions it removes the exemption

away from them.

o GOCCs, as a rule are taxable just like any other corporation. In the income tax chapter in thetax code, there are 4 GOCCS which are exempt from income tax, all others are subject to

income tax:

The 4 GOCCs exempt are: SSS, GSIS(Government Service Insurance System)PhilHealth and PCSO.

Before PAGCOR is exempt but this has been removed from the exemption. Those other GOCCs not mentioned, they are subject to income tax unless thei

charter provides for exemption.

o Fourth inherent limitation: International Comity. The grounds for exempting foreign government from taxes, etc. on the income that they have is the sovereign

equality of the states which is actually based on traditions, customs, and duties that we dont tax a state whichwe recognize as co-equal to us. Besides, every state is immuned from suit. In case, they do not pay if we require


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them to pay, our suit will not prosper. So there is no use. We do not tax them actually because of the sovereign

equality of states and the immunity from suit included customs, duties and traditions.

o Fifth, territorial jurisdiction: If you go abroad tomorrow, you perform an activity or do some concerts in the US for 1 month and paid 1M USD

you did that outside the taxing jurisdiction of the state. You taxable? Yes.

It does not only mean to say that you will only be taxable if you are within the territorial boundaries. When yousay within the taxing jurisdiction, there are many things to consider including of course the situs of taxation

because the first thing that comes to mind when we say that the power of taxation is limited by the territorial

jurisdiction of the state is that we only tax what is inside the Philippines. This only holds true for real property tax

or taxes on property because we follow the rule wherever the property is situated.

But for people who can move about freely in and out of the country, we not only determine whether they are inthe Philippines or abroad but also where they earned the income, etc. As of now, the limitation is territorial innature. If the income is earned here, the property is here, general rule, you will be taxable.

1. If your parcel of land is in the Philippines, it is subject to tax. 2. If you are in the Philippines working, it is subject to tax. 3. If you are a foreigner earning income in the Philippines, it is subject to tax because you are enclosed

in this territorial jurisdiction. If you are a foreigner earning income abroad, it is not within our power to

tax. He is beyond us. But if you are a Filipino earning income abroad, the answer is yes and no. It

depends on how long you have stayed abroad.

4. Properties abroad. As a rule, properties are taxable where they are located. This is only the generarule because there are different rules for different types of tax.

Constitutional Limitations: There are many limitations provided in the Constitution, it may be directly said about taxation or it maybe indirectly and applicable to all other powers of the government.

o First, Concurrence of the majority of Congress is needed in order to pass a a valid law granting tax exemption, both Senateand the House. When you say majority, it means plus 1.

When a tax exemption is granted by Congress there must be the concurrence of both the house and the Senatewith atleast majority both in each. They have to vote separately otherwise Senate will be absorbed by the

number of the House.

Does this hold true as well with passing a law granting tax amnesty? Tax amnesty means the intentional overlooking of the state of its right to collect taxes which could

have been due to it. While exemption is the foregoing the collection of future taxes. While amnesty is

for taxed taxes. Because in amnesty you are forgiving past violations. In exemption, not yet, in the

future, you are supposed to be taxable but the government withheld its right to collect the tax.

This is the basic difference but bottom line, the government is not getting any money out of itTherefore, being a restriction on the governments part to collect. And the restriction that they are noin consonance with the life blood doctrine, therefore they have to have a strict majority vote.

Since tax amnesty is the same effect as tax exemption because bottom line is both is that thegovernment is actually forgoing the collection of amounts, therefore, coming up with a tax amnesty

law by Congress also needs the concurrence of majority vote of both Senate and the house for it to be

a valid law. For all others, may it be a law granting the refund of taxes for a particular period o

payment or any other amnesty, majority vote.

o Second, exemption of religious, charitable or education institutions (RCE), non-profit cemeteries, churches and parsonagesare exempt from property tax.

All lands, buildings and improvements, as real properties, of all RCE institutions are exempt from property tax? Itshould be ACTUALLY, DIRECTLY, EXCLUSIVELY (ADE) used for the purpose of RCE.

Example: you have a parcel of land owned by you is this subject to real property tax (RPT)? Yes. You have itleased and used by USC, a non-stock, non-profit educational institution, is it subject to real property tax? NO.

because it is ADE used for educational purpose.

If this is leased by USC and a chapel is built but not a school, it is not subject to RPT because the chapel isincidental to the main purpose which is for educational purpose.

If USC makes a school, chapel and a dormitory, which is all used by the students, is the entire parcel of landsubject to RPT or partially subject to RPT? Constitution says that all lands, buildings and improvements should be

ADE used by a RCE, etc are exempt from real property taxes. Therefore, the whole land is exempted. What is

provided in the Constitution is only exemption from real property taxes. Whatever other income that will come

out with the use of the property, lands, buildings and improvements, will be subject to other kinds of taxes such

as income from the rent of the building, donors tax for the donations, tax for the transfer of the property in caseits sold.

The only exemption is for real property taxes in this provision of the law. The exemption is not absolute. It requires that the use and not the ownership that matters but its the use. So

long as its actually ADE for RCE purposes, or any other purposes like cemetery, etc.

University of Cebu, is the parcel of land taxable or exempt from real property tax? Constitution says, ADE for RCE purposes does not require that the school must be a non-stock, non-

profit. So long as the purpose is education in nature, whoever that school is will be exempt from RPT

Whether UC is a proprietary school or whether USC a non-stock, non-profit school, properties used for

education purposes will be exempt from real property tax.


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Ex: School building. This is the parcel of land rented out by you from USC. There is a school building, dormitory, acanteen was constructed off site. Will the canteen and garden be tax exempt?

Here is a canteen but operated by you. As a condition to USC that you will only allow to sell the parceof land if you will be operating the canteen attached to this building. Is the parcel of land exempt from

RPT?

o Example: Styler (canteen in the main building), General rule, if the parcel of land is used for educational purposes then it is exempt

from RPT so long as it is ADE. It does not matter whether the school is non-stock o

non-profit or proprietary or for profit. The religious institution is does not have to

be Catholic. So long as it is a charitable institution.

But for this incidental activities, like canteens, so long as the canteen is operated bythe school itself and within the campus, then it will be exempt from RPT. But if it isoperated by someone else, even if inside the school, it will no longer be exempt.

So if in USC, there is a bar, which is part of the school building. Only that portion ofthe land will not be exempt. All others will be.

o Example, dormitory, which is open for the public, you cannot place exemption for this parceof land.

o If the school is operated by the school, and located outside the school: If it is accessible tothe public, then strictly speaking, it is taxable.

o If a hotel in the school and accessible to the public, for HRM students in USC, the incomefrom outside guests, being merely incidental, are subject to income tax. But the property

itself, RPT that will be exempt because having a hotel is part of the activities it will be having

for school purposes. For the RPT, they can ask for exemption.

o Third, all assets and revenues of a non-stock, non-profit educational institution is exempt from income tax, property taxdonors tax and custom duties.

Because of the governments priority for education in the Philippines, it elevated the role of non -stock, nonprofit education to a very special class which it granted exemption to the 4 kinds of taxes. It will be exempt from

income tax from revenues derived from educational activities. Donors taxes on donations of properties relatedto educational purposes. Custom duties on importations on equipments and items used for educationa

purposes as well. Beyond that, NSNP will not be exempt if it is not for educational purpose. It must also be ADE

used for educational purposes.

June 29, 2010

CONSTITUTIONAL LIMITATIONS (cont.)

Revenue bill must originate exclusively in the House but the senate may propose with amendmentslaw making processo In drafting of tax law, it must originate from the house of representatives. Does that mean the senate has to follow what the

house does? No.

o Just like the general ruling in making a law, for revenue laws or tax laws, every revenue must originate from the house but itdoes not mean that everything has to originate from the house. The power of the senate is to amend whatever originated from

the house or actually have in advance a substitute bill already made in anticipation of the revenue bill which is to be passed by

the house. So it is just for formality purposes, but notwithstanding, it will have to follow the 3 readings in 3 separate days

wherein a panel form of such enactment is to be given 3 days before.

Exemption of religious, charitable and educational entities, non-profit cemeteries and churches from property taxationo Provision: Charitable institutions, churches, parsonages, convents, mosques, nonprofit cemeteries and any improvements

actually, directly and exclusively used for religious, educational and charitable purposes shall be exempt from taxation.

o What is the exemption granted to religious institutions? It only covers the property tax.o When you say property tax, what do you mean by that? If a religious institution has various properties, both real and personal

prop, would all these prop be exempt from tax under the constitution? Piano used by the choir, is it covered by exemption? No

Piano is not a real prop.

o The coverage of exemption under this constitutional provision is only REAL prop tax exemption on real prop. Real prop refersonly to lands, buildings and improvements.

o Would the ownership of a parcel of land by a religious institution automatically grant it real property tax exemption? No. Thetest of exemption is not ownership by the charitable institution, not the ownership by the religious institution, not ownership

by educational institution. It is granted real prop tax exemption if it is actually, directly and exclusively used by such institutions

When you say ADE, it refers to the use.

o Does it mean to say that incidental use of the property will strip off its right to be exempted from the real prop tax? No.Incidental use of prop as long as it is main purpose is still covered by the exemption.


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i.e. convents used by priests and nuns and canteen in school. When you say exclusively used, it does not mean that ithas to be used only for that religious purpose. It does not mean sole use but it must be used primarily for religious

purpose.

i.e. a parcel of land owned by a private individual, leased out to a religious institution. 50% of the area is used as parkingspace P10 per hour exclusively used for parishioners. ---- do not be confused with the exemption in so far as real prop

taxes is concerned as against the income tax on the income generated by the use of that prop. In that case, if it is

incidental, when the use of the free space to park the vehicles of those attending religious activities, the portion of tha

parcel of land is still exempt from real prop tax because the use is incidental to the primary purpose of what the activity

is all about, but the income generated, the parking fees, is another matter. It is an income subject to income tax. The

provision of the constitution does not grant exemption from income tax to income generated by these religious

institutions. If we will move towards income taxation, what section 30 of the tax code provides for all those exempt

organizations, nonprofit cemeteries, nonstock nonprofit educational institution, government educ. Inst. they areexempt from income tax but any use of their prop will be subject to income tax regardless of how the proceeds will be

used. In that case, religious institutions earning income from parking fees, can they say that they will be exempt from

income tax because the fees will be used to maintain the premises? It is not an exemption because what is granted by

the constitution is only real property tax exemption.

o Q: if parking space would also be used by outsiders and not merely parishioners? We have to determine what the numbers areIf majority are outsiders, probably it is not already incidental to the existence of the church but will be a commercial parking

space for everyone so that will not be exempt from real prop tax.

i.e. San Carlos is non-stock non-profit, if it leases out a portion of its space (10%) for use to Jollibee, is it subject to

tax? We are still in real property exemption, it says charitable, religious and educational inst. is exempt from real prop tax

whether they own the prop or not so long as the prop is ADE used for the purpose. In this case, whether this parcel o

land is leased out by USC or owned by it. if it leases out or subleases out a portion to a commercial establishment, this istaken out from the coverage of the exemption. A portion of this entire parcel of land would have to be paid of real prop

taxes. Jollibee space is to be paid of tax. Who is liable for this real prop tax? It depends on the agreement. The contract o

lease would have been entered into, real prop tax follows first whoever the owner is, if it is leased out to somebody else,

liability may be shifted to someone else.

o Would it differ if USC will be changed to UC? Would your answer still be the same? If we change this to UC, a proprietaryprivate educational inst. which is for profit, would your answer still be the same, 90% exempt, 10% taxable?

If the canteen is owned and operated by the school itself and it is located within the campus, it will be exempt from reaprop tax. Same holds true with operating dormitories, with operating bookstores, computer rent outs, so long as it can

be justified as related for the promotion of educational welfare of the students then you can say that the use of the

space is still ADE used.

taxation 1 transcription part1

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