Basic Taxation Law

Basic Taxation Law

Chapter I - General Principles 

    I. Taxation Defined

    II. Basis of Taxation

    III. Nature of the Taxing Power

    IV. Aspects, Processes, Phases of Taxation

    V. Purposes of Taxation

     VI. Extent of the Taxing Power

    VII. Canons of Taxation

    VIII. Principles of a Sound Tax System

    IX. Taxation Distinguished from Other Inherent Powers and Impositions

    X. Limitations on the Taxing Power

  • Public Purpose

    • Pascual v. Secretary of Public Works G.R. No. L-10405 December 29, 1960

      • The law to is an invalid imposition since it results in the promotion of a private enterprise, it benefits the property of a particular individual. 

      • The provision that the land shall thereafter be donated to the government does not cure this defect. 

      • The rule is that, if the public advantage or benefit is merely incidental in the promotion of a particular enterprise, such defect shall render the law invalid. 

      • On the other hand, if what is incidental is the promotion of a private enterprise, the tax law shall be deemed for a public purpose.

    • Lutz v. Araneta G.R. No. L-7859 December 22, 1955

      • The protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be allowed fully play, subject only to the test of reasonableness; and it is not contended that the means provided in section 6 of C.A. No. 567 bear no relation to the objective pursued or are oppressive in character. 

      • If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state's police power.

    • Gomez v. Palomar G.R. No. L-23645 October 29, 1968

      • The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner means benefit to a taxpayer as a return for what he pays, then it is sufficient answer to say that the only benefit to which the taxpayer is constitutionally entitled is that derived from his enjoyment of the privileges of living in an organized society, established and safeguarded by the devotion of taxes to public purposes.

      • The money raised from the sale of the Anti-TB stamps is spent for the benefit of the Philippine Tuberculosis Society, a private organization, without appropriation by law. 

      • But as the Solicitor General points out, the society is not really the beneficiary but only the agency through which the State acts in carrying out what is essentially a public function. The money is treated as a special fund and as such need not be appropriated by law.

    • Albon v. Fernando G.R. No. 148357 June 30, 2006

      • The use of LGU funds for the widening and improvement of privately-owned sidewalks is unlawful as it directly contravenes Section 335 of RA 7160. 

      • Clearly, the question of ownership of the open spaces (including the sidewalks) in Marikina Greenheights Subdivision is material to the determination of the validity of the challenged appropriation and disbursement made by the City of Marikina. Similarly significant is the character of the direct object of the expenditure, that is, the sidewalks.

  • International Comity 

    • CIR v. Mitsubishi G.R. No. L-54908 January 22, 1990

      • Nor can we close this discussion without taking cognizance of petitioner's warning, of pervasive relevance at this time, that while international comity is invoked in this case on the nebulous representation that the funds involved in the loans are those of a foreign government, scrupulous care must be taken to avoid opening the floodgates to the violation of our tax laws. Otherwise, the mere expedient of having a Philippine corporation enter into a contract for loans or other domestic securities with private foreign entities, which in turn will negotiate independently with their governments, could be availed of to take advantage of the tax exemption law under discussion.

  • Territoriality

    • CIR v. Marubeni Corporation G.R. No. 137377 December 18, 2001

      • A contractor's tax is a tax imposed upon the privilege of engaging in business. It is generally in the nature of an excise tax on the exercise of a privilege of selling services or labor rather than a sale on products; and is directly collectible from the person exercising the privilege. Being an excise tax, it can be levied by the taxing authority only when the acts, privileges or business are done or performed within the jurisdiction of said authority. 

      • In the case at bar, all services for the design, fabrication, engineering and manufacture of the materials and equipment under Japanese Yen Portion I were made and completed in Japan. These services were rendered outside the taxing jurisdiction of the Philippines and are therefore not subject to contractor's tax.

    • Wells Fargo v. CIR G.R. No. L-46720 June 28, 1940

      • The shares of stock left by a non-resident alien decedent in an anonymous partnership in the Philippines are subject to Philippine inheritance tax notwithstanding the mobilia rule. According to the Court, the mobilia rule should yield to reason. The shares of stock are also taxable in the situs of their actual location, i.e., the Philippines. 

      • When the taxpayer extends his activities with respect to his intangibles, so as to avail himself of the protection and benefit of the laws of another state, in such a way as to bring his person or properly within the reach of the tax gatherer there, the reason for a single place of taxation no longer obtains, and the rule even workable substitute for the reasons may exist in any particular case to support the constitutional power of each state concerned to tax.

  • Non-Delegation of the Power to Tax

    • Pepsi-Cola v. Tanauan G.R. No. L-31156 February 27, 1976

      • In delegating the authority, the State is not limited to the exact measure of that which is exercised by itself. When it is said that the taxing power may be delegated to municipalities and the like, it is meant that there may be delegated such measure of power to impose and collect taxes as the legislature may deem expedient.

      • Thus, municipalities may be permitted to tax subjects which for reasons of public policy the State has not deemed wise to tax for more general purposes.

    • Pepsi-Cola v. Butuan G.R. No. L-22814 August 28, 1968

      • The general principle against delegation of legislative powers, in consequence of the theory of separation of powers is subject to one well-established exception, namely: legislative powers may be delegated to local governments — to which said theory does not apply — in respect of matters of local concern.

    • NPC v. Albay G.R. No. 87479 June 4, 1990

      • It is to be pointed out that under Presidential Decree No. 776, the power of the FIRB was merely to "recommend to the President of the Philippines and for reasons of compatibility with the declared economic policy, the withdrawal, modification, revocation or suspension of the enforceability of any of the above-cited statutory subsidies or tax exemption grants, except those granted by the Constitution." It has no authority to impose taxes or revoke existing ones, which, after all, under the Constitution, only the legislature may accomplish.

  • Exemption from Taxation

    • LRTA v. CBAA G.R. No. 127316 October 12, 2000

      • The character of petitioner's property, be it an improvements as otherwise distinguished by petitioner, needs no further classification when the law already classified it as patrimonial property that can be subject to tax. This is in line with the old ruling that if the public works is not for such free public service, it is not within the purview of the first paragraph of Art. 424 if the New Civil Code.

      • LRTA is clothed with corporate status and corporate powers in the furtherance of its proprietary objectives. Indeed, it operates much like any private corporation engaged in the mass transport industry. Given that it is engaged in a service-oriented commercial endeavor, its carriageways and terminal stations are patrimonial property subject to tax, notwithstanding its claim of being a government-owned or controlled corporation.

    • MCIAA v. Marcos G.R. No. 120082 September 11, 1996

      • MCIAA was only exempted from the payment of real property taxes. The grant of the privilege only in respect of this tax is conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real property tax.

      • Even if the petitioner was originally not a taxable person for purposes of real property tax, in light of the foregoing disquisitions, it had already become, even if it be conceded to be an "agency" or "instrumentality" of the Government, a taxable person for such purpose in view of the withdrawal in the last paragraph of Section 234 of exemptions from the payment of real property taxes, which, as earlier adverted to, applies to the petitioner.

      • Nothing can prevent Congress from decreeing that even instrumentalities or agencies of the Government performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom.

    • MIAA v. Paranaque G.R. No. 155650 July 20, 2006

      • MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local governments.

      • First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and thus exempt from local taxation. 

      • Second, the real properties of MIAA are owned by the Republic of the Philippines and thus exempt from real estate tax.

    • MIAA v. Pasay City G.R. No. 163072 April 2, 2009

      • MIAA is not a government-owned or controlled corporation but a government instrumentality which is exempt from any kind of tax from the local governments. Indeed, the exercise of the taxing power of local government units is subject to the limitations enumerated in Section 133 of the Local Government Code.10 Under Section 133(o)11 of the Local Government Code, local government units have no power to tax instrumentalities of the national government like the MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay properties.

      • Furthermore, the airport lands and buildings of MIAA are properties of public dominion intended for public use, and as such are exempt from real property tax under Section 234(a) of the Local Government Code. However, under the same provision, if MIAA leases its real property to a taxable person, the specific property leased becomes subject to real property tax. In this case, only those portions of the NAIA Pasay properties which are leased to taxable persons like private parties are subject to real property tax by the City of Pasay.

  • Due Process of Law

    1. CREBA v. Executive Secretary Romulo, G.R. No. 160756, March 9, 2010

      • The MCIT is imposed on gross income which is arrived at by deducting the capital spent by a corporation in the sale of its goods, i.e., the cost of goods and other direct expenses from gross sales. Clearly, the capital is not being taxed.

      • Furthermore, the MCIT is not an additional tax imposition. It is imposed in lieu of the normal net income tax, and only if the normal income tax is suspiciously low. The MCIT merely approximates the amount of net income tax due from a corporation, pegging the rate at a very much reduced 2% and uses as the base the corporation’s gross income.

      • Besides, there is no legal objection to a broader tax base or taxable income by eliminating all deductible items and at the same time reducing the applicable tax rate.

    2. Villegas v. Hiu Chiong Tsai Pao Ho, 86 SCRA 270, November 10, 1978

      • Requiring a person before he can be employed to get a permit from the City Mayor of Manila who may withhold or refuse it at will is tantamount to denying him the basic right to engage in a means of livelihood.  While it is true that the Philippines as a state is not obliged to admit aliens within its territory, once an alien is admitted, he cannot be deprived of life without due process of law. This guarantee includes the means of livelihood.  The shelter of protection under the due process and equal protection clause is given to all persons, both aliens and citizens.

    3. City of Baguio v. De Leon, 25 SCRA 938

      • Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate.

      • All that is needed is that the statute or ordinance in question "applies equally to all persons, firms and corporations placed in similar situation." 

      • Inequalities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation.

    4. Sison v. Ancheta, 130 SCRA 654

      • It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious example is where it can be shown to amount to the confiscation of property. That would be a clear abuse of power. It then becomes the duty of this Court to say that such an arbitrary act amounted to the exercise of an authority not conferred. That properly calls for the application of the Holmes dictum. It has also been held that where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on due process grounds. 

    5. CIR v. CA and Fortune Tobacco Corporation, 261 SCRA 236, G.R. No. 119761, August 29, 1996

      • When an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed. 

      • When, upon the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially adds to or increases the burden of those governed, as in the case at bar, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law.

    6. CIR v. M.J. Lhuiller Pawnshop, Inc., G.R. No. 150947, July 15, 2003

      • RMO No. 15-91 and RMC No. 43-91 cannot be viewed simply as implementing rules or corrective measures revoking in the process the previous rulings of past Commissioners. Specifically, they would have been amendatory provisions applicable to pawnshops. Without these disputed CIR issuances, pawnshops would not be liable to pay the 5% percentage tax, considering that they were not specifically included in Section 116 of the NIRC of 1977, as amended. In so doing, the CIR did not simply interpret the law. The due observance of the requirements of notice, hearing, and publication should not have been ignored.

  • Equal Protection of the Law

    1. ABAKADA Guro Party List v. Purisima, G.R. No. 166715, August 14, 2008

      • Equality guaranteed under the equal protection clause is equality under the same conditions and among persons similarly situated; it is equality among equals, not similarity of treatment of persons who are classified based on substantial differences in relation to the object to be accomplished.

    2. Association of Customs Brokers, Inc. v. City of Manila, 93 Phil 107

      • It is also our opinion that the ordinance infringes the rule of the uniformity of taxation ordained by our Constitution. Note that the ordinance exacts the tax upon all motor vehicles operating within the City of Manila. It does not distinguish between a motor vehicle for hire and one which is purely for private use. Neither does it distinguish between a motor vehicle registered in the City of Manila and one registered in another place but occasionally comes to Manila and uses its streets and public highways. The distinction is important if we note that the ordinance intends to burden with the tax only those registered in the City of Manila as may be inferred from the word "operating" used therein. The word "operating" denotes a connotation which is akin to a registration, for under the Motor Vehicle Law no motor vehicle can be operated without previous payment of the registration fees. There is no pretense that the ordinance equally applies to motor vehicles who come to Manila for a temporary stay or for short errands, and it cannot be denied that they contribute in no small degree to the deterioration of the streets and public highway. The fact that they are benefited by their use they should also be made to share the corresponding burden. And yet such is not the case. This is an inequality which we find in the ordinance, and which renders it offensive to the Constitution.

    3. Shell v. Vano, 94 Phil 387 (1954)

      • Even if the installation manager is a salaried employee of the plaintiff, still it is an occupation "and one occupation or line of business does not become exempt by being conducted with some other occupation or business for which such tax has been paid' and the occupation tax must be paid "by each individual engaged in a calling subject thereto."

      • The fact that there is no other person in the locality who exercises such a "designation" or calling does not make the ordinance discriminatory and hostile, inasmuch as it is and will be applicable to any person or firm who exercises such calling or occupation named or designated as "installation manager."

    4. Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas v. Tan, G.R. No. 81311, June 30, 1988

      • At any rate, the distinction of the customs brokers from the other professionals who are subject to occupation tax under the Local Tax Code is based upon material differences, in that the activities of customs brokers (like those of stock, real estate and immigration brokers) partake more of a business, rather than a profession and were thus subjected to the percentage tax under Sec. 174 of the National Internal Revenue Code prior to its amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT. If the petitioner Association did not protest the classification of customs brokers then, the Court sees no reason why it should protest now.

    5. Tan v. Del Rosario, G.R. Nos. 109289 & 109446, October 3, 1994

      • Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities 

      • Uniformity does not forfend classification as long as: (1) the standards that are used therefor are substantial and not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3) the law applies, all things being equal, to both present and future conditions, and (4) the classification applies equally well to all those belonging to the same class.

    6. Tio v. Videogram Regulatory Board, G.R. No. L-75697, June 18, 1987

      • The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the realization that earnings of videogram establishments of around P600 million per annum have not been subjected to tax, thereby depriving the Government of an additional source of revenue. It is an end-user tax, imposed on retailers for every videogram they make available for public viewing. It is similar to the 30% amusement tax imposed or borne by the movie industry which the theater-owners pay to the government, but which is passed on to the entire cost of the admission ticket, thus shifting the tax burden on the buying or the viewing public. It is a tax that is imposed uniformly on all videogram operators.

    7. Ormoc Sugar Central v. Ormoc Treasurer, 22 SCRA 603, February 17, 1968

      • A perusal of the requisites instantly shows that the questioned ordinance does not meet them, for it taxes only centrifugal sugar produced and exported by the Ormoc Sugar Company, Inc. and none other. At the time of the taxing ordinance's enactment, Ormoc Sugar Company, Inc., it is true, was the only sugar central in the city of Ormoc. Still, the classification, to be reasonable, should be in terms applicable to future conditions as well. The taxing ordinance should not be singular and exclusive as to exclude any subsequently established sugar central, of the same class as plaintiff, for the coverage of the tax. As it is now, even if later a similar company is set up, it cannot be subject to the tax because the ordinance expressly points only to Ormoc City Sugar Company, Inc. as the entity to be levied upon.

    8. Philreca v. DILG, G.R. No. 143076, June 10, 2003\

      • The equal protection clause under the Constitution means that "no person or class of persons shall be deprived of the same protection of laws which is enjoyed by other persons or other classes in the same place and in like circumstances. Thus, the guaranty of the equal protection of the laws is not violated by a law based on reasonable classification. Classification, to be reasonable, must (1) rest on substantial distinctions; (2) be germane to the purposes of the law; (3) not be limited to existing conditions only; and (4) apply equally to all members of the same class.

      • We hold that there is reasonable classification under the Local Government Code to justify the different tax treatment between electric cooperatives covered by P.D. No. 269, as amended, and electric cooperatives under R.A. No. 6938.

    9. Judy Anne Santos v. People, G.R. No. 173176, August 26, 2008

      • The equal protection clause exists to prevent undue favor or privilege. It is intended to eliminate discrimination and oppression based on inequality. Recognizing the existence of real differences among men, the equal protection clause does not demand absolute equality. It merely requires that all persons shall be treated alike, under like circumstances and conditions, both as to the privileges conferred and liabilities enforced.

      • Petitioner was not able to duly establish to the satisfaction of this Court that she and Velasquez were indeed similarly situated, i.e., that they committed identical acts for which they were charged with the violation of the same provisions of the NIRC; and that they presented similar arguments and evidence in their defense - yet, they were treated differently.

      •  The unlawful administration by officers of a statute fair on its face, resulting in its unequal application to those who are entitled to be treated alike, is not a denial of equal protection unless there is shown to be present in it an element of intentional or purposeful discrimination. 

    10. Commissioner of Customs v. Hypermix Feeds Corporation, G.R. No. 179579, February 1, 2012

      • The equal protection clause means that no person or class of persons shall be deprived of the same protection of laws enjoyed by other persons or other classes in the same place in like circumstances. Thus, the guarantee of the equal protection of laws is not violated if there is a reasonable classification. For a classification to be reasonable, it must be shown that (1) it rests on substantial distinctions; (2) it is germane to the purpose of the law; (3) it is not limited to existing conditions only; and (4) it applies equally to all members of the same class.

      • Unfortunately, CMO 27-2003 does not meet these requirements. We do not see how the quality of wheat is affected by who imports it, where it is discharged, or which country it came from.

  • Uniformity, equitability and progressivity of taxation

    1. Tolentino v. Secretary of Finance, 235 SCRA 630, August 25, 1994

      • Lacking empirical data on which to base any conclusion regarding these arguments, any discussion whether the VAT is regressive in the sense that it will hit the "poor" and middle-income group in society harder than it will the "rich," as the Cooperative Union of the Philippines (CUP) claims in G.R. No. 115873, is largely an academic exercise. 

      • Indeed, regressivity is not a negative standard for courts to enforce. What Congress is required by the Constitution to do is to "evolve a progressive system of taxation." 

    2. City of Baguio v. De Leon, 25 SCRA 398

      • On its face, therefore, the above ordinance cannot be assailed as violative of the constitutional requirement of uniformity. A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found.

  • Non-impairment clause

    1. Casanovas v. Hord, 8 Phil 125

      • As consideration for this grant, the grantees were to pay something, and such payment is nowhere said to be in lieu of, or as an equivalent or substitute of taxes. All that can be extracted from the language used, was a grant of privileges and a payment therefor. Other words must be written into the contract before there can be found any relinquishment of the power of taxation.

      • But in the case at bar, there is found not only the provisions for the payment of certain taxes annually, but there is also found the provision contained in article 81, above quoted, which expressly declares that no other taxes shall be imposed upon these mines.

      • It seems very clear to us that the deed constituted a contract between the Spanish Government and the plaintiff, the obligation of which contract was impaired by the enactment of section 134 of the Internal Revenue Law above cited, thereby infringing the provisions above quoted from section 5 of the act of Congress of July 1, 1902. 

    2. Cagayan Electric Power and Light Co. v. CIR, 138 SCRA 629, G.R. No. 60126, September 25, 1985

      • We hold that Congress could impair petitioner's legislative franchise by making it liable for income tax from which heretofore it was exempted by virtue of the exemption provided for in section 3 of its franchise.

      • The Constitution provides that a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires 

    3. MERALCO v. Province of Laguna, G.R. No. 131359, May 5, 1999

      • While the Court has, not too infrequently, referred to tax exemptions contained in special franchises as being in the nature of contracts and a part of the inducement for carrying on the franchise, these exemptions, nevertheless, are far from being strictly contractual in nature. 

      • Contractual tax exemptions, in the real sense of the term and where the non-impairment clause of the Constitution can rightly be invoked, are those agreed to by the taxing authority in contracts, such as those contained in government bonds or debentures, lawfully entered into by them under enabling laws in which the government, acting in its private capacity, sheds its cloak of authority and waives its governmental immunity. Truly, tax exemptions of this kind may not be revoked without impairing the obligations of contracts. These contractual tax exemptions, however, are not to be confused with tax exemptions granted under franchises. A franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause of the Constitution. 

      • Indeed, Article XII, Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no franchise for the operation of a public utility shall be granted except under the condition that such privilege shall be subject to amendment, alteration or repeal by Congress as and when the common good so requires.

    4. RCPI v. Provincial Assessor of South Cotabato, G.R. No. 144486, April 13, 2005

      • The "in lieu of all taxes" clause in Section 14 of RA 2036, as amended by RA 4054, cannot exempt RCPI from the real estate tax because the same Section 14 expressly states that RCPI "shall pay the same taxes x x x on real estate, buildings x x x." The "in lieu of all taxes" clause in the third sentence of Section 14 cannot negate the first sentence of the same Section 14, which imposes the real estate tax on RCPI. The Court must give effect to both provisions of the same Section 14. This means that the real estate tax is an exception to the "in lieu of all taxes" clause.

    5. City Government of Quezon City v. Bayantel, G.R. No. 162015, March 6, 2006

      • Bayantel’s franchise being national in character, the "exemption" thus granted under Section 14 of Rep. Act No. 3259 applies to all its real or personal properties found anywhere within the Philippine archipelago.

      • However, with the LGC’s taking effect on January 1, 1992, Bayantel’s "exemption" from real estate taxes for properties of whatever kind located within the Metro Manila area was, by force of Section 234 of the Code, supra, expressly withdrawn. But, not long thereafter, however, or on July 20, 1992, Congress passed Rep. Act No. 7633 amending Bayantel’s original franchise. Worthy of note is that Section 11 of Rep. Act No. 7633 is a virtual reenacment of the tax provision, i.e., Section 14, supra, of Bayantel’s original franchise under Rep. Act No. 3259. Stated otherwise, Section 14 of Rep. Act No. 3259 which was deemed impliedly repealed by Section 234 of the LGC was expressly revived under Section 14 of Rep. Act No. 7633. In concrete terms, the realty tax exemption heretofore enjoyed by Bayantel under its original franchise, but subsequently withdrawn by force of Section 234 of the LGC, has been restored by Section 14 of Rep. Act No. 7633.

      • Compare: 

      • Smart Communication v. City of Davao, G.R. No. 155491, September 16, 2008 

        • In sum, the aforecited jurisprudence suggests that aside from the national franchise tax, the franchisee is still liable to pay the local franchise tax, unless it is expressly and unequivocally exempted from the payment thereof under its legislative franchise. The "in lieu of all taxes" clause in a legislative franchise should categorically state that the exemption applies to both local and national taxes; otherwise, the exemption claimed should be strictly construed against the taxpayer and liberally in favor of the taxing authority.

        • Republic Act No. 7716, otherwise known as the "Expanded VAT Law," did not remove or abolish the payment of local franchise tax. It merely replaced the national franchise tax that was previously paid by telecommunications franchise holders and in its stead imposed a ten percent (10%) VAT in accordance with Section 108 of the Tax Code. VAT replaced the national franchise tax, but it did not prohibit nor abolish the imposition of local franchise tax by cities or municipaties.

      • Quezon City v. ABS-CBN Broadcasting, G.R. No. 166408, October 6, 2008

        • The "in lieu of all taxes" provision in the franchise of ABS-CBN does not expressly provide what kind of taxes ABS-CBN is exempted from. It is not clear whether the exemption would include both local, whether municipal, city or provincial, and national tax. What is clear is that ABS-CBN shall be liable to pay three (3) percent franchise tax and income taxes under Title II of the NIRC. But whether the "in lieu of all taxes provision" would include exemption from local tax is not unequivocal.

        • As adverted to earlier, the right to exemption from local franchise tax must be clearly established and cannot be made out of inference or implications but must be laid beyond reasonable doubt. Verily, the uncertainty in the "in lieu of all taxes" provision should be construed against ABS-CBN. ABS-CBN has the burden to prove that it is in fact covered by the exemption so claimed. ABS-CBN miserably failed in this regard.

    6. Tolentino v. Secretary of Finance, G.R. No. 155455, August 25, 1994

      • It is enough to say that the parties to a contract cannot, through the exercise of prophetic discernment, fetter the exercise of the taxing power of the State. For not only are existing laws read into contracts in order to fix obligations as between parties, but the reservation of essential attributes of sovereign power is also read into contracts as a basic postulate of the legal order. The policy of protecting contracts against impairment presupposes the maintenance of a government which retains adequate authority to secure the peace and good order of society. 

      • In truth, the Contract Clause has never been thought as a limitation on the exercise of the State's power of taxation save only where a tax exemption has been granted for a valid consideration. 

  • Non-imprisonment for non-payment of poll taxes

  • Bills to Originate from the House of Representatives

    1. ABAKADA Guro Party List, et al. v. The Honorable Executive Secretary Eduardo Ermita, et al., G.R. No. 168056, September 1, 2005

      • To begin with, it is not the law – but the revenue bill – which is required by the Constitution to “originate exclusively” in the House of Representatives. It is important to emphasize this, because a bill originating in the House may undergo such extensive changes in the Senate that the result may be a rewriting of the whole. . . . At this point, what is important to note is that, as a result of the Senate action, a distinct bill may be produced. To insist that a revenue statute – and not only the bill which initiated the legislative process culminating in the enactment of the law – must substantially be the same as the House bill would be to deny the Senate’s power not only to “concur with amendments” but also to “propose amendments.” It would be to violate the coequality of legislative power of the two houses of Congress and in fact make the House superior to the Senate.

      • What the Constitution simply means is that the initiative for filing revenue, tariff or tax bills, bills authorizing an increase of the public debt, private bills and bills of local application must come from the House of Representatives 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. On the other hand, the senators, who are elected at large, are expected to approach the same problems from the national perspective. Both views are thereby made to bear on the enactment of such laws 

  • Veto Power of the President

  • President’s Power to Tax

  • Freedom of the Press

  • Freedom of Religion

    1. American Bible Society v. City of Manila, 101 Phil 386

      • The constitutional guaranty of the free exercise and enjoyment of religious profession and worship carries with it the right to disseminate religious information. Any restraint of such right can only be justified like other restraints of freedom of expression on the grounds that there is a clear and present danger of any substantive evil which the State has the right to prevent.

      • It may be true that in the case at bar the price asked for the bibles and other religious pamphlets was in some instances a little bit higher than the actual cost of the same, but this cannot mean that appellant was engaged in the business or occupation of selling said "merchandise" for profit. For this reason We believe that the provisions of City of Manila Ordinance No. 2529, as amended, cannot be applied to appellant, for in doing so it would impair its free exercise and enjoyment of its religious profession and worship as well as its rights of dissemination of religious beliefs.

    2. Tolentino v. Secretary of Finance, G.R. No. 155455, August 25,1994

      • The fee in § 107, although a fixed amount (P1,000), is not imposed for the exercise of a privilege but only for the purpose of defraying part of the cost of registration. The registration requirement is a central feature of the VAT system. It is designed to provide a record of tax credits because any person who is subject to the payment of the VAT pays an input tax, even as he collects an output tax on sales made or services rendered. The registration fee is thus a mere administrative fee, one not imposed on the exercise of a privilege, much less a constitutional right.

      • For the foregoing reasons, we find the attack on Republic Act No. 7716 on the ground that it offends the free speech, press and freedom of religion guarantees of the Constitution to be without merit.

  • Tax exemption of properties actually, directly and exclusively used for religious, charitable and educational purposes

    1. Lladoc v. CIR, 14 Phil 292, June 16, 1965

      • Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation cemeteries, churches and parsonages or convents, appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious purposes. The exemption is only from the payment of taxes assessed on such properties enumerated, as property taxes, as contra distinguished from excise taxes.  In the present case, what the Collector assessed was a donee's gift tax; the assessment was not on the properties themselves. It did not rest upon general ownership; it was an excise upon the use made of the properties, upon the exercise of the privilege of receiving the properties

      • Manifestly, gift tax is not within the exempting provisions of the section just mentioned. A gift tax is not a property tax, but an excise tax imposed on the transfer of property by way of gift inter vivos, the imposition of which on property used exclusively for religious purposes, does not constitute an impairment of the Constitution. As well observed by the learned respondent Court, the phrase "exempt from taxation," as employed in the Constitution (supra) should not be interpreted to mean exemption from all kinds of taxes. And there being no clear, positive or express grant of such privilege by law, in favor of petitioner, the exemption herein must be denied.

    2. Abra Valley College v. Aquino, 162 SCRA 106, June 15, 1988

      • The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution.

      • The phrase "exclusively used for educational purposes" as provided for in the 1935 Philippine Constitution, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. Otherwise stated, the use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. 

      • Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the Director and his family, may find justification under the concept of incidental use, which is complimentary to the main or primary purpose—educational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education.

    3. Herrera v. Quezon City Board of Assessment Appeals, 3 SCRA 186, September 30, 1961

      • The exemption in favor of property used exclusively for charitable or educational purposes is "not limited to property actually indispensable" therefor, but extends to facilities which are "incidental to and reasonably necessary for" the accomplishment of said purposes, such as, in the case of hospitals, "a school for training nurses, a nurses' home, property use to provide housing facilities for interns, resident doctors, superintendents, and other members of the hospital staff, and recreational facilities for student nurses, interns and residents", such as "athletic fields," including "a farm used for the inmates of the institution." 

    4. Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil 352 (1927)

      • The Supreme Court included in the exemption a vegetable garden in an adjacent lot and another lot formerly used as a cemetery. It was clarified that the term "used exclusively" considers incidental use also. Thus, the exemption from payment of land tax in favor of the convent includes, not only the land actually occupied by the building but also the adjacent garden devoted to the incidental use of the parish priest. The lot which is not used for commercial purposes but serves solely as a sort of lodging place, also qualifies f o r exemption because this constitutes incidental use in religious functions. 

    5. Lung Center of the Philippines v. QC, G.R. No. 144104, June 29, 2004

      • What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes.

      • The portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes.  On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes.

    6. CIR v. St. Luke’s Medical Center, Inc., G.R. No. 203514, February 13, 2017

      • Charitable institutions provide for free goods and services to the public which would otherwise fall on the shoulders of government. Thus, as a matter of efficiency, the government forgoes taxes which should have been spent to address public needs, because certain private entities already assume a part of the burden. This is the rationale for the tax exemption of charitable institutions. The loss of taxes by the government is compensated by its relief from doing public works which would have been funded by appropriations from the Treasury.

      • Both the organization and operations of the charitable institution must be devoted 'exclusively' for charitable purposes. The organization of the institution refers to its corporate form, as shown by its articles of incorporation, by-laws and other constitutive documents. 

  • Tax exemption of non-stock, non-profit educational institutions

    1. CIR v. CA, G.R. No. 124043, October 14, 1998

      • Private respondent is exempt from the payment of property tax, but not income tax on the rentals from its property. The bare allegation alone that it is a non-stock, non-profit educational institution is insufficient to justify its exemption from the payment of income tax.

      • Respondent Court of Appeals committed reversible error when it allowed, on reconsideration, the tax exemption claimed by YMCA on income it derived from renting out its real property, on the solitary but unconvincing ground that the said income is not collected for profit but is merely incidental to its operation.

      • The law does not make a distinction. The rental income is taxable regardless of whence such income is derived and how it is used or disposed of. Where the law does not distinguish, neither should we.

  • Appropriation of public money

  • Grant of tax exemptions

    1. ESSO Standard Eastern, Inc. v. Acting Commissioner of Customs, 18 SCRA 488 (1966)

      • Exemption from taxation is not favored, and that exemptions in tax statutes are never presumed. Which are but statements in adherence to the ancient rule that exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Tested by this precept, we cannot indulge in expansive construction and write into the law an exemption not therein set forth. Rather, we go by the reasonable assumption that where the State has granted in express terms certain exemptions, those are the exemptions to be considered, and no more.

    2. Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary, et al., 238 SCRA 63

      • In the case at bar, we find no reason for holding that respondent Commissioner erred in not considering copra as an "agricultural food product" within the meaning of § 103(b) of the NIRC. As the Solicitor General contends, "copra per se is not food, that is, it is not intended for human consumption. Simply stated, nobody eats copra for food."

      • There is a material or substantial difference between coconut farmers and copra producers, on the one hand, and copra traders and dealers, on the other. The former produce and sell copra, the latter merely sell copra. The Constitution does not forbid the differential treatment of persons so long as there is a reasonable basis for classifying them differently.  

  • Local Taxation

  • Special Fund

  • Supreme Court’s jurisdiction over tax cases

General Principle of Taxation

  • Double Taxation

    1. CIR v. Bank of Commerce, G.R. No. 149636, June 8, 2005

      • Double taxation means taxing the same property twice when it should be taxed only once; that is, "xxx 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 two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and they must be of the same kind or character.

      • The taxes herein are imposed on two different subject matters. A tax based on receipts is a tax on business rather than on the property; hence, it is an excise rather than a property tax. It is not an income tax, unlike the FWT. In fact, we have already held that one can be taxed for engaging in business and further taxed differently for the income derived therefrom.

    2. CIR v. Citytrust Investment Phils., G.R. No. 139786, 140857, September 2006

      • The GRT is a percentage tax under Title V of the Tax Code ([Section 121], Other Percentage Taxes), while the FWT is an income tax under Title II of the Code (Tax on Income). The two concepts are different from each other. 

      • A percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged in the sale of services. It is not subject to withholding. An income tax, on the other hand, is a national tax imposed on the net or the gross income realized in a taxable year. It is subject to withholding. Thus, there can be no double taxation here as the Tax Code imposes two different kinds of taxes.

      • Earmarking is not the same as withholding. Amounts earmarked do not form part of gross receipts because these are by law or regulation reserved for some person other than the taxpayer, although delivered or received. On the contrary, amounts withheld form part of gross receipts because these are in constructive possession and not subject to any reservation, the withholding agent being merely a conduit in the collection process.

    3. Pepsi Cola Bottling Company v. Municipality of Tanauan, Leyte, 69 SCRA 460 (1976)

      • There is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory of double taxation. It must be observed that the delegating authority specifies the limitations and enumerates the taxes over which local taxation may not be exercised. The reason is that the State has exclusively reserved the same for its own prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental law, since We have not adopted as part thereof the injunction against double taxation found in the Constitution of the United States and some states of the Union. Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity or by the same jurisdiction for the same purpose, but not in a case where one tax is imposed by the State and the other by the city or municipality. 


  • Situs of Taxation

    1. Wells Fargo Bank v. CIR, 70 Phil 325

      • Originally, the settled law in the United States is that intangibles have only one situs for the purpose of inheritance tax, and that such situs is in the domicile of the decedent at the time of his death. But this rule has, of late, been relaxed. The maxim mobilia sequuntur personam, upon which the rule rests, has been described as a mere "fiction of law having its origin in consideration of general convenience and public policy, and cannot be applied to limit or control the right of the state to tax property within its jurisdiction", and must "yield to established fact of legal ownership, actual presence and control elsewhere, and cannot be applied if to do so result in inescapable and patent injustice."

      • In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein. And besides, the certificates of stock have remained in this country up to the time when the deceased died in California, and they were in possession of one Syrena McKee, secretary of the Benguet Consolidated Mining Company, to whom they have been delivered and indorsed in blank.


  • Forms of Escape from Taxation

    1. Republic v. Heirs of Cesar Jalandoni, G.R. No. L-18384, September 20, 1965

      • Certainly if there is any mistake in the valuation made by Jalandoni the same can only be considered as honest mistake, or one based on excusable inadvertence, he being not an expert in appraising real estate. The deficiency assessment, moreover, was made by the Collector of Internal Revenue more than five years from the filing of the return, and experience shows that such an intervening period is sufficiently long to, warrant an increase in value of real estate which is precisely what was found by the Collector of Internal Revenue with regard to the lands in question. It is certainly an error to impute fraud based on an honest difference of opinion.

      • Having reached the conclusion that the heirs of the deceased have not committed any act indicative of an intention to evade the payment of the inheritance or estate taxes due the government, as evidenced by their willingness in the past to pay all the taxes properly assessed against them, it is evident that the instant claim of appellee has already prescribed under Section 331 of the National Internal Revenue Code. 

    2. CIR v. Yutivo Sons Hardware, G.R. No. L-13203, January 28, 1961

      • "Tax evasion" is a term that connotes fraud thru the use of pretenses and forbidden devices to lessen or defeat taxes. The transactions between Yutivo and SM, however, have always been in the open, embodied in private and public documents, constantly subject to inspection by the tax authorities. As a matter of fact, after Yutivo became the importer of GM cars and trucks for Visayas and Mindanao, it merely continued the method of distribution that it had initiated long before GM withdrew from the Philippines.

      • After going over the voluminous record of the present case, we are inclined to rule that the Court of Tax Appeals was not justified in finding that SM was organized for no other purpose than to defraud the Government of its lawful revenues. In the first place, this corporation was organized in June, 1946 when it could not have caused Yutivo any tax savings. From that date up to June 30, 1947, or a period of more than one year, GM was the importer of the cars and trucks sold to Yutivo, which, in turn resold them to SM. During that period, it is not disputed that GM as importer, was the one solely liable for sales taxes. Neither Yutivo or SM was subject to the sales taxes on their sales of cars and trucks. The sales tax liability of Yutivo did not arise until July 1, 1947 when it became the importer and simply continued its practice of selling to SM. The decision, therefore, of the Tax Court that SM was organized purposely as a tax evasion device runs counter to the fact that there was no tax to evade.

    3. CIR v. Norton and Harrison, G.R. No. L-176818, August 31, 1964

    4. Philippine Acetylene v. CIR, G.R. No. L-19707, August 17, 1967

    5. CIR v. American Rubber, G.R. Nos. L-19667 & L-19801-03, November 29, 1966

    6. CIR v. John Gotamco and Sons, G.R. No. L-31092, February 27, 1987

    7. Maceda v. Macaraig, G.R. No. 88291, May 31, 1991 and June 8, 1993

    8. CIR v. PLDT, G.R. No. 140230, December 15, 2005

    9. Silkair Singapore v. CIR, G.R. No. 173594, February 6, 2008

    10. Contex v. CIR, G.R. No. 151135, July 2, 2004

    11. CIR v. Seagate Technology (Phils.), G.R. No. 153866, February 11, 2005

    12. CIR v. Estate of Benigno Toda Jr., G.R. No. 147188, September 14, 2004

    13. John Hay Peoples Alternative Coalition v. Lim, et al., G.R. No. 119775, October 24, 2003


  • Construction of Tax Laws

    1. CIR v. CA and Ateneo, G.R. No. 115349, April 18, 1997

    2. Luzon Stevedoring v. CTA, G.R. No. 30232, July 29, 1988

  • Concept of Tax Laws

    1. a. Administrative Issuance by the BIR

      1. CIR v. CA and Fortune, G.R. No. 119761, August 29, 1996

      2. Philippine Bank of Communications v. CIR, G.R. No. 112024, January 28, 1999

    2. b. Tax Treaties

      1. CIR v. SC Johnson and Son, G.R. No. 127105, June 25, 1999

    3. c. Prospectivity

      1. CIR v. Acosta, G.R. No. 154068, August 3, 2007

      2. Hydro Resources v. CA, G.R. No. 80276, December 21, 1990

      3. CIR v. Burroughs Limited, 142 SCRA 324 (1986)

    4. d. Principle of legislative approval by re-enactment

    5. Gulf Air Company v. CIR, G.R. No. 182045, September 19, 2012

General Principles

Tax Remedies

Taxpayer's Remedies

Court of Tax Appeals


Income Tax

  1. Salient Features of the Present Income Tax System

  2. Income and Requisites; Income Tax, Nature and Functions

  3. Gross Income

  4. Individual Income Taxation

  5. Corporate Income Taxation

  6. Allowable Deductions From Gross Income

  7. Estate and Trust

  8. Special Topics in Income Taxation

  9. Income Tax Rules in Dealings in Property

  10. Taxpayers Required to File Income Tax Returns

Estate Tax

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