TAXATION TRANSCRIPT OF STENOGRAPHIC NOTES
Based on the Lectures of Atty.Donalvo (1st Semester of S.Y. 2016-2017)
PRELIMS COVERAGE
June 21, 2016
(By: Alona Suzell B. Ruyeras)
The first thing that I always ask my students,
whether in the undergrad or in law school is this question,
Why do we need to study taxation in the first place? Aside
from being a bar subject, why do we need to study tax?
You may have your own reasons but my personal reason is
that for one, this is something that we cannot do away with.
Right from the time we were born up until we die, we will
encounter tax. Pano ba yan? When we were born: Of
course your parents will have to spend money sa hospital
or sa paanakan, magbayad ka ng professional fees sa
doctor mo, which constitute as income, hence subjected to
withholding tax.
Lets put it in a more current context. If you go to
Jollibee and buy Y5, alam nyo yang Y5? Yan yung
favourite ko, Cheesy Bacon Mushroom, diba? Masarap yan
e. If you buy something sa Jollibee, you get the receipt,
anong makikita nyo? You see the VAT diba? Who pays the
VAT? Technically, it is Jollibee who pays the VAT but the
burden of paying that VAT is shifted to us buyers. That is
why kung P100 ang benta, we pay P112.
Pretty much the same for us na may cars here.
(Aw. Sorry naman Sir..haha). Pagasolinahan natin meron
tayong VAT.
For example you are really in love, and you
would want to give something to your loved one. Sabihin
natin gusto mo sya bigyan ng bahay at lupa. What kind of
contract is that? You give it out of your love and affection.
Donation, diba? And donation will be subjected to donors
tax. Who pays the donors tax by the way? Is it the person
giving or the person receiving? The person who pays the
donors tax is actually the person giving out the gift. So in
the end, there is nothing free in this world, magbigay ka
nalang gani, ita-tax ka pa ng gobyerno.
Now, when you die, dont you ever think about it
that when you die, you will no longer be subjected to tax
because the properties that you will leave behind will be
subjected to estate taxation. If you will not pay estate tax,
the properties that you will leave behind will not be
transferred to your heirs.
So thats why, there are actually two things in this
world that you cannot do away with:
1. Death;
2. Taxes.
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Because we encounter this in our daily lives, we
have to learn something about taxation.
You also need to learn tax because later on, you
may encounter tax problems. The BIR may come to you
and probably impose some taxes against you. Kahit gano
ka ka transparent, ita-tax a pa rin ng gobyerno. And most
of these are even wrongful exactions being imposed upon
you. What are you going to do? So you must know the
remedies.
And lastly of course, bar subject sya. Make no
mistake about it. Taxation is always a killer subject in bar
exams. Year after year. There is no year na hindi mahirap
ang tax. Im not telling this to scare you but tax is really
difficult. Kaya nga yung word na taxing diba? Like *with
feelings* My gosh its so taxing! (Hahaha..Sir, Whyyy)
Even law students. Many of them cannot proceed because
of taxation, because they could not understand tax.
What makes tax difficult by the way? Because
this is closely related to numbers and we, law students or
lawyers, probably some of you hindi, hate numbers. But we
cannot do anything about it because we will always be
dealing with money. But later on, you will learn that tax is
just like any other law that you study in this institution.
Pretty much like Civil Law. Its a set of rules which you
must follow. If you will not follow, there will be sanctions.
So my advice to you is, when you read taxation, wag nyo
isipin ang hirap. Its just pretty much like any other laws
that you will have to study.
Before we talk about numbers, lets just first talk
about the theories or the general principles of taxation.
*DEFINITION OF TAXATION*
Define Taxation. There are many definitions
given by different authors. One of which is given by Aban.
Tax is the power of the sovereign through its law making
body to raise revenues to defray the necessary expenses
of the government. Another author defines it as a process
or an act of imposing a charge by governmental authority
on property, individuals or transactions to raise money for
public purpose. De Leon defines it as a means by which
the state, through its law-making body, raises income to
defray the necessary expenses of the government.
But if we look into these rough definitions, we would see
that there are three (3) basic concepts of taxation:
1. It is a power;
2. It is a process; and
3. It is a means.
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Based on the Lectures of Atty.Donalvo (1st Semester of S.Y. 2016-2017)
Taxation is a power wielded by the state. It is
one of the three (3) inherent powers. Taxation is the
governments power to demand money for the
governments existence.
It is also a process. It is a set of rules. The
government will undergo a set of rules or process before it
can enact tax laws and implement these tax laws. It is also
a process on the part of the taxpayers on how they are
going to pay the taxes.
And lastly, it is a means. It is a means of
generating income for the government to defray its own
expenses.
2. The power to tax is said to be the most powerful of
But, I would like you to take note of this definition.
I like this definition because it encompasses almost all the
nature and characteristics of taxation: Taxation is the
inherent power of the State, exercised through the
legislature, to impose burdens upon subjects and
objects within its jurisdiction, for the purpose of
raising revenues to carry out the legitimate objects of
the government.
From this definition, marami ka nang masagot.
You can derive a lot of answers from that because it
encompasses the general characteristics and nature of
taxation.
Most books would say that there is a two-fold
nature of taxation:
1. It is an inherent power;
2. It is a legislative power.
But the definition, practically marami syang
matamaan. Lets start with inherent power.
The power to tax is one of the inherent powers of
the government. This is basic in your Constitutional Law.
Diba meron tayong three (3) inherent powers or
fundamental pwers of the government?
1. Police Power;
2. Eminent Domain;
3. Power to Tax.
From this characteristic, the fact that it is
inherent, I would like you to take note of these principles.
*BASIC PRINCIPLES ON TAXATION*
1. The power to tax is inherent in the State such that
you dont even need the Constitution for it to
exist;
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Ano bang kelangan natin so that there will
be a power to tax? All you need is for a State to
exist so that it can wield the power to tax. What is
the purpose of the Constitution then? The
purpose of the Constitution is merely to limit the
power to tax.
In Pepsi Cola vs. Municipality of
Tanauan, the SC said that the power of taxation
is an essential and inherent attribute of
sovereignty belonging as a matter of right to
every independent government without being
expressly conferred to the people.
the three (3) inherent powers of the State;
Why? Because the power to tax is plenary,
unlimited and all-encompassing. How is it
manifested that way? If you come to think about
it, the government can tax almost anything under
the sun. Look at the objects of taxation. What are
the three (3) objects of taxation?
a. Persons (e.g. Cedula - by the mere fact
that you are residing in the community);
b. Properties (e.g. Real Property Tax if
you own real properties, pay this, or else
there will be consequences);
c. Rights (e.g. Income Tax the right to
earn income; Business Tax if you do
business; Professional Tax under the
LGC, CPA ka or Engineer, you have to
pay it before you can exercise your
profession)
So if you come to think of it: Persons,
Properties, Rights, it is practically everything,
right? It is so broad, so unlimited, so plenary.
What about the rates of taxation? Can the
government say all the incomes of the individuals
and corporations will be subjected to 60%
income tax. Can the government do that?
Theoretically Yes! Because the power to tax,
again, is unlimited, plenary and all-
encompassing.
This is actually shown in the case of Tio vs.
Videogram vs. Regulatory Board. *Recitation*
In this case, Mr. Tio is a videogram operator. He
questioned the constitutionality of a provision in
the NIRC after a certain amendment which
imposed tax on videogram operators because,
according to him, such tax imposition is
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Based on the Lectures of Atty.Donalvo (1st Semester of S.Y. 2016-2017)
burdensome and excessive. The SC ruled that
taxation is plenary and all-encompassing.
Read this case because this is a landmark
case. It is an easy read but there are a lot of
general principles injected in this case. So in the
end, the tax measure may be said to be harsh
but we cannot do anything about it. The mere
fact the tax measure is harsh, by itself, does not
make it unconstitutional. Because the general
rule is that, the power to tax is unlimited, plenary
and all-encompassing.
3. The power to tax involves the power to destroy;
This is actually the MARSHALL
DOCTRINE. This is from a US case. It is so
strong that it is the power to destroy. One prime
example for this are the Sin Taxes. Ano ba yang
sin taxes? Those are excise taxes imposed on
manufacturing and production of alcohol and
tobacco. To be honest about it, when the new
law was passed, a lot of local breweries and local
producers or growers of tobacco, namatay,
because of Sin Taxes. If you remember before,
magano lang ba ang isang bucket ng beer?
Around P150? Magkano na sya ngayon? Around
P250? So its because of those taxes. Why? The
government wants to curb down the intake of
alcohol and smoking. Because it is bad for the
health. Bakit? Kasalanan bang uminom?!
(Hmmm..lahat ng sobra, kasalanan ata
Sir..char..haha)
4. The power to tax is NOT the power to destroy
while this court sits;
This is the HOLMES DOCTRINE. What are
the implications of this principle?
a. The power to tax, even if it is so strong, even if
it is the power to destroy, it still is subject to
limitations. Thats why we have the
Constitution to safeguard our rights as
individuals, as constituents of the Philippine
government;
b. An invalid tax law may be struck down by the
courts. As long as it is invalid.
Which brings us to the more or less middle
ground of these two principles (referring to the Marshall
and Holmes Doctrine) ...
5. The power to tax involves the power to destroy so
it must be exercised with great caution.
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This is actually exemplified in the case of
Philippine Health Care vs. Commissioner.
*Recitation* In this case, the business of Philippine
Health Care (PHC) is providing health care
agreements to its members. PHC was imposed with
documentary stamp taxes (DST) amounting to millions
which was assailed by PHC alleging that it was
excessive. So the issue in this case is W/N the DST
assessed was excessive. The SC held that the power
to tax is actually the power to destroy. The mere fact
that it is highly oppressive is not by itself reason to
strike down the law. But because it is so strong, it
must be exercised with caution to minimize injury
against the proprietary rights of the taxpayer. It must
be exercised fairly, uniformly and equally, lest the tax
collector kills the hen that lays the golden egg (THE
GOLDEN EGG PRINCIPLE). What is the first
protection against an oppressive tax law? Is it with the
courts? No. It must be with the legislature. The DST
imposed upon PHC was greater than the latters net
worth. Hence, it was excessive.
How do we reconcile these principles?
The MARSHALL DOCTRINE, the destructive
power of tax, refers to a valid tax law. As long as theres a
valid tax law, it is Constitutional, the Courts cannot do
anything about it. It cannot strike down a valid tax law.
An illegal tax, if it is highly oppressive, it violates the
Constitution, may be declared invalid by the Courts
(HOLMES DOCTRINE). Hence, Holmes refers to an invalid
tax law.
June 28, 2016
(By: Glorybelle C. Resurreccion)
Recap: We discussed about the inherent nature of the
power to tax. You do not need the constitution for it to
arise. All you need is for a government to exist and
automatically the power to tax comes along. It goes along
with the other inherent powers of the government.
Power to tax is unlimited and all encompassing.
The power to tax is the power to destroy.
Why is the power to tax inherent? Because it is
the lifeblood of the state.
The Lifeblood Theory: Taxation is the lifeblood
of the state. Without taxes the government cannot survive
or endure.
This is basically the Art. 19 of Taxation. People
would always tell you that if you dont know the answer,
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 TAXATION TRANSCRIPT OF STENOGRAPHIC NOTES
Based on the Lectures of Atty.Donalvo (1st Semester of S.Y. 2016-2017)
you write Art. 19 (New Civil Code). [In Taxation questions],
if you have no idea what the problem is all about, probably
you would always lean on the taxability of the transaction
and make this as your reason: Taxes are the lifeblood of
the state. Without it, the government cannot survive. It is
very important for the government to collect funds.
What are the manifestations of this theory? How
do we concretize this concept?
The first is the No Injunction Principle. If you
look at the Court of Tax Appeals Law, the rule is that you
cannot enjoin taxes. You cannot avail of the provisional
remedy. You cannot stop the government from collecting
taxes. The only ground that you are allowed to enjoin taxes
is that it will jeopardize the business of the person or the
business of the state. But the CTA would rarely grant
injunction because of this Lifeblood Theory.
The second is the Strict Construction of Tax
Exemption. (This is further discussed on construction of
tax laws.)
The No Injunction Principle is highlighted in
Republic vs. Caguioa.
Republic vs. Caguioa
Mr.Caguioa here is a judge. There were a lot of people who
filed a case wanting to declare a provision of RA 9334
unconstitutional. This is in respect to Subic Economic
Freeport Zone. Prior to this law, kung ang enterprise,
andyansaloobng SEFZ, it will not be subjected to any fees,
taxes and charges [in the importation of cigars, cigarettes
and liquors]. But because of the new law, they are now
taxed. They filed a case for the annulment of this particular
provision of the law. They also prayed for injunction. RTC
Judge Caguioa granted the application for the issuance of
a writ of preliminary injunction.
HELD: The Judge should have NOT granted the writ of
preliminary injunction.The power to tax emanates from
necessity; without taxes, government cannot fulfill its
mandate of promoting the general welfare and well-being
of the people.
The power to tax is also Legislative in Nature.
This means this power involves the making of laws.
Q: The BIR has the power to create tax laws.
A: False. The function of the BIR, as part of the executive
branch is to implement the tax laws promulgated by the
Congress.
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The case in point here is the case of Pepsi Cola
vs. Municipality of Tanauan: It is a power that is purely
legislative and which the central legislative body cannot
delegate either to the executive or judicial department of
the government.
Q: What is the scope of the legislative taxing power of the
government?
A: It covers all the spectrum of taxation. First, it covers the
nature and kinds of tax we impose. e.g.property tax, [basic]
income tax, etc. Second, it also covers the object or the
purpose of taxation. It is possible that the government will
impose a tax so that the money will go to the general funds
of the government. Or probably there is a specific purpose
for that exaction or imposition. Third, the extent/rate.The
government decides on how much or what will be the tax
rate for a particular imposition. It also covers the coverage
or subjects of taxation. Lastly, the situs of taxation or place
of taxation.
Since this is an exercise of the legislative power,
__________. The other inherent powers of the government
are also a legislative function. Thats why we have to
compare the power to tax to the other inherent powers of
the state.
POLICE POWER
It is the "state authority to enact legislation that
may interfere with personal liberty or property in order to
promote the general welfare."
How is police power different from the power to
tax? What is the main thrust of Police Power? It is for the
general welfare. But congress also makes tax laws for the
general welfare. But the thrust of police power is to restrain
rights, an imposition of restraint upon liberty or property.
Can the power to tax go along with police power?
Yes. In the cases provided, you will see that one of the
reasons why a law is enacted even if it is a tax law is to
promote/implement police power, that is, to regulate. There
is some sort of a regulation involved.
Is it limited to money only when you talk about
police power? Because technically, when you talk about
the power to tax, more or less, most of the time it involves
money. You literally get properties because of taxation.
Why do you get the properties of an individual when we
talk about taxation? Only if the individual is not able to pay
his tax. Kung ayawmongmagbayad, kukunin naming yung
property mo, levy, then sell it to public auction. So money
pa rin.
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But with respect to police power, what is the
difference? With respect to police power, the government is
not limited to the taking of money but it involves any kinds
of property. That is why, if youre found to have an
unlicensed firearm, the government can confiscate it
because it is a contraband. It is the same with drugs. Not
only the government can take away the drugs, they burn it
as well.
Sometimes it is easy to distinguish whether a
particular imposition sanctioned is in the exercise of police
power or the power to tax. Sometimes it is difficult. You just
have to read the case.
But what is our main guiding principle? It is that
you look at the purpose of a particular imposition.
Bakitsyakinunanngpera? If the primary purpose, is to raise
revenues or income, that is taxation power even if
incidentally there is regulation involved. If the exaction is
for regulatory purpose or the main thrust of the particular
law is for regulation, then we consider it as an exercise of
police power even if there is an income that we may be
getting in the process.
Republic vs. Murcia
Q: What was Bacolod Murcia here?
A: Bacolod Murcia Milling Co. is a sugar central
corporation
Q: What was the special assessment all about?
A: Special assessments under Section 15 of Republic Act
No. 632, the charter of the Philippine Sugar Institute
(Philsugin), are the levy borne by the sugar cane
planters to raise the necessary funds to carry out the
provisions of said law
Q: Why did Bacolod et. al. file the case?
A: [Philsugin acquired the Insular Sugar Refinery, the
installments of which were from the process of the sugar
tax to be collected, under Republic Act 632. But the
operation of the Insular Sugar Refinery for the years, 1954,
1955, 1956 and 1957 was disastrous.] They contended that
the purchase of the Insular Sugar Refinery with money
from the Philsugin Fund was not authorized by Republic
Act 632 and that the continued operation of the said
refinery was inimical to their interests, the appellants
refused to continue with their contributions to the said
fund.
Atty. Donalvo: The case is like this, Bacolod et.al. are
saying that they dont want to pay [the special assessment]
anymore. We dont get any benefit from it. In fact,
tremendous losses have been incurred. The exaction of 10
cents per picul of sugar is actually a special assessment.
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Q: What is special assessment?
A: Being a special assessment, the proceeds thereof may
be devoted only to the specific purpose for which the
assessment was authorized, a special assessment being a
levy upon property predicated on the doctrine that the
property against which it is levied derives some special
benefit from the improvement. It is not a tax measure
intended to raise revenues for the Government.
Consequently, once it has been determined that no benefit
accrues or inures to the property owners paying the
assessment, or that the proceeds from the said
assessment are being misapplied to the prejudice of those
against whom it has been levied, then the authority to insist
on the payment of the said assessment ceases.
Q: Are Bacolod et. al. correct in saying that it is a special
assessment? Is it a tax? If not, is it an exercise of police
power?
A: SA is in the exercise of the police power of the state.
This Court can take judicial notice of the fact that sugar
production is one of the great industries of our nation,
sugar occupying a leading position among its export
products; that it gives employment to thousands of laborers
in fields and factories; that it is a great source of the state's
wealth, is one, of the important sources to foreign
exchange needed by our government, and is thus pivotal in
the plans of a regime committed to a policy of currency
stability. Its promotion, protection and advancement,
therefore redounds greatly to the general welfare. Hence, it
was competent for the Legislature to find that the general
welfare demanded that the sugar industry should be
stabilized in turn; and in the wide field of its police power,
the law-making body could provide that the distribution of
benefits therefrom be readjusted among its components, to
enable it to resist the added strain of the increase in taxes
that it had to sustain.
Gerochi vs. Department of Energy
Q: What is this Universal Charge (UC) here all about?
What was its purpose?
A: See Sec. 34, RA 9136.
Q: Who determines the imposition of UC?
A:The Energy Regulatory Commission under Sec. 34, RA
9136: a universal charge to be determined, fixed and
approved by the ERC, shall be imposed on all electricity
end-users
Q: Who is Gerochi here?
A:Gerochi et.al. are end-users of electricity via Panay
Electric Company, Inc. (PECO)
Q: Why did they file this case?
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A:Gerochi et. al. wanted SC to declare Sec. 34, RA 9136 determined the purpose of this law. Its purpose is
and Sec. 2, Rule 18 of IRR unconstitutional. They argued regulatory i.e. to ensure the viability of the country's electric
that the universal charge provided for under Sec. 34 of the power industry, etc.
EPIRA and sought to be implemented under Sec. 2, Rule
18 of the IRR of the said law is a tax which is to be If you read all these, you would be able to
collected from all electric end-users and self-generating determine that this law is in fact for regulation, not to raise
entities. The power to tax is strictly a legislative function money. And even if UC is for the purpose of raising
and as such, the delegation of said power to any executive revenues, you have to remember that the taxing power can
or administrative agency like the ERC is unconstitutional, be used as an implement of police power.
giving the same unlimited authority. The assailed provision
clearly provides that the Universal Charge is to be Philippine Airlines vs. Edu
determined, fixed and approved by the ERC, hence leaving
to the latter complete discretionary legislative authority. Q: What is the business of PAL?
A: Air transportation business under a legislative franchise
Main issue of the case: What is the nature of the UC? Is it
a power to tax or a police power? Q: According to its franchise, what is the tax pertained to
PAL?
Q: Why is it important to determine the nature of the A:Under its franchise, PAL is exempt from the payment of
imposition? What is the implication of the SC if the UC is a taxes.
tax?
A:If it is a tax, then its purpose is to raise revenue. Hence, Atty. Donalvo: PAL was exempt from all kinds of taxes
the ERC has no power to impose the same, being an under its legislative franchise. Subsequently,
undue delegation of a legislative authority. Commissioner Romeo F. Elevate issued a regulation
requiring all tax exempt entities, among them PAL to pay
Q: Why was the UC an exercise of police power? How did motor vehicle registration fees.
the SC determine its nature?
A:In exacting the assailed Universal Charge through Sec. Issue: What is the nature of this motor vehicle fees?
34 of the EPIRA, the State's police power, particularly its Held: The purpose of the MV fees is to raise income for the
regulatory dimension, is invoked. Such can be deduced construction and maintenance of public roads, streets and
from Sec. 34 which enumerates the purposes for which the bridges.
Universal Charge is imposedand which can be amply
discerned as regulatory in character.
Police Power vs. Power to Tax:
Moreover, it is a well-established doctrine that the taxing Power to Tax Police Power
power may be used as an implement of police power. With As to Collecting money To make laws for
the Universal Charge, a Special Trust Fund (STF) is also concept for the general
created. Evidently, the establishment and maintenance of the purpose of purpose
the Special Trust Fund, under the last paragraph of Section raising
34, R.A. No. 9136, is well within the pervasive and non- revenues
waivable power and responsibility of the government to As to Income/ Revenue Regulation
secure the physical and economic survival and well-being purpose
of the community, that comprehensive sovereign authority As to the Generally Amount should
we designate as the police power of the State. amount unlimited not exceed the
cost of regulation
This feature of the Universal Charge further boosts the As to the Continuous _____ society
position that the same is an exaction imposed primarily in compensa protection in an
pursuit of the State's police objectives. The STF reasonably tion organized society
serves and assures the attainment and perpetuity of the As to the Money Property other
purposes for which the Universal Charge is imposed, i.e., property than money
to ensure the viability of the country's electric power taken
industry. As to the Inferior to non- Superior
Non-impairment impairment
In this case, the SC in determining the nature of clause clause
the imposition of the UC looked at the very provisions of
the law. It looked at Declaration of State Policies and

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Chevron PH vs. Bases Conversion Devt Authority and And besides, they are compelled to pay out or give out
Clark Devt Corporation 20% discount mandatorily without any return to them.

CDC sent a letterto Chevron Philippines, Inc., a domestic After much discussion on the tax credit and tax
corporation which has been supplying fuel to Nanox deduction, SC said the tax credit _____ granted to these
Philippines, a locator inside the Clark Special Economic establishments can be deemed as just compensation for
Zone (CSEZ), informing the Chevron that a royalty fee the private property taken for public use. The government
of P0.50 per liter shall be assessed on its deliveries to takes away a part of your income, and in return, the money
Nanox Philippines effective August 1, 2002. that it took away, you can pay it as a tax credit later on.
You can reduce your taxes.
Q: What is the nature of the royalty fee?
A: It is in the exercise of police power. There can be no In effect, the SC is saying that the power of ED
doubt that the oil industry is greatly imbued with public and the power of taxation can actually go together.
interest as it vitally affects the general welfare. In addition,
fuel is a highly combustible product which, if left But inCarlos Superdrug vs. Velasco and
unchecked, poses a serious threat to life and property. Manila Memorial vs. Sec. of DSWD, the SC did not
Also, the reasonable relation between the royalty fees discuss much about the power of ED. The senior citizen
imposed on a "per liter" basis and the regulation sought to discount and the corresponding tax deduction, those who
be attained is that the higher the volume of fuel entering afford the 20% discount to the senior citizens is actually an
CSEZ, the greater the extent and frequency of supervision exercise of police power.
and inspection required to ensure safety, security, and
order within the Zone. In case youll be asked in the Bar on what is the
nature of the 20% discount in relation to taxation, on WON
EMINENT DOMAIN it is in the exercise of the power of ED or police power, I
think you have to follow the Manila Memorial case.
The power of ED is the inherent power of the
state to take private property for public use with payment of Power to Tax Power of
just compensation. Remember the requirement of this Eminent Domain
power. As to concept Collection of Taking of property
money for public purpose
Q:Can the power to tax can be used as an implement of for revenue by paying just
the power of eminent domain? purposes compensation
A:Yes, [as provided] in the case of CIR vs. Central Luzon. As to the Revenue Property for
But I think the discussion here is a mere obiter dictum. purpose public purpose
As to the amount Generally Amount is limited
CIR vs. Central Luzon: This case was about the senior unlimited to the value of the
citizens discount. Before, if you (as a business entity) give property to be
a 20% senior citizen discount, you can claim it later as a used for public
tax credit. So, it is a peso-for-peso deduction from your tax. purpose
But right now, it is just a tax deduction._______ Meaning, it As to the Just
is just a subtraction from your income. The effect on your compensation compensation
taxable income in your tax income later on is just indirect. As to the Money Private property
Its just a fraction of it [?] property taken whether personal
or real
Central Luzon is engaged in pharmaceutical
products. Now, there was a revenue regulation that said
that if you incur in a particular year a net loss, you cant
June 30,2016
claim any tax credit. So walangmababawassa tax mo. And
(By: Peter Quiel E. Vega)
tax credits, you can use this to any kinds of taxes
________ all sorts of internal revenue taxes. It is not
Review:
limited for a particular payment. I think it also has an
Last meeting we discussed the comparison of the powers
expiration, in 3 years but you can renew it.
of the state. You must be able to distinguish the power of
taxation from other powers of the government.
Central Luzon challenged the provision. [They
argued that they] can still use this tax credit in the future.

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Ferrer vs Bautista
(Percy: You read this case, this is a good case)
The party is Herbert Bautista, the mayor of quezon city.
There was a tax payer who filed a case against the
mayor, mayor bautista. Why? Because of the 2
ordinances quezon city promulgated:
1) For the imposition of the special assessment
based on the certain percentage of assessed
value of the property. The purpose is for
socialized housing tax (SHT);
2) Imposition of garbage fees.
Petitioner here is a landowner challenging these two
provisions. The question here to be resolved by the
supreme court is what is the nature of SHT and
garbage fees? is it power to tax or regulatory?
SC:
1. What is the purpose?
- SHT is a TAX because the main purpose is to raise
income. Aside from that, it is for the socialized housing.
But then, the supreme court said that it is not purely an
exercise of a tax measure. It was ___ police power. As
we discussed before, power to tax and police power can
go together. The main purpose to raise money so there
can be a socialized housing. This can benefit the
marginalized residents of Quezon city, and also the land
owners. The slums will be reduce and the owners can
make use of their property.
- The Garbage fees is actually a regulatory exaction.
The supreme court purely look at the law.Anoang
purpose nitong garbage fee? If you look at the
provisions of the ordinance it is actually for the basic
services such as effective system of waste
management, including the imposition waste regulatory
measure barangays(?).
(sir read the provisions pinapaspas)
Just reading the provisions, you can tell that those
garbage fees are actually regulatory in nature.
BUT QUESTION: The supreme court went on asking,
what if there is a law or ordinance imposing a particular
fee and you cannot find any purpose in its foreword or
whereas clause. In other word, the law is silent but there
is the taking of money. How will you be able to
determine if it is a tax or police measure?
If there nothing said in the law as to the purpose of the
exaction that will be resolved as a TAX.
Percy: Public purpose is also presumed.
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We have said before that the power to tax is a
legislative function, and therefore as a GENERAL RULE,
the power to tax cannot be delegated.
5 EXCEPTIONS: ABAKADA vs ERMITA
1. Delegation to LGUs
2. Tariff power of the President
3. Delegation to administrative bodies
4. Delegation to the people at large
5. Emergency powers of the President
DELEGATION TO LGUs
What is our legal basis? It is found in our constitution:
Section 5, Article 10 (1987 Constitution). Each LGU
shall have the power to create its own sources of
revenues and to levy taxes, fees and charges subject to
such guidelines and limitations as Congress may
provide consistent with the basic policy of local
autonomy. Such taxes, fees and charges shall accrue
exclusively to the local governments.
The question is, is this a delegation to begin
with? Does LGU has the inherent power to tax?
An LGU does not have the inherent power to tax.
Why? Because an LGU is a municipal corporation it is part
and parcel of the national government, only that the
national government has the power to tax and not the LGU.
Where does the LGU get its power to tax?
1. Constitution
2. Local Government Code (LGC)
What is the nature of LGUs power to tax? Is it merely
a delegated power or a direct grant?
- Manila Electric Corporation v. Province of Laguna,
1999:The SC said here that the LGUs do not have the
inherent power to tax except that such power may be
delegated to them either by the basic law or statutes. In
other words the SC is saying that this is just a delegated
power.
- Later cases: Batangas power v. Batangas, 2004 and NTC
v. Province of Cabanatuan:SC says that the power to tax
is a direct grant of the constitution and not merely a
delegated power.
How do you answer this question if you will be
ask of a similar question in the bar?
If I were to answer that question, I will not really
discuss much whether it is a direct grant or delegated
power. But the point is, LGU has no inherent power to tax.
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But if you want to be really precise about it, you have to
distinguish.
If you were ask what is the NATURE of such
delegation? It is a direct grant.
What is the effect or consequence if it is a direct
grant of the constitution? Read section 5 article 10. If it is a
direct grant, even if there is no law providing for that
power(?) to tax, it can still wield the power to tax because
of this constitutional provision. Basically, what the congress
would only provide are the guidelines and limitations
pertaining to the power to tax.
If you were ask, for CONSTITUTIONAL
LIMITATION of the LGUs power to tax, you have to
answer that it is merely a delegated power.
In the end, you have to remember that LGU has
no inherent power to tax.
DELEGATION TO PRESIDENT
Section 28 par 2 of Article 6 of the Constitution. The
Congress may, by law, authorize the President to fix
within specified limits, and subject to such limitations
and restrictions as it may impose, tariff rates, import and
export quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of the national
development program of the Government.
What are the principles to remember?
1. What are the taxes involved. It only pertains to export
and import.
What is the reason behind? Why is the president
given that authority to fix of adjust, or even remove the tax
pertaining to imports and exports?
- it is given to the president because import and export has
an international correlation. President Digong, represents
the country when it comes to international relations.
2. Where does the president derives his authority to fix the
import and export rates? Is it the constitution or law?
Southern Cross(?) case (not in the outline), GR 158540,
Aug 3 2005.
Read the constitutional provision, The Congress
may, by law, authorize the Presidentxxx. So it is the
congress.
GARCIA v. EXECUTIVE SECRETARY
There was an executive order issued by the president.
First, it imposes an additional duty, an import duty in
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articles imported to the Philippines. Then another EO
was issued, from 5%, it was increased to 9%. Then
another EO, again, reduces the additional import tax
from 9% to 5% except crude oils.
Now there is a congressman named Garcia, challenged
the EOs. Says that this is a violation of Section 24
Article 6 of the constitution, referring to revenues and
appropriation bills which must originate from the house
of representatives. Since this EO is a tax already, that
EO is already wrong since it must originate from the
House of Representatives. Do you see the flow of his
argument?
SC: The EO is constitutional because there is nothing
wrong with it. Because the constitution expressly
authorize the congress to grant the president to adjust
the tariff rates in import and export. Specific ang
constitution diyan.
And what are the basis of the president to adjust the
rates?
1. It is the TARIIFF AND CUSTOMS CODE as
amended.
2. President has a limited power to tax.
How about the executive agreements and treaties. What
is the requirement for the president to enter into
executive agreements and treaties which will have tax
exemptions? Article 6, Section 28. No law granting
any tax exemption shall be passed without the
concurrence of a majority of all the Members of the
Congress.
Principles on presidents power to tax:
1. It is the congress that grant the President the power to
fix within specified limits, and subject to such limitations
and restrictions as it may impose, tariff rates, import and
export quotas, tonnage and wharfage dues, and other
duties or imposts;
2. Authorization granted to the president must be in a form
of law;
3. Authorization to the president is merely limited. It is
limited by the law that the congress enacted.
4. This is a power of taxation. A limited power of taxation
being exercised by the president. Limited siyakasi for
hanggangsa rates lang, I think angtawagdiyan is flexible
tariff laws.
DELEGATION TO ADMINISTRATIVE BODIES
- also known as Subordinate legislation. What are the
requisites or the two tests?
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1. Completeness test. The law must be complete in itself,
setting forth therein the policy to be executed or
implemented.
2. Sufficiency of Standards test. The standards made by
law should be sufficiently determinate or determinable.
If you fail in one test, there will be no valid
delegation.
Also, rulemaking power delegated to these administrative
agencies must always conform to the law which it seeks to
implement. It cannot expand or go beyond the provisions of
laws. The rules must not go beyond the law which it seeks
to implement.
ABAKADA v. ERMITA
This case is about RA 9337, VAT law. Before it became
12% ngaun, it was 10%. This new law provides for an
authority given to the president.
That the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006,
raisethe rate of value-added tax to twelve percent
(12%), after any of the following conditions has been
satisfied:
(i) Value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP
of the previous year exceeds one and one-half percent
(1 %).
The president now increases it to 12%. So
reklamonaanglahat. This is burdensome to the people,
because regardless of your income, you will be paying
12%.
What are the contentions of the petitioners?
1. it is an invalid delegation of power to tax. It is
suppose to be a legislative function and cannot be
delegated to the president. Only imports and exports
were authorized to the president;
2. there were no sufficient (?) standards in this matter.
ISSUE: was there an invalid delegation of power to tax?
Or is there a delegation of power to tax to begin with?
SC: there was no invalid delegation because there was
no delegation of power to begin with. Walaygi delegate.
What is given to the president is the authority to execute
the laws. It is just based on factual circumstances
likeNingdako baa ng deficit? Etc.
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It is more on implementing the law rather than adjusting
the rates. The president actually has no discretion
whether to increase it or not because once either of the
two factors will happen, the president would have no
choice but to raise the VAT upon the recommendation
of the secretary of finance.
CIR v Fortune Tobacco
The ruling is easy to understand but the facts is magulo.
There was an amendment in the NIRC particularly in
liquors and cigarettes. It basically increase the tax rate.
Then there was a revenue regulation issued by BIR. BIR
says In implementing this the taxed you paid for cigars
must not go below your tax payment as of year 2000.
So the new regulation provided for a floor. A minimum
amount that we have to pay. Fortune tobacco
challenged this regulation, saying that it was an invalid
delegation of power. The law does not provide for any
floor on how much are we going to pay. It just says that
the tax rates will be increased. It does not say of a
mandatory floor.
SC: Tama ang Fortune Tobacco. By setting the floor for
excise tax on cigarettes you have already exceeded
what was provided by law. What was provided for by
law is that you just adjust the rates.
Principle:
The Rule is that administrative regulations must be in
harmony with the provisions of the law. The revenue
regulations must not expand, modify, alter or amend the
basic law which it seeks to implement.
July 5, 2016
(By: Earvin Alparaque)
INTRO: We will learn thereon that the power to tax is
supposed to be raising money for a public purpose. The
term public purpose does not necessarily mean that you
will be actually benefitted from the money taken by the
government from the power to tax. Also, the burden will
also show when you will look at the scope of taxation of the
power to tax. What's the scope of the power to tax? With
respect to the nature, the object, the place, the extent and
also the coverage of taxation.
Can one refuse to pay the tax?
YES, you can refuse but once you refuse to pay
the tax due to the government, there will be sanctions. It is
either the government will take property and sell it in a
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public auction, probably the government will file a civil case
for collection against you, or probably the government will
file a criminal case you for tax evasion or non-payment of
taxes.
Now, let us move on to the more important
portion of the definition. Inherent power, legislative,
imposed on objects within its jurisdiction.
General Rule: Power to tax is jurisdictional
When you say jurisdiction in the concept of
taxation, it has something to do with territory. The power to
tax is jurisdictional, meaning the government or the
taxing authority can only tax subjects or objects within
its territorial jurisdiction. So normally, if the subject of
taxation is outside of the Philippines then the taxing
government has no power over it. It cannot impose or exact
tax from that subject or object.
Exception:
The exception to that rule is when there is a
privity of relationship between the taxing authority and
also the tax subject or object. When will you know when
there is a privity of relationship between the object and also
the taxing authority? You will know when there is privity of
relationship because the government will be able to afford
protection to that subject or object.
The tie that binds the government and the tax subject
1. Residence
2. Nationality
3. Source of the subject from where the
government will take its taxes.
Factors that you will normally consider when
determining the jurisdiction of the Philippine
government in imposing taxes on a particular subject.
1. Kind of tax levied
2. The place or residence
3. The citizenship
4. The source of income
5. The place where the excise tax or privilege is
being exercised.
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Must these considerations go together? NO, it is
not necessary. The mere fact that the person is residing
here in the Philippines you will be subjected to Philippine
Income Tax. It is not necessary that all of these factors
must come together. Also, when you discuss about
jurisdiction it has something to do with the situs of taxation
or otherwise called as the place of taxation.
Definition of Situs of taxation
1. Technical definition - it is the place of authority
that has the right to impose and collect taxes
2. Simple definition - the place of taxation.
Different types of tax subjects or objects.
1. Income tax
What is the situs of income tax? What are the
considerations which you must consider in determining the
situs of income tax? You have at least three- citizenship,
residency and source. It doesn't really matter if the
person earning is outside the Philippines because these
will apply. Later on we will know more about that when we
will reach income tax proper. How do we illustrate these
factors vis-a-vis the privity of relationship? There is no
problem if you are a Filipino, for instance you are a
Davaoeno and you are residing here in Davao, probably in
Ecoland because if you will earn income through business
or exercise of profession or probably you are just an
employee, the government will tax you. Why? the mere fact
you are here in the Philippines, the government will
somehow protect you and at the same time because you
are residing here in a particular locality here in the
Philippines, the government will also afford protection.
So let us change the facts, what if you are a
Filipino and then you will work in Japan and you will leave
behind properties here in the Philippines which are income
generating. Normally if you follow the general rule, by the
mere fact that you are outside of the Philippines, you are
supposed to be outside the jurisdiction of the Philippine tax.
But because you are a Filipino, even though you are
working abroad and you left behind income generating
properties here in the Philippines, the government will
still afford you protection. That's why you will have to
pay your taxes. The income that you generate here in the
Philippines will be subjected to Philippine Income Taxation.
Another example, what if you are Maria Ozawa?
She is an actress in Japan and she went here in the
Philippines for greener pastures. She works in the
Philippines and she resides here in the Philippines and she
is earning income here in the Philippines. The mere fact
that she is here the government will afford her
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protection in case something will happen to her and
that is why her income here in the Philippines will be
subjected to Philippine Income Taxation.
2. Property tax
What are the types of properties? There are two
types of property- real and personal.
In real property, the situs of taxation is the
place where the real property is located. This is made
manifest in our real property taxation. Real property taxes
are local taxes so meaning, the taxing authority is the local
government unit where the real property is located. If you
have a condominium here in Davao, it will be taxed here in
Davao City. Makati cannot tax any real property here in
Davao City.
How about personal property? Most books will
distinguish between a tangible personal property and
intangible personal property. With respect to tangible
personal property, most books would say that you
follow the actual situs. Meaning, where the personal
property is located. Some books would also say "mobilia
sequntur personam" or "the thing follows the owner".
But to be safe about it, because most authors say that it is
the actual situs and it is also the recent trending in US
jurisprudence. Bakit US jurisprudence ginagamit natin?
Because our tax laws are patterned from the US tax laws.
When it comes to intagible personal property usually it is
the domicile of the owner. That is the general rule. But this
is not a hard-fast rule because there are two main
exceptions- 1) If the law provides for another tax situs and
2) (not provided, isa lang sinabi ni sir)
3. Excise Tax/Privilege Tax
Do not confuse excise tax with those taxes
imposed on oil, tobacco and other products. Excise tax, in
general, is a privilege tax. It is a tax imposed on a
privilege, or performance of an act, or in engaging in
an occupation. For example, the privilege of earning
income. Income tax is an excise tax. Sales tax is actually a
privilege of engaging into the business of sale like selling
properties. Donation is also an excise tax because it is a
tax on the privilege to give out something without any
consideration which is pretty much the same with estate
taxes.
What is the situs of excise tax? The situs is
where the act is performed, or where the occupation is
engaged in, or where the business is done, or where
the taxable transaction is done. In other words, it is the
location where the particular act is done.
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Situation:
Supposing, Maria Ozawa, a Japanese citizen, is
temporarily residing here in Boracay, Philippines. Suddenly
a wealthy Singaporean businessman approached her and
told her that he wanted her to perform in Singapore to
which Maria Ozawa agreed. Thus, they entered into a
contract here in the Philippines. The time came that she
performed in Singapore then she went back to the
Philippines where she received the payment for her
services and then she went back to Japan.
Question- Is the income earned by Maria Ozawa taxable in
the Philippines?
Answer- It is not taxable here in the Philippines because
income tax is an excise tax. What is the principle behind
excise tax? What is its situs? It will be taxable where the
act is performed. What is the income generating act there?
Is it the entering into a contract? It is the rendition of
service. Where is the service performed in that scenario? It
is in Singapore. The mere act of entering into a contract is
just an incident to the service being performed in
Singapore.
What about sales? Where is the situs when we
talk about tax on sales? In a Supreme Court decision as
provided in the book of Aban, the Court stated that the
situs of sales tax is where the sales contract is
perfected and consummated. But perfection is different
from consummation. You perfect a contract of sale when
there is a mutual agreement between the parties. When is
it consummated? Upon delivery. The case I found which
discusses about this topic is Cia vs CIR (GR No. L-5896,
August 31, 1955) *not found in the syllabus
Cia vs CIR
What happened in this case is peculiar. There
was a foreigner who went to the Philippines because he
was looking for a tractor. The tractor will be used by his
company. Eventually he found Cia. Cia here is engaged in
the importation of various merchandise and during this time
he was importing tractors. Subsequently they entered into
an agreement. What happened after was that Cia went to
his supplier. Ang supplier niya nasa isang foreign base.
The laws existing during that time is that when you sell
within the foreign base, you will be exempt from taxation.
The sales will be exempt from sales tax because
technically because it is a foreign base so it is outside the
Philippine jurisdiction. Ano ginawa niya? Pagdating nang
tractor, binayarann siya bank-to-bank transaction. What he
did was, from the foreign port hinatid niya sa Manila pier.
Here comes CIR assessing sales taxes against Cia. What
was the defense of Cia? You cannot impose sales taxes on
me because- 1) the sale was made on a foreign soil
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because the property came from a foreign base and 2) the
contract was perfected outside the Philippines and at the
same time the property will be used outside the Philippines.
The mere fact that I was just sending the tractors to the
Manila pier is just in transit. It has no relevance to the sale
whatsoever. The fact is we were able to make the sale in a
foreign soil.
But what did the SC say? Should Cia be liable for
sales tax? Yes, he is liable for sales tax. Sales tax is an
excise tax and not a property tax. So excise tax siya, where
is it taxable? It is where the act is performed. Kung sa
sales, the situs of sales tax according to the SC is the
place of consummation which is the place of delivery. Saan
siya diniliver? It is in Manila within the jurisdiction of the
Philippine government.
Let us now discuss the case of Iloilo bottlers-
Iloilo Bottlers vs City of Iloilo
In Iloilo bottlers, there was a city ordinance made
by the city of Iloilo. Basically the city ordinance taxes the
distribution, manufacturing and bottling of softdrinks. Ang
tax niya is a certain centavos on a case of 24 bottles.
Initially Iloilo bottlers had its bottling company between the
city of Iloilo but later on it transferred to a municipality
which is outside the city already. Before noong doon pa sila
sa Iloilo, they were paying the tax under that ordinance but
when they went out they received a tax assessment from
the City of Iloilo. Sabi nang city of Iloilo you should pay the
distribution, manufacturing and bottling tax under the city
ordinance. What is the contention of Iloilo bottlers? I am
outside the territorial jurisdiction of the city of Iloilo, why tax
me in the first place? I am not engaged in the distribution of
softdrinks products but I just bottle.
How did the SC rule in this case? The first
question is, Is Iloilo bottlers liable for the tax? To answer
that question, alamin muna natin what is the nature of its
business because the nature of the business will determine
the situs of taxation. How does the business of Iloilo
bottlers work? Tama na bottling company sila. They also
utilize delivery trucks which will distribute the bottles to
various places including city of Iloilo. Tapos when they
reach that particular destination there are salesmen. Pag
abot didto sales transactions are made and then ihatag nila
ang softdrinks. That's how it works. In this case the SC
made a distinction between the two types of manufacturing
businesses. Because it is possible that the person is
engaged in purely manufacturing business and the sales is
merely incidental to its business. And it is possible also that
the person is engaged in a manufacturing business and
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also engaged in a separate selling or distribution business.
Under sa first type, the system of selling is integrated in
manufacturing, how? Of course the person will
manufacture or bottle and yet it will make all its sales
transactions in the main office. Meron siyang warehouse
but the purpose only is to deliver the property there. Under
the second type, you make orders or purchases in the main
office and you also have sales offices or also the
warehouse itself where you can make orders or purchases.
You can enter into different sales transactions with those
sales offices. Take note, ano ba ang tinatax dito?
distribution, manufacturing and bottling. So the question
remains, Is Iloilo bottlers engaged in pure bottling only or is
it also engaged in distribution? The SC said it is also
engaged in distribution because it falls under the second
type of manufacturing or bottling. Because the tax by
themselves, larga sila , abot sila sa Iloilo pag abot didto
ang salesmen didto na mamaligya. No order or rarely
orders were made in the bottling plant. Because he is
under the second type of manufacturing business, the
company is distributing the bottles to the city of Iloilo meron
siyang taxable activity. Therefore bayaran niya yung tax.
What is the activity being taxed here? It is the distribution
within the jurisdiction of Iloilo. Walang pakialam ang Iloilo if
magpadala sila sa ibang lugar, the fact is merong sales
transactions within the city of Iloilo. What is the nature of
that distribution? It is an excise tax. The privilege of
distributing and selling the softdrinks. And of course what is
the situs of the excise tax? The place where the activity is
performed. The activity here is the distribution, part of it is
performed in Iloilo. Mag bottle nga siya outside, pero
meron naman distribution sa loob.
Next is the case of CIR vs BOAC-
Now what about in international scale? Can we
apply this?
CIR vs BOAC
BOAC here is a British airline which the
Philippine government eventually taxed. But during that
time, British Airways had no landing rights in the
Philippines so meaning it cannot land its planes here. But
British Airways maintains a general ticketing agency here
in the Philippines. The BIR assessed deficiency income
taxes against BOAC. What was BOAC's contention? I will
pay this under protest but later on I will file a refund. The
BOAC said that I did not pay my taxes because I don't
have any business here. What is the activity that is being
taxed? It is actually income. Did I earn my income here in
the Philippines? I don't have any activity here in the
Philippines. While I am selling tickets here in the
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Philippines, that is not my main business. It is actually
transportation.
What is the SC ruling in this case? The SC stated
that BOAC is liable for the taxes. Why? What is the situs of
the income tax? To determine the situs of income tax, you
also have to look at the source of the income. Where was
the income generated? Is it the transportation or is it the
selling of tickets? The SC said the source of an income is
the property, activity, or the service that will produce the
income. For the source of income to be considered as
coming from the Philippines, it is enough that the income is
derived from an activity within the Philippines. The sale of
tickets is the activity which produces the income. Since the
tickets are sold in the Philippines, the income generated
therefrom is subjected to Philippine tax. It is an entire
aspect of its business which necessarily includes the
selling of tickets. If you read this case maraming siyang
dissenting opinion. But the doctrine until now, even if you
read the Japan Airlines case, is still the same. When it
comes to airline ticketing offices without landing rights
here, the source of income is actually the selling of tickets.
It is considered as a source that is why it will be subjected
to Philippine taxation.
Let us now go the case of CIR vs Baier-Nickle
CIR vs Baier-Nickle
Baier-Nickle is a german national and there is a
Philippine company which is an affiliate of another
company engaged in textiles. She became an officer of
such corporation and ang compensation niya part of it is
the sales commission. The main issue in this case is where
did she earn the sales commission? Because she is not
residing in the Philippines, meron siyang sales commission
but she is residing outside and on top of that she is
German. What is the source of that income? Is the sales
commission from the Philippines or is it from abroad? The
lower courts would say that it supposed to be coming here
from the Philippines because the sales commission came
from a Philippine corporation therefore it is generated here.
Ang sabi naman ni Baier-Nickle, NO! it is not a
compensation because the service I perform is outside. Oo
nga galing siya sa Pilipinas but the main activity which is
the generating source of the income is performed outside.
The SC said Baier-Nickle is correct because
when you talk of income, the situs is the source, the activity
which produced the income. But in this case, she failed to
prove such fact. Kasi tax refund siya, and when it comes to
tax refund it is strictly construed against the taxpayer.
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Purposes of Taxation
The primary purpose is to raise money for
public purpose. It is not the sole purpose because you
can have other sources. The other purpose is for the
power to tax. As we said earlier, the power of taxation can
be used as an implement of police power. It is ok that
incidentally there will be some form of regulation. Another
purpose of taxation is compensatory like eminent
domain. An example of this is in the Central Luzon case,
the peso for peso tax credit or the 20% discount given by
establishments to senior citizens. Another thing that would
show the compensatory aspect of taxation is the
implementation of the social justice provision by the
Supreme Court. Please take note that the social justice
provision is not only applicable to those who have less in
life. Of course for example like in the Central Luzon case,
the SC said the social justice cannot be invoked to trample
on the rights of the property owners because under
constitutional laws they are also entitled to protection. In
other words, the social justice provision in the Constitution
also protects the capital.
But regardless of the purpose of taxation, we
cannot really remove the fact that the money generated for
tax purposes must always be for a public purpose. In one
case it is said that public purpose is the heart of the
tax law.
How will you define public purpose? This is more
of a constitutional-level discussion. Meron tayong
traditional aspect- it refers only to the government
function, it means any purpose or use directly
available to the public as a matter of right. But this
traditional definition has been expanded by the SC.
The SC now says that there is no definite meaning of
public purpose. In Planters Products vs Fertiphil, the
SC said that the term public purpose does not only pertain
to those purposes under the traditional meaning- like
construction of buildings, roads etc. but it includes those
purposes designed to promote public justice. That's
why when you say public use or public purpose, this is
already equated with public interest.
Now going back to the case of Planters
Products vs Fertiphil, this is a very good example of
misuse of the money taken from taxation.
There is a letter of instruction made by Marcos,
nagbayad sila, they have to pay something and deposit it in
a bank and the money will be used by Philippine Planters
Products Inc. One of the issues tackled here is whether the
LOI was a valid imposition. What was the nature of the
imposition? Of course it is a tax because the exaction is too
high to be for regulation purposes. On top of that, the
purpose of that exaction is also to raise money. This is to
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infuse capital to Planters Products Inc. The next question
is, is it a valid exercise of the power to tax? The SC said no
because it is not for a public purpose, it is for a private
purpose. It is for a private corporation and you even have
to deposit the money in a private bank. We only have
Landbank of the Philippines as a depository of public
funds.
July 7, 2016
(By: Kelvin John Du)
Recap: During our last meeting we talked about the
purposes of taxation. We also discussed about the nature
of the power to tax, that it is really an imposition of a
burden.
But even though it is an imposition of a burden,
we also know that the government can also provide for
reliefs in the form of tax exemptions or tax credits or tax
deductions. That is one exception where the power to tax is
used not because it is a burden to the taxpayers but it is a
burden to the government. Because if you will provide for
tax exemptions, you will be essentially depriving the
government of income.
PRINCIPLES OF A SOUND TAX SYSTEM
This is also known as the Canons of a Sound Tax System.
There are three: (acronym: FAT)
1. Fiscal Adequacy
By the term itself, adequate means enough. The money
being collected by the government should be sufficient
enough to meet the demands of the government in its
expenses.Otherwise stated, the sources of revenue taken
as a whole should be sufficient to meet the expanding
expenditures of the government regardless of business
conditions and problems of economic adjustment.
So it must be enough.But if you come to think of it, the
reality is, even if there is a 100% collection, we will still be
at a deficit. We are at a deficit up until now.
There is one case where the SC mentioned about the fiscal
adequacy:
Chavez vs. Ongpin
Facts: This is a case filed by the late Francisco Chavez, a
Sol-Gen before.
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There was an EO 17-A issued by [Pres. Cory Aquino]
which gave the LGUs the authority to increase the
valuation or the assessed value of real properties, both
improvements and the land. For the improvement, the
increase is a whopping 300%. During that time also, the
increase for land is 100%. It is too big.
But when was the last time the government pegged or set
the real property value for purposes of real property
taxation? I think it was way back in 1978. This EO is
around in 1989. So how many years have passed?And you
all know that if we talk about land, it will always appreciate
in value.
Chavez argues that the EO is actually unconstitutional
because it is very oppressive and it will amount to a
confiscation of property without due process of law.
Ruling: The SC said in this case that it is actually valid.
There is no legal basis in the end that there is no due
process. Because when you look at the former basis of the
real property, it is still in 1978, and of course the land
appreciated in value. It is also necessary for the
government to adjust the value of the land for real property
purposes. It said that if the real property tax (RPT) will be
collected based on the 1978 values, it will not be in
consonance with fiscal adequacy because it disregards the
increases in the value of the real properties.
Another case is one we will always encounter again and
again (so read it!):
Abakada vs. Ermita
Facts: There is a standby provision on the President: The
President can increase the VAT rate from 10% to 12%
subject to two conditions; when either of the two conditions
occur:
1. If the VAT collection is really good, essentially
2. If there is an increase in the deficit
One of the petitioners is arguing that this is unconstitutional
because you are giving the President an incentive: if the
collection of VAT is good, then the President will increase
it. It is kind of absurd.
Ruling: The SC said that even if it is an incentive, that is
one of the requirements, there is another option or
limitation or choice or commission: it is when the deficit will
increase. In fact, even if there is a good VAT collection,
fiscal adequacy would entail that there is a need to raise
the income of the Philippine government because we are
always in a deficit. Baontayosautang.
2. Administrative Feasibility
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Feasible means doable. It means that the tax measures
should be easily implemented in order to assure the
smooth flow into the treasury of the fiscally adequate
amounts.
When you talk about administrative feasibility, it does not
refer only to the government.Another definition would say
that: It is a tax system that should be capable to being
effectively administered enforced with the least
inconvenience to the taxpayer.
Meaning, if you want to make it short, it is easy for the
government to collect and implement and at the same time
it is easy for the taxpayers to understand and pay.
But when you look at the state of things now especially
when you talk about VAT:
What are the requirements of VAT? What do you need to
claim input taxes from VAT?
The TIN number
As for documents, the receipts
Under the new regulations pertaining to the VAT
implementation, the customer name must be mentioned in
the receipt and you have to specify if it is VAT or non-VAT,
etc. There are too many requirements. It is very hassle.
And you have to do everything in a span of 3 months
because it is implemented quarterly.So it is very hassle to
the taxpayer. So is that feasible? Not really. And if you
cannot comply with the requirements, it is 25% surcharge.
Diaz vs. Secretary of Finance
Facts: Essentially, Diaz filed a petition for declaratory relief
for a certain Order by the President which would in turn
impose VAT on tollway operators.
Before PNoy, under the administration of Arroyo, there was
ahold that supposedly these tollway operators will be
imposed of VAT. But this was met with a lot of opposition
so it did not push through. When PNoy came, he said we
need the money so tax them.
They filed a case in court. Petitioners contend that if you
will impose VAT on toll operators, this is essentially
impossible to do because there are a lot of requirements.
When you pass by SLEX or NLEX, they only give a ticket
or small stub. So if you only have the ticket stub and follow
the requirements, they list down your name, the price, etc.
(Like in CDR King, they manually write down everything).
So the revenue regulation pertaining to VAT is impossible
to follow.
Ruling: The SC said that it does not really matter that it is
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administratively not feasible.
In order for you to strike down a tax law, you must think of
two things:
1. There must be violation of the Constitution
2. There must be violation of the law
So what is the principle here? Mere violation of any of the
principles of a sound tax system will not invalidate the tax
law. There must always be a constitutional violation or a
violation of any kind of statute.
3. Theoretical Justice
This just means that taxes must be based on the
taxpayers ability to pay (Ability to Pay Theory). Those
who have more shall pay more and those who have less
shall pay less.
THEORY AND BASIS OF TAXATION
When you are asked what is the theory of taxation? What
is the basis of taxation? What is your answer?
The theory is theNecessity Theory. When you are asked
what is the theory of taxation it is actually necessity.
Necessity means that the power to tax emanates from a
necessity: Necessity on the part of the people who need
the government and at the same time the government
needs to survive.
In the book of Aban, he says that:
The existence of the government is a necessity that it
cannot continue without the means to pay expenses and
for those means, it has the right to compel all citizens and
property within its limits to contribute.
That is the necessity theory: I need you, you need me.
This is where the Lifeblood Theory came about.
What are the concepts that flow from the Lifeblood Theory?
There are at least four:
1. The No Injunction Rule
General rule: The collection of taxes cannot be enjoined.
The main reason is the Lifeblood Theory.
The collection of taxes must be with hast and should be
without any interference from the court.
Exceptions:
a) Under the CTA Law, when in the opinion of the
Court Tax Appeals that the collection of taxes will
jeopardize the interest of the government and of
the taxpayers
b) When it comes to local taxes
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Angeles City vs. Angeles Electric Corp
Facts: Previously there was a law for the legislative
franchise Angeles Electric Corp. It was required to pay a
franchise tax in lieu of all other taxes.
1991 came and the LGC was enacted. Under the Local
Government Code, there is a specific provision that states
that all law which are inconsistent with the provisions of the
LGC are deemed repealed.
Here come the local government of Angeles City, it
assessed franchise taxes because under the LGC they can
assess franchise taxes for all franchise holders. After
assessment, Angeles City started to take measures for tax
collection.
Angeles Electric filed a case in court and asked for a TRO
and Writ of Temporary Injunction. The judge granted the
WTI.
Issue: WON the judge was correct in issuing the TRO and
WTI
Ruling: The SC said that there is no express provision in
the LGC prohibiting the courts from issuing an injunction.
Basically, it means that if it pertains to local government
taxes, the courts are free to issue an injunction as long as
the requirements for the issuance of an injunction are
present.Unlike when you take about national internal
revenue taxes (income tax, estate tax, donors tax, VAT,
percentage tax, excise tax, etc.), there is a particular and
specific provision in the NIRC that the courts are prohibited
from issuing an injunction when it comes to the collection of
taxes.
2. It cannot be subject to set-off or compensation
3. The power to tax is unlimited and plenary
4. The power to tax is the power to destroy
When you say basis of taxation that is the Benefits-
Protection Theory.
DOCTRINES
1. Prospectivity
General rule: Tax laws are prospective in application.
Why? Because if you will provide a retroactive application
of tax laws, it will be tantamount to violation of due process
of law. It is weird, you did not know before that you will be
taxed then comes a tax law and the government will collect
in back taxes. That is totally unfair.
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Can the Congress provide for retroactivity of tax laws?
Of course, the government can do that because tax power
is plenary and all-encompassing. It covers the entire
spectrum of taxation, including its application, past, present
or future.
What if there is a repeal of tax law?
For instance, there is a tax law imposing tax on cars.
Subsequently, this was repealed but before it was
repealed, during the interim period, an assessment was
made by the government.
Can the government still collect that assessment, the
assessed taxes? Yes.
Tax laws are prospective in application. Therefore, in that
scenario, the government can still collect the assessed
taxes because it happened before the repeal of that
particular tax law.
This is pretty much the same to what happened in the case
of:
Commissioner vs. Acosta
Facts: Acosta filed an Income Tax Return with the BIR.
There are two laws involved here. Under the old law, if you
file your ITR and there is an overpayment of taxes, you are
required to make a written claim for refund. This means
that you write a letter to BIR and specify that your purpose
for that letter is a tax refund before the BIR can act on it.
What happened was that when Acosta filed an amended
return under the old law, he indicated in his ITR that there
is an overpayment of taxes.
The BIR did not act on it and so the current NIRC in 1997
took effect.
So what are the changes? Under the NIRC, the
requirement for written request for refund is no longer
present.
It is not necessary that you will have a written claim for
refund, it is ok that you will indicate in your ITR that there is
an overpayment of taxes. That by itself is already a written
claim for demand.
So he filed a petition to the CTA. The CTA denied it. The
CA reversed and it came to the SC.
Issue: WONtax laws can have retroactive application
because it will answer WON Acosta can claim a refund
Ruling: The SC said that tax laws are prospective in
application.
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During the time that the amended ITR was filed, what was
in effect still is the Old NIRC. So you reckon it from there.
Even if there is already the 1997 NIRC, you apply the old.
That is why you cannot use the 1997 Code because it
happened after his claim.
But he said that if you talk about the written claim for
refund, the procedure, it is actually remedial law. Under
statutory construction, remedial laws can have retroactive
application. (Do you see the flaw of his argument?)
Is the procedure remedial in nature in this case? Actually it
is not. It is based on a statute. Remedial law is rules and
regulation, how to run the case, how you will implement the
substantive law.
July 12, 2016
(By: Rea Romero)
IMPRESCRIPTIBILITY OF TAXATION
General Rule: Taxes are imprescriptible. Why?
Because the very government system depends on it. We
go back again to the lifeblood theory.
Can the State provide for the prescription of
taxation? YES. The government cannot (inaudible)
limit/remake laws that provide laws for prescription, but
absent of any law providing for prescriptions, taxes are
supposed to be imprescriptible. And it covers both the
assessment and collection. Once the government will
assess taxes on you, it does not mean that it is already
collectible. Its just a process of determining how much you
are going to pay for the taxes. And collection is different
from assessment.
Current prescriptive period for income taxes
under the National Internal Revenue Code:
GR: 3 years. The government has 3 years to
assess tax deficiencies of a tax payer. From when? The 3
years is reckoned from the date of the filing of the return or
from the date of the deadline or the filing of that return,
whichever comes later.
However, if you talk about FRAUD, the
prescriptive period is 10 years. When does this happen?
First, is when there is fraud in filing of the income tax
return. Second, is when there is a failure to file an income
tax return. This is what is happening to some of the lawyers
in the country. But when do you reckon the 10 year period?
You reckon it from the date discovery of the fraud, or the
discovery of the non-filing of the income tax return. So
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technically if it is not discovered by the BIR, the tax
obligation remains.
What about COLLECTION, when does it
prescribe? It prescribes in 5 years.
DOUBLE TAXATION
How do you define it?
Roughly, double taxation means taxing the same
property twice, when it should only be taxed once. Or there
is multiple taxation on the same subject matter.
2 kinds of double taxation:
Direct double taxation
Indirect double taxation
So is double taxation illegal to begin with?
NO. When you say double taxation it is not illegal
per se. Why? Can the government say OK, I will tax the
income twice. Can the government do that? Theoretically,
yes. Because remember the power of taxation is unlimited,
all-encompassing, plenary, etc. The power of taxation is
also the power to destroy.
So when does double taxation become illegal? Some
would say that double taxation is illegal when it is a direct
double taxation. But when can you consider a double
taxation as direct? There are 2 things to consider:
It will be illegal when it violates the Constitution
If it violates a law
If there are no Constitutional infringement on that
particular taxation, or if there is no violation of law, then it is
considered as valid.
DIRECT DOUBLE TAXATION According to Aban,
direct double taxation happens when the same subject or
property is taxed twice when it should only be taxed once
by the same taxing authority, for the same taxing purpose,
during the same period, taxing all objects or property within
the territory for the first time, without taxing all of them for
the 2nd time.
If we go over the definition given by the Supreme
Court (Sir: I think this is the safer option), these are the
ELEMENTS OF DIRECT DOUBLE TAXATION:
1. The tax is for the same subject matter
2. For the same purpose
3. For the same taxing authority
4. Same jurisdiction
5. Same taxing period
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6. And the taxes must be of the same kind or
character.
Absent one of the elements, it is no longer direct
double taxation. Diba I asked that sa quiz? (
)
The prominent case right now is the case of CITY OF
MANILA vs COCA COLA. (it applies the same laws as the
other cases, like Nursery Care Corporation vs Acevedo)
CITY OF MANILA vs COCA COLA
There was this city ordinance in Manila. Sec 14 is a tax on
the manufacturers, dealers, etc. Basically it was a
manufacturers tax. Sec 21 is a tax imposed on businesses
subject to VAT percentage tax under the NIRC. So what
happened was that the City of Manila assessed Coca Cola
and it found that there were deficiencies under Sec 14 and
Sec 21. Coca Cola, of course, did not want to pay. The
main reason why he did not want to pay was because of
double taxation.
So the question here now is, is there is a prohibited direct
double taxation? There is a double taxation in this case
because all the elements were present.
Now if you think about it, we said earlier that double
taxation is illegal only when there is a violation of the
Constitution or a law. So what is the law violated in this
case? The Local Government Code. The SC discussed
why 2 business taxes are not allowed. According to the SC,
under Sec 143(h), where a city or municipality has already
imposed a business tax on manufacturers under Sec
143(a), the said city or municipality can no longer subject
the said manufacturers to the same tax.
ERICSSON vs PASIG
In this case, there was an ordinance imposing a certain tax.
When you impose a tax, there is a certain tax base and
then there is a tax rate (usually percentage man ung tax
rate, and the tax base I multiply moulit and then you get the
tax). The problem here is this: Ericsson is saying that under
that ordinance, the tax should be based on gross receipts.
Sabinaman ng City of Pasig No, its not based on gross
receipts, its based on gross revenues.
So are gross receipts and gross revenues the same in the
first place? No, they are not. Gross revenues is broader as
compared to gross receipts.
How do you define gross receipts?
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GROSS RECEIPTS, by the term receipt,
nadawatnimo, its either you deserve it actually
or constructively (meaning, the money was
given to some other person but you have
effective and complete control over that
property).
The SC stated here that if the tax is based on the
gross revenues, there will be a double taxation. Why is
this? Because the very definition of gross revenues. How
do you define gross revenues? How is it different from
gross receipts?
GROSS REVENUE, it includes income which
you have yet to receive. If you put it into context
sa business, like for example I fix cars.
Nahumannalangnakougayoangsakyanan, but
what do I have? I have the right to collect
payment. But even if I havent received the
money yet, I will still recognize it as income.
Revenues includes money and properties that
you will receive, but you havent exactly actually
or constructively received yet.
So what would be the effect if gross revenues is the
basis? It is entirely possible that your income from the
previous year, pagtanggapmo only on the following year, it
will be subjected to the same tax again. Kasingarevenues:
it includes those that are received and not yet received.
So if you go back to the elements, again, you will find
that all elements are present.
What is the context here when you mean Same
taxing period? Tax period, in the context of double case,
more or less refers to the date designated by law for the
payment of taxes. So usually ang gross receipts tax, by
year yan before the renewal of the business taxes.
So basically, on that situation, just because ibaang tax
base mo, it is entirely possible that there is a direct double
taxation.
What is the law being violated here? Actually stupid
ang City Treasurer ng Pasig, because the city ordinance
itself would dictate that the tax rate should be gross
receipts. Because if you read the facts in this case, sabi ng
City Treasurer pareholang man ang gross revenues pati
gross receipts. Thats basically his argument.
CIR VS BPI
There are 2 types of taxes involved here: First, the final
withholding tax This tax is imposed on the interest
earned.
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Second, the 5% gross receipts tax a tax on the money
received by the bank
So is it double taxation? Because the bank says that if you
compute for the 5% gross receipts tax, you have to
withhold the 20% final tax that was already imposed on the
interest income. So is there double taxation when you do
not remove the 20% final withholding tax?
So the SC said NO. There is no direct double taxation.
Why? Look at the elements. What is the missing element
here? Is it a tax on the same subject matter?
Pagsinabimona final withholding tax, it is an income tax.
Pagsinabimonamanna gross receipts tax, it is actually a
business tax. Youre taxing the business of banking, and at
the same time, you are taxing the income earned by the
bank. So different subject matters.
Also, another element that is missing here: there is a
different taxing period. The final withholding tax are
imposed upon earning the interest. When do you pay the
gross receipts tax? According to the SC, and according to
our laws right now, you pay it every taxable quarter.
And lastly, it is a different character of tax. The final
withholding tax is a final or an income tax, while the other is
a percentage tax, or more or less a business tax, or an
excise tax.
ELIMINATING DOUBLE TAXATION
There are 4 ways to eliminate double taxation:
1. Tax treaties
2. Tax credits
3. Tax deduction
4. Tax reduction
i) TAX TREATIES Those entered into by the
State. Tax treaties are actually a mode of
eliminating international double taxation. There
are 2 different taxing authorities. Just like what
happened to Manny Pacquiao. He is taxed by the
US government every time he fights sa Las
Vegas, and when he comes back here, he will be
taxed by Kim Henares.
What is the purpose of a tax treaty? If you have read the
case of CIR vs SC Johnson and Sons, the purpose of
these international agreements and tax treaties is to
reconcile the fiscal legislations of the contracting parties in
order to help the tax payer avoid simultaneous taxation in 2
different jurisdictions. It is to afford a tax relief in favor of a
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tax payer. A tax treaty is actually geared towards the
elimination of juridical double taxation.
Apparently, the ultimate effect that these tax treaties would
like to achieve is this: to encourage the free flow of goods
and services and the movement of capital, technology, and
persons between the countries.
If you sum it up, there are 3 core purposes of a tax treaty:
1. To reconcile fiscal legislations of different
countries
2. To eliminate international juridical taxation
3. To support and facilitate international trade with
respect to capital or services
ii) TAX CREDITS These are given by law. A tax
credit is an amount subtracted directly from ones
total tax liability. Kung angbabayaranmona tax sa
BIR ay P100,000 and you have a tax credit of
P10,000, P90,000 nalangangimongbayaran.
Thats the essence of tax credits.
You get this from the provisions of law, from legislative
enactments of the congress. Like what? Where can you
find this sa NIRC? You can find it in Sec 34 ( c) (3) of the
NIRC. It specifically provides for tax credits and you can
also find this in estate taxation.
The most concrete example that I can think of is the
VAT. Because if you compute VAT, there are 2 taxes that
you have to compute to determine your VAT liabilities.
First, you have to compute your output taxes. When you
say output, yunung VAT mosamgabenta mo. If you
disregard everything else, the output tax is your own tax
liability to the government.
But we also have to consider the input taxes. San
nanggaling and input tax? It comes from your purchases.
Dibakungmupalitkasa VAT registered tax payer, you have
to shoulder the payment of VAT. Dibakungtig P100,
dibamubayadkaug P12 in addition. Ung P12 naibayadmo,
pwedenimonai-(inaudible) saimongbayrunonsa
government. So in effect, income taxes are a form of tax
credit. Its actually a tax incentive on your part.
iii) TAX DEDUCTION It is similar to a tax credit
with regard to the effect because it reduces the
taxes. If in tax credit, it is a peso deduction of
your tax liability and it is a direct effect. Pag tax
deduction, it is just an indirect effect. You make
use of the tax you paid as a reduction of your
income. Mugamayimong income,
peromugamayangbayronnimona tax. But it is not
a peso for peso reduction.
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iv) TAX REDUCTION How is this different from tax
deduction? One thing I can think of is tax
exemption. Tax exemption laws are laws which
reduces the taxes collected on certain objects or
subjects for the purposes of reducing the impact
of direct or indirect double taxation. So this is
more on the legislative side.
INHERENT LIMITATIONS (this is only a review, as this
was already discussed in detail before)
The pneumonic here is PITIE ().
1. Public purpose
2. Inherently legislative
3. Territorial
4. International comity
5. Exemptions of the government from taxation.
i) PUBLIC PURPOSE- This is considered as the
heart of taxation.
(From 2015 TSN): It is basic that the power to tax and
the money from taxation is to be used only for public
purpose. Previously we have discussed the definition
of public purpose traditional and expanded meaning.
Traditionally: it refers mainly to the basic government
purpose, the making of roads, etc. But right now,
when you talk about public purpose it does not only
pertain to those purposes that are traditionally viewed
as government functions; but it also includes those
purposes which promotes social justice.
ii) INHERENTLY LEGISLATIVE - taxation isan
inherent power of the government legislative in
nature.This is the power of the legislature to
make tax laws, or tomake laws in general.
SOURCES OF TAX LAWS:
1. Constitution
2. Existing laws
3. Local Government Code
4. Tax treaties and conventions
5. Court decisions
What is the nature of a tax law?It is civil in nature. It
is not political in nature because it does not define anything
about the government. It is also not criminal in nature
because it does not define a crime. It is civil in nature
because it involves an obligation to pay. There is an
obligation of the taxpayers towards the government. This
obligation is not contractual in nature. It is an obligation
created by law.
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iii) TERRITORIAL
GR: Tax is territorial in nature. It applies only within
the jurisdiction of the taxing authority.
Exception: There is a privity of relationship between
the taxing authority and the subject.
iv) INTERNATIONAL COMITY
This has something to do with the respect accorded to
one nation to another. According to De Leon, this is the
friendly relation between countries.
This principle is based on the following grounds:
1. Sovereign equality among the states. One state
cannot tax another because they are equal.
2. There is an implied understanding that where
one country, or its representative will come to
another country, that visiting envoy representing
the country does not degrade its status.
3. The foreign government cannot be sued without
its consent.
v) EXEMPTION FROM TAXES OF GOVERNMENT
ENTITIES
What is the reason behind this? It is because of public
policy. With respect to the government, tax exemption is
the rule and taxation is the exemption. But make no
mistake about it, you still have to prove that such entity is
part of the government.
How does the tax exemption with respect to
government agencies come into being? Usually its through
legislative statutes or through a legislative enactment.
Pagsinabinatinna exemptions for the government
agencies, usually this pertains to the national government,
or the agency of the government performing governmental
functions. When it comes to proprietary functions, there is
nothing preventing the Congress from imposing taxes on
the income or whatever tax subjects owned or earned by
that particular government agency.
Of course, nothing also can prevent the congress from
enacting a law taxing its own agency. Take for example
PAGCOR. Before, PAGCOR was exempt from income tax.
But when the NIRC came into being, the tax exemption of
PAGCOR was removed. So PAGCOR is no longer a tax
exempt entity. What is the liability of PAGCOR? It is liable
for franchise tax for its dealing operations. But if it earns
income other than the operations that it has, it is subject to
the normal corporate tax rate of 30%.
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July 19, 2016
(By: Cham Jala)
We are now in the constitutional limitations.
Basically, these constitutional limitations, you have
previously discussed this way back in your first year. So if
you want an in depth discussion about these constitutional
limitations you have to make reference to your
constitutional law before. Medjopahapyawlangtayongayon.
It is not an in depth discussion but it is something which is
related to income taxation and the general principles of
taxation.
There are two broad types of constitutional
limitations pertaining to taxation:
1) Those provisions which directly affect the power
of taxation of the government (ex. The tax
exemption provided to charitable and religious
institutions or those providing for passage of
revenue bills); and
2) Those that directly affect the power to tax (ex.
Due process; equality).
Those are the 2 broad types but I do not want to
divide them and to discuss them by that division. Gusto
kocodal para masmabilissyahabulin mas
madalisyasundan.
The first thing is Due Process. Article III,
Section 1. No person shall be deprived of life, liberty, or
property without due process of law xxx
It is a basic constitutional concept. What is due
process by the way? How do you define due process in
the first place? When I was still in first year, my
Constitutional Law professor gave us a stupid sounding
definition of due process. It is stupid but it works. He said,
Due Process is when the process is due. Medjo stupid
syapakingggan, but it actually works. It basically means
that if there is a process accorded by law, then you must
be able to make it. The process must be undergone before
the government can take away your life, liberty or property.
Usually sa police power to eh, but we all know that this
concept also applies in the context of taxation.
Traditionally, when you talk about due process,
this refers about the procedural due process.
Dibamerontayongproseso? It is somewhat related to a law
which hears before it condemns. There must be a proper
procedure. May prosesotayo, but we all know that this
traditional concept of procedural due process is not enough
because we also have the concept of substantive due
process.
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So in the end, there are two concepts of due
process, or two components or requirements of due
process:
1) There must be a valid law; and
2) There must be a valid procedure.
What is the function of the Constitution, by the
way? We all know that the constitution is there not to grant
the power to tax but only to limit the power of taxation.
In effect, due process is one of the constitutional
limitations of the power to tax because, we said earlier, if
we take everything else out, the power to tax is unlimited,
plenary and all encompassing.
This of the safeguards of the power to tax. In the
Pepsi vs. Municipality of Tanauan, the SC said This is not
to say though that the constitutional injunction against
deprivation of property without due process of law may be
passed over under the guise of the taxing power
because we all know that the power to tax also involves the
power to destroy. If the government would want to kill a
particular business, then exercise the power to tax in the
guise of raising revenues.
However, we all know that even if that is the
case, it is still a valid exercise of the power of taxation on
the part of the government, especially if:
(1) the tax is for a public purpose;
(2) the rule on uniformity of taxation is
observed;
(3) either the person or property taxed is within
the jurisdiction of the government levying
the tax; and
(4) in the assessment and collection of certain
kinds of taxes notice and opportunity for
hearing are provided.
Ano ba ang primary example natin ng violation of
due process, substantively? One example is the Fertiphil
case. Malala nyoyun, yung fertilizer bags? It is not for a
public purpose. It is oppressive. It is confiscatory. That is
why it is a violation of substantive due process. But if you
make a run downof all the Supreme Court case relating to
due process, magsearch kayo sa internet, you would
always almost notice that due process referred to here is
procedural due process. Usually it pertains to the tax
remedies. What do you think if there is a tax assessment of
a collection case filed by the government against a certain
tax payer? The number one defense there is usually the
procedural due process like what happened in the case of
CIR vs. Metro Star.
CIR vs. Metro Star: Before the government will
collect taxes from you, there must have to be an
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assessment. And in assessing a certain tax payer, there is
a process that is to be followed. The first thing that the BIR
will do if there will be a tax deficiency on the part of the
taxpayer, they will call the tax payer for informal tax
conference. They will summon the taxpayer just to explain
oh, may deficiency ka. anonggagawinmo? After the
informal conference, there will be a Preliminary
Assessment Notice or PAN sent to the taxpayer. After the
PAN, if still there is a disagreement, the BIR will serve a
Final Assessment Notice. Pag Final Assessment Notice
nayan, the taxpayer cannot do anything, except to protest
or to pay. Dalawalangyan: to protest or to pay.
What happened in this Metro Star case is that the
BIR assessed some tax deficiency against Metro Star. Sabi
ng Metro Star, I cannot be liable with that tax. After that,
informal conference was made and then after that informal
conference, a Final Assessment Notice was sent. Walang
PAN. Sabi ng Metro Star, this PAN is nonexistent because
they did not send me any Preliminary Assessment Notice.
What is the difference between the two?
Preliminary Assessment Notice is a letter sent to by the
BIR to the taxpayer informing the taxpayer that there are
some tax deficiencies, the law surrounding that tax
deficiencies and also some sort of a demand to pay. Ang
FAN naman, is pretty much the same: informing the
taxpayer of the facts and the law revolving assessment and
of course demand to pay. Anong difference? You can
ignore PAN. You do not have to reply, but when it comes to
FAN, you have to make the protest. Otherwise, the
assessment becomes final and executory. And PAN
required is under the NIRC.
The case went up to the SC. Ang argument ng
BIR is why go to the rigors of sending the PAN when the
FAN is also the same. It is practically the same. The
sending of Final Notice of Assessment is somewhat a
substantial compliance on BIRs part. There is no violation
of due process.
What did the SC say in this case? There is a
violation of the procedural due process. The NIRC itself
provides for that procedure and the BIR must comply with
that procedure. While the taxes are the lifeblood of the
government, the power to tax has its limits in spite of all it --
--- .you have to follow that process before you will be able
to take away the property of the taxpayer.
The next is the equal protection clause. Let us
discuss this together with uniformity and equity of taxation.
...nor shall any person be denied the equal protection of
the laws. and the rule on taxation shall be uniform and
equitable. We will discuss these together because these
constitutional provisions are interrelated.
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The recent ruling of the SC is that there is no
more distinction between the uniformity clause and the
equality clause. Uniformity of taxation and equity of
taxation practically means the same. What if the bar
examiner will ask you what is uniformity of taxation; what
about equality of taxation. How do you answer that?
Technically, if you talk about equity in taxation,
pagsinabinyo taxation is equitable, it basically means that
the tax imposed is based on the taxpayers ability to pay.
What about the uniformity of taxation? The uniformity of
taxation is pretty much the same with the equal protection
clause. What is this uniformity? Some Supreme Court
decision would say it pertains to geographical uniformity.
Basically, it pertains that tax operates with the same force
and effect in every place where the subject may be found.
Some other decision would say that it must apply to the
same class, at the same rate. There must be equal
protection. There must be no discrimination.
Basically, since uniformity and equality of
taxation is ---- or the equal protection clause is basically the
same, the criterion is that when tax laws operate uniformly
on all persons under similar circumstances and all persons
are treated in the same manner in both privileges conferred
and liabilities imposed.
By now you should know the requisites for a valid
classification.
1. There must be a Substantial distinction;
2. It must be Applicable to all members of the
same class;
3. It must be Germane to the purpose of the law;
and
4. It must apply on Existing and future conditions.
Let us go now to cases. Pagdatingkasisa
challenge on a constitutional provision, Sir Paul would
always say dilikamagbuot-buot. You do not decide whether
a particular law is unconstitutional or not. You make
reference a case because ultimately, it is the SC who is the
final arbiter who will determine whether or not a particular
law of a tax --- for that matter is unconstitutional to begin
with.
Ferrer vs. Bautista: Remember this? The SHT?
The garbage? One of the issues raised in this case is the
violation of the equal protection clause. What is the
argument of the petitioner here? The imposition of the SHT
and the garbage fee is actually unconstitutional. It violates
the equal protection clause because the ordinance makes
a distinction between the landowners who are paying taxes
and those who are considered as squatters. What did the
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SC say here? There is no violation of the equal protection
clause. Equal protection here requires that all things
similarly situated should be treated alike in both as to
privileges conferred and liabilities imposed. Congress is
basically allowed to make a classification as long as it is a
reasonable classification. You go back to the four
requisites.
Of course, in this case, there is a big difference
between landowner and squatters. In fact, the SC said you
do not need to distinguish them because it self-
explanatory.
Sison vs. Ancheta: this deals with due process
and also equal protection clause. This is a very old case.
This involves a 1997 NIRC. There is an amendment on this
law which basically distinguishes persons who are
compensation income earners meaning, sweldado or
empleyado and those who are engaged in business.
Sabinya, it is unfair. Why do you have to tax compensation
income earners at gross at a certain rate nanababalang,
compared to those who are engaged in the exercise of a
profession who are taxed at net and a huge tax rate? So it
is a violation of a due process daw and a violation of the
equal protection clause.
What did the SC say with respect to due
process? There is no violation of the due process clause
because the court will just strike down a law because of a
violation of due process only if there is a clear showing that
the tax law is so arbitrary and confiscatory in nature.
Sobranasya. What are the examples under this case?
Example is the tax measure is beyond the jurisdiction, the
public purpose requirement is violated and the tax measure
is also retroactive and so harsh and unreasonable. It
practically kills a legitimate business.
In this case, it is absent. Is there any violation of
the equal protection clause? There is a violation of the
equal protection clause only if there is a discrimination
discrimination which finds no support in reason. The SC
actually said here that it is impossible to find perfect
equality, but at least there must be an approximation of
equality. In this case also, this highlights the definition of
the uniformity clause - that uniformity in taxation is based
on geography. There is uniformity and equity in taxation
when the tax operates with the same force and effect in
every place where the subject may be found.
Tui vs. CA: This case is around 1999 Subic
Special Economic Zone. What is the case here? There is a
law. It declared Subic as a special economic zone. What is
the thing if you are in the special economic zone? The
thing is if you operate your business within the economic
zone, you will have tax incentives and tax exemptions.
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Syempreyungna sa labas ng secure zone nagreklamo.
Why do you give out tax exemptions if you are inside the
economic zone, while us outside, we could not afford the
same tax exemption? Parehaslang man kami business
man. We are all engaged in business. The Executive Order
implementing this law was challenged based on this equal
protection clause.
The same thing. There is a substantial distinction
between the invertors within the SEZ area and the
investors outside. But if you come to think of it, the decision
is very elitist. There is a very big difference. Kung doonka
sa loob ng economic zone na yan, usually this involves a
million dollar investment. So they deserve a tax exemption
in order to improve the investment, improve the economy
of the Philippines. But what about those who are outside?
Dont they deserve the same treatment?
ABAKADA vs. Purisima: (Sir said this case is
different form ABAKADA vs. Ermita, but the syllabus cites
the Ermita case) this is about the Attrition Act The RA
9337. What is this all about? This is about the incentives
given to BIR and Bureau of Customs official. Kung
makareachsila ng certain collection, meronsila incentives.
At the same time, kungdilisilakaabot, there will be
penalties.
The argument of the petitioners here is simple.
There is a violation of the equal protection clause mainly
because what is the distinction between the government
workers in the BIR and the BOC with respect to the other
government workers. The SC said Equality is guaranteed
under the equal protection clause is equality under the
same conditions and among persons similarly situated. If
you are part of the BIR of the BOC, naturally your thrust is
revenue generation. Compare it with the other employees
of the government. For example you are part of the police
force. You can actually see the distinction.
Progressive Taxation
Article VI, Section 28. The Congress shall
evolve a progressive system of taxation. What do you
mean by Progressive System of taxation and how is it
different from Progressive tax rate? Natanongyatayansa
bar. Pagsinabing progressive system of taxation we are
talking about the system it means that state has more
direct taxes than indirect taxes. That is the progressive
system of taxation. Pagsinabing progressive tax rate, we
are talking about the rate. The tax rate increases as the tax
base increases. So ano ang antithesis? Regressive system
of taxation means that there is more indirect tax than direct
tax.
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The only question here is what if the Congress
will make a tax law where the tax is indirect in nature. It is
actually discussed in the case of Tolentino vs. Secretary of
Finance and then repeated again in ABAKADA vs. Ermita
which is practically the same law: 1) in Tolentino, the VAT
law; and 2) in ABAKADA vs. Purisima, the Expanded VAT
law.
Tolentino vs. Secretary of Finance: The SC said
here that The Constitution does not really prohibit the
imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall
"evolve a progressive system of taxation." The
constitutional provision has been interpreted to mean
simply that "direct taxes are . . . to be preferred [and] as
much as possible, indirect taxes should be minimized."
Why? What is the reason behind that? Because of the
sheer difficulty of employing the direct tax system or the
progressive system of taxation. You could not really avoid
imposing indirect taxes. This decision is actually repeated
in ABAKADA vs. Ermita (Ermita case also discusses the
uniformity clause, equity in taxation and also due process).
July 23, 2016
(By: Katherina Gumboc)
CONSTITUTIONAL LIMITATIONS
Progressive System of Taxation
Section 2, Article VI, 1987 Constitution. The Senate
shall be composed of twenty-four Senators who shall
be elected at large by the qualified voters of the
Philippines, as may be provided by law.
ABAKADA vs. ERMITA
Nevertheless, the Constitution does not really prohibit
the imposition of indirect taxes. What Congress is required
by the Constitution to do is only to "evolve a progressive
system of taxation." This is a directive to Congress, just like
the directive to it to give priority to the enactment of laws
for the enhancement of human dignity and the reduction of
social, economic and political inequalities or for the
promotion of the right to "quality education." These
provisions are put in the Constitution as moral incentives to
legislation, not as judicially enforceable rights.
The Congress will evolve a progressive system of
taxation. In the case of ABAKADA vs. ERMITA,it was said
that the Constitutional provision is a mere preference given
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to the Congress to enact laws which provide for a
progressive system of taxation.Its not a mandate but a
preference. Its a mere policy or guideline.
The rationale behind this is its almost impossible to
impose a purely direct taxation or a purely progressive
system of taxation.
Origin of Appropriation, Revenue and Tariff Bills
Section 24, Article VI, 1987 Constitution. All
appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application,
and private bills shall originate exclusively in the
House of Representatives, but the Senate may propose
or concur with amendments.
In the case of ABAKADA vs. ERMITA, these are the
main points to remember:
1. Revenue and tariff bills must originate from the
House of the Representatives.
- The implication of this is that the Senate
cannot make any bill unless and until the HR
has already proposed a certain bill providing
for a certain revenue, tariff etc. bill
2. Once the House of Representatives has already
proposed a bill, the Senate is already given the
power to concur and propose amendments.
- What is the extent of the proposition that
may come from the Senate? The proposition
is extensive because the Senate can
actually propose an entirely new set of bills
which may or may not include the matters in
the bill which came from the HR
3. To insist that the revenue bill must be the same as
the House Bill would be to deny the Senates
power not only to concur with the amendment but
also to propose new amendments.
- In other words, this will violate the co-
equality of the two houses of Congress. In
fact the SC said that if this theory is to be
followed, it would appear that the HR is
stronger than the Senate.
Voting Requirements for Tax Exemptions
Section 28(4), Article VI, 1987 Constitution. No law
granting any tax exemption shall be passed without
the concurrence of a majority of all the Members of the
Congress.
The above provision is a law providing for a tax
exemption. The requirement under the law is the
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concurrence of the majority of all the members of the
Congress. It does not refer to the Senate only or the House
of the Representatives but it refers to the entire Congress.
Q. How do you compute the majority of the Congress? Is it
the majority of the Senate at the same time the majority of
the HR or you get the number of people in the Congress
then divide?
JOHN HAY vs. LIM
Facts:
The case is about the Bases Conversion Act or RA
7227 which expressly gave the president to create thru
executive proclamation other Special Economic Zones.
This same law provided for tax exemption privileges when
it comes to the Subic Special Economic Zone. President
Ramos created multiple special economic zones which
practically included John Hay. When he created EO 420,
Section 3 thereof provided for a tax emption pertaining to
these special economic zone. EO 420 was challenged.
Issue:W/N there was a violation of the Constitution.
Ruling: YES
Three grounds:
1. RA 7227 provided for tax exemptions for Subic
Economic Zone only. It does not provide for any
other exemptions pertaining to other related
special economic zones. (Diba under our principle,
the implementing rule of a tax law must not
exceed the law which it seeks to prevent.)
2. The nature of the assailed privileges pertains to
tax exemptions. As we said before, only the
legislative body can give tax exemptions
3. The Constitutional provision actually violated here
is the voting requirement which is that the majority
of the Congress must be acquired before tax
exemptions can be granted.
- It is the legislature unless limited by a
provision of the State Constitution that has
full power to exempt any person, corporation
or class of property from taxation; its power
to exempt being as broad as its power to
tax. The challenged grant of tax exemption
must have the concurrence of a majority of
all the members of Congress.
Delegation to the President to fix Tariff Rates
Section 28(2), Article VI, 1987 Constitution. The
Congress may, by law, authorize the President to fix
within specified limits, and subject to such limitations
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and restrictions as it may impose, tariff rates, import
and export quotas, tonnage and wharfage dues, and
other duties or imposts within the framework of the
national development program of the Government.
GR: The power to tax is inherently legislative in nature.
Therefore, it cannot be delegated.
EXCEPTIONS:
1. Local Government Units;
2. Tariff power of the President
3. Administrative bodies;
4. People at large; and
5. Emergency powers of the President
SOUTHERN CROSS vs. CEMENT MANUFACTURERS
Facts:
There was a quarrel between the DTI Secretary and
the Tariff Commission. There was certain law which
provides for the Safeguards Measures Act which provides
that the DTI Secretary may impose safeguard measures
upon the recommendation of the Tariff commissions.
Before it can be imposed, the Tariff Commission will first
make a study. After which, it will issue a recommendation
on whether or not the DTI Secretary will impose such
safeguard measures.
The Tariff Commission recommended that there is no
need for the imposition of safeguard measures when it
comes to cements kasi konti lang ang nagpro-produce ng
semento dito sa atin. When the DTI Secretary received the
recommendation of the Tariff Commission, it did not follow
the recommendation. Instead, it imposed tariff rates to the
cement manufacturers.
The importers of cement industry argued that the DTI
Secretary cannot just ignore the recommendation of the
Tariff Commission because under the law, they can or
cannot impose the tariff rates only upon recommendation
of the Tariff Commission.
Issue:W/N the imposition of the DTI Secretary valid.
Ruling: YES
The Safeguard Measures Act empowered the DTI
Secretary, as alter ego of the President, to impose
definitive general safeguard measures.
The case of SOUTHERN CROSS vs. CEMENT
MANUFACTURERS involves a law pertaining to
Safeguard Measures Act. The safeguard measure provides
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for an additional custom duties or tariff imposed on
particular or certain goods imported in the Philippines. The
reason for the imposition of the tariff or custom duties is to
protect local industries. So basically, goods will be coming
in from abroad or foreign countries and these goods are
competing with domestic or local goods. So para mahirap
sila makipag compete sa atin, we impose tariff rates for the
protection of the local industry.
So when the DTI Secretary imposed additional tariff
rates, the importers of cement challenged it arguing that
DTI Secretary can impose the tariff rates only upon
recommendation of the Tariff Commission.
But what is the nature of the position of the DTI
Secretary? He is the alter ego of the President. And to
whom is the power to fix tariff rates given? The President.
In the end, the SC ruled that the DTI Secretary is not
bound by the recommendation of the Tariff Commission
mainly because the decision of the DTI Secretary is as if
the decision of the President himself because he is
considered as the alter ego of the President.
SUMMARY:
In the case of SOUTHERN CROSS vs. CEMENT
MANUFACTURERS:
1. The power of the President to prescribe or to
increase tariff rates is derived from the
Congress. In other words, the Constitutional
provision is not self-executing. There must be a
particular law affording the President to increase
the tariff rates.
2. It iss limited only to tariff, customs, and other
import duties. Hence, it is limited in nature.
Principle applied: The power to fix rates is lodged in the
President and nobody else. It is a mere delegated power
and, therefore, it cannot be further delegated.
Exemption from Real Property Taxes
Section 28(3), Article VI, 1987 Constitution. Charitable
institutions, churches and parsonages or convents
appurtenant thereto, mosques, non-profit cemeteries,
and all lands, buildings, and improvements, actually,
directly, and exclusively used for religious, charitable,
or educational purposes shall be exempt from taxation.
Q. Do you need an enabling law to enforce for this?
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A. NO,because this is actually self-executing provision.
Hence, you do not need any enabling law.
This is a tax exemption specifically provided for by the
Constitution. But this exemption is highlighted in our Local
Government Code pertaining to the exemption to real
property taxes. Because this Constitutional provision
pertains solely to real property taxes. When you talk about
income, revenue or assets, there is a separate
Constitutional provision which deals for that matter.
What are the institutions covered:
1. Charitable institutions;
2. Churches;
3. Parsonages or convents appurtenant thereto;
4. Mosques;
5. Non-profit cemeteries; and
6. All lands, buildings, and improvementsactually,
directly, and exclusively used for religious,
charitable, or educational purposes
Q. What is the requirement of the law for these institutions
to be exempted under this Constitutional provision?
A. The property must be actually, directly and exclusively
used for charitable, religious or educational purposes.
(Emphasize because Dean would always look for the key
words)
Q. What do you mean by actually, directly and exclusively
used?
A. The phrase has two meanings.
1. Traditional meaning: Taken as it is. Exclusive.
There is no other use of the land except for
charitable, religious or educational purposes.
2. Literal meaning: Even if they are not directly used,
if the facilities are incidental to the main purpose
or reasonably necessary for the main purpose of
that particular institution, then it is considered as
among the exempted use.
ABRA VALLEY vs. AQUINO
Facts:
The Government tried to seize the properties of Abra
Valley College because of non-payment of real property
taxes.Abra Valley contended that the Government cannot
seize their properties because these properties and also
the land is actually, directly and exclusively used for
educational purpose. In fact, the very purpose why they
have the school and the land is because they operate as a
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school.
The Government countered that the property is no
longer exempt because the Constitutional law requires that
it be actually, directly and exclusively used. The second
floor of the main building was used for residential purpose
for the school director and the family of the school director.
Also, there are other portions of the building which Abra
Valley rented out for commercial purposes. Therefore, the
property is no long directly or exclusively used for
educational purpose and is therefore no longer exempt
from taxation.
Issue:W/N Abra Valley College is exempted from real
property tax.
Ruling: Partly YES, partly NO
Exemption extends to facilities which are incidental and
reasonably necessary for the accomplishment of the main
purpose, in this case, educational purpose. The use of the
school building or lot for commercial purposes is not
contemplated by law nor by jurisprudence. While the use of
the second floor of the main building for residential
purposes of the Director and his family may find
justification as incidental use, hence, tax exempted, the
lease of the first floor for commercial purposes is nit
considered incidental to the purpose of education.
Therefore, such portion is not exempted from real property
tax.
In the case of ABRA VALLEY vs. AQUINO, the SC
ruled that the Government is not entirely correct and the
Abra Valley College is not entirely correct.
Q1. Is the portion of the building being leased out by the
school director considered actually, directly and exclusively
used for educational purpose?
A. The SC said it is still covered by that particular
description because it is reasonably necessary for the
purpose of that school because what if nakapuyo sa layo.
So its okay. The school will benefit with that.
Q2. What about the first floor rented out for a particular
corporation for commercial purposes?
A. The SC ruled that it is no longer actually, directly and
exclusively used for educational purpose. By no stress of
imagination can you consider a commercial corporation for
educational purpose.
In the end the SC said that only those portions used for
commerce is subject to real property tax and not the entire
school.
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For example, here in Ateneo, some properties are
leased out for commercial purposes, so is that exempt from
real property taxes?
ROMAN CATHOLIC vs. ILOCOS NORTE
Facts:
The Government assessed the church. The church
said that it is for religious purpose. The Government
replied, okay that church is for religious purpose but the
entire property of the church is no longer exempt because
a portion of the property is used for a vegetable garden and
for cemetery.
Issue: W/N the church is exempted from real property tax.
Ruling: YES
The exemption from the payment of the land tax in
favor of the convent includes not only the land actually
occupied by the building, but also the adjacent ground or
vegetable garden destined to the incidental use of the
parish priest in his ordinary life. The unused cemetery is
also exempt as it is not used for commercial purposes and
instead is used as a place for those who participate in the
religious festivities.
In the case of ROMAN CATHOLIC vs. ILOCOS
NORTE, the SC ruled that the vegetable garden is exempt
from tax because this is incidental for the use of the people
of the church. The old cemetery at the back of the church is
also tax exempt even if it is no longer used as a cemetery
because this was used as a lodging house of the priest and
the guest of the church.
So basically, it is still for religious purpose. What is
being used by the SC in this case is the liberal
interpretation of actually, directly and exclusively used for
charitable, religious and educational purpose.
Q.What if the property is owned by a private individual and
he leased out his property to a school, like STI. Is that
property leased out by a private individual to a school
exempt from real property tax?
A. The test of exemption or the test to be considered in
order to determine whether or not a certain property is
exempt from real property tax under the Constitution is
whether or not the property is actually, directly and
exclusively used for charitable, religious or educational
purpose. Hence, ownership does not matter. As long as the
property is being used for charitable, religious or
educational purpose then the property is exempt from real
property taxes. Take note, actual use yan ha and not
ownership.
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LUNG CENTER vs. QUEZON CITY
Facts:
In this case, the government is attacking the nature of
the entity. Its not only the property actually, directly and
exclusively used but it is also attacking the nature of the
entity.
Lung Center is a non-stock, non-profit entity. There is a
big space at the ground floor of the building leased out to
private entities and there are canteens and small store
spaces which are rented out to medical or professional
practitioners. Also a big part of the land is idle and another
big portion of the land is being leased out for commercial
purposes. It also accepts paying and non-paying patients.
The Quezon City assessed Lung Center for payment of
real property tax. Lung Center does not want to pay
because it alleged that it is a charitable institution. And the
Constitution provides that charitable institutions are exempt
from real property taxes as long as the property is actually,
directly and exclusively used for charitable purposes.
The Quezon City countered that Lung Center is not a
charitable institution because Lung Centeris accepting
paying patients and is also receiving grants from the
government. Therefore, Lung Center is not purely
charitable in nature. Being such, Lung Center is not
included in the exempted entities under the Constitution.
Issues:
1. W/N Lung Center is a charitable institution. YES
2. W/N, being a charitable institution, tax exemption
is therefore automatic. NO
3. W/N Lung Center is exempted from real property
tax. Partly
Ruling:
First Issue
Lung Center is a charitable institution.Charity is
essentially a gift to an indefinite number of persons which
lessens the burden of the government. In other words,
charitable institutions provided ofr free goods and services
to the public which would otherwise fall on the shoulders of
the government.
The test of charity is whether or not the institution
exists to carry out the purpose with organized in law as
charitable or whether it is maintained for the profit or
private advantage.
Q1.How will you be able to determine whether or not the
particular entity passes the test of charity?
A1. In this case the SC looked at a lot of things. It looked
into the nature of the business of that entity and the
documents or the article if incorporation(AOI) of that entity.
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In the case at bar, the SC looked into the AOI and by
laws of the Lung Center. The AOI provides that Lung
Center will render medical services to the public in general
in any and all walks of life including those of the poor and
the needy without discrimination. In other words, Lung
Center passed the test of charity because it does not cater
only to paying patients but it also provides services for
those who are needy, non-paying patients.
Q2. How about the fact that Lung Center is gaining profits
because of its paying patients. Does it matter?
A2.As a general principle, it does not really matter if the
Lung Center is gaining profits. A charitable institution does
not lose its character by the mere fact that it is receiving
profit from a particular business. It does not really matter if
you receive income for that matter. What really matters is
where you use that profit.
What is important is that the money received or the
profit derived (1) must be used or devoted altogether for
the charitable object and that the money or profit received
(2) must not inure to the benefit of the persons managing
or operating the institution.
Q3.Does it matter that the lung center is receiving
subsidies or endowments from the government or branch
of the government?
A3.It does not really matter. Receiving grants from the
government entity or foreign government entitiesod not
destroy the charitable character of that institution so long
as these grants received is still used for charitable
purposes.
Second Issue
Again, you have to distinguish the person and the use
of a property. If you are a charitable institution, it does not
mean that you are automatically tax exempt. What matters
is to determine whether the property is actually, directly
and exclusively used for charitable purposes.As mentioned
in the case of ABRA VALLEY, those properties actually,
directly and exclusively used for charitable purpose shall
be exempt from real property taxes. Hence, you must
prove that the property is actually, directly and exclusively
used for charitable purpose before tax exemption can lie.
Q1. What about the idle land?
A1. It is subject to real property tax.Idle nga diba, meaning
hindi ginagamit.
Q2.How about those portions rented out for commercial
purposes?
A2. These are covered by real property tax.
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Third Issue
Another argument of the lung center here was, granting
that they are renting out or leasing these properties for
commercial purposes, the income that they generate from
it were used to cover the expenses of non-paying patients.
In the end, those properties even if rented out, the income
being derived from such is still used for charitable
purposes. So in effect these income is for charitable
purpose.
The SC ruled that the argument of Lung Center is a
fallacy. It said that you should distinguish the use of the
income from the use of the property. Take note that what is
exempted here is the use of the property itself not the use
of the income.
In conclusion, the SC said that only those portions
used for charitable purposes is exempted from real
property tax while those portions used for commerce is
subject to real property tax.
Q. Is the property rented out to commercial spaces by
Ateneo exempted from real property taxes?How about the
income derived from leasing out the property? Take note,
Ateneo is a non-stock, non-profit educational institution.
Tax Exemptions of Revenues, Assets, Including
Donations to Educational Institutions
Section 4, Article XIV, 1987 Constitution.
(3) All revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt
from taxes and duties. Upon the dissolution or
cessation of the corporate existence of such
institutions, their assets shall be disposed of in the
manner provided by law.
Proprietary educational institutions, including
those cooperatively owned, may likewise be entitled to
such exemptions subject to the limitations provided by
law including restrictions on dividends and provisions
for reinvestment.
(4) Subject to conditions prescribed by law, all grants,
endowments, donations, or contributions used
actually, directly, and exclusively for educational
purposes shall be exempt from tax.
GOING BACK TO THE ATENEO RELATED QUESTION
Q1. Are the properties rented out by the school for
commercial purposes exempt from real property tax?
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A1. NO. It is not tax exempt because the use of the
property is no longer actually, directly and exclusively used
for educational purposes.
Q2.What about the income from the rents generated? Is it
exempt from taxation?
A2.First you must distinguish if that income is being used
as actually, directly and exclusively for educational
purpose. If it is, then that income is exempt from taxation
because of the Constitutional provision under Article XIV
Section 4(3). But if the income is used for something else
and no longer for educational purpose then that income will
be subject to tax.
We are already talking about the income already, the
fruits. We are not talking about the tree. We are talking
about the apple.
The second paragraph of this constitutional provision
provides, proprietary educational institutions,
including those cooperatively owned, may likewise be
entitled to such exemptions subject to the limitations
provided by law including restrictions on dividends
and provisions for reinvestment.
In the end this Constitutional provision deals with two
types of educational institution:
1. Non-stock, non-profit educational institution; and
2. Proprietary educational institution
A. Non-stock, non-profit educational institution
(NSNP)
The coverage is all
1. Revenues; and
2. Assets
Pag sinabi nyong revenues income yan, kita nila. When
you say assets, these pertain to naa ba moy car, school
bus, building.
Revenues and assets are exempt from taxation, not
only real property tax to ha, this is the entirety of tax, if it is
actually, directly and exclusively used for educational
purpose.
The same principle applies either it is the liberal
construction or the strict construction
Q. Is this provision on the tax exemption to non-stock, non-
profit educational institutionself-executing.
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A. YES, you do not need an implementing law for that.
SUMMARY
1. The tax exemption covers non-stock, non-profit
educational institution.
2. The things covered are all the revenues and
assets of the non-stock, non-profit educational
institution.
3. The condition for the tax exemption is that the
revenue and assets must be actually, directly and
exclusively used for educational purposes.
B. Proprietary educational institution (PEI)
Under the constitution, proprietary educational
institution may likewise be entitled to such tax exemptions
subject to the limitations provided by the law.
In other words, when you talk about proprietary
educational institutions, this Constitutional provision is
actually not self-executing. You need an enabling law. It is
provided in the National Internal Revenue Code (NIRC) as
of now.
PEI are not tax exempt.The revenues and assets of
PEI are not tax exempt. Right now what are the benefits
the PEI may avail? They are entitled only to preferential tax
rate. They can avail of 10% preferential tax rate based on
the net taxable income. So until and unless the Congress
will enact exempting PEI from taxation, these institutions
will be subject to tax.
Q. But what about the real property taxes of these PEI?
A. You dont make reference to Article XIV butyou make
reference to Article VI, Section 28(3).
CONCLUSION
When you talk about exemption from real property tax,
it applies to both non-stock, non-profit educational
institutions and toproprietary educational institutions. When
you talk about the revenues and assets, the exemption
covers only the non-stock, non-profit educational
institutions.
Section 4(4), Article XIV, 1987 Constitution. Subject to
conditions prescribed by law, all grants, endowments,
donations, or contributions used actually, directly, and
exclusively for educational purposes shall be exempt
from tax.
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Paragraph 4 pertains to grants, endowments,
donations, and contributions used actually, directly, and
exclusively for educational purposes.
This provision is different because it deals with
donations nagihatag sa institutions. I dont think this is a
self-executing provision because it needs a delegating law
as it says subject to conditions prescribe by law. Right now
sec 101(3) is the enabling law.
Section 101. Exemption of Certain Gifts. The following
gifts or donations shall be exempt from the tax provided for
in this Chapter:
(A) In the Case of Gifts Made by a Resident.
(3) Gifts in favor of an educational and/or charitable,
religious, cultural or social welfare corporation, institution,
accredited nongovernment organization, trust or
philanthropic organization or research institution or
organization: Provided, however, That not more than thirty
percent (30%) of said gifts shall be used by such donee for
administration purposes. For the purpose of the exemption,
a 'non-profit educational and/or charitable corporation,
institution, accredited nongovernment organization, trust or
philanthropic organization and/or research institution or
organization' is a school, college or university and/or
charitable corporation, accredited nongovernment
organization, trust or philanthropic organization and/or
research institution or organization, incorporated as a non-
stock entity, paying no dividends, governed by trustees
who receive no compensation, and devoting all its income,
whether students' fees or gifts, donation, subsidies or other
forms of philanthropy, to the accomplishment and
promotion of the purposes enumerated in its Articles of
Incorporation.
Conditions: Not more than 30% of said gifts shall be used
by such donee for administration purposes.
The exempted entity involves only the NSNP. The PEI
cannot avail of the tax exemptions on donations.So kamo
kung mag donate mo and you donate it to NSNP EI, you
will be exempt from donors tax.
Non-impairment of Supreme Courts Jurisdiction in Tax
Cases
Section 5(2)(b), Article VIII, 1987 Constitution. The
Supreme Court shall have the following powers:
(2) Review, revise, reverse, modify, or affirm on
appeal or certiorari, as the law or the Rules of
Court may provide, final judgments and orders of
lower courts in:
(b) All cases involving the legality of any tax,
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impost, assessment, or toll, or any penalty
imposed in relation thereto.
In other words, the SC is the final arbiter that will
determine the legality of any tax or assessment. The SC is
also the final arbiter to determine whether a taxpayer is
liable for any tax or imposition.
Who determines first? Who initially determines the
coverage of the taxation? Its the legislature. They are the
first ones to determine but in the end its determination is
not final as of yet because the coverage because the SC
will say that this particular taxpayer is covered or not
covered by that particular tax.
Public purpose is also determined by the judiciary.
Initially it is the legislature but in the end it is the judiciary.
(Fertiphil case)
Non-imprisonment for Non-payment of Poll Tax
Section 20, Article III, 1987 Constitution. No person
shall be imprisoned for debt or non-payment of a poll
tax.
Note: Please see RA 7610 Sections 159-164. It was not
discussed in class but the law is provided in the syllabus.
If you do not pay your cedula, you do not go in prison.
What is the effect if you do not pay your cedula or your
community tax certificate? The government will not
entertain you or any transactions coming from you if you do
not present your cedula. Ano ba ang example dito? Taking
board exams. Diba punta ka ng PRC. Diba pag kulang ka
ng cedula diba sabihan ka na pagkuha sa cedula didto. So
that is one effect.
Under the LGC, the government is not suppose to
transact with you if you do not present your cedula. Right
now, only select government agencies will require you with
cedula such as PRC, ewan lang sa City Treasurers.
Another is under the LGC, the lawyer is not supposed to
notarize documents if you do not present your cedula.
What happens if you do not pay your taxes? Of course,
thats the time you will go to prison just like Napoles. That
is tax evasion if you do not pay your income taxes or other
forms of taxes under the NIRC. Pretty much the same if
you do not pay your custom duties.
Freedom of Speech and of the Press
Section 4, Article III, 1987 Constitution. No law shall be
passed abridging the freedom of speech, of
expression, or of the press, or the right of the people
peaceably to assemble and petition the government for
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redress of grievances.
This Constitutional provision is one indirectly affecting
the tax power of the government.
In the case of TOLENTINO vs. SECRETARY OF
FINANCE, it was questioned, why do you have to tax the
printing of books and magazines? You are actually
violating the freedom of the press. Mas lisod na ibaligya
kay taas na kayo ang presyo because of VAT.
The SC ruled that the press is not exempt from the
taxing power of the state. That is why, the tax measure is
constitutional even if it reduces the tax privileges of the
press. Dati exempt sila. Ngayon, because of the new
amendment sa tax laws, they are already covered by tax.
Religious Freedom
Section 5, Article III, 1987 Constitution. No law shall be
made respecting an establishment of religion, or
prohibiting the free exercise thereof. The free exercise
and enjoyment of religious profession and worship,
without discrimination or preference, shall forever be
allowed. No religious test shall be required for the
exercise of civil or political rights.
In the case of AMERICAN BIBLE vs. CITY OF
MANILA, the SC ruled that the municipal ordinances
imposing a tax on the sale of bibles were declared
unconstitutional as it would impair the free exercise and
enjoyment of its religious profession and worship, as well
as its rights of dissemination of religious beliefs.
Non-impairment of Contracts
Section 10, Article III, 1987 Constitution. No law
impairing the obligation of contracts shall be passed.
Q. What do you mean by non-impairment of contracts?
A.To impair the obligation of a contract is to alter or change
the terms of effects of the contract and thus in
contemplation o law, to weaken the position or rights of one
or all the parties to it.
Okay lang kung modify pero once ma change ang
terms of the contract as to weaken the position of the party,
there is already an impairment of obligation of contracts.
When it comes to police power, we all know the police
power is superior to this Constitutional provision. But we all
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know that when it comes to taxation, the presumption is
reversed.
GR:This provision is actually superior to the power of
taxation, that is the general rule.
EXC: The exemption is when you talk about legislative
franchises. Because when you talk about legislative
franchises, there is specific Constitutional provision, Article
XII, Section 11 which provides that franchises granted shall
be subject to amendment, alteration or repeal by the
Congress when the public interest so requires.
Thats why PAL cannot complain kasi diba dati
exempted sila sa tax. When the LGC came out, it abolished
all the exemptions. Usually kasi pag franchise pag
franchise meron silang franchise fee in lieu of all other
taxes. So intstead of paying the VAT etc, franchise fees
lang yan sila. Then when LGC came, abolish yan sila
lahat.The LGC abolished and repealed all tax exemptions.
That is why LGU started imposing franchise tax against
these corporations and they couldnt do anything do about
it because franchises are subject to amendment and
repeal.
MERALCO vs. PROVINCE OF LAGUNA
The non-impairment clause may be rightly invoked
against contractual tax exemptions. Contractual tax
exemptions are those agreed 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 government
immunity.
The SC also said: 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
(meaning manghulam ang gobiyerno), 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. These contractual
tax exemptions, however, are not to be confused with tax
exemptions granted under franchises.
Franchises are not ordinary contracts. The government
does not shed its cloth.A franchise does not take the nature
of a contractual tax exemption, which cannot be revoked
without impairing the obligations of contracts. It is a
unilateral tax exemption. A legislative franchise can be
withdrawn through amendment or repeal by the Congress
when the public interest or common good so requires.
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July 26, 2016
(By: Alona Suzell B. Ruyeras)
First things first. There are two new cases pala
according to Dean. I dont have the citation yet (*Note: the
citations were given the following meeting. Please see next
TSN for reference). First is the Mactan International
Airport vs. City of Lapu-lapu. Second is Film Council
vs. City of Cebu. So both are 2015 cases.
*TAXPAYERS SUIT*
Lets now start with Taxpayers Suit. This is more
of a Constitutional Law concept but from time to time this is
being asked in Taxation sa bar.
What is a Taxpayers Suit all about? This is
related to the Judicial Review aspect in Constitutional Law.
The Power of Judicial Review is the power of the
Supreme Court to declare a treaty, international or
executive agreement, law, etc. unconstitutional. It also
includes the power to declare unconstitutional not just the
law but also the application of this law, treaties or
international agreements. Because we all know that a law
may be valid on its face but it is invalid or unconstitutional
as to its application.
What are the Elements of Judicial Review, by
the way? There are four (4) elements right?
1. There must be an actual case or
controversy;
2. There must be locus standi;
3. The issue must be raised on the earliest
opportunity;
4. The issue must be the very lis mota of the
case.
Where does Taxpayers Suit come in? It comes
in when we talk about locus standi. A taxpayer has the
right to file an action questioning the validity or
constitutionality of a law based on the theory that
expenditure of public funds by the officer of the
government or the one administering or implementing
a valid law constitute a misapplication of funds. Just to
simplify everything, a person files a case to declare
unconstitutional a particular law because there is some
misapplication of funds. Government funds are involved.
So strictly speaking, a taxpayer has a standing to
sue if he tends to show that:
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1. He has a sufficient interest in preventing the
illegal expenditure of money raised by
taxation;
2. He will sustain a direct injury.
But in recent times, the Supreme Court actually
liberalized the rule on locus standi especially when it
comes to a taxpayers suit. But we all have to bear in mind
that (first,) the Supreme Court still has discretion whether
or not to entertain the case. And second, what is required
is that the action challenged involves the exercise of the
spending or taxing power of the Congress. Or at least there
is some public policy involved.
Lets go to the cases.
There is one case by the way that I did not
include in the outline. Its Plaridel Abaya vs. Ebdane 515
SCRA 70. We will discuss this later.
First is the Anti-Graft League vs. San Juan.
What happened in this case? There was a Presidential
Decree enacted by President Marcos. This Presidential
Decree established technological colleges in the Province
of Rizal. So what the Province of Rizal did was they
purchased a real property and supposed to be, they are to
build some schools. However, the construction did not
push through. So actually, these properties bought by the
Province became idle. Later on, the Province decided to
sell this property, this idle land that they bought intended
for the technological school. And what happened in this
case? When they sold the property to another buyer, the
previous seller filed a case in court saying that we have to
nullify this contract. And what happened next is that the
Province and this previous seller Ortigas, entered into a
compromise agreement.
Now here comes the Anti-Graft League. They
filed a case in court wanting to nullify the compromise
agreement entered into by the Province and Ortigas, the
former seller. So one of the issues tackled here is about
the taxpayers suit. Number one, is this action a taxpayers
suit to begin with? Number two, if it is, does the petitioner
have the legal standing to sue these parties?
What did the Supreme Court say in this case?
Sabi ng Supreme Court, this is not a taxpayers suit to
begin with. When we talk about taxpayers suit, this is
supposed to involve a Constitutional law question diba?
The Constitutionality of an act. But in this case, there is no
issue on Constitutionality right? What is the main point of
this case? This is just to nullify a compromise agreement.
Although this is not a taxpayers suit, hence it is useless to
discuss about the legal standing of the petitioner,
nevertheless, the Supreme Court still said that the
Elements of a Taxpayers Suit are as follows:
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1. Public funds are disbursed by a political
subdivision and in doing so, a law is violated
or an irregularity is committed;
2. Petitioner is directly affected.
Applying these two requisites,
One, is there any public funds involved here? Is
there any disbursement of public funds here? Wala naman
diba? In fact gain pa nga sa part ng Province diba? They
are supposed to get money because of the sale.
Two, what about injury? There is no direct injury
that will be sustained by the petitioners. They have no
standing to begin with.
Compare this with the case of Plaridel Abaya
vs. Ebdane. This is actually one of the few decisions in
which the Court liberalized the rule on Taxpayers Suit. In
this case, the Supreme Court said that in a Taxpayers
Suit, it is not necessary that it should be filed by a
party who benefitted. It could be filed by any citizen or
taxpayer or both who actually sues for public interest.
The prevailing doctrine in a Taxpayers Suit is to allow
taxpayers to question contracts entered into by the national
government or GOCCs in contravention of law. A taxpayer
is allowed to sue when it appears that public funds are
illegally disbursed or that it is being used for any
improper purpose. So again, the main thrust, if you want
to file a case to question the constitutionality of a particular
law or a particular governmental act under this standing (as
a taxpayer), there must be a MISAPPLICATION OF
PUBLIC FUNDS.
Now lets continue. The next is escape from
taxation.
*ESCAPE FROM TAXATION*
What do you understand by escape from
taxation? Sabi natin last time we cannot escape taxation.
But this time, we learn that there are actually modes by
which we can escape taxes. Number one, we can do it
legally. Number two, we can do it illegally.
Escape from taxation refers to the means
employed by the taxpayer, regardless of the legality, so as
not to pay or absorb the burden of the tax that is imposed
by the state. So anything which deals with non-liability is
called an escape of taxation.
Differentiate escape of taxation from tax
exemption. Although the effect is the same, because when
we talk about these concepts, escape of taxation and tax
exemption, you will not pay any taxes, the difference is who
initiates the exemption, who initiates the non-payment.
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Based on the Lectures of Atty.Donalvo (1st Semester of S.Y. 2016-2017)
When we talk about escape from taxation, it is
initiated by the taxpayer himself. It is either ayoko
magbayad! or meron ba akong lusot dito?. When we talk
about tax exemption, this is initiated by the taxing authority,
by express provision of law issued by the Congress or local
government, the tax subject or object is exempt from
taxation.
What are the Main Ways of Escaping Taxes?
There are at least three (3) ways:
1. Tax Shifting;
2. Tax Avoidance; and
3. Tax Evasion.
If you read the books, minsan marami sya. Pero
in effect, tatlo lang yan: shifting, avoiding and evasion.
TAX SHIFTING. What about shifting? Shifting
the tax burden means transferring the economic burden
from one who pays the tax to another. What you transfer is
not the payment of tax or the liability of paying the tax but
its just the burden of taxation. What are the two (2) ways of
shifting the tax burden:
1. Through absorbing. It is to include the tax
as part of the purchase price. Why? Bakit
mo isasali? Usually, the only taxes that you
could shift are INDIRECT TAXES. For
example, CDR King, diba P120.00? Yan
makita nyo man talaga yan sa CDR-King
kase mano-mano man sila mag issue ng
resibo. If you buy something na worth
P120.00 tapos diba may decimal-decimal
yan, (you can see there) the actual selling
price plus the tax then theres the actual
purchase price of the thing. So absorbed.
2. Another way of shifting the tax is to bill the
tax separately. Kumbaga patong talaga sya.
This is usually used when the business is
service-oriented. For example, law firms.
Kung VAT covered ang law firm, the
contract fee is P100,000 plus VAT. So
P112,000 ang babayaran.
We said earlier that the burden of tax may be
shifted only when it comes to INDIRECT TAXES. What are
these indirect taxes? Normally these are business taxes or
excise taxes. This covers franchise tax, contractors tax,
VAT, documentary stamp tax, excise tax and percentage
tax.
What about Capital Gains Tax? Is it an indirect
tax? Kase usually ang ginagawa nila, the buyer and the
seller agree na the Buyer, ikaw magbayad ng Capital
Gains. But make no mistake, Capital Gains Tax is a direct
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tax. It is not an indirect tax. We will discuss more on that
when we reach income taxation.
Now, why is it that in indirect taxes, you can shift
the burden of tax to another person? Its because of the
concept of IMPACT and INCIDENCE of taxation. In indirect
taxes, you can actually split the impact and incidence of
taxation unlike in direct taxes where impact and incidence
of taxation falls only on one person. Example nyan is
income tax, hindi mo man yan mapasa sa ibang tao.
*Recitation*
Summary of Relevant Q&A during Recitation
Q1: What do we mean by IMPACT OF TAXATION?
A1: This refers to the LIABILITY. Sino ang hahabulin ng
BIR in case that you do not pay?
Q2: What do we mean by INCIDENCE OF TAXATION?
A2: When we talk about incidence of taxation, yan yung
sino ang mag-shoulder ng burden ng tax. Who will bear the
ECONOMIC BURDEN of paying the tax?
Q3: If you shift the payment of tax, is it still called a tax?
A3: No. It is not a tax on your part (as the buyer). It forms
part of the purchase price na binigay mo sakin (as the
seller).
So what is being passed is only the ECONOMIC
BURDEN and not the LIABILITY of paying the tax.
Because ultimately, ako (as the seller) man gihapon ang
singilon sa gobyerno. If I sell, and I am not going to pay the
tax, the government will not make habol (Ay, conyo si
Sir..haha) on the buyers, the government will go after me,
the seller, because I am the STATUTORY TAXPAYER.
We can actually illustrate this in the context of a
refund of a tax. Because normally, pag excise taxes,
exempt ka from paying for example VAT, you can claim for
a refund.
Just like what happened in Diageo Philippines
vs. Commissioner. *Recitation*
Q1: Can Diageo here claim for a refund?
A1: No Sir because Diageo here has no legal personality
to file a claim for tax refund.
Q2: What else?
A2: The statutory taxpayer, which is the supplier, is the
proper party to claim the refund.
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Yes, what is being paid by the purchaser,
Diageo, is only a part of the purchase price or the
economic burden.
This is pretty much the same with what
happened in Silkair vs. CIR.
*Clarification Re: Silkair Case*
Q1: Sir, we just would like to clarify. Because in the case of
Silkair Sir, the ruling of the Court is to the effect that
Petron, the statutory taxpayer, was called the INDICENCE
of taxation, and Silkair, the one na nag bear ng burden ng
tax was called IMPACT of taxation. So ano po yung tama
Sir?
A2: Okay, I will read the case again xxx.
*NOTE: Sir said the next meeting that we should not be
misled by the ruling in Silkair vs. CIR regarding the
definition of impact and incidence of taxation and shall stick
with this understanding:
Seller Buyer
Indirect Statutory Taxpayer Bears Economic
Taxes Burden
(IMPACT OF
TAXATION) (INCIDENCE OF
TAXATION)
According to Sir Donalvo, most books follow this line of
thought.
However, the ruling in the Silkair case regarding the proper
party to file a claim for refund still stands.
Going back to the case of Silkair vs. CIR, In this
case, Silkair purchased products from Petron. Syempre
ang Petron, may pinasa sa kanila. Petron will always pass
the excise taxes to Silkair. And then Silkair filed a claim for
refund of these taxes that were passed on to it. Yun man
ang contention nila. We should not be liable for these taxes
passed on to us because of an international agreement. So
what did the Supreme Court say here? The proper party
to seek the refund of an indirect tax is the statutory
taxpayer. If there is someone who should claim for refund,
it is not Silkair but Petron because Petron is the statutory
taxpayer.
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TAX AVOIDANCE. Tax Avoidance is always
legal ha because that is the legal way of avoiding the
taxes. Another term for Tax Avoidance is Tax
Minimization. The ultimate effect of Tax Avoidance is:
1. Partially avoid taxes;
2. Totally avoid taxes.
One concrete way of tax avoidance is estate-
planning. How do you do it? Under our tax laws right now,
if you donate a property not exceeding P100,000, that is
actually exempt from tax. So for example you are dying,
(Ayaw sa pud Sir..
haha) you know that years from now
you will die and you have vast amounts of property, to
avoid taxation, hinay-hinay na na nimo i-donate imung
property until such time that when you die, the property you
left is also exempt from taxation. So in the end, wala kang
binayaran na tax.
Another tax avoidance scheme that I could think
of is if you go abroad and you declare yourself and prove to
the BIR that you are a non-resident citizen. In that way, if
you are considered a non-resident citizen, you will be taxed
only on your income earned within the Philippines.
TAX EVASION. Now, tax evasion on the other
hand is always illegal because you employ fraud and deceit
in order for you to reduce or totally avoid taxes. Another
term for this is Tax Dodging.
What are the Factors to be Considered to
Determine whether or not a Tax Scheme is a Tax
Evasion Scheme?
1. The end to be achieved;
What is the end to be achieved here? Of
course it is the reduction or elimination of
tax.
2. The intent of the taxpayer;
If the taxpayer is in bad faith or there was
fraud or deceit employed.
3. An action or failure of action which is
actually unlawful.
Because intent is not enough. Kahit ilang
beses mo sya gi-rape sa isip mo, kung wala
ka naman ginawa, Okay lang (Okay lang ba
diay na Sir?! -___- aw. affected. haha)
One good example of a tax evasion case is the
case of CIR vs. Estate of Toda. What happened here?
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There was a certain corporation. Sabihin natin, Corporation
A. The Corporation here is 99.99% owned by the late
Toda. Toda sold the property to a certain person.
Immediately, on the same day, that person sold it to
another corporation, Corporation B. In the end, because of
that transfer, there is some sort of a tax shelter because
ang binayaran lang nila na tax is just the 5% capital gains
tax. Because of that, the CIR made some assessments
against the estate of Toda, tax assessments because of
the deficiency due to the transfer. The point of the CIR here
is that the scheme employed by Corporation A and Toda is
actually tax evasion. Judging from that scheme, is there a
tax evasion that happened? The Supreme Court said Yes.
Gi-quote nya si De Leon. Actually these requirements: the
ends achieved, the state of mind and the course of action
or inaction came from the book of De Leon. Katung
Fundamentals of Taxation book niya.
In this case, all requirements are present.
1. The first requirement, the ends achieved. Were
they able to achieve a lower tax? Of course.
Meron ngang tax shelter e. Instead of the 35%
income tax rate, they were only made to pay the
5% capital gains tax rate.
2. There was a fraudulent intention because the
transaction was a sham. Walay unod. There is no
other business purpose other than to reduce the
taxes. Make no mistake about it ha, Tax
Avoidance is okay lang. But what happened here
is a sham transaction without any legal or
business purpose. If you look at the transaction,
ano ba ang nangyari dito? A corporation sold to a
person. And the natural person sold it on the
same day sa Corporation B. What happened sa
notarial book pa lang, palpak. Mas nauna pa
yung second sale kaysa dun sa first sale. So its
clear, this is really a sham! In the end, that
natural person who was a buyer of the property is
merely an intermediary.
I have a problem with this decision of the Supreme
Court. This is not a question of whether or not there was
tax evasion here but the liability imposed on the estate.
Sino ba ang nagbenta? Is it the late Toda or is it the
Corporation? What is our concept when it comes to a
corporate entity. A corporation is a separate and distinct
entity diba? But why is it that the Supreme Court said that
Okay, the estate of Toda is liable for the unpaid taxes?
Why? If you browse through the Supreme Court decision,
sabi nya dito, there was a deed of sale of shares of stock. If
you read the full-text, binenta ni Toda ang shares nya to
some Chinese guy and there was an escape clause. But
the problem is:
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One, is the BIR included in the deed of sale? No diba?
Two, who is the person involved in the sale? It is not
the estate, right? It is supposed to be the corporation.
So the proper procedure that should have been
followed should have been this: the government will
impose the tax liability against the corporation and since
nakabayad na ang corporation, because of the escape
clause, the corporation can claim from the estate. In other
words, gi-short cut sa Supreme Court ang procedure.
July 28, 2016
(By: Glorybelle C. Resurreccion)
READ:
Mactan International Airport vs. City of Lapu-
Lapu (GR No. 181756)
Film Development Council vs. Colon Heritage
(GR No. 203754)
Recap:
Impact of Taxation: You talk about the law. To whom the
tax is imposed, who is the taxpayer
Incidence of Taxation: It is the economic burden being
passed on to some other person
TAX EXEMPTION
Tax Exemption is a grant of immunity express or implied
to a particular persons or corporations from the obligation
to pay tax. It is an act of the State by divesting itself of its
power to impose taxes to a particular subject or object.
Basis of Tax Exemption: The granting of tax exemption is
part and parcel of the power to taxation. If the government
has the power to impose taxes or burdens upon subjects or
objects, in the same way, the government can actually
exempt that subject or object from taxation.
Nature of Tax Exemption: It is in the nature of a waiver.
The government waives its right collect or demand taxes
from its constituent. Therefore, since it is a waiver, it is
strictly construed against the taxpayer and in favor of the
government.
Principles to Remember:
1. Tax exemptions are not presumed. Tax
exemptions are highly disfavored in law because
it affects the very life of the State. Go back to the
lifeblood theory.
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2. Tax exemptions are strictly construed against
the taxpayer and in favor of the government.
Consequences arising from the Strict Construction
Principle:
1. The taxpayer who claims the exemption must be
able to prove that he or the tax subject or object
is really intended by law to be excluded from tax.
The burden of proof is upon the taxpayer to show
if he is exempt from taxation.
2. Tax exemption may only be conferred when it is
clear. It cannot exist by mere implication.
Commentary: I am rather confused with other books on
this [second consequence]. Because [it says] the kinds of
tax exemptions are express, implied and contractual. But
there is no such thing as implied tax exemption to begin
with because principle in law is that the tax exemption only
exists when it is clearly provided by law.
Express Tax Exemption
In express tax exemption, there is a law exempting a
particular subject or object of taxation. It provides for the
immunity or privilege from carrying the burden of tax.
Implied Tax Exemption
When can there be tax exemption by implication?
Basically, this results from the failure of a tax law to include
a particular object or subject of taxation.
Example:NIRC, Section 125. Amusement Taxes. - There
shall be collected from the proprietor, lessee or operator of
cockpits, cabarets, night or day clubs, boxing exhibitions,
professional basketball games, Jai-Alai and racetracks, a
tax equivalent to x xx.
[In this law], there is a certain listing. Question: can the BIR
impose amusement taxes on swimming pools open to the
public? Kung walasalistahan [of Section 125], meaning,
that entity or that particular amusement is not subject to
amusement tax anymore.
If you are asked: Is there such a Tax Exemption by
impilication?
Suggested Answer: No, because tax exemptions are not
presumed. However, some authors believe that there is tax
exemption by implication because [see above explanation].
Contractual Tax Exemption
This is an exemption resulting from a contract entered into
by the government and a private entity. In exchange of
such exemption, there must have to be some useful
service to the government or to the public.
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Commentary: Normally, contracts between the
government and some private entities usually come in the
form of franchises. In franchises, they deal with public utility
services. Franchises, under the Constitution, will always be
subject to amendment by Congress. With regards to
impairment of contracts, this is superior to taxation. But in
the end, looking deeper into it, the non-impairment of
contract clause under the Constitution will be likely a
useless provision. For example, sabihinng government [the
amendment of the franchise] will be for police power. And
the police power is always superior to the non-impairment
clause.
But remember: Yes, there can be a contractual tax
exemption BUT if the tax exemption is in the form of
franchise, the government can unilaterally take away the
exemption because the franchises are always subject to
withdrawal or [de-qualifications?] by Congress.
COMPENSATION
In the Civil Law: It is a mode of extinguishment of an
obligation when two persons in their own right are creditors
and debtors of each other.
2 kinds of Compensation:
1. Legal Compensation Art. 1278, NCC
2. Conventional Compensation even if the
requirements in Art. 1278 are lacking, if the
parties agree to have compensation
General Rule: Taxes cannot be subjected to
compensation.
Reason: First, the government and the taxpayer are not
mutually creditors and debtors of each other. Second,
taxes are not an obligation arising from a contract. The
obligation to pay tax is an obligation arising from law.
Compensation usually applies to contracts only. Third is
the Lifeblood Theory.
But in the cases of South African Airways vs. CIR,
Commissioner vs. Esso Standard and Domingo vs.
Garlitos, the Supreme Court allowed the set-off or
compensation of taxes.
Grounds: The claim of the Government for taxes and the
claim of the intestate for services rendered have already
become overdue and demandable is well as fully
liquidated. Compensation, therefore, takes place by
operation of law.
Commentary: But this is more of an exception, on rare
occasions only. On the latest case of South African, the SC
said it is not allowed. [Me: He mentioned earlier that in
South African along with the two cases, exemption was
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allowed. It is best to read the cases and see how things
went. =)]
EQUITABLE RECOUPMENT (ER)
This is where the refund of a tax illegally or erroneously
collected or overpaid by a taxpayer is barred by
prescription, a tax presently being assessed against a
taxpayer may be recouped or set-off against the tax whose
refund is now barred by prescription.
The situation is like this: Suppose I am a taxpayer,
meronakong refund [from] the government. But then, the
medium for me to have the refund of my taxes has already
prescribed. But then may babayaran din akong taxes pa. In
here, those taxes that I was supposed to be refunded of, I
can use now as a set-off.
But this Doctrine of Equitable Recoupment does not apply
here in the Philippines. Once the prescriptive period for
refund has already lapsed, the taxpayer can no longer, for
whatever reason, claim for taxes. This is under the NIRC,
the doctrine under the Philippine jurisdiction. ER is a
United States concept.
TAX AMNESTY
This is the general pardon to taxpayers or intentional
overlooking by the State of its authority to impose penalties
on persons otherwise guilty of evasion or violation of a
revenue or tax.
Nature: It partakes of an absolute forgiveness. Tax
amnesty also partakes the nature of tax exemption. If there
is a provision in law which provides for a tax amnesty,
under our Constitution, it requires the concurrence of the
majority of all the members of the Congress. The principles
in tax exemptions also apply to tax amnesty.
Q: Suppose you have a tax case before the Supreme
Court. ___________[rap mode si Sir]? Can you still avail of
a tax exemption even if the BIR has already filed for
collection of tax against you?
A: Yes, based on Asian International Auctioneers vs.
CIR - You can still claim a tax amnesty even if the tax case
is already pending before the court. What matters is the
taxpayer who prayed for tax amnesty is among the
qualified taxpayers who can avail of the tax amnesty.
Read Tax Amnesty Law, RA 9480.
CONSTRUCTION AND INTERPRETATION OF TAX
LAWS
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There is a need to interpret tax laws only when they are
doubtful. If there is no doubt, apply verba legis. That is the
general rule.
Tax Laws
GR: In case of doubt, tax laws are construed strictly
against the State and liberally in favor of the payer. If there
is no clear provision that the tax subject or object is
covered by the taxation, then do not impose any tax for that
matter.
This is what happened in CIR vs. Fortune Tobacco. What
is the interpretation of tax law here? It is because of the
revenue regulation issued by the BIR. It gave some sort of
a floor on the amount of taxes that cigar companies will
have to pay the government. But the problem is that floor is
not provided by the law.
SC held here: The IRR is ____ of what was provided by
law. The law just provides for the increase of tax rates. It
does not expressly take into account the previous taxes
paid by the taxpayers as part and parcel of the increase of
the rate. So walayung floor, batmo i-impose yung floor?
The rule in the interpretation of tax laws is that a statute will
not be construed as imposing a tax unless it does so
clearly, expressly, and unambiguously.
Tax Exemptions
GR: It is strictly construed against the taxpayer and in favor
of the government.
Consequences of Tax Exemptions:
1. It must be clear and unequivocal. There must be
an explicit provision of law.
2. The burden of proof rests to the taxpayer who
claims the tax exemption.
Q: Suppose the BIR will tax you, who are exempt from tax.
When you refuse to pay, BIR will say you have to prove
first you are exempt from tax as the burden rests on you.
But you will contend that BIR should first prove that you are
included to those not exempted. Which comes first?
A: Before applying the rules on tax exemptions, one must
first apply the doctrine of strict interpretation of imposition
of taxes. This is because it is illogical to [first] determine
which among the tax subjects or objects are exempted if
you do not know in the first place which among these
subjects/objects are covered by the tax [pool?]. This is held
in CIR vs. PAL (GR No. 180066).
You have to first look into the law and see who are covered
to pay tax. Kapagnalamanmona, that is the time you look at
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the exemption, WON that particular subject/object is
outside of the tax exemption.
Tax Refunds
GR: It is strictly construed against the claimant and liberally
in favor of the government.
Tax refunds partake the nature of a tax exemption. Refund
is either actual or through tax credit certificates. In the case
of Panasonic vs. CIR, the Panasonic is claiming for a tax
refund because it is a zero-rated VAT taxpayer. But
Panasonic was not able to comply with all the requirements
for all its claims. It argued substantial compliance. But SC
upheld the decision of CTA and BIR and the refund was
actually denied due to the failure to comply with the
documentary requirements for the tax refund. Provisions
pertaining to tax refund are construed strictly against the
taxpayer and in favor of the government.
But in CIR vs. Fortune Tobacco, BIR here argued that
they should be able to prove that they are exempted from
tax. But SC here explained that there are TWO TYPES OF
TAX REFUNDS:
1. Tax refund based on law
a. There is a provision in law of granting a
taxpayer a refund because it is exempt
from tax (e.g. zero-rated taxpayers)
b. Apply the Tax Exemption rule, strictly
construed against the taxpayer
2. Tax refund for wrongfully or illegally collected
taxes
a. It is either sobra or the government has
no power at all to collect such taxes
b. Apply general rule, strictly construed
against the government
CIR vs. Fortune Tobacco: The BIR has exceeded its
authority when it laid a revenue regulation setting forth a
floor. Since that is a void revenue regulation that is not
provided for by law, there is no imposition of taxes to speak
of. READ this case.
Smart Communications vs. City of Davao
Here, Smart is supposed to pay a franchise tax to the
government in lieu of all other taxes. Previously, telecom
companies franchises were abrogated by the Local
Government Code. The franchise of Smart, however, came
out after the effectivity of LGC. But then, Davao City
imposed business taxes against Smart. The latter contends
that it is not supposed to pay taxes because under its
franchise, its tax is supposed to be in lieu of all other taxes.
Davao City pointed out that tax exemptions must be clear.
In lieu of all taxes does not say it include local
government taxes. Thus, this only refers to national taxes.
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Issue 1: What is the difference between tax exemption and
tax exclusion
Held: There is no essential difference between a tax
exemption and a tax exclusion. An exemption is an
immunity or a privilege; it is the freedom from a charge or
burden to which others are subjected. An exclusion, on the
other hand, is the removal of otherwise taxable items from
the reach of taxation, e.g., exclusions from gross income
and allowable deductions. An exclusion is, thus, also an
immunity or privilege which frees a taxpayer from a charge
to which others are subjected. Consequently, the rule that
a tax exemption should be applied
in strictissimijuris against the taxpayer and liberally in favor
of the government applies equally to tax exclusions.
Issue 2: Does the clause in lieu of all taxes include local
government taxes.
Held: No, it only includes national taxes. The uncertainty in
the in lieu of all taxes clause in R.A. No. 7294 on whether
Smart is exempted from both local and national franchise
tax must be construed strictly against Smart which claims
the exemption.
Tax Amnesty
GR: Same with tax exemptions
Rule and Regulations
GR: Administrative regulations must be in harmony with
the provisions of the law.
Revenue Regulations are not issued by the BIR. The latter
is merely a recommendatory body. It recommends to the
Dept. of Finance. The DOF now issues the revenue
regulations.
Requirements of a valid Revenue Regulation:
1. Must be _________ to the object and purpose of
the law
2. Must not contradict but must conform to the
standard of the law
3. Must be issued for the sole purpose of carrying to
effect the provisions of the tax law
Revenue Memorandum Circulars
GR: It must not supplant, modify or amend the law. It must
always conform to the law.
Tax Rulings
These are usually issued by the BIR because there are
some inquiries by the taxpayer if there is some doubtful
interpretation of the tax with respect to a particular or
specific transaction.They are what you call as the best
guess as of the moment as to the sound interpretation of a
particular tax law.
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GR: Tax rulings are merely advisory. This is only
applicable to the taxpayer who is asking for the tax ruling
from the BIR. It is not binding to the courts.
A BIR ruling if favourable to the taxpayer does not create a
perpetual tax exemption in the taxpayers favor. Note that
these rulings are decided by the Commissioner. Every
Commissioner may have a different interpretation of the
law thats why some go all the way to the SC.
If the tax ruling favourable to the taxpayer is reversed,
apply the non-retroactivity principle of tax laws.
Penal Provisions of Tax Laws
GR: Same with Criminal Law. Penal provisions are
construed strictly against the State and liberally in favor of
the taxpayer.
Prescriptive Period of Offenses
GR: Strictly construed against taxpayer and in favor of the
government.
Retroactivity
GR: Tax laws are not applied retroactively. This includes
revenue regulations, orders, etc.
EXP:
1. When the taxpayer deliberately omits or
misstatesthe material facts in his return or any
documents thatare for the BIR.
2. When the facts subsequently gathered by the
BIRare materially different from the facts on
which theruling is based.
3. Where the taxpayer acted in bad faith.
August 2, 2016
(By: Peter Quiel E. Vega)
RECAP:
Last meeting we discussed about the Statutory
Construction of tax laws. We already discussed the general
rule, when it is applicable, and the construction of tax laws.
About tax exemptions, all the related matters and the
definitions or words related to tax exemptions.
Sir Percys Discussion
Gulf Air Company vs CIR, September 2012
This case pertains to prospective application of laws. I find
this case peculiar because the facts that transpires here
was after the NIRC was promulgated.
Syemprepagbaginglabasangisangbataswala pang internal
rules and regulation. But before the 1997 NIRC, there is
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already an NIRC existing but that is around 1977 pa. Which
happened to have a lot of amendments.
The main story here are the taxes on common carries and
the definition of gross receipts. There was an old regulation
way back in 1966 which defines the gross receipts, as how
it is defined in order to compute a certain amount of tax.
1997 NIRC came and then there is a specific definition in
the law pertaining to gross receipts. So
angpinagawayanlangnila, ano baa ng tax base nito?
Because gulf air company did not want to pay.
In the supreme court ruling, the SC said that prior to the
issuance of the revenue regulations no. 152002, which
became effective October 2002, the pertaining rule then,
for the purpose of computing the common carriers tax was
revenue regulation 6-66. In the end the supreme court was
saying that tax laws including the rules and regulations
applies prospectively.
But I have a problem with this decision, why? Because the
new internal revenue code says that there is no
retroactive application of revenue regulation among
others if the revocation, modification, or reversal is
prejudicial to the tax payer. Take note, here, it is
prejudicial. Anoang argument ng Gulf Air? they are saying
that there is a definition already given. You must not apply
the definition of gross receipts under a previous revenue
regulations because there is a new law right now. In effect,
sinasabinyona it is no longer applicable.
To my mind, Gulf Air has a legal stance here because it is
specific to the national internal revenue code that tax laws
has no retroactive application only if there is prejudice
that will arise against the tax payer. Specific masyado.
But why did the SC ruled this way? Why did the SC did not
apply the retroactive application of tax laws? Because
probably the SC researchers aymgapulpul, walaga study
ug tax, pero joke lang.
Actually I dont really understand why the SC did not apply
the strict provision of law pertaining to the national internal
revenue code. Because klaro e, There is no retroactive
application if it is prejudicial to the tax payer. Mind you,
under this provision, the new provision on the gross
receipts, supposedly, if the revenue regulation no.66-6 was
not applied, there shall have been a tax savings on the part
of Gulf air. So it is not really prejudicial to gulf air, but I
dont know why the SC ruled that way.
In the end, the principle is important, general rule is the
prospective application of tax laws.
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MANDATORY AND DIRECTORY PROVISIONS OF TAX
LAWS
What are these mandatory provisions? How will you be
able to know if it is mandatory provision or merely directory
provision of law?
Is it based on constitutional ground? Or based on statute
itself? Is there any constitutional provision which is merely
directory as to the tax matters?
I can think of one, the congress shall evolve a prospective
tax system it is merely directory. It is not a mandate but
its more of a directive policy, guide line kung baga.
Mandatory provisions are those provisions intended for:
1. Security of the citizens;
2. Those which pertains to insure the equality of
taxation;
3. Those which pertains to the certainty as to the
nature and the amount of tax of each person,
Example, those with prescribed tax rate;
4. Those pertains to the requirements for purposes
of validity of certain tax reform.
So normally, it revolves on those four. The first thing I can
think of when I read the definition of Aban, the first thing
that I can think of is the levy and restrain(?) proceedings
when it comes to collection of taxes,
Under the NIRC, the BIR can actually proceed with the levy
of real property or distrain of personal property against a
tax payer who does not pay taxes. Revenue portion
yansya, but what is essential when the government will try
to collect the taxed against the tax payer? Before it can
exercise the power to levy, there must be what? There
must be notice to the tax payer. There has to be some
sort of a procedure that BIR should take before they can
proceed to the proceedings in collecting of taxes. Those
are mandatory provisions.
What about publication requirements? Because when you
levy real property or distrain personal property, the property
that you will be taking will be sold to public auction. *Joke
about prenda. So basically, the same. Before the BIR will
be able to proceed with public auction, there must be a
publication requirement when it comes to levy of real
property. Pretty much like with our civil procedure, Rule 39.
Part of execution proceeding, kailangan ng publication, so
you have to follow that.
What will happen if the procedure in the forfeiture or levy of
real or personal property is not followed? You have no
auction to speak of, you have no levy to speak of, because
the entire proceedings will be invalidated. The entire
proceedings will be void.
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What about the remedies including the appeal? When we
talk about the remedies on the part of government and also
the part of the tax payer, those are mandatory provision. In
the context of tax payer, you can see, it is called the
security of the citizen, or when it comes to the revenues of
the government, this pertains to the validity of certain acts
performed when you talk about enforcement of tax laws.
What else? Another one that I can think of are Waivers.
Later on you will find out that assessment or collection of
taxes has a prescriptive period, normally it is 3 years. But
when that contract is really reallybig, (eg. PLDT), hindi man
yanagad-agad ma audit ng BIR. Ilanlangbaang employee
ng BIR? How many tax payers here in the Philippines,
aside from individual, also juridical persons? So the BIR
has no man power to cover everything especially if the
corporation is really big. So anoanggnagawanila? Of
course, the BIR will request that they be allowed to audit
the firm or corporation in an extended basis. For that, the
corporation will have to execute a waiver. And there are
requirements to be followed. Dapatsundintalagayan, the
BIR will have to check on that. Otherwise, there is no
waiver at all, then there will be a prescription of the
assessment and collection of tax. So it must be followed
because it is derogation of the right of the tax payers to do
away with all the hassles of the collection and enforcement
of taxes. Especially pag malicious nasya, etc.
Directory Provisions are those designed merely for the
information or direction of the officers to secure a method
of nepotical(?) and systematic modes of proceeding. So
when you talk about the internal procedures, okay langyan.
Sometimes, hindinamanlahatnababalotsa rules. There are
some circumstances which are not covered by the rules, so
they have to improvise.
CIR vs Migrant Pagbilao, January 2016
There are 2 implications in this case:
1. Tax laws are strictly construed when we talk
about tax refunds. Provisions provided for tax
refunds is construed strictly against the tax payer
and in favor of the government;
2. The case talks about the mandatory provisions of
law. Particularly the taxpayers remedy of judicial
claim for refund. Because when you talk about
the VAT, it works this way, pag zero-rated VAT
tax payer ka, the implication is you dont pay any
tax and at the same time the input VAT or the
VAT which you include in your purchase price
coming from your purchases, you can ask a
refund from the BIR for that kasi zero-rated ka.
So angmga VAT nabinayaranmo, you can
actually claim it as a refund.
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But what is the catch? Under the tax laws the tax payers
is allowed 2 years from the close of a taxable quarter,
where the sales where made, within which to claim the
refund. So 2 years, start from the quarter, count a 2 year
period, and then you can claim the refund.
Pag mag file ka ng administrative, the first thing you have
to do is to file an administrative claim of refund. So file
an administrative claim for refund to the BIR, then what
happens next? The BIR has 120 days within which to
decide your refund application. There are 3 things that
might happen:
1. Granted ang refund;
2. Denied and refund;
3. The CIR will not do anything with it within the 120
day period to decide.
Pagsumagotyung BIR, what you have to do if you want to
challenge the decision of the BIR, is to file an appeal
before the court of tax appeals.
What if there is an inaction? Sabi ng batas, 30 days after
the 120 day period to decide, you must have to file you
Judicial application for refund, this time, you file it with
the court of tax appeals.
What happened in this case is simple, the corporation
involved here, pag file niya ng judicial claim of refund the
120 day period has not yet lapsed. The question is was the
judicial claim of refund filed on time?
SC: the 120 day (to decide) plus 30 days period (to file an
appeal) is Mandatory and Jurisdictional. If you file it earlier,
your action is premature and will render your judicial
application for refund dismissible. The SC kept on saying
about the strict interpretation of tax laws, tax refund, tax
exemptions, which is construed strictly against the tax
payer and in favor of the government. When it come to
those procedure, you must have to follow it, otherwise,
wala.
Agaiin, when you talk about appeals, this is a mandatory
provision of law.
Next is the discussion of SC about ExclusioUnius Est
ExclusioAlterius: Anything that is not included in the
enumeration is excluded and a meaning that does not
appear or is intended to reflect in the statute cannot be
placed therein.
The corporation here is a miller, the business is milling,
manufacturing and exporting of coconuts. What happened
was, the corporation A is milling coconuts, he sold the
coconuts to corporation B and corporation B exported the
coconuts. Thereafter, the BIR made a tax assessment
against the corporations. Corporation A, Sabi ng BIR, mag
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bayadka ng tax, the millers tax. Sabini Corp. A, the product
was exported, why are you going to tax me? The question
here is MPC exempt from tax? Because there is a
provision here that says:
Provided however, that this tax shall not apply to raw
coconut, palm oil, etc. if such raw coconut, palm oil, etc.
shall be removed for exportation by the proprietor, or
operator of the factory, or the miller himself and the goods
are actually exported from the Philippines.
First question, anoba ng role in Corp. A? of course Corp A
is the miller. But the second question is, dis Corp A,
actually exported the coconuts? Corp A is the miller
perogibentaniya and then it was exported. That should
have been a different if gibentanyaperosiya din mismo nag
export, then it would be covered by the tax exemptions.
SC: where the law enumerates the subject or condition
upon which it applies, it is to be construed as excluding to
its effect all those not expressly mentioned, ExclusioUnius
Est ExclusioAlterius.
Next is Ejusdem Generis: (Favorite ni Dean Quibod)
Pelizloy vs Benguet, April 2013
This is a very helpful case, alamniyoang Philippine eagle
ditosa Davao? Kasi gi assess ng tax ng city government of
Davao, I dont know what happened, pero the applicable
case is the Pelizloy.
There was a city ordinance promulgated by the province of
Benguet, it is about amusement taxes. The coverage of the
amusement taxes are the following:
1. Resorts
2. Swimming pools
3. Bank houses
4. Hotsprings
5. tourist spots, and
6. other places of recreation
Pelizloy corporation naman, has a resort designed for
recreations, swimming pools, spa, etc. Later on, the
corporation challenged the ordinance promulgated by
Benguet. Even if the law has not been applied as of yet,
pwedeka mag administrative appeal sa secretary of justice.
Nag appeal siya, then natalo, then the case before the SC
came.
Pelizloy argument: Under LGC, The local government is
only allowed to collect amusement taxes from the
proprietors, lessees, or operators of:
1. Cinemas
2. Theaters
3. Concert halls
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4. Circuses
5. Boxing stadia
6. Oher places of amusement
Benguet: tingnanniyoyung other places of amusement,
what is the reason why you go to a pool? What is the
reason why you go to a resort? It is for amusing yourself,
right? Basically, Benguet was saying that im backing on
this provision other places of amusement.
Issue: can Benguet levy amusement taxes on resorts,
swimming pools, etc. or it is contrary to the provisions of
the local government code?
SC: The province of Benguet cannot impose amusement
taxes on the swimming pools, etc. Principle of Ejusdem
Generis, where a general word or phrase follows an
enumeration of specific terms, or vice versa, the general
term must refer to the specific term. It must refer to terms,
or class of item of properties which are or akin to those
specifically enumerated.
Dapat related siya. Anupalaang amusement places dito?
How do you define amusement places in the LGC?
Amusement places includes
1. Cinemas
2. Theaters
3. Concert halls
4. Circuses
5. Boxing stadia
6. Oher places of amusement, where one seeks
admission to entertain ones self by seeing or
viewing the show or performances
Another definition in the LGC is, a pleasurable diversion
and entertainment in is __ to relaxation, __, pass time, or
fun. In other words the definition of you boylet or girllet,
hahaha.
When you take this definitions together, you can
immediately think or you can immediately see that when
you talk about amusement places it pertains to something
which amuses you by viewing only. Ma amaze kabasa pool
pagtingin-tinginlang, ma amaze kapag may
magandajan.hahaha.Pero generally you go to a pool to
take a bath not just by seeing.
The supreme court here applied the principle of Ejusdem
Generis.
STAGES OR ASPECTS OF TAXATION
1. Levy
2. Assessment or Collection
3. Payment
4. Refund (normally 1-3 lang, but some authors 4)
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Levy
Levy or imposition, that is the imposition of tax per se. It is
legislative in nature. In other words, levy is Tax
Legislation. Levy or imposition does not only refer to the
imposition of tax but also includes the determination as to
who are the subject or object which were excluded or
exempted from taxation. Again, Levy is Tax Legislation.
Assessment and Collection, Payment, and Refund
When you talk about this 3, you are talking about Tax
Administration. This is already executive in nature
because it already pertains to the implementation of tax
laws promulgated by congress.
Assessment
Think of 2 concepts of assessments:
1. It is a process;
2. It is about the figure.
It is a process of ascertaining how much is the tax liability
of a tax payer. Under the Philippine context or set-up, it is
the tax payer who will determine how much tax liability he
is going to pay. Angtawagnyan, Self Assessment
System.Mainly because the records are with us, so
tayoang mag fill up ng income tax returns and submit to the
BIR. But it does not stop there because the BIR has the
authority and power to review what you have submitted.
The BIR has the authority to determine whether or not the
declarations you made true, or whether or not the taxes
you paid are correct. In the end, if the BIR will find out that
there is a sort of tax deficiency, the BIR will assess you of
taxes. This is now the 2nd concept, it is about the figures,
the BIR will now send you a document stating figures the
amounts the tax payer will have to pay because deficient
ngaangbinayadna tax.
Collection
Collection is more on the government side. It pertains to
the actual effort of collecting the taxes. What if the tax
payer does not want to pay? We know that it is a part of tax
payers civil obligation to pay the taxes, but non-payment of
taxes maybe a source of criminal action by the government
against a nonpaying tax payer.
When you talk about collection, strictly speaking, this
pertains to the processes taken by the government to
enforce collection on the tax payers. Collecta ng taxes,
kungayaw mag bayad, what are the remedies available on
the part of government?
1. Administrative remedies, the government may
levy or distrain personal properties and sell it to
public auction or forfeit properties;
2. Civil action, an ordinary collection case;
3. Criminal Action of a Tax Evasion case, just like
what Kim Henares is doing during her term.
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right to impose personal or capitation

Payment tax against the residence. Ito
Payment is more on the tax payers side. Its the effort of yungmgasedulanatin;
the tax payer to pay the taxes due to the government. And b. Property self explanatory;
payment does not pertain only to the giving out of money or c. Excise or Privilege taxes example
property to satisfy the tax payers obligation, it also is income tax, it is a tax on your right or
pertains to his own remedy. So what if the government privilege to earning income.
the wrong amount of taxes? What If the government is II. As to burden or incidence
trying to collect illegal taxes from the tax payer? That is a. Direct
included in the payment stage of taxation. b. Indirect
(by now you must be able to know the differences of the
Refund two and what do they mean)
What if nakabayad kana? And it turned out namalipala,
sobrapalaangbinayad mo. Then you go for a tax refund. III. As to tax rates
Refund is the process for the return of the tax payers a. Specific pagsinabimong specific, you
erroneous, excessive, or illegal collection of taxes. immediately think of head, number, or
unit of measurement. It pertains to a
Tax refund maybe in a form of: specific unit of measurement. Example
1. Actual repayment of the money paid, or you have to pay 3 pesos per kilo.
2. in a form of tax credits. Example, sec.144 of NIRC, tobacco
products, there shall be collected a tax
DEFINITION, NATURE, AND CHARACTERISTICS OF of 1 peso for each kilogram of the
TAX following products of tobacco;
Definition: b. Ad valorem valorem, Value. A tax
Aban taxes are enforced proportional contribution for upon the value of an article. Example,
persons, and property levied by the law making body of the sec.145 of NIRC, there shall be
state by virtue of his sovereignty for the support of the assessment and collection of ad
government and public needs. valorem tax on cigars based on the net
dated price, so based siyasapresyo,
As you can see, the definition of taxation is like the the value;
definition of the power to tax. But the only difference is that c. Mixed
when you talk about tax, tax is already money. The money IV. As to Purposes
that you pay to the government. a. General General taxes are levied for
the general or ordinary purpose of the
Characteristics: government, normally this pertains to
1. Forced contribution; the internal revenue tax laws and other
2. Generally payable in money, generally because tax laws;
there are some instances where taxes are paid b. Specific this taxes are for special
with properties which usually happens when the purposes. Example is the motor vehicle
tax payer does not anymore pay his taxes; registration fees. As we said last time,
3. Proportionate in character; motor vehicle registration fees are in a
4. Levied on persons, properties, or exercise of a form of taxes. The purpose is to raise
right or privilege; funds for the maintenance and building
5. Levied by the State having jurisdiction; of roads.
6. Levied by the legislature; V. As to scope
7. Must be for public purpose; a. National
8. Paid at regular periods or interval b. Local
VI. As to Graduation
KINDS OF TAX: a. Progressive progressive rate in
I. As to Object taxation is one which are imposed
a. Personal, capitation, or poll this is when the rate or amount of tax
a tax imposed uniformly to all increases as the amount of tax base
residence, whether you are citizen or also increases;
not. The fact that you are residing in b. Regressive Baliktad of that;
such locality, the government has the

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c. Proportionate this is a tax based on
the fixed proportion of the value of the
subject. Example, the real state tax, it
is based on the value of the real
property.
TAX v. OTHER EXACTIONS
I. Tariff
Tariff Tax
Is a kind of tax in A general term
importation and
exportation
Collected by Bureau of
Customs
II. Toll
Is toll a tax? When you read Diaz v. Sec. of
Finance, toll fees are not taxes, indeed, they are
not assessed and collected by the BIR and does
not go to the coffers of government. Which is
true because the tolls collected here are
collected by Private Corporation.
There is also a statement here by SC: it would of
course be another matter if congress by a
national law, imposes a user tax for the purpose
of maintenance of road ways. So in other words,
it does not automatically follows that when you
talk about tolls, it is not a tax. You have to
distinguish first, sino nag collect and what is the
purpose of collection. Is it for the purpose
revenue? Or purpose of **ing?
III. License Fees
These are imposition to the right to use or
dispose of the property to pursue a business or
occupation or calling to exercise a privilege. In
short license fees are those imposed and levied
in the exercise of regulated privilege.
Normally, license fees should only cover the cost
of regulations. But when it comes to Non-useful
occupations, the license fees has been said to be
unlimited. The exaction might be very large
without being a tax. Example, taxes samga
motel.
IV. Special Assessment
Remember this, kasi pa balikbalik to sa bar. This
is a local imposition in a property for the payment
of the cost of public improvements on its
immediate ** and levy with reference to special
benefits to the property itself.
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Characteristics:
1. Levy only on land, unlike tax which can be
levied on anything;
2. Cannot be a personal liability of the person
assessed, because again this is imposed on the
property. An special assessment is imposed
when there is an increase in the value of the
property because of some improvements or
structures built by the government;
3. it is exceptional both as to time and locality,
because special assessment can only be
collected to recoup the expenses of the
government, pagkataposniyan, walana;
4. only pertains to locality where the property is
located.
V. Debt
VI. Compromise/Compromise penalty
VII. Penalty
TAX PYRAMIDING
This is the practice of imposing a tax upon another tax
which has no basis in law. Illegal siya.
Is a VAT a pyramiding tax? No.
It goes this way, akoang manufacturer, lumampasakosa
threshold so I have to be VAT registered. So
anogawinkosa VAT? Diba 100 pesos, patunganko ng 12
pesos, pagbiliniyasa akin, it is 112, what if kung wholesaler
siyatapose.bentasa retailer? 112, patungan ng 12%,
e.bigay kay Alona, so how much na? diba nag increase
angpresyo? Tapos from alona, e.bentanyasa final and end
consumer, patungan pa ng 12%. Diba, it is a tax over a
tax?
If you take it as it is, it would appear that a VAT is a tax
pyramiding scheme. But what is the sole thing which takes
it out from the tax pyramiding scheme? It is the concept of
input taxes. Pwedenimoe.pakang. If Alona buys from one,
Alona can claim a sort of tax refund in a form of Input
taxes. In the end, wala paring patungan. It is not a tax over
a tax because ultimately, she can claim a tax credit by way
of input taxes. No tax pyramiding to speak of.
Final words from Sir:
Good luck, God Bless, Ayaw ko pakaulawi kay dean.
The brick walls are there for a reason. The brick walls
are not there to keep us out. The brick walls are there
to give us a chance to show how badly we want
something. Because the brick walls are there to stop
the people who dont want it badly enough. Theyre
there to stop the other people. ~Randy Pausch
GOD BLESS!
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