Taxation I
Syllabus by Atty. VVCaňoneo
GENERAL PRINCIPLES OF
TAXATION
Taxation- Defined
- power inherent in every
sovereign State to impose a
charge or burden upon persons,
properties, or rights to raise
revenues for the use and
support of the government to
enable it to discharge its
appropriate functions
- The power of taxation is
inherent in the State being an
attribute of sovereignty. As an
incident of sovereignty, the
power to tax has been
described as unlimited in its
range, acknowledging in its very
nature no limits, so that security
against its abuse is to be found
only in the responsibility of the
legislature which imposes the
tax on the constituency who are
to pay it. (Mactan Cebu
International Airport Authority v.
Marcos, G.R. No. 120082,
September 11, 1996)
Characteristics/Attributes of
Taxation
1. Generally payable in money.
2. Taxes are enforced
contributions.
3. Proportional in character.
4. Levied on persons, property, or
the exercise of right or privilege
(Excise Tax).
5. Levied by the State which has
jurisdiction over the subject or
object of taxation.
6. Levied by the law-making body
of the State.
7. Levied for public purpose.
8. Non-assignable or non-
transferable.
VEM/MBP
9. It cannot be compromised or
subject to set-off.
10. GR: It is personal to the
taxpayer
Theories Underlying Taxation:
1. Lifeblood Theory- The
underlying basis is
governmental necessity, for
indeed, without it, government
can neither exist nor endure.
Case Laws:
1. COMMISSIONER OF INTERNAL
REVENUE, petitioner, vs. CEBU
PORTLAND CEMENT COMPANY
and COURT OF TAX
APPEALS, respondents.
The argument that the assessment
cannot as yet be enforced because it
is still being contested loses sight of
the urgency of the need to collect
taxes as "the lifeblood of the
government." If the payment of taxes
could be postponed by simply
questioning their validity, the
machinery of the state would grind to a
halt and all government functions
would be paralyzed.
2. Municipality of Makati vs. CA
1990
Municipal revenues derived from
taxes, licenses and market fees, and
which are intended primarily and
exclusively for the purpose of financing
the governmental activities and
functions of the municipality, are
exempt from execution.
3. CIR vs. Algue (1988)
Taxes are the lifeblood of the
government and so should be
collected without unnecessary
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Taxation I
Syllabus by Atty. VVCaňoneo
hindrance On the other hand, such
collection should be made in
accordance with law as any
arbitrariness will negate the very
reason for government itself. It is
therefore necessary to reconcile the
apparently conflicting interests of the
authorities and the taxpayers so that
the real purpose of taxation, which is
the promotion of the common good,
may be achieved.
It is said that taxes are what we pay for
civilization society. Without taxes, the
government would be paralyzed for
lack of the motive power to activate
and operate it. Hence, despite the
natural reluctance to surrender part of
one's hard earned income to the taxing
authorities, every person who is able
to must contribute his share in the
running of the government. The
government for its part, is expected to
respond in the form of tangible and
intangible benefits intended to improve
the lives of the people and enhance
their moral and material values. This
symbiotic relationship is the
rationale of taxation and should dispel
the erroneous notion that it is an
arbitrary method of exaction by those
in the seat of power.
But even as we concede the
inevitability and indispensability of
taxation, it is a requirement in all
democratic regimes that it be
exercised reasonably and in
accordance with the prescribed
procedure. If it is not, then the
taxpayer has a right to complain and
the courts will then come to his succor.
For all the awesome power of the tax
collector, he may still be stopped in his
tracks if the taxpayer can demonstrate,
as it has here, that the law has not
been observed.
4. BPI vs CA (1988)
VEM/MBP
Finally, respondents argue that tax
refunds are in the nature of tax
exemptions and are to be construed
strictissimi juris against the claimant.
Under the facts of this case, we hold
that petitioner has established its
claim. Petitioner may have failed to
strictly comply with the rules of
procedure; it may have even been
negligent. These circumstances,
however, should not compel the Court
to disregard this cold, undisputed fact:
that petitioner suffered a net loss in
1990, and that it could not have
applied the amount claimed as tax
credits.
Substantial justice, equity and fair play
are on the side of petitioner.
Technicalities and legalisms, however
exalted, should not be misused by the
government to keep money not
belonging to it and thereby enrich itself
at the expense of its law-abiding
citizens. If the State expects its
taxpayers to observe fairness and
honesty in paying their taxes, so must
it apply the same standard against
itself in refunding excess payments of
such taxes. Indeed, the State must
lead by its own example of honor,
dignity and uprightness.
2. Necessity Theory
It is a necessary burden to preserve
the State’s sovereignty and a means to
give the citizenry a:
a. Navy to defend its shores from
invasion;
b. Public improvement for the
enjoyment of its citizens and
those who are within its territory;
c. Army to resist aggression;
d. Form public servants to serve;
and
e. Protection, which a government
is supposed to provide
(Philippine Guaranty Co., Inc. v.
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 Taxation I
Syllabus by Atty. VVCaňoneo
Commissioner, L- 22074, April
30, 1965).
2. Benefits Protection Theory
It involves the power of the State to
demand and receive taxes based on
the reciprocal duties of support and
protection between the State and its
citizen.
The citizen supports the State by
paying taxes in order that he may be
secured in the enjoyment of the
benefits in an organized society.
Principles of a Sound Tax System
1. Fiscal Adequacy
a. Revenue raised must be
sufficient to meet
government/public expenditures
and other public needs.
(Chavez v. Ongpin, G.R. No.
76778, June 6, 1990)
b. This proceeds from the lifeblood
doctrine.
c. If violated, the law is still valid.
2. Administrative Feasibility
a. Tax laws must be clear and
concise.
b. Capable of effective and
efficient enforcement.
c. Convenient as to time and
manner of payment, they must
not obstruct business growth
and economic development.
(Dimaampao, supra, p. 26).
d. If violated, the law is still valid.
3. Theoretical Justice
a. Must take into consideration the
taxpayer’s ability to pay.
b. Art. VI, Sec. 28(1), 1987
Constitution mandates that the
rule of taxation must be uniform
and equitable and that the State
VEM/MBP
Note:
A tax law will retain its validity even if it
is not in consonance with the
principles of Fiscal Adequacy and
administrative feasibility because the
Constitution does not expressly require
so. These principles are only designed
to make our tax system sound.
However, of a tax runs contrary to the
principle of theoretical justice, such
violation will render the tax law
unconstitutional considering that under
the Constitution, the rule on taxation
should be uniform and equitable.
Scope of Taxation:
1. Comprehensive - It covers
persons, businesses, activities,
professions, rights and
privileges.
2. Unlimited - It is so unlimited in
force and searching in extent
that courts scarcely venture to
declare that it is subject to any
restrictions, except such as
rests in the discretion of the
authority which exercises it.
3. Plenary - It is complete. Under
the NIRC, the BIR may avail of
certain remedies to ensure the
collection of taxes
4. Supreme - It is supreme insofar
as the selection of the subject of
taxation is concerned
Additional Notes:
Power to Tax is the power to destroy-
Taxation is a destructive power, which
interferes with the personal and
property rights of the people and takes
from them a portion of their property
for the support of the government.
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Syllabus by Atty. VVCaňoneo
Wide Spectrum of Taxation means that
it extends to every business, trade or
occupation; to every object of industry;
use or enjoyment; to every species of
possession;
It imposes a burden which in case of
failure to discharge the same may be
followed by the seizure and
confiscation of property after the
observance of due process. In other
words, taxation covers:
a. Trade or business;
b. Professional income;
c. Compensation income; and
d. Property tax
Case Law:
CIR vs. Tokyo Shipping 1995
We agree with petitioner that a claim
for refund is in the nature of a claim for
exemption8 and should be construed
in strictissimi juris against the
taxpayer.9 Likewise, there can be no
disagreement with petitioner's stance
that private respondent has the burden
of proof to establish the factual basis
of its claim for tax refund.
The power of taxation is sometimes
called also the power to destroy.
Therefore it should be exercised with
caution to minimize injury to the
proprietary rights of a taxpayer. It must
be exercised fairly, equally and
uniformly, lest the tax collector kill the
"hen that lays the golden egg." And, in
order to maintain the general public's
trust and confidence in the
Government this power must be used
justly and not treacherously.
Nature of power of taxation
VEM/MBP
Two fold:
a. Inherent Power
b. Legislative Power
Inherent Power:
The power of taxation is inherent in the
State being an attribute of sovereignty.
As an incident of sovereignty, the
power to tax has been described as
unlimited in its range, acknowledging
in its very nature no limits, so that
security against its abuse is to be
found only in the responsibility of the
legislature which imposes the tax on
the constituency who are to pay it.
(Mactan Cebu International Airport
Authority v. Marcos, G.R. No. 120082,
September 11, 1996)
Being an inherent power, the
legislature can enact laws to raise
revenues even without the grant of
said power in the Constitution. It must
be noted that Constitutional provision
relating to the power of taxation do not
operate as grants of the power of
taxation to the government, but instead
merely constitute limitation upon a
power which would otherwise be
practically without limit.
Legislative power:
The power to tax cannot be delegated,
since it is essentially a legislative
function.
This is based upon the principle that
“taxes are a grant of the people who
are taxed, and the grant must be made
by the immediate representatives of
the People. And where the People
have laid the power, there it must
remain and be exercised.”
Can be delegated: Instances:
a. To local governments in respect of
matters of local concern to be
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Syllabus by Atty. VVCaňoneo
exercised by the local legislative
bodies thereof. (Sec. 5, Art. X,
1987 Constitution)
b. When allowed by the Constitution.
Thus, the Congress may, by law,
authorized the President to fix within
specified limits, subject to such
limitations and restrictions as it may
impose, tariff rates, import and
export quotas, tonnage and
wharfage dues and other duties or
imposts within the framework of the
national development program of
the government. [Sec. 28 (2), Art.
VI, 1987 Constitution]
c. When the delegation relates merely
to administrative implementation
that may call for some degree of
discretionary powers under a set of
sufficient standard expressed by law
(Cervantes v. Auditor General, G.R.
No. L-4043, May 26, 1952) or
implied from the policy and purpose
of the act. (Maceda v. Macaraig,
G.R. No. 88291, June 8, 1993)
Limitations of Taxation
1. Inherent Limitations:
a. For Public Purpose
- Otherwise, it is confiscatory.
- Congress determines whether
the measure is for public
purpose. However, the courts
may question the propriety of
the statute if it appears that it is
not for a public purpose.
- It is considered for public
purpose if it is for the welfare of
the nation and/or for greater
portion of the population; affects
the area as a community rather
than as individuals; is designed
to support the services of the
government for some of its
recognized objects.
VEM/MBP
- Tests: 1. Duty Test - Whether
the thing to be furthered by the
appropriation of public revenue
is something which is the duty
of the State as a government to
provide.
- Promotion of General Welfare
Test - Whether the proceeds of
the tax will directly promote the
welfare of the community in
equal measure.
b. Territoriality
- The taxing power of a country is
limited to persons and property
within and subject to its
jurisdiction.
Reasons:
1. Taxation is an act of
sovereignty which could only
be exercised within a
country’s territorial limits.
2. This is the result of the
concept that taxes are paid
for the protection and
services provided by the
taxing authority which could
not be provided outside the
territorial boundaries of the
taxing State.
Exceptions:
a. Where tax laws operate
outside territorial jurisdiction.
Taxation of resident citizens
on their incomes derived
from abroad.
b. Where tax laws do not
operate within the territorial
jurisdiction of the State.
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Syllabus by Atty. VVCaňoneo
1. When exempted by
treaty obligations.
2. When exempted by
international comity.
c. Legislative in nature
Case Law:
CREBA vs. Executive Secretary
Taxation is an inherent attribute of
sovereignty.[34] It is a power that is
purely legislative.[35] Essentially, this
means that in the legislature primarily
lies the discretion to determine the
nature (kind), object (purpose), extent
(rate), coverage (subjects) and situs
(place) of taxation.[36] It has the
authority to prescribe a certain tax at a
specific rate for a particular public
purpose on persons or things within its
jurisdiction. In other words, the
legislature wields the power to define
what tax shall be imposed, why it
should be imposed, how much tax
shall be imposed, against whom (or
what) it shall be imposed and where it
shall be imposed.
d. International Comity
The Philippines Constitution expressly
adopted the generally accepted
principles of international law as part of
the law of the land. (Sec. 2, Art. II,,
1987 Constitution)
Thus, a State must recognize such
generally accepted tenets of
International Law that limit the
authority of the government to
effectively impose taxes upon a
sovereign State and its
instrumentalities.
Reasons:
a. In par in parem non habet
imperium. As between equals
VEM/MBP
there is no sovereign. (Doctrine
of Sovereign Equality)
b. The rule of international law that
a foreign government may not
be sued without its consent so
that it is useless to impose a tax
which could not be collected.
c. The concept that when a foreign
sovereign enters the territorial
jurisdiction of another, it does
not subject itself to the
jurisdiction of the other.
Case Law:
CIR vs. Mitsubishi Metal Corp.
Exemption of Japanese government
owned bank does not extend to
Japanese Corporation who in turn lent
the loan to a local company.
It is too settled a rule in this
jurisdiction, as to dispense with the
need for citations, that laws granting
exemption from tax are construed
strictissimi juris against the taxpayer
and liberally in favor of the taxing
power. Taxation is the rule and
exemption is the exception. The
burden of proof rests upon the party
claiming exemption to prove that it is in
fact covered by the exemption so
claimed, which onus petitioners have
failed to discharge. Significantly,
private respondents are not even
among the entities which, under
Section 29 (b) (7) (A) of the tax code,
are entitled to exemption and which
should indispensably be the party in
interest in this case.
Definitely, the taxability of a party
cannot be blandly glossed over on the
basis of a supposed "broad, pragmatic
analysis" alone without substantial
supportive evidence, lest
governmental operations suffer due to
diminution of much needed funds. Nor
can we close this discussion without
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Syllabus by Atty. VVCaňoneo
taking cognizance of petitioner's
warning, of pervasive relevance at this
time, that while international comity is
invoked in this case on the nebulous
representation that the funds involved
in the loans are those of a foreign
government, scrupulous care must be
taken to avoid opening the floodgates
to the violation of our tax laws.
Otherwise, the mere expedient of
having a Philippine corporation enter
into a contract for loans or other
domestic securities with private foreign
entities, which in turn will negotiate
independently with their governments,
could be availed of to take advantage
of the tax exemption law under
discussion.
Constitutional Limitations:
1. Uniformity of Taxation
Art. VI, Sec 28(1): “The rule of
taxation shall be uniform and
equitable...”
1. Uniformity - It means all taxable
articles or kinds of property of
the same class shall be taxed at
the same rate.
Tax is uniform when it operates
with the same force and effect
in every place where the
subject is found. Different
articles may be taxed at
different amounts provided that
the rate is uniform on the same
class everywhere, with all
people at all times.
2. Equality - When the burden of
the tax falls equally and
impartially upon all the persons
and property subject to it.
3. Equitability - When its burden
falls on those better able to pay.
VEM/MBP
Note: The Constitution requires
uniformity, not equality in taxation.
2. Progressive Taxation:
Taxation is progressive when its rate
goes up depending upon the
resources of the person affected.
The Constitution does not really
prohibit regressive taxes. What it
simply provides is that Congress shall
evolve a progressive system of
taxation. This is a mere directive upon
congress, not a justiciable right.
3. Exemption of Properties Actually,
Directly And Exclusively Used For
Religious, Charitable and
Educational Purposes:
Art.VI, Sec28(3): “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.”
“Exclusive” is defined as possessed
and enjoyed to the exclusion of others;
debarred from participation or
enjoyment; and “exclusively” is
defined, "in a manner to exclude; as
enjoying a privilege exclusively.”
Note: If real property is used for one or
more commercial purposes, it is not
exclusively used for the exempted
purposes but is subject to taxation.
The words "dominant use" or "principal
use" cannot be substituted for the
words "used exclusively" without doing
violence to the Constitutions and the
law. Solely is synonymous with
exclusively.
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Syllabus by Atty. VVCaňoneo

the direct and immediate and actual derived from trade or business
application of the property itself to the or profession. (Sec.34 (H),
purposes for which the charitable NIRC).
institution is organized. It is not the use
of the income from the real property c. For purposes of donor’s and
that is determinative of whether the estate taxation, donations in
property is used for tax-exempt favor of religious and charitable
purposes. institutions are generally not
subject to tax provided,
Summary of Rules: however, that not more than
30% of the said bequest,
a. For purposes of income devise, or legacy or transfer
taxation, the income of non- shall be used for administration
stock corporations operating purposes (Secs. 87 and 101,
exclusively for charitable and NIRC).
religious purposes, no part of
which inures to the benefit of
any member, organizer or Coverage of Covers Real
officer or any specific person, this Property tax ONLY.
shall be exempt from tax. Constitutional (Lladoc v.
Provision Commissioner, G.R.
No L-19201 June 16,
However, the income of
1965)
whatever kind and nature from
any of their properties, real or Property must be
personal or from any of their “actually, directly and
activities for profit regardless of Requisite to exclusively used” by
the disposition made of such avail of this religious, charitable
income shall be subject to exemption and educational
tax.(Sec. 30, par. E and last institutions.
par., NIRC). (Province of Abra vs.
b. For purposes of income Hernando, G.R. No.
taxation, donations received by L-49336 August 31,
religious, charitable, and 1981)
educational institutions are Test for the Use of the property
considered as income but not grant of this for such purposes,
taxable income as they are Exemption not the ownership
items of exclusion thereof

Extent of this Extends to facilities

On the part of the donor, such Exemption which are actual,
donations are deductible incidental to or
expense provided that no part reasonably
of the income of which inures to necessary for the
the benefit of any private accomplishment of
stockholder or individual in an the main purposes.
amount not exceeding 10% in
case of individual, and 5% in
case of a corporation, of the
taxpayer’s taxable income

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Taxation I
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Review Power of the SC
Courts have no power to inquire or
interfere in the wisdom, objective,
motive or expediency in the passage
of a tax law, this being purely
legislative in character. (Tolentino v.
Sec. of Finance, G.R. No.115455,
August 25, 1994)
In other words, what to tax, whom to
tax and how much to tax. In the case
of ABAKADA Guro vs. Ermita, G.R.
No. 168056, September 1, 2005, it
was held that you cannot question the:
a. Wisdom;
b. Object;
c. Purpose;
d. Motive;
e. Expediency; and
f. Necessity of tax laws.
The courts may not hold such
legislative acts as unconstitutional as
long as the legislature does not violate
applicable Constitutional limitations or
restrictions.
Art. VIII, Sec 2: “The Congress shall
have the power to define, prescribe
and apportion the jurisdiction of
various courts but may not deprive the
Supreme Court of its jurisdiction over
cases enumerated in section 5 hereof.”
Sec. 5: "The Supreme Court shall have
the following powers: Review, revise,
modify or affirm on appeal or certiorari
as the law or the Rules of Court may
provide, final judgments or orders of
lower courts in:
xxxxx xxxxxx
(b) All cases involving the legality of
any tax, impost, assessment or toll,
or any penalty imposed in relation
thereto.”
SC has exclusive appellate jurisdiction
over such judgments or orders.
VEM/MBP
Delegation to Municipal
Corporation:
Delegation of legislative taxing power
to local governments is justified by the
necessary implication that the power to
create political corporations for
purposes of local self government
carries with it the power to confer on
such local government, agencies the
authority to tax.
The basic rationale for the grant of tax
power to local government units is to
safeguard their viability and self-
sufficiency by directly granting them
general and broad tax powers (Manila
Electric Co. vs. Province of Laguna et.
al., G.R. No. 132607 May 5, 1999).
Considering that inasmuch as the
power to tax may be exercised by local
legislative bodies, no longer by valid
congressional delegation but by direct
authority conferred by the Constitution,
in interpreting statutory provisions on
municipal fiscal powers, doubts will,
therefore, have to be resolved in favor
of municipal corporations (City
Government of San Pablo, Laguna vs.
Reyes, G. R. No. 127708 March 25,
1999). This means that the court must
adopt a liberal construction of a law
granting a municipal corporation the
power to tax.
4. Due Process and Equal Protection
Clause in Taxation:
Case Laws:
PBCOM vs. CIR
Basic is the principle that taxes are the
lifeblood of the nation. The primary
purpose is to generate funds for the
State to finance the needs of the
citizenry and to advance the common
weal.[13] Due process of law under the
Constitution does not require judicial
proceedings in tax cases. This must
necessarily be so because it is upon
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Syllabus by Atty. VVCaňoneo
taxation that the government chiefly
relies to obtain the means to carry on
its operations and it is of utmost
importance that the modes adopted to
enforce the collection of taxes levied
should be summary and interfered with
as little as possible.[14]
SISON vs. ANCHETA
It is undoubted that the due process
clause may be invoked where a taxing
statute is so arbitrary that it finds no
support in the Constitution. An obvious
example is where it can be shown to
amount to the confiscation of property.
That would be a clear abuse of power.
It then becomes the duty of this Court
to say that such an arbitrary act
amounted to the exercise of an
authority not conferred. That properly
calls for the application of the Holmes
dictum. It has also been held that
where the assailed tax measure is
beyond the jurisdiction of the state, or
is not for a public purpose, or, in case
of a retroactive statute is so harsh and
unreasonable, it is subject to attack on
due process grounds
Now for equal protection. The
applicable standard to avoid the
charge that there is a denial of this
constitutional mandate whether the
assailed act is in the exercise of the
lice power or the power of eminent
domain is to demonstrated that the
governmental act assailed, far from
being inspired by the attainment of the
common weal was prompted by the
spirit of hostility, or at the very least,
discrimination that finds no support in
reason. It suffices then that the laws
operate equally and uniformly on all
persons under similar circumstances
or that all persons must be treated in
the same manner, the conditions not
being different, both in the privileges
conferred and the liabilities imposed.
Favoritism and undue preference
cannot be allowed. For the principle is
VEM/MBP
that equal protection and security shall
be given to every person under
circumtances which if not Identical are
analogous. If law be looked upon in
terms of burden or charges, those that
fall within a class should be treated in
the same fashion, whatever
restrictions cast on some in the group
equally binding on the rest." 20 That
same formulation applies as well to
taxation measures. The equal
protection clause is, of course, inspired
by the noble concept of approximating
the Ideal of the laws benefits being
available to all and the affairs of men
being governed by that serene and
impartial uniformity, which is of the
very essence of the Idea of law. There
is, however, wisdom, as well as
realism in these words of Justice
Frankfurter: "The equality at which the
'equal protection' clause aims is not a
disembodied equality. The Fourteenth
Amendment enjoins 'the equal
protection of the laws,' and laws are
not abstract propositions. They do not
relate to abstract units A, B and C, but
are expressions of policy arising out of
specific difficulties, address to the
attainment of specific ends by the use
of specific remedies. The Constitution
does not require things which are
different in fact or opinion to be treated
in law as though they were the
same." 21 Hence the constant
reiteration of the view that
classification if rational in character is
allowable. As a matter of fact, in a
leading case of Lutz V. Araneta, 22 this
Court, through Justice J.B.L. Reyes,
went so far as to hold "at any rate, it is
inherent in the power to tax that a state
be free to select the subjects of
taxation, and it has been repeatedly
held that 'inequalities which result from
a singling out of one particular class
for taxation, or exemption infringe no
constitutional limitation.'" 23
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According to the Constitution: "The
rule of taxation shag be uniform and
equitable." 24 This requirement is met
according to Justice Laurel
in Philippine Trust Company v.
25
Yatco, decided in 1940, when the tax
"operates with the same force and
effect in every place where the subject
may be found. " 26 He likewise added:
"The rule of uniformity does not call for
perfect uniformity or perfect equality,
because this is hardly
27
attainable." The problem of
classification did not present itself in
that case. It did not arise until nine
years later, when the Supreme Court
held: "Equality and uniformity in
taxation means that all taxable articles
or kinds of property of the same class
shall be taxed at the same rate. The
taxing power has the authority to make
reasonable and natural classifications
for purposes of taxation, ... . 28 As
clarified by Justice Tuason, where "the
differentiation" complained of
"conforms to the practical dictates of
justice and equity" it "is not
discriminatory within the meaning of
this clause and is therefore
uniform." 29 There is quite a similarity
then to the standard of equal
protection for all that is required is that
the tax "applies equally to all persons,
firms and corporations placed in
similar situation."30
REYES VS. ALMANZOR
In the same vein, the due process
clause may be invoked where a taxing
statute is so arbitrary that it finds no
support in the Constitution. An obvious
example is where it can be shown to
amount to confiscation of property.
That would be a clear abuse of power
(Sison v. Ancheta, supra).
The taxing power has the authority to
make a reasonable and natural
classification for purposes of taxation
VEM/MBP
but the government's act must not be
prompted by a spirit of hostility, or at
the very least discrimination that finds
no support in reason. It suffices then
that the laws operate equally and
uniformly on all persons under similar
circumstances or that all persons must
be treated in the same manner, the
conditions not being different both in
the privileges conferred and the
liabilities imposed (Ibid., p. 662).
Finally under the Real Property Tax
Code (P.D. 464 as amended), it is
declared that the first Fundamental
Principle to guide the appraisal and
assessment of real property for
taxation purposes is that the property
must be "appraised at its current and
fair market value."
By no strength of the imagination can
the market value of properties covered
by P.D. No. 20 be equated with the
market value of properties not so
covered. The former has naturally a
much lesser market value in view of
the rental restrictions.
Ironically, in the case at bar, not even
the factors determinant of the
assessed value of subject properties
under the "comparable sales
approach" were presented by the
public respondents, namely: (1) that
the sale must represent
a bonafide arm's length transaction
between a willing seller and a willing
buyer and (2) the property must be
comparable property (Rollo, p. 27).
Nothing can justify or support their
view as it is of judicial notice that for
properties covered by P.D. 20
especially during the time in question,
there were hardly any willing buyers.
As a general rule, there were no takers
so that there can be no reasonable
basis for the conclusion that these
properties were comparable with other
residential properties not burdened by
11
Taxation I
Syllabus by Atty. VVCaňoneo
P.D. 20. Neither can the given
circumstances be nonchalantly
dismissed by public respondents as
imposed under distressed conditions
clearly implying that the same were
merely temporary in character. At this
point in time, the falsity of such
premises cannot be more convincingly
demonstrated by the fact that the law
has existed for around twenty (20)
years with no end to it in sight.
Verily, taxes are the lifeblood of the
government and so should be
collected without unnecessary
hindrance. However, such collection
should be made in accordance with
law as any arbitrariness will negate the
very reason for government itself It is
therefore necessary to reconcile the
apparently conflicting interests of the
authorities and the taxpayers so that
the real purpose of taxations, which is
the promotion of the common good,
may be achieved (Commissioner of
Internal Revenue v. Algue Inc., et al.,
158 SCRA 9 [1988]). Consequently, it
stands to reason that petitioners who
are burdened by the government by its
Rental Freezing Laws (then R.A. No.
6359 and P.D. 20) under the principle
of social justice should not now be
penalized by the same government by
the imposition of excessive taxes
petitioners can ill afford and eventually
result in the forfeiture of their
properties.
PAL VS. SECRETARY OF FINANCE
The question is whether this
amendment of § 103 of the NIRC is
fairly embraced in the title of Republic
Act No. 7716, although no mention is
made therein of P.D. No. 1590 as
among those which the statute
amends. We think it is, since the title
states that the purpose of the statute is
to expand the VAT system, and one
way of doing this is to widen its base
VEM/MBP
by withdrawing some of the
exemptions granted before. To insist
that P.D. No. 1590 be mentioned in the
title of the law, in addition to § 103 of
the NIRC, in which it is specifically
referred to, would be to insist that the
title of a bill should be a complete
index of its content.
The constitutional requirement that
every bill passed by Congress shall
embrace only one subject which shall
be expressed in its title is intended to
prevent surprise upon the members of
Congress and to inform the people of
pending legislation so that, if they wish
to, they can be heard regarding it. If, in
the case at bar, petitioner did not know
before that its exemption had been
withdrawn, it is not because of any
defect in the title but perhaps for the
same reason other statutes, although
published, pass unnoticed until some
event somehow calls attention to their
existence. Indeed, the title of Republic
Act No. 7716 is not any more general
than the title of PAL's own franchise
under P.D. No. 1590, and yet no
mention is made of its tax exemption.
ABAKADA GURO VS. EXECUTIVE
SECRETARY
Basing from the ruling of Tolentino
case, it is not the law, but the revenue
bill which is required by the
Constitution to “originate exclusively”
in the House of Representatives, but
Senate has the power not only to
propose amendments, but also to
propose its own version even with
respect to bills which are required by
the Constitution to originate in the
House. the Constitution simply means
is that the initiative for filing revenue,
tariff or tax bills, bills authorizing an
increase of the public debt, private bills
and bills of local application must
come from the House of
Representatives on the theory that,
12
Taxation I
Syllabus by Atty. VVCaňoneo
elected as they are from the districts,
the members of the House can be
expected to be more sensitive to the
local needs and problems. On the
other hand, the senators, who are
elected at large, are expected to
approach the same problems from the
national perspective. Both views are
thereby made to bear on the
enactment of such laws.
In testing whether a statute constitutes
an undue delegation of legislative
power or not, it is usual to inquire
whether the statute was complete in all
its terms and provisions when it left the
hands of the legislature so that nothing
was left to the judgment of any other
appointee or delegate of the
legislature.
The equal protection clause under the
Constitution means that “no person or
class of persons shall be deprived of
the same protection of laws which is
enjoyed by other persons or other
classes in the same place and in like
circumstances.”
Aspects of Taxation
1. Levy or Imposition of Tax
2. Assessment and Collection
3. Payment
Levy:
This refers to the enactment of tax
laws and statutes which is exclusively
vested upon the legislature.
Case Law:
Tan vs. Del Rosario:
Uniformity of taxation, like the kindred
concept of equal protection, merely
requires that all subjects or objects of
taxation, similarly situated, are to be
treated alike both in privileges and
VEM/MBP
liabilities (Juan Luna Subdivision vs.
Sarmiento, 91 Phil. 371). Uniformity
does not forfend classification as long
as: (1) the standards that are used
therefor are substantial and not
arbitrary, (2) the categorization is
germane to achieve the legislative
purpose, (3) the law applies, all things
being equal, to both present and future
conditions, and (4) the classification
applies equally well to all those
belonging to the same class (Pepsi
Cola vs. City of Butuan, 24 SCRA
3; Basco vs. PAGCOR, 197 SCRA
52).
With the legislature primarily lies the
discretion to determine the nature
(kind), object (purpose), extent (rate),
coverage (subjects) and situs (place)
of taxation. This court cannot freely
delve into those matters which, by
constitutional fiat, rightly rest on
legislative judgment. Of course, where
a tax measure becomes so
unconscionable and unjust as to
amount to confiscation of property,
courts will not hesitate to strike it
down, for, despite all its plenitude, the
power to tax cannot override
constitutional proscriptions. This stage,
however, has not been demonstrated
to have been reached within any
appreciable distance in this
controversy before us.
Having arrived at this conclusion, the
plea of petitioner to have the law
declared unconstitutional for being
violative of due process must perforce
fail. The due process clause may
correctly be invoked only when there is
a clear contravention of inherent or
constitutional limitations in the exercise
of the tax power. No such
transgression is so evident to us.
Assessment and Collection:
13
Taxation I
Syllabus by Atty. VVCaňoneo
It is the act of administration and
implementation of the tax law by the
executive through its administrative
agencies
Cannot be delegated as a rule.
Exceptions are the following:
1. The tax law must designate
which agency will collect, BIR
and Sec of Finance;
2. The circulars or regulations must
be in accordance with the tax
measures imposed by Congress.
Payment:
This signifies the act of compliance by
the taxpayer, including such options,
schemes or remedies available.
Classification of Taxes:
As to subject matter:
a. Personal/Poll or Capitation
tax- A fixed amount upon all
persons, or upon all persons
of a certain class, residents
within a specified territory,
without regard to their
property or occupation.
E.g. Community tax
b. Property tax- Imposed on
property, whether real or
personal, in proportion either
to its value, or in accordance
with some other reasonable
method of apportionment.
E.g. Real Estate tax
c. Excise tax – A charge upon
the performance of an act,
the enjoyment of a privilege,
or the engaging in an
occupation. An excise tax is
a tax that does not fall as
personal or property.
E.g. Income tax, Estate tax,
Donor’s tax, VAT and
VEM/MBP
Other percentage taxes
Note: This is different from the
excise tax which is a business
tax imposed on items such as
cigars, cigarettes, wines,
liquors, frameworks, mineral
products, etc.
2. As to determination of the amount:
a. Specific- Tax of a fixed
amount imposed by the
head or number, or by some
standard of weight or
measurement.
E.g. Excise tax on cigar,
cigarettes and liquors
b. Ad valorem - Tax based on
the value of the property
with respect to which the tax
is assessed. It requires the
intervention of assessors or
appraisers to estimate the
value of such property
before the amount due can
be determined.
E.g. VAT, Income tax,
Donor’s tax and Estate
tax
3. As to scope:
a. National tax – tax levied by
the National Government.
E.g. Income tax, Estate
tax, Donor’s tax, Value
added tax, Other
Percentage taxes and
Documentary Stamp
taxes
b. Local or Municipal – A tax
levied by a local
government.
E.g. Real Estate tax and
Community tax
14
Taxation I
Syllabus by Atty. VVCaňoneo
4. As to purpose:
a. General/Fiscal or Revenue –
Tax imposed solely for the
general purpose of the
government.
E.g. Income tax and
Donor’s tax
b. Estate tax
Special/Regulatory - Tax
levied for specific purpose,
i.e. To achieve some social
or economic ends
E.g. Tariff and certain
duties on import
5. As to who bears the burden:
a. Direct – One that is
demanded from the person
who also shoulders the
burden of tax.
E.g. Income tax, Estate
tax and Donor’s tax
b. Indirect – One which is
shifted by the taxpayer to
someone else.
E.g. VAT and Other
percentage taxes
6. As to proportionality or graduation:
a. Progressive - A tax rate
which increases as the tax
base or bracket increases.
E.g. Income tax, Estate
tax and Donor’s tax
b. Regressive – The tax rate
decreases as the tax base
or bracket increases.
Note: No such tax in the
Philippines
c. Proportional – A tax of a
fixed percentage of amount
of the base (value of the
VEM/MBP
property, or amount of gross
receipts etc.)
E.g. VAT and Other
Percentage taxes
Case Laws:
Maceda vs. Macaraeg:
Classifications or kinds of Taxes:
According to Persons who pay or who
bear the burden:
a. Direct Tax — the where the person
supposed to pay the tax really pays
it. WITHOUT transferring the burden to
someone else.
Examples: Individual income tax,
corporate income tax, transfer taxes
(estate tax, donor's tax), residence tax,
immigration tax
b. Indirect Tax — that where the tax is
imposed upon
goods BEFORE reaching the
consumer who ultimately pays for it,
not as a tax, but as a part of the
purchase price.
Examples: the internal revenue indirect
taxes (specific tax, percentage taxes,
(VAT) and the tariff and customs
indirect taxes (import duties, special
import tax and other dues) 52
Tan vs. Municipality of Pagbilao:
We are of the opinion that the
ordinance in question, is ultra vires,
and hence, null and void. The
ordinance calls for a specific tax. It
charges a specific sum, ranging from
one centavo and up, by the head or
number, and requires no assessment
beyond a listing and classification of
the objects to be charged.
15
Taxation I
Syllabus by Atty. VVCaňoneo
A tax which imposes a specific sum by
the head or number, or some standard
weight or measurement, and which
requires no assessment beyond a
listing and classification of the objects
to be taxed is specific tax.
The change or the designation of the
said fees as "rental of municipal
property" did not change their basic
character as "wharfage fees". Being a
specific tax, the municipality has no
right to impose the same, for taxation
is an attribute of sovereignty which
municipal corporation do not enjoy
(Santo Lumber Co., et al v. City of
Cebu, et al., L-10196, Jan. 22, 1958;
54 O.G. 5327; Saldana v. City of Iloilo,
L-10470, June 26, 1958). It shall not
be in the power of the council to
impose a tax in any form whatever
upon goods and merchandise carried
into the municipality or out of the
same, and any attempt to impose such
tax in the guise of wharfage fee or
charge is void (Sec. 2287, Rev. Adm.
Code). And being wharfage fee (Phil.
Sugar Central v. Coll. of Customs, 51
Phil. 131), it is likewise beyond the
power of the municipal council and
municipal district council to impose
(Sec. 3, Comm. Act No. 472, supra).
PAL vs. Edu:
Indeed, taxation may be made the
implement of the state's police power
(Lutz v. Araneta, 98 Phil. 148).
If the purpose is primarily revenue, or if
revenue is, at least, one of the real and
substantial purposes, then the
exaction is properly called a tax
(Umali, Id.) Such is the case of motor
vehicle registration fees. The
conclusions become inescapable in
view of Section 70(b) of Rep. Act 587
quoted in the Calalang case. The
same provision appears as Section
591-593). in the Land Transportation
VEM/MBP
code. It is patent therefrom that the
legislators had in mind a regulatory tax
as the law refers to the imposition on
the registration, operation or
ownership of a motor vehicle as a "tax
or fee." Though nowhere in Rep. Act
4136 does the law specifically state
that the imposition is a tax, Section
591-593). speaks of "taxes." or fees ...
for the registration or operation or on
the ownership of any motor vehicle, or
for the exercise of the profession of
chauffeur ..." making the intent to
impose a tax more apparent. Thus,
even Rep. Act 5448 cited by the
respondents, speak of an "additional"
tax," where the law could have referred
to an original tax and not one in
addition to the tax already imposed on
the registration, operation, or
ownership of a motor vehicle under
Rep. Act 41383. Simply put, if the
exaction under Rep. Act 4136 were
merely a regulatory fee, the imposition
in Rep. Act 5448 need not be an
"additional" tax. Rep. Act 4136 also
speaks of other "fees," such as the
special permit fees for certain types of
motor vehicles (Sec. 10) and additional
fees for change of registration (Sec.
11). These are not to be understood as
taxes because such fees are very
minimal to be revenue-raising. Thus,
they are not mentioned by Sec. 591-
593). of the Code as taxes like the
motor vehicle registration fee and
chauffers' license fee. Such fees are to
go into the expenditures of the Land
Transportation Commission as
provided for in the last proviso of see.
61, aforequoted.
Esso vs. CIR
Apart from the above consideration,
there are at least two cases where we
have held that a margin fee is not a tax
but an exaction designed to curb the
excessive demands upon our
international reserve.
16
Taxation I
Syllabus by Atty. VVCaňoneo

Generally the Amount is limited

As to the contention that the margin amount is to the cost and
levy is a tax on the purchase of foreign unlimited maintenance of
exchange and hence should not form
public
part of the exchange rate, suffice it to
state that We have already held the improvement
contrary for the reason that a tax is
Purpose
levied to provide revenue for
government operations, while the
For the support For the use of
proceeds of the margin fee are applied
to strengthen our country's of the another’s
international reserves. government property

Lozano vs. ERB: Authority

OPSF was established precisely to May be imposed May be imposed

protect the consuming public from the by the State only by private
erratic movement of oil prices and to individuals or
preclude oil companies from taking entities
advantage of fluctuations occurring
every so often. As a buffer
mechanism, it stabilizes domestic TAX SPECIAL
prices by bringing about a uniform rate ASSESSMENT
rather than leaving pricing to the
caprices of the market, hence it is not Definition
a tax.
An enforced
Taxation Distinguished from other proportional An enforced
exactions: contribution from proportional
persons and contribution from
TAX TOLL owners of lands
property for public
purpose/s. especially those
Definition
who are
An enforced A consideration peculiarly
proportional paid for the use benefited by
contribution from of a road, bridge public
persons and or the like, of a improvements.
property for public nature. Subject
public
Imposed on
purpose/s. persons, Levied only on
property land
Basis
rights or
transactions
Demand of Demand of
sovereignty proprietorship
Person Liable
Amount

17
VEM/MBP
Taxation I
Syllabus by Atty. VVCaňoneo

A personal Collected under Collected under

liability of the Not a personal the power of police power
taxpayer liability of the taxation
person assessed.
Purpose Amount

For the support Generally, Limited to the

of the Contribution to amount is necessary
government the cost of public unlimited expenses of
improvement regulation and
Scope control
Regular exaction Exceptional as to Subject
time and locality
Imposed on Imposed on the
persons, exercise of a right
TAX PENALTY
property, rights or privilege
Definition or transaction

An enforced Sanction imposed Effect of Non-payment

proportional as a punishment
Non-payment Non-payment
contribution for a violation of
does not make makes the
from persons the law or acts
the business business illegal
and property for deemed injurious;
illegal
public violation of tax laws
purpose/s. may give rise to Time of Payment
imposition of
penalty. Normally paid Normally paid
after the start of before the
Purpose business commencement of
the business
To raise To regulate
revenue conduct
TAX DEBT
Authority
Basis
Maybe imposed Maybe imposed by Based on law Based on contract,
by the State private entity express or implied
only
TAX LICENSE FEE Assignability
Not assignable Assignable
Purpose Mode of Payment
Payable in Payable in kind or
Imposed to For regulation and money in money
raise revenue control
Set-off
Basis Not subject to Subject to set-off

18
VEM/MBP
Taxation I
Syllabus by Atty. VVCaňoneo
set-off
Effect of non-payment
may result to No imprisonment
imprisonment (except when debt
arises from crime)
Interest
Bears interest Interest depends
only if delinquent upon the stipulation
of the parties
Prescription
Governed by the Governed by the
special ordinary periods of
prescriptive prescription
periods provided
for in the NIRC
Case Laws:
P&G vs. Municipality of Jagna
A municipality is authorized to impose
three kinds of licenses: (1) a license
for regulation of useful occupation or
enterprises; (2) license for restriction
or regulation of non-useful occupations
or enterprises; and (3) license for
revenue. 4 It is thus unnecessary, as
plaintiff would have us do, to
determine whether the subject storage
fee is a tax for revenue purposes or a
license fee to reimburse defendant
Municipality for service of supervision
because defendant Municipality is
authorized not only to impose a license
fee but also to tax for revenue
purposes.
Municipal corporations are allowed
wide discretion in determining the
rates of imposable license fees even in
cases of purely police power
measures. In the absence of proof as
to municipal conditions and the nature
of the business being taxed as well as
other factors relevant to the issue of
arbitrariness or unreasonableness of
the questioned rates, Courts will go
VEM/MBP
slow in writing off an Ordinance. 8 In
the case at bar, appellant has not
sufficiently shown that the rate
imposed by the questioned Ordinance
is oppressive, excessive and
prohibitive.
Golden Ribbon Lumber vs. City of
Butuan:
Generally, non-payment of license
fees is illegal, but it must be stated in
the enabling law.
The character or nature of a tax is
determined not by the title of the act or
ordinance imposing it but by its
operation, practical results and
incidents (Dawson vs. Distilleries, etc.,
255 U.S. 288, 65 L. Ed. 638;
Association of Customs Brokers, Inc.,
et al. vs. The Municipal Board, et al.,
G.R. No. L-4376, May 22, 1953).
Neither the original ordinance in
question nor the amendatory ones
show that the tax provided for therein
is imposed by reason of the enjoyment
of the privilege to engage in a
particular trade or business. Neither do
they provide that payment thereof is a
condition precedent to the enjoyment
of such privilege or that its non-
payment would result in the
cancellation of any previous license
granted. The only consequence of its
non-payment appears to be the
imposition of a surcharge or liability to
suffer the penal sanctions prescribed
in Section 3 of the original ordinance.
These circumstances lead Us to the
conclusion that the questioned tax
cannot be considered as one imposed
upon a party for engaging in the
business of operating a lumber mill or
a lumber yard.
We likewise find to be unmeritorious
appellants' contention that the power
of the City of Butuan to tax lumber
19
Taxation I
Syllabus by Atty. VVCaňoneo
mills and lumber yards includes the
power to tax the sale, production,
sawing and/or manufacture of lumber
by them. The rule is well-settled that
municipal corporations, unlike
sovereign states, are clothed with no
power of taxation; that its charter or a
statute must clearly show an intent to
confer that power or the municipal
corporation cannot assume and
exercise it, and that any such power
granted must be construed strictly, any
doubt or ambiguity arising out from the
terms of the grant to be resolved
against the municipality.
City of Ozamis vs. Lumapas
It is, therefore, patent that the City of
Ozamiz has been clothed with full
power to control and regulate its
streets for the purpose of promoting
the public health, safety and welfare.
Indeed, municipal power to regulate
the use of streets is a delegation of the
police power of the national
government, and in the exercise of
such power, a municipal corporation
can make all necessary and desirable
regulations which are reasonable and
manifestly in the interest of public
safety and convenience.
By virtue of the aforecited statutory
grant of authority, the City of Ozamiz
can regulate the time, place, manner
of parking in the streets and public
places. It is, however, insisted that the
ordinance did not charge a parking fee
but a toll fee for the use of the street. It
is true that the term " parking"
ordinarily implies "something more
than a mere temporary and
momentary stoppage at a curb for the
purpose of loading or unloading
passengers or merchandize; it involves
the idea of using a portion of the street
as storage space for an automobile." 12
VEM/MBP
The word "toll" when used in
connection with highways has been
defined as a duty imposed on goods
and passengers travelling public
roads. 14 The toll for use of a toll road
is for its use in travelling thereon, not
for its use as a parking place for
vehicles. 15
It is not pretended, however, that the
public utility vehicles are subject to the
payment, if they pass without stopping
thru the aforesaid sections of Zulueta
Street. Considering that the public
utility vehicles are only charged the fee
when said vehicles stop on "any
portion of the existing parking areas for
the purpose of loading or unloading
passengers or cargoes", the fees
collected are actually in the nature of
parking fees and not toll fees for the
use of Zulueta Street. This is clear
from the Stipulation of Facts which
shows that fees were not exacted for
mere passage thru the street but for
stopping in the designated parking
areas therein to unload or load
passengers or cargoes. It was not,
therefore a toll fee for the use of public
roads, within the context of Section
59[b] of Republic Act No. 4136, which
requires the authorization of the
President of the Philippines.
Apostolic Prefect vs. Treasurer of
Baguio
While the word "tax" in its broad
meaning, includes both general taxes
and special assessments, and in
general sense a tax is an assessment,
and an assessment is a tax, yet there
is a recognized distinction between
them in that assessment is confined to
local impositions upon property for the
payment of the cost of public
improvements in its immediate vicinity
and levied with reference to special
benefits to the assessed property. The
differences between a special
20
Taxation I
Syllabus by Atty. VVCaňoneo
assessment and a tax are that (1) a
special assessment can be levied only
on land; (2) a special assessment can
not (at least in most states) be a
personal liability of the person
assessed; (3) a special assessment is
based wholly on benefits; and (4) a
special assessment is exceptional both
as to time and locality. The imposition
of a charge on all property, Real and
personal, in a prescribed area, is a tax
assessment, although the purpose is
to make a local improvement on a
street or highway. A charge imposed
only on property owners benefited is a
special assessment rather than a tax
notwithstanding the statute calls it a
tax.
Victoria Milling vs. PPA
As to the requirement to remit 10% of
the handling charges, Section 6B-(ix)
of the Presidential Decree No. 857
authorized the PPA "To levy dues,
rates, or charges for the use of the
premises, works, appliances, facilities,
or for services provided by or
belonging to the Authority, or any
organization concerned with port
operations." This 10% government
share of earnings of arrastre and
stevedoring operators is in the nature
of contractual compensation to which a
person desiring to operate arrastre
service must agree as a condition to
the grant of the permit to operate.
Interpretation and Construction of
Tax Statutes
VEM/MBP
Laws imposing taxes are liberally
construed in favor of the taxpayer and
strictly against the government while
tax exemptions including tax amnesties
and condonations are not presumed
when granted, are strictly construed
against the taxpayers and liberally in
favor of the taxing authority under the
principle of strictissimi juris.
Nota Bene:
In interpreting tax laws, legislative
intent is primodial. In case doubt, it is
construed in favor of the taxpayer,
however, when it comes tax
exemption, it is construed strictly
against the taxpayer.
Case Laws:
CIR vs. CA
Under the rules of statutory
construction, exceptions, as a general
rule, should be strictly but reasonably
construed. They extend only so far as
their language fairly warrants, and all
doubts should be resolved in favor of
the general provisions rather than the
exception. Where a general rule is
established by statute with exceptions,
the court will not curtail the former nor
add to the latter by implication. . . .
(Samson vs. Court of Appeals, 145
SCRA 659 [1986]).
The exception provided for in Section
168 of the old Tax Code should thus
be strictly construed. Conformably, the
sales, miller's and excise taxes paid on
all Other materials (except on raw
materials used in the milling process),
such as the sales taxes paid on
containers and packaging materials of
the milled products under
consideration, may be credited against
the miller's tax due therefor.
21
Taxation I
Syllabus by Atty. VVCaňoneo
It is a basic rule of interpretation that
words and phrases used in the statute,
in the absence of a clear legislative
intent to the contrary, should be given
their plain, ordinary and common
usage or meaning. (Mustang Lumber
Inc. v. CA, 257 SCRA 430
[1996] citing Ruben E. Agpalo,
Statutory Construction, second ed.
[1990], 131).
This Court is mindful of the well-
entrenched principle that the
government is never estopped from
collecting taxes because of mistakes
or errors on the part of its agents, but
this rule admits of exceptions in the
interest of justice and fairplay. (ABS
CBN Broadcasting Corp. vs. Court of
Tax Appeals, 108 SCRA 151 [1951])
More so in the present case, where we
discern no error in allowing the sales
taxes paid by CENVOCO on the
containers and packages of its milled
products, to be credited against the
deficiency miller's tax due thereon, for
a proper application of the law.
It bears stressing that tax burdens are
not to be imposed, nor presumed to be
imposed beyond what the statute
expressly and clearly imports, tax
statutes being construed strictissimi
juris against the government. (The
Province of Bulacan, et. al, vs. Hon.
CA, et. al., GR No. 226232, November
27, 1998; Republic vs. IAC, 196 SCRA
335[1931]; CIR vs. Firemen's Fund
Ins. Co., 148 SCRA 315 (1987); CIR
vs. CA, 204 SCRA 182 [1991])
Luzon Stevedoring vs. CTA
This Court has laid down the rule that
"as the power of taxation is a high
prerogative of sovereignty, the
relinquishment is never presumed and
any reduction or dimunition thereof
with respect to its mode or its rate,
must be strictly construed, and the
VEM/MBP
same must be coached in clear and
unmistakable terms in order that it may
be applied." (84 C.J.S. pp. 659-800),
More specifically stated, the general
rule is that any claim for exemption
from the tax statute should be strictly
construed against the taxpayer (Acting
Commissioner of Customs v. Manila
Electric Co. et al., 69 SCRA 469 [1977]
and Commissioner of Internal
Revenue v. P.J. Kiener Co. Ltd., et al.,
65 SCRA 142 [1975]).
And, even if construction and
interpretation of the law is insisted
upon, following another fundamental
rule that statutes are to be construed
in the light of purposes to be achieved
and the evils sought to be remedied
(People v. Purisima etc., et al., L-
42050-66, 86 SCRA 544 [1978], it will
be noted that the legislature in
amending Section 190 of the Tax
Code by Republic Act 3176, as
appearing in the records, intended to
provide incentives and inducements to
bolster the shipping industry and not
the business of stevedoring, as
manifested in the sponsorship speech
of Senator Gil Puyat (Rollo, p. 26).
CIR vs. CTA, CTA and Ateneo
Petitioner Commissioner of
Internal Revenue erred in applying the
principles of tax exemption without first
applying the well-settled doctrine of
strict interpretation in the imposition of
taxes. It is obviously both illogical and
impractical to determine who are
exempted without first determining
who are covered by the aforesaid
provision. The Commissioner should
have determined first if private
respondent was covered by Section
205, applying the rule of strict
interpretation of laws imposing taxes
and other burdens on the populace,
before asking Ateneo to prove its
exemption therefrom. The Court takes
22
Taxation I
Syllabus by Atty. VVCaňoneo
this occasion to reiterate the hornbook
doctrine in the interpretation of tax
laws that (a) statute will not be
construed as imposing a tax unless it
does so clearly, expressly,
and unambiguously. x x x (A) tax
cannot be imposed without clear and
express words for that
purpose. Accordingly, the general rule
of requiring adherence to the letter in
construing statutes applies with
peculiar strictness to tax laws and the
provisions of a taxing act are not to
be extended by
implication.[8] Parenthetically, in
answering the question of who is
subject to tax statutes, it is basic
that in case of doubt, such statutes
are to be construed most strongly
against the government and in favor
of the subjects or citizens because
burdens are not to be imposed nor
presumed to be imposed beyond
what statutes expressly and clearly
import.[9]
To fall under its coverage, Section
205 of the National Internal Revenue
Code requires that the independent
contractor be engaged in the business
of selling its services. Hence, to
impose the three percent contractors
tax on Ateneos Institute of Philippine
Culture, it should be sufficiently proven
that the private respondent is indeed
selling its services for a fee in pursuit
of an independent business. And it is
only after private respondent has been
found clearly to be subject to the
provisions of Sec. 205 that the
question of exemption therefrom would
arise. Only after such coverage is
shown does the rule of construction --
that tax exemptions are to be strictly
construed against the taxpayer --
come into play, contrary to petitioners
position. This is the main line of
reasoning of the Court of Tax Appeals
in its decision,[10] which was affirmed
by the CA.
VEM/MBP
Instances when exemptions are
construed liberally:
Case Laws:
CIR vs. CA and ROH Auto Products:
The authority of the Minister of
Finance (now the Secretary of
Finance), in conjunction with the
Commissioner of Internal Revenue, to
promulgate all needful rules and
regulations for the effective
enforcement of internal revenue laws
cannot be controverted. Neither can it
be disputed that such rules and
regulations, as well as administrative
opinions and rulings, ordinarily should
deserve weight and respect by the
courts. Much more fundamental than
either of the above, however, is that all
such issuances must not override, but
must remain consistent and in
harmony with, the law they seek to
apply and implement. Administrative
rules and regulations are intended to
carry out, neither to supplant nor to
modify, the law.
If, as the Commissioner argues,
Executive Order No. 41 had not been
intended to include 1981-1985 tax
liabilities already assessed
(administratively) prior to 22 August
1986, the law could have simply so
provided in its exclusionary clauses. It
did not. The conclusion is unavoidable,
and it is that the executive order has
been designed to be in the nature of a
general grant of tax amnesty subject
only to the cases specifically excepted
by it.
It might not be amiss to recall that the
taxable periods covered by the
amnesty include the years immediately
preceding the 1986 revolution during
which time there had been persistent
calls, all too vivid to be easily
forgotten, for civil disobedience, most
23
Taxation I
Syllabus by Atty. VVCaňoneo
particularly in the payment of taxes, to
the martial law regime. It should be
understandable then that those who
ultimately took over the reigns of
government following the successful
revolution would promptly provide for
abroad, and not a confined, tax
amnesty.
Maceda vs. Macaraig
Tax exemptions are undoubtedly to be
construed strictly but not so grudgingly
as knowledge that many impositions
taxpayers have to pay are in the
nature of indirect taxes. To limit the
exemption granted the National Power
Corporation to direct taxes
notwithstanding the general and broad
language of the statue will be to thwrat
the legislative intention in giving
exemption from all forms of taxes and
impositions without distinguishing
between those that are direct and
those that are not.
Statutes in pari materia, although
some may be special and some
general, in the event one of them is
ambiguous or uncertain, are to be
construed together, even if the various
statutes have not been enacted
simultaneously, and do not refer to
each other expressly, and although
some of them have been repealed or
have expired, or held unconstitutional,
or invalid.
Certain Doctrines in Taxation:
1. Prospectivity of Tax Laws- General
Rule, but it can provide that it has
retroactive effect and it is still valid,
except if too harsh and oppressive
as to violate due process.
Case Laws:
Hydro Resources vs. CA
VEM/MBP
It is a cardinal rule that laws shall have
no retroactive effect, unless the
contrary is provided. (Art. 4, Civil
Code) Except for a statement
providing for its immediate execution,
Executive Order No. 860 does not
provide for its retroactivity. Moreover,
the Deputy Minister of Finance in his
1st Indorsement to the Central Bank
dated March 26, 1983 which was
reproduced by the Central Bank
Governor in a circular letter to all
authorized agent banks, clarified that
letters of credit opened prior to the
effectivity of E.O. 860 are not subject
to the provisions thereof.
Consequently, the importations in
question which arrived in 1977 and
1978 are not subject to the 3%
additional ad valorem duty, the same
being imposed only on those whose
letter of credit were opened after the
promulgation of Executive Order 860.
In this regard Judge Alex Reyes in his
dissenting opinion correctly observed
—
"Let it suffice that the procurement of
the equipment, as earlier stated, was
not on a tax exempt basis as the
import liabilities thereon have been
secured to be paid under the terms of
the financial scheme in the contract.
The formality of vesting of title over the
equipment was not an unwarranted
expectation but a matter of an
implementation of a pre-existing
agreement, hence, the imported
articles can only be subject to the rates
of import duties/taxes prevailing at the
time of entry or withdrawal from
customs' custody (Sec. 205, TCC) in
1978 and 1979, thus foreclosing any
retroactive application of the 1982
Executive Order.:-cralaw
Central Azucarera vs. CTA
It should further be observed that,
under the old Section 51 (e), the
interest on deficiency was imposed
24
Taxation I
Syllabus by Atty. VVCaňoneo
from the time the tax became due;
while under the new Section 51 (d),
said interest is imposed on the
deficiency from the date prescribed for
the payment of the tax.
It is thus evident that petitioner's
contention that "interest on such
deficiency accrued only when the
taxpayer failed to pay the tax within the
period prescribed therefor by
respondent (Commissioner of Internal
Revenue)" is not correct; said interest
was imposable in case of non-payment
on time, not only on the basic income
tax, but also on the deficiency tax,
since the deficiency was part and
parcel of petitioner's income tax
liability.
It appearing that the new Section 51
(d) under Republic Act 2343 expressly
provides that the interest on
deficiency shall be assessed at the
same time as the deficiency income
tax; and that respondent
Commissioner of Internal Revenue
imposed and sought to collect the
interest only from June 20, 1959,
which was the date of effectivity of said
Republic Act No. 2343; that the
deficiency income taxes in question
were assessed and unpaid when said
Act was already in force, the Tax Court
correctly held that said Section 51 (d),
as amended, is not being applied
retroactively as contended by
petitioner herein.
May a tax law be applied
retroactively? YES
Case Laws:
Lorenzo vs. Posadas
Of course, a tax statute may be made
retroactive in its operation. Liability for
taxes under retroactive legislation has
been "one of the incidents of social
VEM/MBP
life." (Seattle vs. Kelleher, 195 U. S.,
360; 49 Law. ed., 232 Sup. Ct. Rep.,
44.) But legislative intent that a tax
statute should operate retroactively
should be perfectly clear. (Scwab vs.
Doyle, 42 Sup. Ct. Rep., 491;
Smietanka vs. First Trust & Savings
Bank, 257 U. S., 602; Stockdale vs.
Insurance Co., 20 Wall., 323; Lunch
vs. Turrish, 247 U. S., 221.) "A statute
should be considered as prospective in
its operation, whether it enacts,
amends, or repeals an inheritance tax,
unless the language of the statute
clearly demands or expresses that it
shall have a retroactive effect, . . . ."
(61 C. J., P. 1602.) Though the last
paragraph of section 5 of Regulations
No. 65 of the Department of Finance
makes section 3 of Act No. 3606,
amending section 1544 of the Revised
Administrative Code, applicable to all
estates the inheritance taxes due from
which have not been paid, Act No.
3606 itself contains no provisions
indicating legislative intent to give it
retroactive effect. No such effect can
begiven the statute by this court.
Is government bound by the errors
of its agent? NO
Case Laws:
CIR vs Benguet Corp.
While it is true, as petitioner alleges,
that government is not estopped from
collecting taxes which remain unpaid
on account of the errors or mistakes of
its agents and/or officials and there
could be no vested right arising from
an erroneous interpretation of law,
these principles must give way to
exceptions based on and in keeping
with the interest of justice and fairplay,
as has been done in the instant matter.
For, it is primordial that every person
must, in the exercise of his rights and
in the performance of his duties, act
with justice, give everyone his due,
25
Taxation I
Syllabus by Atty. VVCaňoneo
and observe honesty and good
faith.[47]
CIR vs. Bursmeisters
Petitioners filing of his Answer before
the CTA challenging respondents
claim for refund effectively serves as a
revocation of VAT Ruling No. 003-99
and BIR Ruling No. 023-95. However,
such revocation cannot be given
retroactive effect since it will prejudice
respondent. Changing respondents
status will deprive respondent of a
refund of a substantial amount
representing excess output tax.[30]
Section 246 of the Tax Code provides
that any revocation of a ruling by the
Commissioner of Internal Revenue
shall not be given retroactive
application if the revocation will
prejudice the taxpayer. Further, there
is no showing of the existence of any
of the exceptions enumerated in
Section 246 of the Tax Code for the
retroactive application of such
revocation.
Non-prescriptivity of Tax
Case Laws:
CIR vs. Ayala Securities:
It is well settled limitations upon the
right of the government to assess and
collect taxes will not be presumed in
the absence of clear legislation to the
contrary. The existence of a time limit
beyond which the government may
recover unpaid taxes is purely
dependent upon some express
statutory provision, (51 Am. Jur. 867;
10 Mertens Law of Federal Income
Taxation, par. 57. 02.). It follows that in
the absence of express statutory
provision, the right of the government
to assess unpaid taxes is
imprescriptible. Since there is no
express statutory provision limiting the
right of the Commissioner of Internal
VEM/MBP
Revenue to assess the tax on
unreasonable accumulation of surplus
provided in Section 25 of the Revenue
Code, said tax may be assessed at
any time. (Emphasis supplied)
DOUBLE TAXATION:
Double taxation means taxing the
same property twice when it should be
taxed only once, that is, taxing the
same person twice by the same
jurisdiction for the same thing during
the same period (Commissioner v.
Solidbank Corporation, G.R. No.
148191, November 25, 2003).
There is no Constitutional prohibition
against it. However, it will not be
allowed if it results in violation of the
substantive due process and equal
protection clause.
Kinds:
1. Direct Double Taxation - Double
taxation in the objectionable or
prohibited sense since it violates
the equal protection clause of the
Constitution.
2. Indirect Double Taxation - Not
repugnant to the Constitution.
This is allowed if the taxes are of
different nature or character
imposed by different taxing
authorities.
Generally it extends to all cases
in which there is burden of two or
more pecuniary impositions.
3. Domestic Double Taxation -
When the taxes are imposed by
the local and national
government within the same
State.
26
Taxation I
Syllabus by Atty. VVCaňoneo
4. International Double Taxation -
Happens when there is an
imposition of comparable taxes in
two or more states on the same
taxpayer in respect of the same
subject matter and for identical
periods.
Case Laws:
Pepsi vs. Tanauan
There is no validity to the assertion
that the delegated authority can be
declared unconstitutional on the
theory of double taxation. It must be
observed that the delegating
authority specifies the limitations and
enumerates the taxes over which
local taxation may not be
exercised. 13 The reason is that the
State has exclusively reserved the
same for its own prerogative.
Moreover, double taxation, in
general, is not forbidden by our
fundamental law, since We have not
adopted as part thereof the injunction
against double taxation found in the
Constitution of the United States and
some states of the Union.14 Double
taxation becomes obnoxious only
where the taxpayer is taxed twice for
the benefit of the same governmental
entity 15 or by the same jurisdiction
for the same purpose, 16 but not in a
case where one tax is imposed by
the State and the other by the city or
municipality. 17
CIR vs. SC Johnson
SC Johnson and Son, Inc., is a
domestic corporation entered into an
agreement with SC Johnson and
VEM/MBP
Son, USA, a non-resident foreign
corporation pursuant to which SC
Johnson Philippines was granted the
right to use the trademark, patents
and technology owned by the SC
Johnson and Son, USA for the use of
trademark and technology
respondent was obliged to pay SC
Johnson and Son, USA royalties and
subjected the same to 25%
withholding tax on royalty payments.
Will the royalty payments be subject
to 10% withholding tax pursuant to
the most favored nation clause as
claim by SC Johnson Philippines?
No, since the RP-US Tax Treaty
does not give a matching credit of
20% for the taxes paid to the
Philippines on royalties as allowed
under the RP-West Germany Tax
Treaty, respondent cannot be
deemed entitled to the 10% rate
granted under the latter treaty for the
reason that there is no payment of
taxes on royalties under similar
circumstances.
Both Art. 13 of the RP-US Tax Treaty
and Art. 12(2) of the RP-West
Germany Tax Treaty speak of tax on
royalties for the use of trademark,
patents, and technology. The
entitlement of the 10% rate by US
firms despite the absence of
matching credit (20% for royalties)
would derogate from the design
behind the most favored nation
clause to grant equality of
international treatment since the tax
burden laid upon the income of the
investor is not the same in the two
countries. The similarity in the
circumstances of payment of taxes is
27
Taxation I
Syllabus by Atty. VVCaňoneo

a condition for the enjoyment of most 1. Exemption Method - The income

favored nation treatment precisely to or capital which is taxable in the
underscore the need for equality of state of source is exempted in
the state of residence.
treatment.

The RP-US Tax Treaty is just one of

a number of bilateral treaties which
the Philippines have entered into for
the avoidance of double taxation.
The purpose of these international
agreements is to reconcile the
national fiscal legislation of the
contracting parties in order to help
the taxpayer avoid international
juridical double taxation
(Commissioner v. SC Johnson and
Son, Inc., G.R. No. 127105. June 25,
1999).
The focus is on the income or
capital itself.
2. Credit Method - The income or
capital taxed in the State of
source is still taxed in the State of
residence but the tax paid in the
former is credited against the tax
levied in the latter.
The focus is upon the tax.
3. Allowance of deductions for
foreign taxes paid.

Most Favored Nation Clause Rule: 4. Reduction of the Philippines Tax

rate.
It is to grant to the contracting parties
treatment not less favorable than that Tax Avoidance vs. Tax Evasion:
which has been or may be granted to
the “most favored” among other Case Laws:
countries. It is intended to establish
the principle of equality of CIR vs. Rufino:
international treatment by providing
The criterion of the law is that the
that the citizens or subjects of the
purpose of the merger must be for a
contracting nations to enjoy the
bona fide business purpose and not
privileges accorded by either party to
for the purpose of escaping taxes.
those of the most favored nation.
The case of Helvering v. Gregory
The essence of the principle is to
stated that a mere “operation having
allow the taxpayer in one state to
no business or corporate purpose—a
avail of more liberal provisions
mere devise which put on the form of
granted in another tax treaty to which
a corporate reorganization as a
the country of residence of such
disguise for concealing its real
taxpayer is also a party provided that
character and the sole object and
the subject matter of taxation, in this
accomplishment of which was the
case, royalty income, is the same as
consummation of a preconceived
that in the tax treaty under which the
plan, not to reorganize a business
taxpayer is liable.
but to transfer a parcel of corporate
Measures to avoid double taxation: shares.” When the corporation
created is nothing more than a

28
VEM/MBP
Taxation I
Syllabus by Atty. VVCaňoneo
contrivance, there is no legitimate
business purpose. The Court states
that there is no such furtive intention
in this case. In fact, the New ETC
continues to operate the Capitol and
Lyric movie theaters even up to 27
years after the merger. There is as
yet no dissolution, so the Rufinos
haven’t gained any benefit yet from
the merger, which makes them no
more liable than the time the merger
took place.
The government’s remedy: The
merger merely deferred the payment
for taxes until the future, which the
government may assert later on
when gains are realized and benefits
are distributed among the
stockholders as a result of the
merger. The taxes are not forfeited
but merely postponed and may be
imposed at the proper time later on.
Delpher Trades Corp. vs. IAC
By their ownership of the 2,500 no
par shares of stock, the Pachecos
have control of the corporation. Their
equity capital is 55% as against 45%
of the other stockholders, who also
belong to the same family group. In
effect, the Delpher Trades
Corporation is a business conduit of
the Pachecos. What they really did
was to invest their properties and
change the nature of their ownership
from unincorporated to incorporated
form by organizing Delpher Trades
Corporation to take control of their
properties and at the same time save
on inheritance taxes.
The "Deed of Exchange" of property
between the Pachecos and Delpher
VEM/MBP
Trades Corporation cannot be
considered a contract of sale. There
was no transfer of actual ownership
interests by the Pachecos to a third
party. The Pacheco family merely
changed their ownership from one
form to another. The ownership
remained in the same hands. Hence,
the private respondent has no basis
for its claim of a light of first refusal.
CIR vs. Benigno Toda
Tax avoidance and tax evasion are
the two most common ways used by
taxpayers in escaping from taxation.
Tax avoidance is the tax saving
device within the means sanctioned
by law. This method should be used
by the taxpayer in good faith and at
arms length. Tax evasion, on the
other hand, is a scheme used
outside of those lawful means and
when availed of, it usually subjects
the taxpayer to further or additional
civil or criminal liabilities.[23]
Tax evasion connotes the integration
of three factors: (1) the end to be
achieved, i.e., the payment of less
than that known by the taxpayer to
be legally due, or the non-payment of
tax when it is shown that a tax is due;
(2) an accompanying state of mind
which is described as being evil, in
bad faith, willfull,or deliberate and not
accidental; and (3) a course of action
or failure of action which is
unlawful.[24]
All these factors are present in the
instant case. The scheme resorted to
by CIC in making it appear that there
were two sales of the subject
properties, i.e. from CIC to Altonaga,
29
Taxation I
Syllabus by Atty. VVCaňoneo
and then from Altonaga to RMI
cannot be considered a legitimate tax
planning. Such scheme is tainted
with fraud. Altonaga’s sole purpose
of acquiring and transferring title of
the subject properties on the same
day was to create a tax shelter. The
sale to him was merely a tax ploy, a
sham, and without business purpose
and economic substance. Doubtless,
the execution of the two sales was
calculated to mislead the BIR with
the end in view of reducing the
consequent income tax liability.
Fraud in its general sense, is
deemed to comprise anything
calculated to deceive, including all
acts, omissions, and concealment
involving a breach of legal or
equitable duty, trust or confidence
justly reposed, resulting in the
damage to another, or by which an
undue and unconscionable
advantage is taken of another.[30]
What is doctrine of equitable
recoupment?
This doctrine states that a claim for
refund barred by prescription may be
allowed to offset unsettled tax
liabilities arising from the same
transaction.
Note: The Supreme Court, rejected
this doctrine in Collector v. UST
(G.R. No. L-11274, Nov. 28, 1958),
since it may work to tempt both
parties to delay and neglect their
respective pursuits of legal action
within the period set by law.
Set off of taxes
Case Laws:
VEM/MBP
Philex Mining vs. CIR: General Rule
is no Set Off
We have consistently ruled that there
can be no off-setting of taxes against
the claims that the taxpayer may
have against the government. A
person cannot refuse to pay a tax on
the ground that the government owes
him an amount equal to or greater
than the tax being collected. The
collection of a tax cannot await the
results of a lawsuit against the
government.
To be sure, we cannot allow Philex to
refuse the payment of its tax
liabilities on the ground that it has a
pending tax claim for refund or credit
against the government which has
not yet been granted. It must be
noted that a distinguishing feature of
a tax is that it is compulsory rather
than a matter of bargain. 25 Hence, a
tax does not depend upon the
consent of the taxpayer. 26 If any
taxpayer can defer the payment of
taxes by raising the defense that it
still has a pending claim for refund or
credit, this would adversely affect the
government revenue system. A
taxpayer cannot refuse to pay his
taxes when they fall due simply
because he has a claim against the
government or that the collection of
the tax is contingent on the result of
the lawsuit it filed against the
government. 27 Moreover, Philex's
theory that would automatically apply
its VAT input credit/refund against its
tax liabilities can easily give rise to
confusion and abuse, depriving the
government of authority over the
30
Taxation I
Syllabus by Atty. VVCaňoneo
manner by which taxpayers credit
and offset their tax liabilities.
Domingo vs. Garlitos: Exception to
the GR- Compensation.
Another ground for denying the petition
of the provincial fiscal is the fact that
the court having jurisdiction of the
estate had found that the claim of the
estate against the Government has
been recognized and an amount of
P262,200 has already been
appropriated for the purpose by a
corresponding law (Rep. Act No.
2700). Under the above
circumstances, both the claim of the
Government for inheritance 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, in accordance with the provisions
of Articles 1279 and 1290 of the Civil
Code, and both debts are extinguished
to the concurrent amount, thus:
ART. 1200. When all the
requisites mentioned in article
1279 are present,
compensation takes effect by
operation of law, and
extinguished both debts to the
concurrent amount, eventhough
the creditors and debtors are
not aware of the compensation.
It is clear, therefore, that the petitioner
has no clear right to execute the
judgment for taxes against the estate
of the deceased Walter Scott Price.
Furthermore, the petition
for certiorari and mandamus is not the
proper remedy for the petitioner.
Appeal is the remedy.
Assessment
VEM/MBP
Case Laws:
CIR vs. Pascor
By definition, an assessment is simply
the statement of the details and the
amount of tax due from a taxpayer.
The ultimate purpose of an
assessment to such a connection is to
ascertain the amount that each
taxpayer is to pay.
The filing of the criminal complaint with
the DOJ cannot be construed as a
formal assessment. Neither the Tax
Code nor the revenue regulations
governing the protest assessments
provide a specific definition or form of
an assessment.
The issuance of an assessment must
be distinguished from the filing of a
complaint. Before an assessment is
issued, there is, by practice, a pre-
assessment notice sent to the
taxpayer. The taxpayer is then given a
chance to submit position papers and
documents to prove that the
assessment is unwarranted. If the
commissioner is unsatisfied, an
assessment signed by him or her is
then sent to the taxpayer informing the
latter specifically and clearly that an
assessment has been made against
him or her. In contrast, the criminal
charge need not go through all these.
The criminal charge is filed directly
with the DOJ. Thereafter, the taxpayer
is notified that a criminal case had
been filed against him, not that the
commissioner has issued an
assessment. It must be stressed that a
criminal complaint is instituted not to
demand payment, but to penalize the
taxpayer for violation of the Tax Code.
(Assessment is not prejudicial to the
filing of a criminal case of tax evasion)
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Taxation I
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Marcos Ii vs. CA
It is not the Department of Justice
which is the government agency
tasked to determine the amount of
taxes due upon the subject estate, but
the Bureau of Internal
Revenue[16] whose determinations
and assessments are presumed
correct and made in good faith. The
taxpayer has the duty of proving
otherwise. In the absence of proof of
any irregularities in the performance of
official duties, an assessment will not
be disturbed. Even an assessment
based on estimates is prima facie valid
and lawful where it does not appear to
have been arrived at arbitrarily or
capriciously. The burden of proof is
upon the complaining party to show
clearly that the assessment is
erroneous. Failure to present proof of
error in the assessment will justify the
judicial affirmance of said assessment.
In this instance, petitioner has not
pointed out one single provision in the
Memorandum of the Special Audit
Team which gave rise to the
questioned assessment, which bears
a trace of falsity. Indeed, the
petitioner's attack on the assessment
bears mainly on the alleged
improbable and unconscionable
amount of the taxes charged. But
mere rhetoric cannot supply the basis
for the charge of impropriety of the
assessments made.
Meralco Securities vs. Savellano:
It is furthermore a well-recognized rule
that mandamus only lies to enforce the
performance of a ministerial act or
duty 5 and not to control the
VEM/MBP
performance of a discretionary
power. 6 Purely administrative and
discretionary functions may not be
interfered with by the
courts. 7 Discretion, as thus intended,
means the power or right conferred
upon the office by law of acting
officially under certain circumstances
according to the dictates of his own
judgment and conscience and not
controlled by the judgment or
conscience of others. 8 mandamus
may not be resorted to so as to
interfere with the manner in which the
discretion shall be exercised or to
influence or coerce a particular
determination.
Moreover, since the office of the
Commissioner of Internal Revenue is
charged with the administration of
revenue laws, which is the primary
responsibility of the executive branch
of the government, mandamus may
not lie against the Commissioner to
compel him to impose a tax
assessment not found by him to be
due or proper for that would be
tantamount to a usurpation of
executive functions. As we held in the
case of Commissioner of Immigration
vs. Arca 13 anent this principle, "the
administration of immigration laws is
the primary responsibility of the
executive branch of the government.
Extensions of stay of aliens are
discretionary on the part of
immigration authorities, and neither a
petition for mandamus nor one for
certiorari can compel the
Commissioner of Immigration to
extend the stay of an alien whose
period to stay has expired.
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Taxation I
Syllabus by Atty. VVCaňoneo
Republic vs. CA
Findings of the appellate court are
generally binding and cannot be
disturbed by this Court unless it is
sufficiently shown that there has been
no evidence on record to support such
findings.5 The assessment made by
the appellate court carry even more
weight when it is consistent with that of
the trial court. Consonantly, the factual
determination of the Court of Tax
Appeals, when supported by
substantial evidence, will not be
reversed on appeal unless it is clear
that the said court has committed
gross error in the process. The
Collector of Customs, Court of Tax
Appeals and the Court of Appeals are
unanimous in concluding that no fraud
has been committed by private
respondent in the importation of the
bales of cloth. The records do appear
to sustain this conclusion.
Fraud must be proved to justify
forfeiture.8 It must be actual,
amounting to intentional wrong-doing
with the clear purpose of avoiding the
tax.9 Forfeiture is not favored in law
nor in equity.10 Mere negligence is not
equivalent to the fraud contemplated
by law.11 What is here involved is an
honest mistake, not even directly
attributable to private respondent,
which will not deprive the government
of its right to collect the proper tax. The
conclusion of the appellate court,
being consistent with the evidence on
record and not contrary to law and
jurisprudence, hardly can be
overturned by this Court.
Aznar vs. CIR
To our minds we can dispense with
these controversial arguments on
facts, although we do not deny that the
findings of facts by the Court of Tax
Appeals, supported as they are by
VEM/MBP
very substantial evidence, carry great
weight, by resorting to a proper
interpretation of Section 332 of the
NIRC. We believe that the proper and
reasonable interpretation of said
provision should be that in the three
different cases of (1) false return, (2)
fraudulent return with intent to evade
tax, (3) failure to file a return, the tax
may be assessed, or a proceeding in
court for the collection of such tax may
be begun without assessment, at any
time within ten years after the
discovery of the (1) falsity, (2) fraud,
(3) omission. Our stand that the law
should be interpreted to mean a
separation of the three different
situations of false return, fraudulent
return with intent to evade tax, and
failure to file a return is strengthened
immeasurably by the last portion of the
provision which segregates the
situations into three different classes,
namely "falsity", "fraud" and
"omission". That there is a difference
between "false return" and "fraudulent
return" cannot be denied. While the
first merely implies deviation from the
truth, whether intentional or not, the
second implies intentional or deceitful
entry with intent to evade the taxes
due.
Well established is the doctrine that
fraud cannot be presumed but must be
proven. As a corollary thereto, we can
also state that fraudulent intent could
not be deduced from mistakes
however frequent they may be,
especially if such mistakes emanate
from erroneous entries or erroneous
classification of items in accounting
methods utilized for determination of
tax liabilities The predecessor of the
petitioner undoubtedly filed his income
tax returns for "the years 1946 to 1951
and those tax returns were prepared
for him by his accountant and
employees. It also appears that
petitioner in his lifetime and during the
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Taxation I
Syllabus by Atty. VVCaňoneo
investigation of his tax liabilities
cooperated readily with the B.I.R. and
there is no indication in the record of
any act of bad faith committed by him.
As to the meaning of fraud, see CIR vs
Toda, supra.
Sy Po vs. CTA
The law is specific and clear. The rule
on the "best evidence obtainable"
applies when a tax report required by
law for the purpose of assessment is
not available or when the tax report is
incomplete or fraudulent.
In the instant case, the persistent
failure of the late Po Bien Sing and the
herein petitioner to present their books
of accounts for examination for the
taxable years involved left the
Commissioner of Internal Revenue no
other legal option except to resort to
the power conferred upon him under
Section 16 of the Tax Code.
The tax assessment by tax examiners
are presumed correct and made in
good faith. The taxpayer has the duty
to prove otherwise. In the absence of
proof of irregularities in the
performance of duties, an assessment
duly made by the BIR examiner and
approved by his superior officers will
not be disturbed. All presumptions are
in favour of the correctness of tax
assessments.
CIR vs. Hantex
The best evidence envisaged in
Section 16 of the 1977 NIRC, as
amended, includes the corporate and
accounting records of the taxpayer
who is the subject of the assessment
process, the accounting records of
other taxpayers engaged in the same
line of business, including their gross
profit and net profit sales. Such
VEM/MBP
evidence also includes data, record,
paper, document or any evidence
gathered by internal revenue officers
from other taxpayers who had
personal transactions or from whom
the subject taxpayer received any
income; and record, data, document
and information secured from
government offices or agencies, such
as the SEC, the Central Bank of the
Philippines, the Bureau of Customs,
and the Tariff and Customs
Commission.
The law allows the BIR access to
all relevant or material records and
data in the person of the taxpayer. It
places no limit or condition on the type
or form of the medium by which the
record subject to the order of the BIR
is kept. The purpose of the law is to
enable the BIR to get at the taxpayers
records in whatever form they may be
kept. Such records include computer
tapes of the said records prepared by
the taxpayer in the course of business.
In this era of developing information-
storage technology, there is no valid
reason to immunize companies with
computer-based, record-keeping
capabilities from BIR scrutiny. The
standard is not the form of the record
but where it might shed light on the
accuracy of the taxpayers return.
In Campbell, Jr. v. Guetersloh, the
United States (U.S.) Court of Appeals
(5th Circuit) declared that it is the duty
of the Commissioner of Internal
Revenue to investigate any
circumstance which led him to believe
that the taxpayer had taxable income
larger than reported. Necessarily, this
inquiry would have to be outside of the
books because they supported the
return as filed. He may take the sworn
testimony of the taxpayer; he may take
the testimony of third parties; he may
examine and subpoena, if necessary,
traders and brokers accounts and
books and the taxpayers book
34
Taxation I
Syllabus by Atty. VVCaňoneo
accounts. The Commissioner is not
bound to follow any set of patterns.
The existence of unreported income
may be shown by any practicable
proof that is available in the
circumstances of the particular
situation. Citing its ruling in Kenney v.
Commissioner, the U.S. appellate
court declared that where the records
of the taxpayer are manifestly
inaccurate and incomplete, the
Commissioner may look to other
sources of information to establish
income made by the taxpayer during
the years in question.
We agree with the contention of
the petitioner that the best evidence
obtainable may consist of hearsay
evidence, such as the testimony of
third parties or accounts or other
records of other taxpayers similarly
circumstanced as the taxpayer subject
of the investigation, hence,
inadmissible in a regular proceeding in
the regular courts. Moreover, the
general rule is that administrative
agencies such as the BIR are not
bound by the technical rules of
evidence. It can accept documents
which cannot be admitted in a judicial
proceeding where the Rules of Court
are strictly observed. It can choose to
give weight or disregard such
evidence, depending on its
trustworthiness.
However, the best evidence
obtainable under Section 16 of the
1977 NIRC, as amended, does not
include mere photocopies of
records/documents. The petitioner, in
making a preliminary and final tax
deficiency assessment against a
taxpayer, cannot anchor the said
assessment on mere machine copies
of records/documents. Mere
photocopies of the Consumption
Entries have no probative weight if
offered as proof of the contents
thereof. The reason for this is that
VEM/MBP
such copies are mere scraps of paper
and are of no probative value as basis
for any deficiency income or business
taxes against a taxpayer. Indeed,
in United States v. Davey, the U.S.
Court of Appeals (2nd Circuit) ruled
that where the accuracy of a taxpayers
return is being checked, the
government is entitled to use the
original records rather than be forced
to accept purported copies which
present the risk of error or tampering.
Reyes vs. CIR
The procedure adopted by the Court of
Tax Appeal in passing upon the first of
these alleged obligations is as follows:
. . . that when a taxpayer claims
he owes money to another for
the purpose of reducing his tax
liability, particularly the Net
Worth Expenditure (Inventory)
Method of investigation is
employed against him, his
admission (claim) must
corroborated by other evidence
independent of the admission
itself. For example, the
promissory note, if there be any,
should be produced for the
inspection of the Court and
government counsel. The
alleged creditor must be
produced in Court to confirm the
taxpayer's admission and to
give government's counsel an
opportunity to cross-examine
him, unless he is dead, outside
of the Philippines, or unable to
testify for one reason or
another. If the taxpayer is in
business, his books as required
of him by the National Internal
Revenue Code should be
produced showing the
corresponding entry or entries
of his alleged liabilities. If for
one reason or another the
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Taxation I
Syllabus by Atty. VVCaňoneo
alleged creditor is not available
as a witness, his financial
capacity to extend the loan
should at least be established.
Attacking the above procedure counsel
for petitioner argues that in the
inventory method the burden of proof
lies with the Government; that the
taxpayer completes his obligation if he
furnishes the lead by presenting the
evidence of the obligation, and it is
thereafter incumbent the Government
to follow the lead to determine if the
alleged liabilities actually or really
existed.
We find no merit or sense in the above
contention. The taxpayer has no
means of proving the existence of the
obligation and it is he that must
produce such proof. The obligation
and it is he that must produce such
proof. The procedure followed by the
Court of Tax Appeals is that laid down
by the rules on evidence; that is, that
the taxpayer who alleges thereof by
preponderance of evidence. This rule
is not only a legal one. In the nature of
things, the obligor or taxpayer has the
means of proving that the obligation
does not exist or has been paid; the
Government collecting the tax cannot
be expected to find the evidence itself,
because it is natural that the taxpayer
would try to suppress such evidence
as may prove that the obligation still
exists.
Bache and Co. vs. Ruiz
This case deals with the requirement
of search warrant, i.e. personal
examination of the judge xxxx
VEM/MBP
BIR RULES and REGULATIONS
Nature of BIR Administrative Rules
and Regulations: CIR vs. CA, ROH
Products
The authority of the Minister of
Finance (now the Secretary of
Finance), in conjunction with the
Commissioner of Internal Revenue,
to promulgate all needful rules and
regulations for the effective
enforcement of internal revenue
laws cannot be controverted.
Neither can it be disputed that such
rules and regulations, as well as
administrative opinions and rulings,
ordinarily should deserve weight and
respect by the courts. Much more
fundamental than either of the above,
however, is that all such issuances
must not override, but must remain
consistent and in harmony with, the
law they seek to apply and implement.
Administrative rules and regulations
are intended to carry out, neither to
supplant nor to modify, the law.
Extent: CIR vs CA, CTA and Fortune
Tobacco
It should be understandable that when
an administrative rule is merely
interpretative in nature, its applicability
needs nothing further than its bare
issuance for it gives no real
consequence more than what the law
itself has already prescribed. When,
upon the other hand, the
administrative rule goes beyond
merely providing for the means that
can facilitate or render least
cumbersome the implementation of the
law but substantially adds to or
increases the burden of those
governed, it behooves the agency to
accord at least to those directly
affected a chance to be heard, and
thereafter to be duly informed, before
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Taxation I
Syllabus by Atty. VVCaňoneo
that new issuance is given the force
and effect of law.
RMC 37-93 cannot be viewed simply
as construing Section 142(c)(1) of the
NIRC, as amended, but has, in fact
and most importantly, been made in
order to place "Hope Luxury,"
"Premium More" and "Champion"
within the classification of locally
manufactured cigarettes bearing
foreign brands and to thereby have
them covered by RA 7654 which
subjects mentioned brands to 55% the
BIR not simply interpreted the law;
verily, it legislated under its quasi-
legislative authority. The due
observance of the requirements of
notice, of hearing, and of publication
should not have been then ignored.
CIR vs. Burroughs LTD- Effect of
Revocation of a Ruling:
Any revocation, modification, or
reversal of any of the rules and
regulations promulgated in accordance
with the preceding section or any of
the rulings or circulars promulgated by
the Commissioner shag not be given
retroactive application if the
revocation, modification, or reversal
will be prejudicial to the taxpayer
except in the following cases (a) where
the taxpayer deliberately misstates or
omits material facts from his return or
in any document required of him by the
Bureau of Internal Revenue; (b) where
the facts subsequently gathered by the
Bureau of Internal Revenue are
materially different from the facts on
which the ruling is based, or (c) where
the taxpayer acted in bad faith. (ABS-
CBN Broadcasting Corp. v. CTA, 108
SCRA 151-152)
PCB vs. CIR (Effect of Wrong
Interpretation)
VEM/MBP
Article 8 of the Civil
Code[26] recognizes judicial decisions,
applying or interpreting statutes as part
of the legal system of the country. But
administrative decisions do not enjoy
that level of recognition. A
memorandum-circular of a bureau
head could not operate to vest a
taxpayer with a shield against judicial
action. For there are no vested
rights to speak of respecting a
wrong construction of the law by
the administrative officials and such
wrong interpretation could not
place the Government in estoppel to
correct or overrule the
same.[27] Moreover, the non-
retroactivity of rulings by the
Commissioner of Internal Revenue is
not applicable in this case because the
nullity of RMC No. 7-85 was declared
by respondent courts and not by the
Commissioner of Internal
Revenue. Lastly, it must be noted that,
as repeatedly held by this Court, a
claim for refund is in the nature of a
claim for exemption and should be
construed instrictissimi juris against
the taxpayer.
ABS CBN vs. CIR and CTA
Sec. 338-A. Non-retroactivity of
rulings. — Any revocation,
modification, or reversal of and of the
rules and regulations promulgated in
accordance with the preceding section
or any of the rulings or circulars
promulgated by the Commissioner of
Internal Revenue shall not be given
retroactive application if the relocation,
modification, or reversal will be
prejudicial to the taxpayers, except in
the following cases: (a) where the
taxpayer deliberately mis-states or
omits material facts from his return or
any document required of him by the
Bureau of Internal Revenue: (b) where
the facts subsequently gathered by the
Bureau of Internal Revenue are
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Taxation I
Syllabus by Atty. VVCaňoneo

materially different from the facts on CIR vs. Bursmeisters

which the ruling is based; or (c) where
the taxpayer acted in bad faith. (italics
for emphasis)
It is clear from the foregoing that
rulings or circulars promulgated by the
Commissioner of Internal Revenue
have no retroactive application where
to so apply them would be prejudicial
to taxpayers. The prejudice to
petitioner of the retroactive application
of Memorandum Circular No. 4-71 is
beyond question. It was issued only in
1971, or three years after 1968, the
last year that petitioner had withheld
taxes under General Circular No. V-
334. The assessment and demand on
petitioner to pay deficiency withholding
income tax was also made three years
after 1968 for a period of time
commencing in 1965. Petitioner was
no longer in a position to withhold
taxes due from foreign corporations
because it had already remitted all film
rentals and no longer had any control
over them when the new Circular was
issued. And in so far as the
enumerated exceptions are
concerned, admittedly, petitioner does
not fall under any of them.
Petitioners filing of his Answer before
the CTA challenging respondents
claim for refund effectively serves as a
revocation of VAT Ruling No. 003-99
and BIR Ruling No. 023-95. However,
such revocation cannot be given
retroactive effect since it will prejudice
respondent. Changing respondent’s
status will deprive respondent of a
refund of a substantial amount
representing excess output tax.
Section 246 of the Tax Code
provides that any revocation of a
ruling by the Commissioner of
Internal Revenue shall not be given
retroactive application if the
revocation will prejudice the
taxpayer. Further, there is no showing
of the existence of any of the
exceptions enumerated in Section 246
of the Tax Code for the retroactive
application of such revocation.

CIR vs. Benguet Corporation:

While it is true, as petitioner alleges,

that government is not estopped from
collecting taxes which remain unpaid
on account of the errors or mistakes of
its agents and/or officials and there
could be no vested right arising from
an erroneous interpretation of law,
these principles must give way to
exceptions based on and in keeping
with the interest of justice and fairplay,
as has been done in the instant matter.
For, it is primordial that every person
must, in the exercise of his rights and
in the performance of his duties, act
with justice, give everyone his due,
and observe honesty and good faith.

38
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