Week 1: General Principles of Taxation 6.

The power to specify or provide for administrative and

Week 2: Taxes, Laws, Systems & Administrative
judicial remedies.

7. The power to grant tax exemptions and condonations.

TAXATION is the inherent power by which the sovereign, through its law.
THEORY AND BASIS
making body raises revenue to defray the necessary expenses of the
government. 1. Life Blood Theory - Taxes are the lifeblood of the
INHERENT TO THE STATE government and so should be collected without
• It is inherent in character because its exercise is guaranteed by the unnecessary hindrance. (Commissioner of Internal
mere existence of the state.
Revenue vs. Algue; GR No. L-28896, Feb. 17, 1988)
• It could be exercised even in the absence of a constitutional grant.
2. Necessity Theory - government is necessary;
• The power to tax proceeds upon the theory that the existence of a
government is a necessity, and this power is an essential and however, it cannot continue without the means of
inherent attribute of sovereignty, belonging as a matter of right to paying for its existence; hence, it has the right to
every independent state or government. (Pepsi-Cola Bottling Co. of
the Philippines vs. Municipality of Tanauan, Leyte, G.R. No. L-31156, compel all citizens and property within its power to
February 27, 1976) contribute for the same purpose. (71 Am. Jur. 2d 346)
SCOPE OF LEGISLATIVE POWER TO TAX 3. Symbiotic relationship theory - It is said that taxes are what we pay for a
1. The determination of purposes for which taxes shall civilized society.

be levied provided it is for the benefit of the public. ➢ Without taxes, the government would be paralyzed for lack of the
motive power to activate and operate it.
2. The determination of subjects of taxation such as
➢ Despite the natural reluctance to surrender part of one’s hard-
the person, property or occupation within its earned income to the taxing authorities, every person who is able to
jurisdiction. must contribute his share in the running of the government.

3. The determination as to the amount or rate of tax ➢ The government for its part, is expected to respond in the form of
tangible and intangible benefits intended to improve the lives of the
unless constitutionally prohibited. people and enhance their moral and material values.
4. The determination as to the kind of tax to be collected (i... ➢ This symbiotic relationship is the rationale of taxation and should
dispel the erroneous notion that it is an arbitrary method of
property tax, income tax, inheritance tax, etc.).
exaction by those in the seat of power. (Commissioner of Internal
5. The determination of agencies to collect the taxes. Revenue vs. Algue, supra).
FORMS OF ESCAPE FROM TAXATION general reprieve to tax evaders who wish to come clean by giving them an
opportunity to straighten out their records. (Metropolitan Bank and Trust
1. Shifting - the burden of payment is transferred from the statutory
Co. v. Commissioner of Internal Revenue, G.R. No. 178797, 4 August 2009)
taxpayer to another without violating the law (e.g., VAT);
Basic Principles Regarding Tax Exemption
2. Capitalization - the reduction in the price of the taxed object equal to the
capitalized value of future taxes the purchaser is expected to be called upon i. Exemptions are highly disfavored by law and he who claims an
to pay. exemption must be able to justify his claim by the clearest grant of
law. An exemption from the common burden cannot be permitted
3. Transformation - for manufacturers or producers, upon whom tax are
to exist upon vague implication. (Asiatic Petroleum Co. vs. Llanes, 49
imposed, fearing the loss of his market if he should add to the price, pays
Phil 466; see also House vs. Posadas, 53 Phil. 338)." (Collector of Int.
the tax and endeavors to recoup himself by improving his process of
Revenue vs. Manila Jockey Club, Inc., G.R. No . L-8755, March 24,
production, thereby producing his units at a lower cost.
1956)
4. Tax Avoidance - exploitation by the taxpayer of legally permissible
ii. He who claims exemption should prove his factual and legal basis for
alternative tax rates or methods of assessing taxable property or income, in
order to avoid or reduce tax liability. Also known as "tax minimization." (e.g., exemption. (Commissioner of Internal Revenue v. Acesite (Philippines)
utilizing all permissible allowable deductions) Hotel

5. Tax Exemption - grant of immunity to particular persons or corporations Corporation, G.R. No. 147295, February 16, 2007)
of a particular class from a tax which persons or corporations generally
iii. Tax exemptions are strictly construed against the person claiming it (Esso
within the same rate or taxing district are obliged to pay.
Standard Eastern, Inc. vs. Acting Commissioner of Customs; GR No. L-
6. Tax Evasion - use of a taxpayer of illegal or fraudulent means to defeat or
21841;
lessen the payment of tax. Also known as "tax dodging" it presupposes
malice, fraud, bad faith, or willful intent on the part of the taxpayer either to Oct. 28, 1966)
underdeclared income or overdeclared deductions to defeat tax liability.
iv. Constitutional grants of exemptions are self-executing.
7. Compensation or Set-off: as a general rule, taxes cannot be the subject of
a set-off or compensation because of the lifeblood doctrine; they are not v. In the same way that taxes are personal, tax exemptions are also
contractual obligations but arise out of duty to the government, and the personal.
government and the taxpayer are not mutually debtors and creditors of each
other. (Francia vs. IAC No. L-67649; June 28, 1988). vi. Deductions from income tax purposes partake of the nature of tax

8. Compromise and Abatement - these are powers granted to the exemptions, therefore should also be construed strictly against the
Commissioner of Internal Revenue to reduce tax liabilities and/or penalties. taxpayer. (Commissioner of Internal Revenue vs. General Foods
(See Tax Remedies)
(Phils), Inc.; GR No. 143672; April 24, 2003)
9. Tax Amnesty - refers to the articulation of the absolute waiver by a
sovereign of its right to collect taxes and power to impose penalties on vii. Same treatments are given to tax refunds. (Commissioner of
persons or entities guilty of violating a tax law. Tax amnesty aims to grant a
 Internal Revenue v. Eastern Telecommunications Phils., Inc., G.R. No. date of payment (for illegally collected or erroneously paid taxes),
and the lapse of such period bars recovery.
163835, July 7, 2010)
TAX AMNESTY ACT
Grounds for Tax Exemption
Republic Act No. 11213: towards the policy of the State in protecting and
• a. Contract - the grant of tax exemption is usually contained in the
enhancing revenue administration and collection, the State shall:
charter of the corporation to which the exemption is granted.
a. Provide a one-time opportunity to settle estate tax obligations
• b. Public policy - to encourage new and necessary industries, or to
through an estate tax amnesty program that will give reasonable
foster charitable institutions.
relief to estates with deficiency estate taxes.
• c. Reciprocity - to reduce the rigors of international double or
b. Enhance revenue collection by providing a tax amnesty on
multiple taxation, tax exemptions may be granted in treaties. A tax
delinquencies to minimize administrative costs in pursuing tax cases
exemption is a personal privilege of the grantee and therefore not
and de-clog the dockets of the BIR and the courts; and
assignable; it is generally revocable by the government, unless
founded on contract and must not be discriminatory. c. Provide a more equitable tax system by adopting a comprehensive
tax reform program that will simplify the requirements on tax
Revocation of Tax Exemption:
amnesties with the use of simplified forms and utilization of
• If the grant of an exemption does not constitute a contract, but information technology in broadening the tax base.
merely "a spontaneous concession by the legislature, not connected
d. General Amnesty: the law originally includes a general tax amnesty
with any service or duty imposed" it is REVOCABLE by the power
to cover all other taxes, but this portion of the law (Title III) was
which made the grant.
vetoed entirely by the President stating that "without the provisions
• If the basis of the tax exemptions is by virtue of a franchise granted breaking down the walls of bank secrecy, setting the legal
by Congress, the exemption may be revoked. framework for us to comply with international standards on
exchange of information for tax purposes, and safeguarding against
• If the tax exemption constitutes a binding contract and for a those who abuse the amnesty by declaring an untruthful asset or
valuable consideration, the government cannot unilaterally revoke net worth, a general amnesty that is overgenerous and unregulated
the tax exemption. would create an environment ripe for future tax evasion, the very
• Doctrine of Equitable Recoupment: is a doctrine in common law thing we wish to address."
applicable where the taxpayer has a claim for refund, but he was not TAX AMNESTY ON DELINQUENCIES
able to file a written claim due to the lapse of the prescription
period within which to make a refund. a. Coverage: all national internal revenue taxes collected by the BIR.
including
• The taxpayer is allowed to credit such refund to his existing tax
liability. VAT and excise taxes collected by the Bureau of Customs.

• This doctrine is not allowed in the Philippines. Note that the • Delinquencies covered and Applicable Rates:
prescription of tax refunds in this jurisdiction is two years from the
 ii. ii. The computed basic tax liabilities as shown in the criminal
complaint filed by the BIR with the DOJ/Prosecutor's Office or in the
information filed in the Courts for violations of tax laws and
regulations; and

iii. The basic tax liabilities as per the Court's final and executory
decision

iv. Deficiency Withholding Taxes in assessments or tax cases: the tax

rate shall still be 100% under letter D above, even in cases of non-
remittance of withholding taxes falling under letters A, B and C
above.

v. With Pending Compromise Settlement Application under letter A

above: if the delinquent tax is subject of an application for
compromise settlement, whether denied or pending, the amount of
payment shall be based on the NET basic tax as certified by the
concerned office.

vi. ILLUSTRATION:

B Company received a Final Assessment Notice with a P1,000,000 basic

Delinquent Account: pertains to a tax due from a taxpayer arising from
tax deficiency. It applied for compromise and paid P400,000 as the
the audit of the BIR which had been issued Assessment Notices that
minimum amount required. If B Company applied for Tax Amnesty, how
have become final and executory due to the following instances:
much would it pay?
• i. Failure to file a valid Protest, whether a request for
reconsideration or reinvestigation, within 30 days from receipt
thereof.

• ii. Failure to file an appeal with the CTA or an administrative appeal

before the CIR within 30 days from receipt of the decision denying
the request for reinvestigation or reconsideration; or

• iii. Failure to file an appeal with the CTA within 30 days from receipt
of the decision of the CIR denying the taxpayer's administrative
appeal to the FDDA.

Basic Tax Assessed: refers to:

i. Tax due shown on the Assessment Notice, net of any basic tax paid
prior to the effectivity of RR No. 4-2019, exclusive of civil penalties,
TAX AMNESTY ON DELINQUENCIES • The Form and the Return shall be submitted to the RDO after
complete payment and the completion of these requirements shall
• b. When and Where to File: Any person, natural or juridical, who
be deemed full compliance with the provisions of the TAX.
wishes avail of the Tax Amnesty on Delinquencies shall, within one
year from the effectivity of the IRR file with the appropriate office of • After full compliance with all the conditions and payment of the
the BIR, whic has jurisdiction over the residence or principal place of corresponding tax on delinquency, the tax amnesty granted shall
business of the taxpayer, a sworn Tax Amnesty on Delinquencies become final and irrevocable.
Return accompanies by a Certification of Delinquency.
Documents:
• The payment of the amnesty tax shall be made at the time of the
filing of the Return. Similar to the Estate Tax Amnesty, the RDO shall
issue and endorse an Acceptance Payment Form authorizing the
authorized agent bank, or in the absence thereof, the revenue
collection agent or treasurer concerned, to accept the amnesty tax
payment. municipal

• c. No admission of liability: the availment of the Tax Amnesty on

Delinquencies and the issuance of the corresponding Acceptance
Payment Form do not imply admission of criminal, civil or
administrative liability on the part of the availing taxpayer.

• d. Immunities and Privileges: The tax delinquency of those who

avail of the Tax Amnesty on Delinquencies and have fully complied
with all the conditions and upon payment of the amnesty tax shall
be considered settled and the criminal case under Sec. 18(c) of the
Tax Code, as amended, as such relate to the taxpayer's assets,
liabilities, net worth and internal revenue taxes that are subject of
the tax amnesty, and from such other investigations or suits.

• e. Proof of Availment and Compliance; effects thereof: Any notices

of levy, attachments and/or warrants of garnishment issued against
the taxpayer shall be set aside pursuant to the lifting of notice of
levy/garnishment duly issued by the BIR.

• The Authority to Cancel Assessment shall be issued in favor of the

taxpayer within 15 days from submission to the BIR of the
Acceptance Payment Form and the Tax Amnesty on Delinquencies
Return Otherwise, the duplicate copies, stamped as received, of the
Acceptance Payment Form, and the Tax Amnesty on Delinquencies
Return shall be deemed sufficient proof of availment.
 • Tax Exemptions; deductions and refund: in case of ambiguity, the
law will be construed strictly against the taxpayer and liberally in
favor of the government, except:

1. Where the statute granting exemption expressly provides for a liberal

interpretation;

2. Special taxes relating to special cases and affecting only special classes of
persons;

3. Property held in private ownership;

4. Traditional exemptees, such as those in favor of religious and charitable

institutions;

5. In favor of the government, its political subdivisions or instruments; and

6. By clear legislative intent.

• Tax exemptions are never presumed. It must be established and

proved by the taxpayer; must be limited to what the law says; and
personal to the person entitled to the same.
CONSTRUCTION AND INTERPRETATION OF TAX LAWS
TAXATION AND THE OTHER INHERENT POWERS
Tax laws must be construed reasonably to carry out the purpose, intent and
the objective of the law. 1. Taxation is the power of the State to demand from the members of
society their proportionate share or contribution in the maintenance of the
• As a rule, if the tax law is clear and free of ambiguity, it will be government.
applied in its literal import. If there is doubt as to its validity or if it is
ambiguous, the law will be construed strictly against the 2. Eminent Domain is the power of the State to forcibly acquire private
Government and liberally in favor of the taxpayer. property, upon payment of just compensation, for some intended public
use.
• "A statute will not be construed as imposing a tax unless it does so
clearly, expressly, and unambiguously. A tax cannot be imposed 3. Police Power is the power of the State to regulate liberty and property for
without clear and express words for that purpose. Accordingly, the the promotion of general welfare.
general rule of requiring adherence to the letter in construing SIMILARITIES:
statutes applies with peculiar strictness to tax laws and the
provisions of a taxing act are not to be extended by implication." 1. Inherent in the State and need not be conferred by the Constitution;
(CIR vs. CA, CTA and Ateneo de Manila University, GR No. 115349, 2. Indispensable in that the State cannot continue or be effective unless it is
April 18, 1997) able to exercise the same;

3. Methods whereby the State interferes with private rights;

4. Presuppose an equivalent compensation, tangible or otherwise, for the • 6. Levied on persons, property or excises;
private rights interfered with; and
• 7. Levied for public purpose;
5. Primarily exercised by the legislature.
• 8. Paid at regular periods of intervals;

• 9. Personal to the taxpayer.

CLASSIFICATION OF TAXES

1. As to purposes:

a. General/Fiscal or Revenue - purpose is to raise revenue for the

government's ordinary needs;

b. Special/Regulatory or Sumptuary purpose is some social or

economic ends irrespective of whether revenue is actually raised.

2. As to subject matter:

a. Personal, poll or capitation - those imposed upon residents of a

territory, regardless of citizenship, property, occupation, business.

b. Property those imposed upon real and personal property

depending on their value.

c. Excise or privilege - those imposed upon the performance of an act

TAXES: are enforced proportional contributions from the persons and enjoyment of a privilege, or engaging in an occupation, profession
property levied by the law-making body of the State by virtue of its or business.
sovereignty in support of government and for public needs. 3. As to incidence:
ESSENTIAL CHARACTERISTICS OF TAX a. Direct - where the burden for the payment of the tax as well as the
• 1. Imposed by the State which has jurisdiction over the person, impact falls on the same person; as such, the person who pays is the
property or excises person who is statutory liable to pay the tax (eg, income tax);

(activity); b. Indirect - where the incidence falls on one person, but the burden
falls another. (eg., VAT).
• 2 Levied by the Legislature:
4. As to amount:
• 3. It is an enforced contribution:
a. Specific - amounts fixed and is imposed by the head or number or
• 4. Generally payable in money; some measurement, hence, no valuation is needed except for the
• 5. Proportionate in character-based on the taxpayer's ability to pay: list of things to be taxed.
 b. Ad valorem - one which is based on the value of the object to be 3. Tax, NOT fees, may be claimed as income tax deduction for income tax
taxed. purpose. However, fees may be considered as expenses ordinary and
necessary for business.
5. As to rate/progression:
4. In Local Government Taxation, Sec. 187 of the Local Government Code
a. Progressive-tax rates increase as the tax base or bracket increases.
covers only "tax" ordinance. Such that, if the ordinance is regulatory, it does
b. Regressive-tax rate decreases as tax base or bracket increases. not come within the purview of Sec. 187 and the CTA does not have
jurisdiction over the legality of the same, jurisdiction thereof being under
c. Proportionate - tax is based on a fixed percentage of the amount of the RTC.
the property, receipts or other bases to be taxed.

6. As to authority imposing the tax:

a. National - levied by the national government and enforced by the

BIR;

b. Local- levied by the local government through its sanggunian and

enforced by the treasurer.

IMPORTANCE OF DISTINCTION:

1. Government instrumentality concerned may not be authorized to exact

taxes but IS authorized to exact license fees.

2. Person imposed upon may be exempt from taxes BUT NOT exempt from
license fees.
SOURCES OF REVENUE: the following are considered national internal
revenue taxes:

• 1. Income tax;

• 2. Estate and donor's taxes;

• 3. Value-added tax;

• 4. Other percentage taxes;

 • 5. Excise taxes; revenues to defray the cost of the operation of the Government,
and a tax on property of the Government, whether national or local,
• 6. Documentary Stamp Taxes; and
would merely have the effect of taking money from one pocket to
• 7. Such other taxes as are or hereafter may be imposed and put it in another pocket (Board of Assessment of Appeals of Laguna
collected by the Bureau of Internal Revenue. vs. CTA, G.R. No. L-18125, May 31, 1963).

INHERENT LIMITATIONS Exceptions:

A. IT MUST BE FOR A PUBLIC PURPOSE • 1. Agencies performing proprietary functions;

• A revenue measure must be laid for a public purpose determined by • 2. When the charter creating the agency or
the legislature. The proceeds of the tax must be used either for the
instrumentality or the law provides that
support of the State or for some recognized objective of
government or directly to promote the welfare of the community. they are subject to tax.

• The public purpose must exist at the time the law is enacted. • 3. If the government wishes to tax itself.
(Pascual vs. Secretary of Public Works, GR No. L-10405; Dec. 29,
GOCCS: performing proprietary functions are taxable similar to a
1960)
corporation. However, Sec. 27(c) of the Tax Code provides for the
Tests in determining public purpose: following corporations as exempt:

• 1. Duty Test - whether the thing to be furthered by the • 1. Government Service Insurance System (GSIS)
appropriation o public revenue is something which is the duty of the
• 2. Social Security System (SSS)
State, as a government.
• 3. Philippine Health Insurance Corporation (PHIC)
• 2. Promotion of General Welfare Test-whether the law providing
the tax directly promotes the welfare of the community in equal • 4. Local Water Districts
measure.
• 5. Home Development Mutual Fund (HDMF) (as included by the
• One sector is not benefited: Public purpose is not destroyed by the CREATE Law)
fact that the tax law may not be beneficial to one group. The fact
that one sector is benefited and in the process another sector is • PAGCOR is no longer exempt from income tax by its omission from
being in a way prejudiced would not diminish the public character of the above list. (PAGCOR vs BIR, GR No. 12087, March 15, 2011)
the tax (Tio v. Videogram Regulatory Board, G.R. 75697, June 1987) However, PAGCOR remains exempt from income tax for its income
arising from casino operations which are subject to franchise tax in
B. EXEMPTION OF GOVERNMENT ENTITIES, AGENCIES and lieu of all taxes (PAGCOR BIR GR No. 215427, Dec. 10, 2014)
INSTRUMENTALITIES
• PCSO: was removed under the TRAIN and is thus taxable beginning
• As a rule, the government, its agencies and instrumentalities January 1, 2018.
performing governmental function are exempt from VAT. This is
because taxes financial burdens imposed for the purpose of raising C. THE POWER TO TAX IS INHERENTLY LEGISLATIVE (NON-
DELEGABILITY)
 • Technically, no. 3 is not really an exception as the powers of the
administrative agencies are limited to implementing and/or
• Taxation is the inherent power of the state, and it is exercised
interpreting the tax laws issued by Congress.
primarily by the Legislature as delegates of the people. In
accordance with the Latin maxim potestas delegatas non delegari D. INTERNATIONAL COMITY
potest, which means, what has been delegated can no longer be
• Par in parem non habet imperium is a principle of international law
delegated, as a rule, only the Congress (to whom the legislative
forming the basis of state immunity which translates to "equals have
power has been delegated by the people) can exercise this power.
no sovereignty over each other." The principle of international
• Exceptions: comity recognizes that States are co-equal sovereigns such that one
cannot exercise its inherent sovereign powers over another,
• 1. Delegation to Local Government- the Constitution, as
including the power to tax.
implemented by the Local Government Code, empowers the local
government units (LGU) to create its own sources of revenue and to • States find it mutually advantageous to create self-imposed
levy taxes, fees and charges which shall accrue exclusively to the restraints on their taxing powers with reference to properties of
LGU. (Sec. 5, Art. X of the Constitution) foreign governments. Moreover, when on state enters the territory
of another, there is an implied understanding that the former does
• 2. Delegation to the President - the Constitution, as implemented
not intend to degrade its dignity by placing itself under the
by the Tariff and Customs Code, allows the President to fix tariff
jurisdiction of the latter, note that a foreign state cannot be sued
rates, import and export quotas, tonnage and wharfage dues and
without its consent, thus it would be useless to impose or assess a
other duties or imposts. (Sec. 28[2], Art. VI of the Constitution)
tax which cannot be collected.
• Likewise, the President may exercise emergency powers (Sec. 23[2],
E. TERRITORIAL IN APPLICATION (SITUS)
Art. VI of the Constitution) and enter into executive agreements or
or treaties which may contain tax exemption provisions subject to • Tax is territorial in application in the sense that the object and/or
the concurrence of the Senate. (Sec. 27, Art. VII of the Constitution) subject of the tax must be within the territorial jurisdiction of a
State. The object of taxation is the income, and the subject would be
3. Delegation to Administrative Agencies - administrative agencies m issue
the income earner. As such for a non-resident alien, income earned
rules and regulations to implement tax laws, under their quasi. legislative
outside the Philippines is non-taxable herein, because the income
powers, subject to the following tests:
(object) and the individual (subject) are both outside the
a. Completeness test- in order for the delegation to be valid, the law Philippines. However, if the income (object) is earned within the
must be complete in all aspects when it leaves the legislature. The Philippines, then it can be subject to tax here, since the object is
only thing left for the delegate to do is to implement the law. now within Philippine territory.

b. Sufficiently Determinable Standards test - there must exist • On the other hand, a resident citizen is taxable even on income
sufficient standards which should limit the boundaries of the earned outside the Philippines, since the individual is a resident
delegate's authority by defining legislative policy and the herein, or the subject of taxation is within Philippine territory.
circumstance under which it is to be pursued and implemented.
 DOUBLE TAXATION • 2. Tax Credit an amount subtracted from an individual's or entity's
tax liability (tax due) to arrive at the tax liability still due.
• It means taxing the same person for the same tax period and the
same activity twice, by the same jurisdiction. • A deduction differs from a tax credit, in that a deduction reduces
taxable income while a credit reduces tax liability.
Double taxation in strict sense is when:
Modes of eliminating double taxation:
• 1. Both taxes are imposed on the same property or subject matter,
• 3. Treaties with other states: a tax treaty sets out the respective
• 2. For the same purpose;
rights to tax of the state of source (situs) and the state of residence
• 3. Imposed by the same taxing authority; with regard to certain cases, an exclusive right to tax is conferred on
one of the contracting states; however, for other items of income or
• 4. Within the same jurisdiction; capital, both states are given the right to tax, although the amount
• 5. During the same taxing period; of tax that may be imposed by the state of source is limited.

• 6. Covering the same kind or character of tax. • It applies whenever the state of source is given full or limited right
to tax. The treaty makes it incumbent upon the state of residence to
Double taxation in strict sense is when: allow relief in order to avoid double taxation. (See Double Taxation
• 1. Both taxes are imposed on the same property or subject matter, Agreements)

• 2. For the same purpose; STAGES OR ASPECTS OF TAXATION

• 3. Imposed by the same taxing authority; 1. LEVY

• 4. Within the same jurisdiction; • The determination by Congress of the subject and object of taxation
as well as the rate (Domondon, 9 ed, p. 29). It refers to the
• 5. During the same taxing period; enactment of tax laws or statutes (Dimaampao, 2011 ed, p. 14).
• 6. Covering the same kind or character of tax. • Note: This is NOT the "Levy" under Sec. 207 of NIRC, which refers to
the remedy of the Government to collect taxes.
Kinds of double taxation as to taxing authorities:
2. ASSESSMENT AND COLLECTION
• 1. Domestic double taxation - when both the taxes are imposed
within the same state. • Assessment is a notice to the effect that the amount therein stated
is due as tax and a demand for payment thereof.
• 2. International double taxation - when the taxes are imposed by
different states. Rules governing assessment and collection of taxes to prevent its abuse:
Modes of eliminating double taxation: • 1. The tax law must designate which agency will collect the taxes.
• 1. Tax Deduction - an amount subtracted from the gross income to • 2. The circulars or regulations issued by the Secretary of Finance or
arrive at taxable income. the Commissioner of the Internal Revenue must be in accordance
with the tax measures imposed by Congress.
 • Collection is the final stage and goal of tax administration. • Requisites for a valid classification:

STAGES OR ASPECTS OF TAXATION • 1. Must be based upon substantial distinctions;

• 3. PAYMENT • 2. Must be germane to the purpose of law;

• The act of compliance by the taxpayer, including such options, • 3. Must apply to both present and future conditions; and
schemes or remedies as may be legally open or available to him.
• 4. Must apply equally to all members of a class.
• 4. REFUND
Two ways by which equal protection clause is violated;
• The taxpayer asks for restitution of the money paid as tax which is
• 1. When classification is made when there should be none
either excessive or erroneous.
• 2. When classification is not made when called for
CONSTITUTIONAL LIMITATIONS
C. UNIFORMITY AND PROGRESSIVITY OF TAXATION
A. DUE PROCESS REQUIREMENT
• Art. VI, Sec. 28 (1) The rule of taxation shall be uniform and
• Art. III, Sec. 1: No person shall be deprived of life, liberty or
equitable. The Congress shall evolve a progressive system of
property without due process of law, nor shall any person be
taxation.
denied the equal protection of laws.
• UNIFORMITY means that all taxable articles or kinds of property of
• Procedural due process: requires that taxpayers must be notified of
the same classes shall be taxed at the same rate. A tax is uniform
the assessment in writing and must state the fact and the law upon
when it operates with the same force and effect in every place
which it is based. Moreover, assessments and collection must not be
where the subject of it is found. (Commissioner vs. Lingayen Gulf
arbitrary.
Elec. Co., G.R. No. L-23771, August 4, 1988)
• Substantive due process: requires that assessments must not be
Uniformity vs. Equitability vs. Equality
harsh, oppressive or confiscatory; it must be made under authority
of a valid law; and must be imposed within the territorial jurisdiction • Uniformity - All taxable property shall be taxed alike.
of the State.
• Equitability - The burden of taxation falls to those better able to pay.
B. EQUAL PROTECTION OF THE LAWS
• Equality-When the burden of the tax falls equally and impartially
• Art. III, Sec. 1: No person shall be deprived of life, liberty or property upon all persons and property subject to it.
without due process of law, nor shall any person be denied the
equal protection of laws. • PROGRESSIVITY means that the tax rate increases as the tax base
thereof increases. Our income tax system is one good example of
• The requirement of equal protection of the laws requires that the such progressivity because it is built on the principle of the
law must apply equally to all persons within the same class. As such, taxpayer's ability to pay. Taxation is progressive when its rate goes
providing for a classification and applying the law only to a up depending on the resources of the person affected (Reyes vs.
particular class is not violative of the constitutional right so long as it Almanzor, G.R. Nos. 49839-46, April 26, 1991)
comes from a valid classification.
D. NO IMPRISONMENT FOR PAYMENT OF POLL TAX cannot be substituted for the words "used exclusively" without
doing violence to the Constitution and the law (Lung Center of the
• Art. III, Sec. 20. No person shall be imprisoned for debt or non-
Phil. vs. Quezon City, G.R. No. 144104, June 29, 2004).
payment of a poll tax.
Actual and Direct Use is necessary: To be exempt from tax, the lands,
• Poll Tax is a tax on individuals residing within a specified territory,
buildings and improvements must not only be exclusively but also actually
whether citizens or not, without regard to their property or the
and directly used for religious and charitable purposes,
occupation in which they may be engaged.
• Thus, even if a property is owned by a religious, educational or
E. EXEMPTION FROM PROPERTY TAX OF RELIGIOUS CHARITABLE AND
charitable institution, if it is rented out and used for activities other
EDUCATIONAL INSTITUTIONS
than the main purpose of the institutions, it will be subject to tax
• Art. VI, Section 28. and not covered by the exemption. Note that in Real Property
Taxation, the actual use is determinative of assessment and
• (3) Charitable institutions, churches and parsonages or convents taxability NOT OWNERSHIP.
appurtenant thereto, mosques, non-profit cemeteries, and all lands, Incidental User; the exception likewise covers activities which are incidental
buildings, and improvements, actually, directly, and exclusively used to the main activity. As such, canteens owned and operated by the school,
for religious, charitable, or educational purposes shall be exempt as well as libraries are covered by the exemption extended to schools
from taxation.
• If the use is not incidental, exemption does not apply: While the use
• Property Tax: The tax exemption under this constitutional provision of the second floor of the main building for residential purposes of
covers property taxes only. As Chief Justice Hilario G. Davide, Jr., the Director and his family may find justification under the concept
then a member of the 1986 Constitutional Commission, explained: of incidental use, which is complimentary to the main or primary
"what is exempted is not the institution itself; those exempted from purpose, Le., educational, the lease of the first floor to the Northern
real estate taxes are lands, buildings and improvements actually, Marketing Corporation cannot be considered incidental to the
directly and exclusively used for religious, charitable or educational purpose of education. Since only a portion is used for the purpose of
purposes." (Lung Center of the Philippines vs. Quezon City, GR No. commerce, it is only fair that half of the assessed tax be returned to
144104, June 29, 2004) the school involved (Abra Valley vs. Aquino, G.R. No. L-39086, June
• Estate and donor's tax are excise taxes on the privilege to transfer 15, 1988).
property gratuitously. Accordingly, the above exemption does not • Only the portion used for commercial purpose are subject to the
cover estate and donor's tax unless specifically provided under the tax: While portions of the hospital are used for the treatment of
Tax Code. (See Sections 101(A)(3) and 101(B)(2) of the Tax Code) patients and the dispensation of medical services to them, whether
• "Exclusive": is defined as possessed and enjoyed to the exclusion of paying or non-paying, other portions thereof are being leased to
others; debarred from participation or enjoyment; and "exclusively" private individuals for their clinics and a canteen. Accordingly, we
is defined, "in a manner to exclude; as enjoying a privilege hold that the portions of the land leased to private entities as well
exclusively." If real property is used for one or more commercial as those parts of the hospital leased to private individuals are not
purposes, it is not exclusively used for the exempted purposes but is exempt from such taxes. On the other hand, the portions of the land
subject to taxation. The words "dominant use" or "principal use" occupied by the hospital and portions of the hospital used for its
patients, whether paying or non-paying, are exempt from real
 property taxes. (Lung Center of the Phil. vs. Quezon City, G.R. No. from whatever kind and character of the foregoing corporations
144104, June 29, 2004). from any of their properties, real or personal, or from any of their
activities conducted for profit regardless of the disposition made of
F. EXEMPTION OF NON-STOCK, NON-PROFIT EDUCATIONAL
such income, shall be subject to tax".
INSTITUTIONS
• While Sec. 30 covers non-stock, non-profit educational institutions,
• Art. XIV, Sec. 4(3): All revenues and assets of non-stock, non-profit
the above limitation on exemption does not apply to it. Thus, even if
educational institutions used actually, directly, and exclusively for
it derives income from activities conducted for profit, the income
educational purposes shall be exempt from taxes and duties. Upon
remains exempt as long as it is actually, directly and exclusively used
the dissolution or cessation of the corporate existence of such
for educational purposes.
institutions, their assets shall be disposed of in the manner provided
by law. • (Commissioner of Internal Revenue vs. De La Salle University, Inc, GR
No. 196596, November 9, 2016)
• Proprietary educational institutions, including those cooperatively
owned, may likewise be entitled to such exemptions subject to the • Proprietary educational institutions: are subject to 10% income tax
limitations provided by law including restrictions on dividends and on their taxable income under Sec. 27(B) of the Tax Code (now 1%
provisions for reinvestment. under the CREATE Act from July 1, 2020 to June 30, 2023). The same
provision provides that if income from unrelated trade, business or
• Coverage: the above exemption does not only cover property tax
other activity exceeds 50% of the total gross income, the tax shall be
but also income tax unlike the exemption of religious and
the 30% (now 25%) Regular Corporate Income Tax.
educational institutions provided under (E) above which covers only
property taxes. THE BUREAU OF INTERNAL REVENUE

• The tax exemption granted is conditioned only on the actual, direct • The Bureau of Internal Revenue is the agency tasked under the Tax
and exclusive USE of their revenues and assets for educational Code for its implementation and its powers and duties shall
purposes. comprehend the assessment and collection of all national internal
revenue taxes, fees and charges, and the enforcement of all
• Revenues: the exemption extends to the non-stock, non-profit
forfeitures, penalties, and fines connected therewith, including the
educational institution on all revenues that is USED for educational
execution of judgments in all cases decided in its favor by the CTA
purposes, regardless of its source. Assets: the property, to be
and the ordinary courts
considered exempt from real property tax, the test is USE also, not
ownership. • It is under the supervision and control of the Department of Finance

• Thus, if the institution earns rental income from a commercial entity • The Bureau of Internal Revenue is the agency tasked under the Tax
but uses such rental for educational purposes, it is exempt from Code for its implementation and its powers and duties shall
income tax, local business tax, and/or VAT, but NOT real property comprehend the assessment and collection of all national internal
tax. revenue taxes, fees and charges, and the enforcement of all
forfeitures, penalties, and fines connected therewith, including the
• Limitation under Section 30 of the Tax Code: the last paragraph of
execution of judgments in all cases decided in its favor by the CTA
Sec. 30 (Exempt Entities) under the Tax Code provides that "income
and the ordinary courts
 • It is under the supervision and control of the Department of Finance production, receipts or sales and gross incomes of taxpayers, and the
names, addresses, and financial statements of corporations, mutual
COMPOSITION
fund companies, insurance companies, regional operating headquarters
• The BIR shall be composed of; of multinational companies, joint accounts, associations, joint ventures
of consortia and registered partnerships, and their members;
1. Commissioner of Internal Revenue which shall be the chief of the BIR and
• The Cooperative Development Authority shall submit to the Bureau
2. Four Deputy Commissioners, currently for the following: a tax incentive report, which shall include information on the
• a Operations Group income tax, value added tax, and other tax incentives availed of by
cooperatives registered and enjoying incentives under Republic Act
• b. Legal Group No. 6938, as amended.
• c. Information Systems Group; and a. To summon the person liable for tax or required to file a
• d. Resource Management Group return, or any officer or employee of such person, or any
person having possession, custody, or care of the books of
POWERS AND AUTHORITY OF THE COMMISSIONER OF INTERNAL REVENUE accounts and other accounting records containing entries
relating to the business of the person liable for tax, or any
1. Exclusive and original jurisdiction to interpret the provisions of the Tax
other person, to appear before the Commissioner or his
Code and other tax laws, subject to review by the Secretary of Finance.
duly authorized representative at a time and place specified
2. The power to decide disputed assessments, refunds of internal revenue in the summons and to produce such books, papers,
taxes, fees or other charges, penalties imposed in relation thereto, or other records, or other data, and to give testimony;
matters arising under the Tax Code or other laws or portions thereof b. To take testimony of the person concerned, under oath, as
administered by the BIR, subject to the exclusive appellate jurisdiction of the may be relevant or material to such inquiry; and
Court of Tax Appeals,
c. To cause revenue officers and employees to make a
3. The power to ascertain the correctness of any return, or in making a canvass from time to time of any revenue district or region
return when none has been made, or in determining the liability of a person and inquire after and concerning all persons therein who
for any internal revenue tax, or in collecting any such liability, or in may be liable to pay any internal revenue tax, and all
evaluating tax compliance. The Commissioner shall be authorized: persons owning or having the care, management or
possession of any object with respect to which a tax is
a. To examine any book, paper, record, or other data which may be
imposed.
relevant or material to such inquiry;
4. Inquiry into Bank Deposits: in the following cases
b. To obtain on a regular basis from any person other than the person
whose internal revenue tax liability is subject to audit or investigation, or a. To determine the gross estate of a decedent
from any office or officer of the national and local governments,
b. In relation to a compromise application of a taxpayer by reason of
government agencies and instrumentalities, including the Bangko
financial incapacity to pay his tax liability
Sentral ng Pilipinas and government-owned or controlled corporations,
any information such as, but not limited to, costs and volume of
c. A specific taxpayer or taxpayers subject of a request for the supply prescribe a minimum amount of such gross receipts, sales and
of tax information from a foreign tax authority pursuant to an taxable base, and such amount so prescribed shall be prima facie
international convention or agreement on tax matters to which the correct for purposes of determining the internal revenue tax
Philippines is a signatory or a party of. liabilities of such person.

5. Power to resort to the Best Evidence Obtainable Rule: When a report 7. Authority to Terminate Taxable Period: When it shall come to the
required by law as a basis for the assessment of any national internal knowledge of the Commissioner that a taxpayer is retiring from business
revenue tax shall not be forthcoming within the time fixed by laws or subject to tax, or is intending to leave the Philippines or to remove his
rules and regulations or when there is reason to believe that any such Or property therefrom or to hide or conceal his property, or is
report is false, incomplete or erroneous, the Commissioner shall assess performing any act tending to obstruct the proceedings for the
the proper tax on the best evidence obtainable. collection of the tax for the past or current quarter or year or to render
the same totally partly ineffective unless such proceedings are begun
• In case a person fails to file a required return or other document at
immediately, the Commissioner shall declare the tax period of such
the time prescribed by law, or willfully or otherwise files a false or
taxpayer terminated at any time and shall send the taxpayer a notice of
fraudulent return or other document, the Commissioner shall make
such decision, together with a request for the immediate payment of
or amend the return from his own knowledge and from such
the tax for the period so declared terminated and the tax for the
information as he can obtain through testimony or otherwise, which
preceding year or quarter, or such portion thereof as may be unpaid,
shall be prima facie correct and sufficient for all legal purposes.
and said taxes shall be due and payable immediately and shall be
6. Inventory taking, Surveillance and Prescribe Presumptive Gross Sales subject to all the penalties hereafter prescribed, unless paid within the
or Receipts: The Commissioner may, at any time during the taxable year, time fixed in the demand made by the Commissioner.
order inventory-taking of goods of any taxpayer as a basis for
8. Authority of the Commissioner to Prescribe Real Property Values. -The
determining his internal revenue tax liabilities, or may place the
Commissioner is hereby authorized to divide the Philippines into different
business operations of any person, natural or juridical, under
zones or areas and shall, upon mandatory consultation with competent
observation or surveillance if there is reason to believe that such person
appraisers both from the private and public sectors, and with prior notice to
is not declaring his correct income, sales or receipts for internal revenue
affected taxpayers, determine the fair market value of real properties
tax purposes. The findings may be used as the basis for assessing the
located in each zone or area, subject to automatic adjustment once every
taxes for the other months or quarters of the same or different taxable
three (3) years through rules and regulations issued by the Secretary of
years and such assessment shall be deemed prima facie correct.
Finance based on the current Philippine valuation standards Provided, That
• When it is found that a person has failed to issue receipts and no adjustment in zonal valuation shall be valid unless published in a
invoices in violation of the requirements of Sections 113 and 237 of newspaper of general circulation in the province, city or municipality
this Code, or when there is reason to believe that the books of concerned, or in the absence thereof, shall be posted in the provincial
accounts or other records do not correctly reflect the declarations capitol, city or municipal hall and in two (2) other conspicuous public places
made or to be made in a return required to be filed under the therein: Provided, further, That the basis of any valuation including the
provisions of this Code, the Commissioner, after taking into account records of consultations done, shall be public records open to the inquiry of
the sales, receipts, income or other taxable base of other persons any taxpayer. For purposes of computing any internal revenue tax, the value
engaged in similar businesses under similar situations or of the property shall be, whichever is the higher of:
circumstances or after considering other relevant information may
 • a. The fair market value as determined by the Commissioner; or b. The power to issue rulings of first impression or to reverse, revoke
modify any existing ruling of the Bureau;
• b. The fair market value as shown in the schedule of values of the
Provincial and City Assessors. c. The power to compromise or abate, under Sec. 204 (A) and (B) of
this Code, any tax liability, except the following:
9. Authority to Accredit and Register Tax Agents: The Commissioner shall
accredit and register, based on their professional competence, integrity and i. Assessments issued by the regional offices involving basic deficiency
moral fitness, individuals and general professional partnerships and their taxes of Five hundred thousand pesos (₱500,000) or less, and
representatives who prepare and file tax returns, statements, reports,
ii. ii. minor criminal violations, as may be determined by rules and
protests, and other papers with or who appear before, the Bureau for
regulations to be promulgated by the Secretary of finance, upon
taxpayers.
recommendation of the Commissioner, discovered by regional and
• Individuals and general professional partnerships and their district officials.
representatives who are denied accreditation by the Commissioner
• The above may be compromised by a REGIONAL EVALUATION
and/or the national and regional accreditation boards may appeal
BOARD which shall be composed of the Regional Director a
such denial to the Secretary of Finance, who shall rule on the appeal
Chairman, the Assistant Regional Director, the heads of the Legal,
within sixty (60) days from receipt of such appeal. Failure of the
Assessment and Collection Divisions and the Revenue Distric Officer
Secretary of Finance to rule on the Appeal within the prescribed
having jurisdiction over the taxpayer, as members;
period shall be deemed as approval of the application for
accreditation of the appellant. a. The power to assign or reassign internal revenue officers t
establishments where articles subject to excise tax are produced or
10. Authority of the Commissioner to Prescribe Additional Procedural or
kept.
Documentary Requirements: The Commissioner may prescribe the manner
of compliance with any documentary or procedural requirement in • Other BIR officials:
connection with the submission or preparation of financial statements
accompanying the tax returns. • 1. Revenue Regional Directors

11. Delegation of Power: The Commissioner may delegate the powers vested • 2. Revenue District Officers
in him under the pertinent provisions of the Tax Code to any or such • 3. Revenue Officers
subordinate officials with the rank equivalent to a division chief or higher,
subject to such limitations and restrictions as may be imposed under rules SOURCES OF TAX LAWS
and regulations to be promulgated by the Secretary of Finance, upon • According to hierarchy:
recommendation of the Commissioner.
• 1. Constitution
• Powers which may NOT be delegated:
• 2. Statutes (eg, Tax Code), including Supreme Court decisions
a. The power to recommend the promulgation of rules and regulations interpreting the same and Treaties to which the Philippines is a
by the Secretary of Finance; signatory.
 • 3. Revenue Regulations - are issuances signed by the Secretary of
Finance upon recommendation of the Commissioner of Internal
Revenue, that specify, prescribe or define rules and regulations for
the effective enforcement of the provisions of the National Internal
Revenue Code (NIRC) and related statutes.

SOURCES OF TAX LAWS

4. BIR Issuances:

a. Revenue Memorandum Circulars-are issuances that publish

pertinent and applicable portions, as well as amplifications, of laws,
rules, regulations and precedents issued by the BIR and other
agencies/offices.

b. Revenue Memorandum Orders directives or instructions; prescribe

guidelines; and outline processes, are issuances that provide
operations, activities, workflows, methods and procedures
necessary in the implementation of stated policies, goals, objectives,
plans and programs of the Bureau in all areas of operations, except
auditing (which is covered by Revenue Audit Memorandum Orders
[RAMO])

SOURCES OF TAX LAWS

4. BIR Issuances:

a. Revenue Administrative Orders - are issuances that cover subject

matters dealing strictly with the permanent administrative set-up of
the Bureau, more specifically, the organizational structure,
statements of functions and/or responsibilities of BIR offices,
definitions and delegations of authority, staffing and personnel
requirements and standards of performance.

b. Revenue Delegation of Authority Orders refer to functions delegated

by the Commissioner to revenue officials in accordance with law.