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    A. Definition of taxation

    *1. Taxation, definition or concept.

    a. The inherent power of the sovereign1) Exercised through the legislature to impose burdens

    b. To impose burdens1) Upon subjects and objects2) Within its jurisdiction

    c. For the purpose of raising revenuesd. To carry out the legitimate objects of government.

    NOTES AND COMMENT:a. Alternative definition. Taxation is the power vested in the legislature to impose

    burdens or charge upon persons and property for the purpose of raising revenuefor public purposes. ( Malcom, p351-353)

    B. Nature of taxation

    ***1. Two- fold nature of taxation or nature of the power of taxation or description of thepower of taxation:

    a. Inherent powerb. Legislative power

    ***2. Power of taxation is an inherent power.

    Taxation is an inherent power because it is an attribute of sovereigntya. Basis: The basis of the power of taxation being an inherent power is the lifeblood

    theory of taxation which posits that the very existence of the state is dependentupon tax revenues collected. Without taxes the states would not be able toperform the functions for which has been organized.

    b. Manifestation:1. Imposition even in the absence of constitutional grant empowering a state to

    collect taxes.2. States right to select objects and subjects of taxation.3. No injuction rule. As a general rule courts should not issue injunctive writs to

    enjoin collection of tax otherwise this would restrict the amount of taxes thatmay be collect to finance the activities of government.

    ***3. Taxation is a high prerogative of sovereignty.The power of taxation is essential and inherent attribute of sovereignty, belonging as a

    matter of right to every independent government without being expressly granted by the people.(Pepsi Cola Bottling Company of the Philippines, Inc v. Municipality of Tanauan, Leyte, 69SCRA 460)

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    It is an attribute of sovereignty which emanates from necessity upon which the very existence ofthe government is dependent. Without tax money, the government would not be able toundertake the purpose for which it was organized, thus negating the need for its existence.

    NOTES AND COMMENT:a. Taxation as an attribute of sovereignty. A principal attribute of sovereignty, the exercise

    of taxing power derives its source from the very existence of the state whose social contractwith its citizens obliges it to promote public interest and common good. ( National PowerCorporation v. City of Cabanatuan, G.R No 149110 April 9,2003 citing various cases)

    ***4. Taxation is a legislative power. Taxation being a legislative power is the exercise of thehigh prerogative of sovereignty.

    a. Basis: Involves promulgation of rules. Taxation is a set of rules, how much is the taxto be paid, who pays the tax, to whom it should be paid, and when the tax should bepaid.

    b. Manifestation: Prohibition on improper delegation of the legislative power to tax:

    NOTES AND COMMENT: The power of taxation is inherent in every sovereign andconsequently exists with or without a constitutional provision to the effect . ( Cooley,Constitutional Limitations, p 787)

    C. Theory of Taxation

    1. The theory of taxation is the lifeblood doctrine.

    *2. Lifeblood theory, defined. Taxes are the lifeblood of the nation.

    Without revenue raised from taxation, the government will not survive, resulting indetriment to society. Without taxes, the government would be paralyzed for lack of mativepower to active and operate it. (Commisioner of Internal Revenue v. Algue, Inc, et al, 158SCRA 8, 16-17).


    a. Alternative definition. Taxes are the lifeblood of government, for without taxes, thegovernment can neither exist nor endure. ( National Power Corporation v. City of

    Cabanatuan, G.R No.149110, April 9,2003 citing various cases)

    3.Basis of the lifeblood theory of taxation.

    Acceptance that government existence is a necessity.a. Performance of governmental functions redounds to the benefit of the populance

    in general.

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    b. In view of the above, the government could levy proportionate forcedcontributions among the populace to defray its expenditures. Stated otherwise,revenues could be raised to defray expenditures for public purpose.

    NOTES AND COMMENT:a. Alternative statement of the basis of the theory of taxation.

    The theory behind the exercise of the power to tax emanates from necessity,without taxes, government cannot fulfill its mandate of promoting the generalwelfare and well-being of the people.( Commissioner of Internal Revenue v.Bank of the Phil Island G.R No.134062, April 17, 2007 citing National PowerCorporation v. City of Cabanatuan, G.R No. 149110, April 9,2003 citingvarious cases).Do not confuse the theory of taxation with the basis of rationale for taxation.

    4. Principles that flow from the lifeblood theory.a. Power to tax is an unlimited and plenary power.

    b. The power to tax includes the power to destroy.c. The presumption that tax laws are valid.d. The right to collect taxes is imprescriptible.e. Collection of taxes may not be enjoined by injunction.f. Taxes could not be the subject of compensation and set-off.

    NOTES AND COMMENTS: The above principles are apllied in general.There may be exemptions.

    5. Power to tax is unlimited. The power to tax is so unlimited in force and sosearching in extent, that courts scarcely venture declare that it is subject to

    any restriction whatever, except such as rest in the discretion of the authoritywhich exercise it. (Tio v. Videogram Regulatory Board et al., 151 SCRA 213)

    As a general rule, the power to tax is an incident of sovereignty and isunlimited in its range, acknowledging in its very nature no limits, so thatsecurity against its abuse is to be found only in the responsibility of thelegislature which imposes the tax in the constituency who are to pay it (FELSEnergy, Inc v. The province of Batangas et al., G. R No 168557, February 16,2007 citing Mactan Cebu International Airport Authoirty v. Marcos, et al 261SCRA 667)

    6. The power to tax is sometimes called also the power to destroy. Sopotent is the power to tax that it was once opined by Chief Justice Marshall inMcCulloch v. Maryland, 4 Wheat, 316 4 L ed. 579, 607, that the power to taxinvolves the power to destroy.Verily taxation is a destructive power whichinterferes with the personal and property rights of the people and takes fromthem a portion of their property for the support of the government.

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    7. The power to tax is sometimes called also the power to destroy.It should be exercised with caution. This is so, in order to minimize injury

    to the proprietary rights of a taxpayer. It must be exercised fairly, equally anduniformly, lest the tax collector kills the hen that lay the golden egg. And in,the order to maintain the general publics trust and confidence in theGovernment, this power must be used justly and not treacherously.

    (Commissioner of Internal Revenue v. Tokyo Shipping Co. Ltd et al., 244SCRA 33; Roxas v. Court of Tax Appeals, No L-25043, April 26, 1968, 23SCRA 276,282 cited in Pilipinas Shell Petroleum Corporation v. Commissionerof Internal Revenue, G.R No 172598, December 21, 2007)

    8. While the power to tax includes the power to destroy, administrativetaxing authorities must not act arbitrarily. The role of courts in taxation.

    a. Required in all democratic regimes that taxing power1.) Must be exercised reasonably, and2.) In accordance with prescribed procedures

    b. If exercised arbitarily1.) the taxpayer has a right to complain, and2.) The courts will come to his succor.

    c. For all his awesome power, the tax collector1.) May stop in his tracks2.) If the taxpayer can demonstrate

    a. That the law has not been observed.(Commissioner of Internal Revenue v. Algue, 158 SCRA 8)

    9. Contrary view: Power to tax not power to destroy. Justice Holmesbrushed aside Marshalls view by declaring in Panhandle Oil Co. v.

    Mississippi, 227 US 218 that The power tax is not the power to destroy whilethis court exists.Justice Frankfurther in Graves v. New York 306 us 466 also remarked thatJustice Marshalls statement was a mere flourish of rhetoric and a product ofthe intellectual fashion of times to indulge in the free use of absolutes(Mactan Cebu International Airport Authority v. Marcos et al., 261 SCRA 667,suggesting referral to Sinco, Phil Political Law, 1954, 577-578)

    *10. Reconcilation of Marshalls view that, The power to tax involves thepower to destroy with the Holmes view that, The power to tax is notthe power to destroy.

    a. The imposition of a valid tax could not be judicially restrained merelybecause it would prejudice taxs payer property.

    b. An illegal tax could be judicially declared invalid and should not work toprejudice a taxs payer property.

    c. Marshals view refers to a valid tax while the Holmes view refers to aninvalid tax.

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    11.The lifeblood theory supports the presumption that tax laws are valid.While the courts may invalidate tax measures that run counter to the Constitution, it

    bears emphasis that deeply ingrained in our jurisprudence is the time-honored principle that astatute is presumed to be valid. ( Coconut Oil Refines Association, Inc., etc ., et al., v. Torres ,etc et al G.R No 132527, July 29, 2005 citing Basco v. Phil, Amusements and GamingCorporation, G.R No. 91649, May 14,1991, 197 SCRA 52)

    12. As a general rule, the right of the government to collect taxes is imprescriptiblebecause the very existence of the state depends upon the exercise of this power.

    Where the government has not by express statutory provision, provided a limitationupon its right to assess unpaid taxes, such right is imprescriptible. [ Kasamahan RealtyDevelopment Corporation ( now know as Stag Trading Corporation) v. Commissioner of InternalRevenue, CTA Case No. 6204, February 16, 2005)

    Statutes may however provide for prescriptive periods for the collection of particularkinds of taxes.

    NOTES AND COMMENTS: For a detailed discussion of the non-injunction rule refer

    to Vol. III, Tax Remedies and the Court of Tax Appeals.

    13. Generally, collection of taxes may not be restrained by an injunctive writ by acourt. It is said that taxes are the lifeblood of the government and any delay in its collectionwould impair the rendition of government services. There should be not to impede the flow ofrevenues needed to ensure that the state could attain the purpose for which it was organized.

    As a general rule, No court shall have the authority to grant an injunction to restrain thecollection of any national internal revenue tax, fee or charge. ( NIRC, Sec 218)

    However, the Court of Taxes Appeals is empowered to suspend the collection of taxesthrough administrative remedies when collection could jeopardize the interest of the government

    or taxpayer.( Sec.11 Rep. Act No.1125, as amended)

    NOTES AND COMMENTS: For a detailed discussion of the : no-injunction rule refer toVol.III, Tax Remedies and the Court of Tax Appeals.

    QUERY: How could the collection of taxes jeopardize the interest of the government.

    ***14. Grounds and procedure for suspension of collection of taxes. Where the collectionof the amount of the taxspayers liability, sought by means of a demand for payment, by levy,distraint or sale of property of the paxpayer, or by whatever means, as provided under existinglaws, may jeopardize the interest of the government or the taxpayer, an interested party may file

    a motion for the suspension of the collection of the tax liability (Sec.1, Rule 10, RRCTA effectiveDecember 15,2005) with the Court of Tax Appeals.

    The motion for suspension of the collection of the tax may be filed together with thepetition for review or with the answer, or in a separate motion filed by the interested party at anystage of the proceedings. ( Sec. 3, Rule 10, RRCTA effective December 15 2005)NOTES AND COMMENT: For a detailed discussion of the no- injunction rule refer to Vol III,Tax Remedies and the Court of Tax Appeals.

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    D. Basis or rationale of taxation

    *1. The basis or rationale for taxation.

    a. Reciprocal relation of protection and support between the state and its citizens and

    residents. Also called symbolic relation between the state and its inhabitants. b. Jurisdiction by the state over persons and property within its territory.

    NOTES AND COMMENTSa. Basis or rationale for taxation different from the theory of taxation. Do not

    confuse the basis of or rationale for taxation with the concept of the theory oftaxation with the concept of the theory of taxation which is the lifeblood doctrine.The basis or rationale foe taxation explains the reason why a state may imposetaxes while the theory of taxation explains why there is a need to impose taxes.

    b. The basis or rationale of taxation, specifically the symbiotic relation,determines the situs of taxation; The basis of rationale of taxation may be

    used as a tool for analysis in determining where the situs of taxation lies.

    It is the country, state or sovereign that gives protection that has the right todemand the payment of taxes with which to finance activities so it could continueto give protection.

    The basis or rationale of taxation is also used to explain why taxation is basicallyterritorial in character because it is only within the territorial boundaries of the taxlaws may be enforced. This is so, because it is only within the confines of itsterritory that a country, state or sovereign may give protection.

    **2. The basis or rationale of taxation is the reason why the Philippine governmentcould impose taxes:

    a. On the income of resident citizens derived from source outside the Philippines.

    b. On aliens residing in the Philippines.

    3. Symbolic relationship, explained. The reciprocal relation of protection and supportbetween the state and the taxpayers. The state gives protection and for it to continuegiving protection it must be supported by the taxpayers in the form of taxes.

    a. Taxes are what we pay for a civilized society. Without taxes, the government wouldbe paralyzed for lack of motive power to activate and operate it.

    b. Despite the natural reluctance to surrender part of ones hard -earned income to thetaxing authorities, every person who is able must contribute his share in running thegovernment.

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    c. The government, for its part, is expected to respond in the form of tangible andintangible benefits intended to improve the lives of the people and enhance theirmoral and material values.

    This symbolic relationship is the rationale of taxation and should dispel the erroneous

    notion that is an arbitrary method of exaction by those in the seat of power. (Commisssioner of Internal Revenue v. Algue, Inc ., et., al, 158 SCRA 8, 16-17)


    a. Alternative statement of the symbolic relationship.The opening quotationin Abakada Guro party List ( formerly AASJAS). Etc.., v. Ermita et al., G.R No168056, September 1 2005 and companion cases from Anne Robert JacquesTurgot (1727-1781) a French statesman and economist provides a colorfulrestatement of the symbolic relation in the following manner. The expensesof government, having for their object the interest of all, should be borne byeveryone, and the more man enjoys the advantages of society, the more he

    ought hold himself honored in contributing to those expenses.

    Is the above quotation an interesting approach to the familiar statement, Fromeach according to his ability, and to each according to his need. Query to thereader: who said the foregoing statement? The above statement may be used to

    justify the compensatory purpose of taxation, specially the progressive system oftaxation

    E. Purpose or objects of taxation

    Purpose or objects of taxation, in general

    *1. Purpose or objects of taxation. The purpose or objectives of taxation are thefollowing:

    a. The basic purpose.1) Revenue purpose

    b. The secondary purposes1) Sumptuary or regulatory purpose.2) Compensation purpose.3) To implement the power of eminent domain.

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    1. Revenue purpose of taxation. The basic purpose of taxation is to raise revenues.

    Taxes are imposed in order to raise funds used to meet the legitimate objects ofgovernment.

    This is sometimes referred to as the lifeblood theory of taxation.

    2. Purpose of the NIRC of 1997. Revenue generation has undoubtedly been a majorconsideration in the passage of the Tax Code. ( Commissioner of Internal Revenue v.Fortune Tobacco Corporation, G.R Nos 167274-75, July 21, 2008)

    Sumptuary or regulatory purpose of taxation

    1. Sumptuary or regulatory purpose of taxation. The sumptuary purpose oftaxation is to promote the general welfare and to protect the health, safety ormorals of the inhabitants. It is in the joint exercise of the power of taxation andpolice power where regulatory taxes are collected.

    The state increases taxes on harmful substance making them more expensive,thus limiting their consumption.

    Taxation may be made the implement of the states police power.

    2. The concept of police power. Police power is not capable of an definition buthas been purposely veiled in general terms to underscore its comprehensive tomeet all exigencies and provide enough room for an efficient and flexibleresponse to conditions and circumstances, thus assuring the greatest benefits.(Carlos Superdrug Corp., etc, te al, G.R No 166494, June 29 2007 andcompanion cases citing Sangalang v. IAC, G.R No 71169, August 25,1989 176SCRA 719)

    Accrodingly, it has been described as the most essential, insistent and theleast limitable of powers, extending as it does to all the great pblic needs [Ibid.,citing Ermita- Malate and Motel Operators Association , inc v. City Mayor inManila, L-24693, July 31,1967, 20 SCRA849 citing Noble State Bank v. Haskell,219 u.S 412 (1911)]

    It is the power vested in the legislature by the constitution to make, ordain andestablish all manner of wholesome and reasonable laws, statutes, andordinances, either with penalties or without, not repugnant to the constitution, asthey shall judge to be for the good and welfare of the commonwealth and for thesubjects of the same. { ibid., citing U.S Toribio, 15 Phil., 85 (1910) in turn citing

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    Commonwealth v. Alger, 7 Cush.., 53 ( Mass. 1851); U.S ., v. Pompeya, 31Phil.245, 253-254 (1951)]

    3. In the exercise of police power the State can impair property rights in the process.When the conditions so demand as determined by the legislature, property rights must bow to

    the primacy of police power because property rights though sheltered by due process, mustyield to general welfare [ Carlos Superdrug Corp.., etc.., et al., G. R No. 166494, June 29,2007citing Alalayan v. National Power Corporation, 24 Phil.172 (1968)]

    The State, in the exercise of police power, can intervene in the operations of a business whichmay result in an impairment of property rights in the process. ( Carlos Superdrug Corp., etc., etal, supra)

    Moreover, the right to property has a social dimension. While Article XIII of the Constitutionprovides the precept for the protection of property, various laws and jurisprudence, particularlyon agrarian reform and the regulation of contracts and public utilities, continuously serve as areminder that the right to property can be relinquished upon the command of the State for the

    promotion of public good; [ Ibid. citing U.S v. toribio, 15 Phil. 85 at 98-99 (1910) in turn citingThorpe v. Rutland & Burlington R.R Co. ( 27 Vt., 140, 149] to the effect that by the generalpolice power of the State, persons and property are subjected to all kinds of restraints andburdens, in order to secure the general comfront, health and prosperity of the State, of theperfect right in the legislature to do which , no question ever was, or, upon acknowledge andgeneral principles ever can made, so far as natural persons are concerned.

    *4. Taxation distuguished from police power:a. Purpose: Taxation is for revenue while police power is a general welfare:b. Amount: In taxation, the amount of tax collected is practically unlimited while underpolice power, the license fee should not exceed cost of regulation.

    c. Compensation : In taxation, the enjoyment of public services while in police power,the feeling of having done something good for society in general.d. Property taken: In taxation , generally money while under police power, any property,other than money collected is spent for building infrastructure or providing publicservices while police power is destructive. The property taken is usually destroyed.e. What is done with the property taken: Taxation is constructive because the moneycollected is spent for building infrastructured or providing public services while policepower is destructive. The property taken is usually destroyed.f. Relation to the non-impairment clause: Taxation is inferior to the non-impairmentclause and could, not override the same while police power is superior to the non-impairment clause.g. Scope: Taxation interferes with property rights only while police power regulates both

    liberty and property.h. Surrender: Taxation may be bargained away through a contract such that if thegovernment issues a tax- exempt bond, it could not withdraw the exemption because itwould violate the non- impaired clause while police power cannot be bargained away.i. Means to implement public goods goals: Taxation is distinguishable from policepower as to the means employed to implement public good goal. Those doctrines thatare unique to taxation arose from peculiar considerations such as those especiallypunitive effects of taxation, and the belief that taxes are the lifeblood of the state. Theseconsideration necessitated the evolution of taxation as a distinct legal concept from

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    police power. Yet at the same time, it has been recognized that taxation may be made toimplement of the states police power. [Southern Cross Cement Corporation v. CementManufacturers Association of the Phil,et al.., G> R> No.158540, August 3 2005 citingLutz v. Araneta 98 Phil 148, 152 ( 1995) in turn citing great Atl., & Pac. Tea co.vGrosjean, 301 U.S 412 U.S Butler297 U.S 1 McCulloch v. Maryland, 4 Wheaton 316]

    5. Similarities between the power of taxation and police power.a. Both are inherent in the state and may be exercised even if there is no specificauthority granted by the Constitutiuon.b. Without these powers, the state could not attain the purpose for which it isestablished. Otherwise stated, the very existence of the State is dependent uponthe exercise of these powers.c. The powers are to be exercised by the legislative department.d. both interfere with ownership and use of private property.

    6.Regulatory taxes, defined. Regulatory taxes are those imposed in the joint exercise

    of the power of taxation and police power of taxation and police power. They raise taxesand at the same time promote general welfare or protect the health, safety or morals ofthe general populace.

    7.Taxes may be levied with a regulatory purpose.

    a. Taxation is no longer envisioned as a measure merely to raise revenue tosupport the existence of the government. Taxes may be levied with aregulatory purpose to provide means for the rehabilitation and stablilization ofa threatened industry which is affected with public interest as to be within thepolice power of the state. ( Caltext Phil, inc.,v Commission on audit, 208SCRA 726; Osmena v. Orbos, 220 SCRA 703)

    Thus, the power of taxation may be exercised to implement police power. (Lutz v. Araneta , 98 Phil. 148 ; Tiu v. Videogram Regulatory Board,151 SCRA208; Gaston v. Republic Planters Bank, 158 SCRA 626)

    The motivation behind many taxation measures is the implementation ofpolice power goals. [southern Cross Cement Corporation v. CementManufacturers Association of the Phil, et al., G.R No. 158540, August 3, 2005citing Lutz v. Araneta, 98 Phil. 148,152(1995); in turn citing [ Great Atl.,& Pac.Tea Co. v. Grosjean, 302 U.S 412., U.S. v Biutler, 297 U.S. 1 McCulloch v.Maryland, 4 Wheaton 316]. The reader should note that the August 3, 2005Southern Cross case is the decision on the motion for reconsideration of the

    July 8, 2004 Southern Cross decision.

    The so- called sin taxes on alcohol and tobacco manufacturers helpdissuade the consumers from excessive intake of these potentially harmfulproducts. ( Southern Cement corporation v. Cement manufacturers

    Association of the Phil, te al., G. R No. 158540, august 3, 2005)

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    b. A law, imposing burdens may be both a tax measure and an exercise ofpolice power, in which case the license fee may exceed the necessaryexpenses of police surveillance and regulation.

    *8. Examples of impositions under the police power and not under the power of taxation.

    a. Regulation of non- useful occupations. ( Cu- Unjieng v. Patstone, 42 Phil. 881)b. The Sugar Adjustment Act which increased existing taxes on sugar was enacted

    to stabilize the sugar industry to prepare it for the loss of its quota in the and was levied for a regulatory purpose to protect and promote the sugarindustry which is also for a public purpose. ( Lutz v. Araneta ., 98 Phil. 148)

    c. The Philsugin fund, an imposition on sugar, to raise funds to conduct research forthe improvement of the sugar industry, is for the purpose of stabilizing the sugarindustry which affects the welfare of the State. The levy is not so much anexercise of the power of taxation, nor the imposition of a special levy,. But theexercise of police power which is for the general welfare of the entire country,therefore for a public purpose. (Republic v. Bacolod-Murcia Co.,. et al., G.R No.

    L-19824, July 9, 1966)

    d. Margins fees paid on the branch profit remittances. They were exactionsdesigned to curb the excessive demands upon the countrys international reserveand were imposed not in the exercise of the power of taxation. ( Esso StandardEastern Inc.,v Commissioner of Internal Revenue, 175 SCRA 149).

    e. Establishment of the Oil Price Stablization Fund ( OPSF). It is within thatpervasive and non- waivable power and responsibility of the government tosecure the physical and economic survival and well- being of the community, that

    comprehensive authority designated as police power.

    The establishment and subsidy of domestic prices of petroleum products and fueloil is important considering the continued high level of dependence of the countryon imported crude oil are appropriately regarded as public purpose. ( Citizens

    Alliance for Consumer Protection v. Energy Regulatory Board., et al.,, 162 SCRA521)

    f. The imposition under Section 40 (g) of the Public Service Act of x x x fees asreimbursement of its expenses in the authorization, supervision and /or

    regulation of the public service; ( x x x 0 for each permit, authorizing the increasein equipment, the installation of new units or authorizing the increase inequipment, the installation of new units or general extensions in the services,twenty centavos for each one hundred pesos or fraction of the additional capitalnecessary to carry out the permit ( paraphrasing supplied) is not a tax measurebut a simple regulatory provision for the collection of fees imposed pursuant tothe exercise of the Statespolice power.

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    g. A tax is imposed under the taxing power of government principally for thepurpose of raising revenues. The law in question, however, merely authorizesand requires the collection of fees for the reimbursement of the Commissionsexpenses in the authorization, supervision and/or regulation of public service.(Republic, etc.., International Communications Corporation ( Icc)., G.R No.141667, July 17, 2006)

    9.Examples of taxes levied with a regulatory purpose, or combined exercise of policepower and the power of taxation.

    a. Motor vehicle registration fees are now considered revenue or tax measures.Consequently, entities enjoying tax exemptions are also exempt from paying motorvehicle registration fees. ( PAL v. Edu., G.R No. L-41383, August 15, 1998)

    This case reversed the doctrine previously held in Republic v. Phil Rabbit Bus Lines.,Inc., 32 SCRA 221, to the effect that the motor vehicle registration fees are

    regulatory exactions and not revenue measures.

    b. The tax impost on videogram establishments is not only regulatory but a revenuemeasure because the earnings of such establishments have not been subject to taxdepriving the government of an additional source of income. There is no overregulation as a result of the imposition of the tax because of the need for regulating anew industry. ( Tio v. Videogram Regulatory Board, 151 SCRA 208)

    c. The coconut levy funds under the Coconut Investment fund created under R.A6260; The Coconut Consumer stabilization Fund created under Pd 276, TheCoconut Industry Development Fund created under PD 582, and the Coconut

    Industry Stabilization fund created under PD 1841, were all raised under the statestaxing and police powers.

    It can be denied that the coconut industry is one of the major industries supportingthe national economy. It is, therefore, the states concern to make it a strong andsecure source not only of the livelihood of the significant segment of the population,but also export earnings, the sustained growth . [ Phil Coconut Proceduresfederation, Inc ( Cocofed v. Presidential Commission on Good Government, 178CSRA 236, 252]

    d. The OPSF designed to reimburse gasoline companies for increase in the price ofcrude oil resulting from world price movements and exchange fluctuations are taxescollected in the exercise of the police power in order to stabilize prices of gasolineand other petroleum products. ( Osmena v. Orbos, G.R No.99886, March 31,1993)

    e. The Sugar adjustment Act which increase existing taxes on sugar was enacted to

    stabilize the sugar industry to prepare it for the loss of its quota in the U.S market

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    was levied for a regulatory purpose to protect and promote the sugar industry which

    is also for a public purpose. ( Lutz v. Araneta, 98 Phil, 148)

    f. The Philsugin fund, an imposition on sugar, to raise funds to conduct research for

    the improvement of the sugar industry , is for the purpose of stabilizing the sugar

    industry which is one of the pillars of the Phil economy which affects the welfare of thestate. The levy is not much an exercise of the power of taxation, nor the imposition of a

    special levy, but the exercise of police power which is for the general welfare of the

    entire country therefore for a public purpose. ( Republic v. Bacolod- Murcia Co.., et al..,

    G.R No L-19824, July 9, 1966)


    As to purpose To raise revenue(regulation isincidental)

    To promote publicwelfare throughregulation (revenueis incidental)

    To take privateproperty for publicuse

    As to amount ofexaction

    Contemplates nolimits

    Exaction limited tocost of regulation,issuance of thelicense, orsurveillance.

    As to benefitsreceived bytaxpayer

    No special or directbenefit other thanthe fact that thegovernment securesto the citizen thatgeneral benefitresulting from theprotection of hisperson and thewelfare of all.

    Similarly, no directbenefits arereceived yet ahealthy economicstandard of societyis maintain.

    Just compensationis given the owner ofthe expropriatedproperty (Aparticular person isaffected)

    As to superiorityof Contracts

    Recognizes theobligations imposedby contracts.

    Does not apply

    As to transfer ofproperty rights

    Taxes paid formpart of public funds.

    Allows merely therestraint on theexercise of propertyrights

    As to personsaffected

    Applies to allpersons, propertyand excises thatmay be subjectthereto.

    Only a particularproperty iscomprehended.

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    The compensation purpose of taxation

    *1. The compensatory purpose of taxation. The power of taxation may be exercised in order


    a. Maintain high level of employment. Tax revenues may be utilized to pump prime

    the economy through the creation of high levels of employment. This is done through thecreation of high levels of employment. This is done through the acceleration of the infrastructure

    projects, farm support activities (financial support for purchase of fertilizer and other farm


    b. Control inflation. The government may mop up excess liquidity by imposing higher

    taxes, thus limiting the amount of money in circulation.

    c. Achieve social justice through redistribution of income using the progressive system of


    2.How the compensatory purpose of taxation implements the social justice provisions of

    the constitution.The compensatory purpose of taxation is to implement the social justice

    provisions of the constitution through the progressive system of taxation, which would result

    to equal distribution of wealth, etc.

    Progressive income taxes alleviate the margin between rich and poor. (Southern Cross

    Cement Corporation v. Cement Manufacturers Association of the Phil, et al., G.R

    No.158540, August 3, 2005)

    In recent years, the increasing social challenges of the times expanded the scope of the

    state activity, and taxation has become a tool to realize social justice and the equitable

    distribution of wealth, economic progress and the protection of local industries as well aspublic welfare and similar objectives, ( Batangas Power Corporation v. Batangas City, et al..,

    G.R No.152675, and companion case, April 28,2004 citing National Power Corporation v.

    City of Cabanatuan, G.R No. 149110, April 9, 2003)

    Tax measure are but enforced contributions exacted on pain of penal sanctions and

    clearly imposed for public purpose. In most recent years, the power to tax has indeed

    become a most effective tool to realize social justice, public welfare, and the equitable

    distribution of wealth. ( Commissioner of Internal Revenue v. Central Luzon Drug

    Corporation, G.R No 159647, April 16, 2005).

    3. Purpose of shit from ad valorem system to specific tax system in taxation

    of cigarettes. The shift from the ad valorem system to the specific tax system is

    likewise meant to promote fair competition among the players in the industries

    concerned, to ensure an equitable distribution of the tax rates. ( Commissioner of

    Internal Revenue v. Fortune Tobacco Corporation, G.R Nos. 167274-75, July 21,

    2008 citing Record of the Senate , pp 224-225)

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    F. Basic principles or characteristic of a sound tax system: ( Also known as canons

    of taxation)

    The canons of a sound tax system, also known as the characteristic or, principles

    of a sound tax system, are used as a criteria in order to determine whether a tax

    system is able to meet the purpose or objectives of taxation. They are:

    a. Fiscal adequacyb. Administrative feasibility

    c. Theoretical justice


    a. Origin of the canons. The above concept of canons of a sound system

    originated from the canons of taxation which were first identified by Adam

    Smith in his book. Wealth of Nations. These canons of taxation are the

    criteria when evaluating a particular tax base. Adam Smiths canon of

    taxation are as follows:

    1. Equality. This is equivalent of theoretical justice as shown above which is

    premised on ability to pay. Thus, a tax to be fair or equitable must be in

    proportion to the taxs payers income. This is exemplified through the

    adoption of a progressive system of taxation, where the burden of

    taxation falls more upon those with higher income.

    2. Convenience. This refers to the convenience of the taxs payer in paying

    the tax. The refers to the convience of the taxpayers. This is the

    counterpart of the concept of administrative feasibility mentioned above.

    3. Certainly. This is present where the taxpayer can readily predict, when,

    where and how the tax will be levied.

    4. Economy. This entails nominal collection costs by the government andminimal compliance costs on the taxspayer part. [Wealth of Nations, Book

    V., Chapter II, Part II ( New York : Dutton, 1910]

    Adam Smith also posited that, every tax ought to be so constructed as

    both to take out and to keep out of the pockets of the people as little as

    possible over and above what it brings into the public treasury of the

    state. [ Wealth of Nations, Book V., Chapter Ii., cited in Abakada Guro

    Party List ( Formerly AASJS), etc., v., Ermita., et al., G.R No. 168056,

    September 1,2005]

    2.Illustration of the characteristic of a sound tax system. To continue collecting real

    property taxes based on valuations arrived at a several years ago, in disregard of the

    increases in the value of real properties that have occurred since then., is not in consonance

    with a sound tax system. Fiscal adequacy requires that the sources of revenues must be

    adequate to meet government expenditures. ( Chavez v. Ongpin ., et al., 186 SCRA 331)

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    3.Fiscal adequacy as a characteristic of a sound tax system, explained. This means

    that the tax system must be able to provide sufficient revenues in order to meet the

    legitimate objects of government.

    Stated otherwise the taxes collected must be able to finance government expenditures and

    their variations. [ Abakada Guro Party List ( Formerly AASJS), etc v., Ermita, et al., G.R No.

    168056, September 1, 2005 citing Chavez v. Ongpin., G.R No. 76778., June 6, 1990, 1990, 186 SCRA 331, 338]

    4.Administrative feasibility as a character of a sound tax system, explained. The tax

    measure should easily be implemented in order to assure the smooth flow into the treasury

    of the fiscally adequate amounts.

    5.Theoretical justice, as a characteristic of a sound tax system, explained. This means

    that taxes should be collected premised on the ability of pay.


    A. Concept and nature of taxes

    Taxes In general

    *1. Tax, defined. Taxes are enforced contributions, generally payable in money,

    proportionate in character, levied on persons, property or exercise of a right or privilege

    by the state having jurisdiction, through its legislature, for public purpose and paid at

    regular periods or intervals. ( paraphrasing Cooley)

    NOTES AND COMMENTS: The essential elements of a tax or its characteristic arederived from the definition.

    *2. Essential elements of a tax (also called the characteristic of a tax).

    a. Enforced contribution.

    b. Generally payable in money.

    c. Proportionate in character.

    d. Levied on persons, property or exercise of a right or privilege.

    e. Levied by the state having jurisdiction.

    f. Levied by the legislature

    g. Levied for a public purpose.

    h. Paid at regular periods or internals.

    *3. Requisite of a valid tax.

    a. A valid tax should be within the jurisdiction of the taxing authority.

    b. That the assessment and collection of certain kinds (The same as the inherent

    limitations of the power of taxation) should be for a public purpose.

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    c. That either the person or property of taxes guarantees against injustice to

    individuals, especially by way of notice and opportunity for hearing be provided.

    e. The tax must not impinge on the inherent and Constitutional limitations on the

    power of taxation.

    Classification of taxes according to subject or object.

    *1. Taxes according to subject matter or object.

    a. Personal, poil or capitalization- Imposed on all residents, whether citizen or not,

    Example-Community Tax.

    b. Property- Imposed on property. Example- Real property tax.

    c. Exercise- Imposed upon the performance of an act, the enjoyment of a privilege or

    the engaging in an occupation.

    Example- income tax, estate tax.

    Classification of taxes as to determine of amount

    1. Taxes as to determine of amount:

    a. Specific- imposed based on some standard of weight or measure and which

    requires no assessment beyond a listing and classification of the object to be


    Example- taxes on distilled spirits and wines.

    b. Ad valorem- imposed based on a specific proportion of the value fixed by law

    or as appraised.c. Mixed or compound- impose both specific and ad valorem.

    Taxes classified as to purpose

    *1. Taxes classified as to purpose:

    a. General, fiscal or revenue- imposed for the purpose of raising public funds

    for the service of the government.

    b.Special or regulatory-imposed primarily for the regulation of useful or non-

    useful occupation or enterprises and secondarily only for the raising of public funds.

    Taxes classified according to the imposing authority

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    1. Classification as to the authority imposing the tax:

    a. National

    b. Municipal or local

    Taxes classified according to graduation or rate

    1. Taxes as to gradation or rate:

    a. Proportional- which increases or decreases in relation to bracket.

    b. Progressive or graduated- increase as the income of taxpayer goes higher.

    c. Regressive- decrease as the income of taxpayer goes higher.

    General Rule: Taxes cannot be the subject of compensation or set-off


    a. Lifeblood theory

    b. Taxes are not contractual obligations but arise out of a duty to, and are the positive

    acts of government, to the making and enforcing of which the personal consent of

    the individual taxpayer is not reqired. ( Republic v. Mambulao Lumber co.., 4 SCRA


    c. The government and the taxpayer are not mutually creditors and debtors of each

    other and a claim for taxes is no such a debt, demand, contract or judgement as is

    allowed to be set0off. ( Caltex Phil. Inc v. Commisssion on Audit, 208 SCRA 726-756)

    The contributions to the OPSF of an oil company cannot be offset against its

    outstanding claims from the said fund. Since the source of the OPSF is taxation, it is

    settled that a taxpayer may not offset taxes due from the claims that he may have

    against government.

    REASON: First, taxes cannot be the subject of compensation because because the

    government and the tax payer are not mutually ceridtors and debtors of each other.

    Secondly, there is no proof that the oil companys claim is already due and liquidated. (Caltex Phil., Inc . v Comm on Audit, 208 SCRA 726)

    Exceptions : When set-off or compensation allowed for local taxes:

    a. Where both claims already become overdue and demandable as well as fully

    liquidated. Compensation takes place by operation of law under Art.,1200 in

    relation to Arts., 1279 and 1290 all of the civil code

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    b. Compensation takes place by operation of law, where the government and

    the tax payer are in their own right reciprocally debtors and creditors of each

    other, and that the debts are both due and demandable. This is consequence

    of Art.1278 and 1279 of the civil code

    c. The Supreme Court upheld the validity of a set-off between the tax payer and

    the government. In both cases, the claims were certain of the taxpayertherein were certain and liquidated. The claims were certain since there were

    no doubts or dispute as to their refundability, In fact , the government

    admitted the fact of the over-payment

    d. In case of a tax overpayment, the BIRs obligation to refund or off set arises

    from the moment the tax was paid.

    e. While judgement should be renderd in favor of Republic for unpaid taxes,

    judgement ought at the same time to issue for Sampaguita Pictures

    commanding payment to the latter by the Republic of the value of the

    backpay certificates which the Republic received.

    When legal compensation takes place.

    a. Compensation shall take place when two persons in their own right,

    are creditors and the debtors of each other., ( CCP, Art., 1278)

    b. In order that compensation may be proper, it is necessary.

    (1.) That each one of the obligors be bound principally, and that he be at the same time a

    principal creditor of the other;

    (2.) That the both debts consist in a sum of money, or if the things due are consumable, they be

    of the same kind, and also of the same quality if the latter has been stated:

    (3.) That the two debts be due.

    (4.) That they be liquidated and demandable.

    (5.) That over neither of them there be any retention or controversy, commenced by third

    persons and communicated in due time to the debtor.,

    c. 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, even though the

    creditors are not aware of the compensation

    NO off- setting of taxes against taxpayers claims against government..A person cannot

    refuse to pay a tax on the ground that the government owes him an amount equal to or greater

    that the tax being collected. The collection of the tax cannot await the results of a lawsuit

    against the government.

    Reconcillation between Francia and Domingo cases. In Domingo v. Garlitos, 8 SCRA 443,

    both of the claims became overdue, demandable and fully liquidated while in francia v. IAC, 162

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    SCRA 758 the claim against the government is not overdue and demandable as it was already


    Doctrine or equitable recoupment.Where the refund of a tax illegally or erroneously collected

    or overpaid by a tax payer is barred by prescription, a tax presently being assessed against a

    taxpayer may be recouped or set-off against the tax whose refund is now barred by prescription

    Doctrine of equitable recoupment not followed in the Phil. REASON: Lifeblood theory.

    Taxpayers would become lazy in paying taxes because they could off-set the alleged illegally or

    erroneous collected or overpaid taxes. The same could also be said of tax collectors relative to

    their duty to collect taxes because they know that the tax payers would not pay anyway because

    of the offset with previous illegally or erroneously collected or overpaid taxes.

    Tax avoidance, and tax evasion

    ***1. Tax avoidance, defined. The exploitation by the tax payer of legally permissible rates or

    methods of assessing taxable property or income in order to reduce or entirely avoid tax liability.

    Example. Availing of all deductions allowed by law of refraining from engaging in activities

    subject to tax.

    2.Taxpayers right to tax avoidance.Taxpayer has legal right by means permitted by law to

    d. Decrease the amount of what could be his taxes,or

    e. Altogether avoid them.

    ***3. Tax evasion, defined. A scheme used outside of those lawful means and when availedof, it usually subjects the taxpayer to further or additional civil or criminal liabilities

    4.Factors integrated in tax evasion.

    f. The end to be achieved i.e payment of less than that know by the tax payer to be

    legally due or the non- payment of tax when it is shown that tax is due.

    g. An accompanying state of mind which is described as being evil in bad faith

    willfull, or deliberate and not accidental and;

    h. A course of action or failure of action which is unlawful.

    5.Illustration of tax evasion.On 30 August 1989, Toda in representation of Cibeles Insurance Corporation, which he

    owns up to the extent of 99.991% of its capital stock, sold the Cibeles Building and the twoparcels of land on which the building stands for P100 million to Altonaga who, in turn, sold thesame property on the same day to Royal match, Inc for P200 million. These two transactionswere evidence by Deeds of Absolute sale notarized on the same day by the same notary public.

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    The above scheme is not a legitimate tax planning but one tainted with fraud. It isobvious that the sale Altonaga was to reduce the amount of tax to be paid specially that thetransfer from him to Royal Match would then subject the income to only 5% (now 6%)( individualcapital gains tax, and not the 35% ( now 32%) corporate income tax., The sale to Altonaga wasmerely a tax ploy, a sham and without business purpose and economic substance. The fact that

    Altonaga through his counsel asked the opinion of the BIR on the tax consequence of the two

    sale transactions does not erase the taint of fraud.

    The intermediary transactions i.e the sale of Altonaga, which was prompted more on themitigation of tax liabilities than for legitimate business purpose constitutes one of tax evasion

    ***6. Tax avoidance distinguished from tax evasion.

    a. Validity: Tax avoidance is legal and not subject to criminal penalty while tax evasionis illegal and subject to criminal penalty.

    b. Effect: tax avoidance is minimization of taxes while tax evasion almost always results

    in absence of tax payments.c. Means and methods: Tax avoidance uses legal and valid means while tax

    avoidances uses illegal methods.

    7. Money entrusted to taxpayer not subject to tax. Money entrusted to a localtravel agency, earmarked and paid for hotel room charges of tourist, travelersand / or foreign travel agencies do not form part of its gross receipts subject tothe 3% independent contractors tax under the NIRC.

    REASON:Gross receipts subject to tax under the Tax code do not include monies or receiptsentrusted to taxpayer who do not belong to it and does not redound to the taxpayers benefit andit is not necessary that there must be law of regulation which would exempt such monies and

    receipts within the meaning of gross receipts.


    A. Limitations on the power of taxation, in general

    **1. Limitations on the power of taxation.

    a. Inherent limitations. These are part and parcel of the power of taxation and originatefrom the very nature of taxation.

    b. Constitutional Limitations. These are the restrictions imposed by the constitution.

    2.Rationale for limitations. To prevent abuse on the exercise of the otherwiseunlimited power of taxation.

    2. Limitations on power to tax, not assumed. It is well established jurisprudence that limitations upon the right of the government to assess and collect taxes will not be

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    presumed in the absence of clear legislation to the contrary and that where thegovernment has not by express statutory provision, provided a limitations upon its rightto assess unpaid taxes, such right is known as Stag Trading Corp.

    3. Importance of knowing the limitations. The limitations serve as a standard for

    determining whether a tax law or an act of the authorities in the implementation of taxlaws is valid or not.

    A violation of the limitations could be a ground for the nullification of a tax law or an actof the taxing authorities.

    Thus , any questions asking whether a tax law is valid or not, or whether an act of thetaxing authorities is valid or not always requires referral to the limitations that are thestandards in order to determine the validity of the law or act.

    4. To validly nullify a tax measure courts must follow certain criteria.Subject to the determination of the courts as to what is a proper exercise of police powerusing the due process clause and the equal protection clause as yardstick , the State

    may interfere wherever the public interest demand it, and in this particular a largediscretion is necessary for the protection of such interests.

    Tax revenues should be utilized for a public purpose.

    1. When a tax is for a public purpose:a. If for the welfare of the nation or greater portion of the population.b. It affects the area as a community rather than as individuals.c. Is designed to support the services of government for some of the recognized

    objects of the country. Stated otherwise the revenues collected from taxation

    should be devoted to achieve the purpose of government.

    2. The need for a public purpose.. The tax must be for a public purpose, otherwise,itis robbery.Citizens Saving & Loan Association of Cleveland, Ohio v. City of Topeka, 20 Wall(U.S) 655, 22 L. E.d 455, held that, to lay with one hand the power of the governmenton the property of the citizen and with the other to bestow it on the property of thecitizen and with the other to bestow it on favored individuals, is nonetheless arobbery though it was done under the forms of law and is called taxation.

    It may be said generally that the expenditures shall be for some object which

    concerns the public welfare. The expenditure is for a private, not a public purpose, ifit is intended to promote the interest of individuals, in respect of either property orbusiness, although incidentally it may result in that of private interest, the expenditureis essentially public. It is the essential character of the direct object of theexpenditure which must determine its validity, as justifying a tax and not themagnitude of the interest to be affected, nor the degree to which the generaladvantage of the community, and thus the public welfare, may be ultimatelybenefited by their promotion.

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    ***3. As a general rule that expenditures are for a public when made for aproper governmental function.What constitute a governmental function dependsupon the changing political theories adopted, The following have been consideredgovernmental functions, and consequently taxes levied therefore are valid becausethey are for public purpose:

    (1.) The regulation of conduct for the promotion of the general safety, health moralsand welfare.

    (2.) The discharge of the moral obligations of a state, like the support andmaintenance of the indigent and those unable to take care of themselves, andthe payment of pensions to soldier and pensions and gratuities to governmentemployees.

    (3.) The conduct of service enterprises, like the construction and maintenance ofroads, parks, playgrounds, schools, and universities.

    (4.) The promotion of the natural resources of the country; and(5.) The operation by the government of enterprises when redounding to the welfare

    of the people.

    ***4. Principles to consider in the determination of whether tax revenues aredevoted for a public purpose.

    a. The tax revenues are for a public purpose if utilized for the benefit of thecommunity in general. An alternative meaning is the tax proceeds shouldbe utilized only to attain the objects of government.

    b. Inequalities resulting from the signing out of one particular class fortaxation or exemption infringe no constitutional limitation

    REASONS: It is inherent in the power to tax that the legislature is free toselect the subjects of taxation.BASIS: The lifeblood theory

    c. An individual taxpayer need not derive direct benefits from the tax.REASON: The paramount consideration is the welfare of the greaterportion of the population.

    d. A tax may be imposed, not so much for revenue purpose, but underpolice power for the general welfare of the community. This would still befor a public purpose.

    e. Public purpose continually expanding. Areas formerly left to privateinitiative now lose their boundaries and may be undertaken by thegovernment if it is to meet the increasing social challenges of the times.

    f. Tax revenue must not be used for purely private purposes or for theexclusive benefit private persons.

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    g. Private persons may be benefited but such benefit should be merelyincidental as its main object is the benefit of the community in general.

    h. Determined at the time of enactment of tax law and not at the time ofimplementation.

    i. There is a presumption of public purpose even if the tax law does notspecially provide for its purpose.

    j. Public use is no longer confined to the traditional notion of use by thepublic but held synonymous with public interest, public benefit, publicwelfare, and public convenience

    **5. Illustrations of concept to remember.

    a. A person levied a P100.00 tax for the support of the public educational system couldnot assail the tax on the ground that he has not sent, does not and will not send anyof his children to public schools. REASON: An individual need not derive directbenefits from the tax because the paramount consideration is the welfare of thegreater portion of the population. The legislature has the right to select the subjectsof taxation because of the lifeblood doctrine, so long as there is valid classification.

    b. A tax measure intended to regulate the video industry while protecting the movieindustry is valid. It is not only regulatory but a revenue measure because theearnings of such establishment have not been subject to tax, depriving thegovernment of an additional source of income. There is no over regulation as a result

    of the imposition of the tax because of the need for regulating a new industry.

    c. The stabilization fees collected from the sugar industry is a valid tax. REASON: Thelevy was for a regulatory purpose, to protect and promote the sugar industry which isalso for a public purpose.

    It was for the purpose of stabilizing the sugar industry which is one of the pillars ofthe Phil economy which affects the welfare of the State. The levy is not so much anexercise of the power of taxation, nor the imposition of a special levy, but theexercise of police power which is for the general welfare of the entire country,

    therefore for a public purpose.

    Concept of Locus standiin order to impugn the valid of a tax or an act of thetaxing authorities

    **1. Requisites for challenging constitutionality of law. The party bringing suitmust show not only that the law or act is invalid, but also that he has sustained or is

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    in immediate, or imminent danger of sustaining some direct injury as a result of itsenforcement and not merely that he suffers thereby in some indefinite way.

    **2. Requisites before a case may be instituted involving constitutional issuesare necessary in order for a party to have locus standi:

    a. There must be an actual case or controversy;b. The question of constitutionality must be raised by the proper party, otherwise

    stated the party who has locus standi;c. The constitutional question must be raised at the earliest possible

    opportunity.d. The decision on the constitutional question must be raised at the earliest

    possible opportunity.

    3. Nature of actual case or controversy. An actual case or controversy involves aconflict of legal rights, an assertion of opposite legal claims susceptible of judicialadjudication.

    4. Criteria of being ripe for judicial determination,A closely related requirement isripeness, that is the question must be ripe for adjudication. And a constitutionalquestion is ripe for adjudication when the government act being challenged has adirect adverse effect on the individual challenging it

    5. Personal injury must be shown for judicial controversy to be ripe for judicialdetermination. In this case aside from the general claim that the dispute hasripened into a judicial controversy by the mere enactment of the law even withoutany further over act.,

    Thus, were petitioners fail either to assert any specific and concrete legal claim or todemonstrate any direct adverse effect of the law on them or are unable to show apersonal stake in the outcome of this case or an injury to themselves their petition isprocedurally infirm..

    No improper delegation of legislative authority to tax

    *1. No improper delegation of legislative authority to tax. The power to tax isinherent in the state,such power being inherently legislative, based on the principle that taxesare s grant of the people who are taxed, and the grant must be made by the immediate

    representative of the people; and where the people have laid the power, there it must remainand be exercised.

    2.Delegata potestas non potest delegari. A delegated power cannot be furtherdelegated.

    Since the power of taxation is a power that is exercised by Congress asdelagates of the people, then as ageneral rule Congress could not re- delegate thisdelegated power.

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    3.Principle of separation of powers is the basis for the non-delegation of thelegislative authority to tax.The principle of separation of powers ordains that each ofthe three great branches of government has exclusive cognizance of and is supreme inmatters falling within its own constitutionally allocated sphere.

    A logical corollary to the doctrine of separation of powers is the principle of non-

    delegation of powers, as expressed in the Latin maxim: potestas delegate non delegaripotestwhich means what has been delegated, cannot be delegated.

    4.Basis of the principle of separation of powers,the principle of separation of powersis based on the ethical principle that such a delegated power constitutes not only a right but aduty to be performed by the delegate through the intervening mind of another.

    5.The inherent limitations prohibit only improper delegation so not all instances ofdelegation are considered tainted.

    6.Instances of proper delegation: When taxing power could be delegated:Exceptions to the rule on non-delegation:

    a. Delegation of tariff powers by Congress to the President under the flexible tariff,section 28 (2) , Article VI of the Constitution.

    b.Delegation of emergency powers to the President under Section 23 (2) of Article VI ofthe constitution.

    c.The delegation to the President of the Phil to enter into executive agreements, and toratify treaties which may contain tax exemption provision subject to the concurrence by theSenate in the ratification made by the President.

    d.Delegation to the people at large.

    e.Delegation to administrative bodies, In this instance, there is a requirement that thelaw is complete in all aspects so what is delegated is merely the implementation of the law orthere exist sufficient determinate standards to guide the delegate and prevent a totaltransference of the taxing power.7. Paradigm shift from exclusive Congressional power to direct grant of taxing powerto local legislative bodies.The power to tax is no longer vested exclusively on Congress; locallegislative bodies are now given direct authority to levy taxes, fees and other charges pursuantto Article X, section 5 of the 1987 ConstitutionLocal government legislation is not regarded as a transfer of general legislative power, butrather as the grant of authority to prescribe local regulations, according to immemorial practice

    subject of course to the interposition of the superior in cases of necessity.

    8.Taxing power of the local government is limited. The taxing power of local government islimited in the sense that Congress can enact legislation granting tax exemptions.While the system of local government units to tax is still limited.While the power to tax by local governments may be exercised by local legislative bodies, nolonger merely by virtue of a valid delegation as before, but pursuant to direct authority conferred

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    by Section 5, Article X of the Constitution, the basic doctrine on local taxation remainsessentially the same

    9.Further amplification by Bernas of the local governments power to tax. What is theeffect of Section 5 on the fiscal position of municipal corporations?. Section 5 does not changethe doctrine that municipal corporations do not possess inherent powers of taxations. What it

    does is to confer municipal corporations a general power to levy taxes and otherwise createsources of revenue. They no longer have to wait for a statutory grant of these powers. Thepower of the legislative authority relative to the fiscal powers of local governments has beenreduced to the authority to impose limitations on municipal powers. Moreover, these limitationsmust be consistent with the basic policy of local autonomy. The important legal effect ofSection 5 is thus to reverse the principle that doubts are resolved against municipal fiscalpowers, doubts will be resolved in favor of municipal corporations. It is understood, however,that taxes imposed by local government must be for a public purpose, uniform within a locality,must not be confiscatory and must be with the jurisdiction of the local unit to pass.

    10. Reconcillation of the local governments authority to tax and the Congressionalgeneral taxing power.Congress has the inherent power to tax, which includes the power to

    grant tax exemptions. On the other hand, the power of local governments, such as provincesand cities for example Quezon City, to tax is prescribed by Section 151 in relation to Section137 of the LGC which expressly provides that notwithstanding any exemption granted by anylaw or other special law, the City or a province may impose a franchise tax. It must be noted thatSection 137 of the LGC does not prohibit grant of future exemptions.

    The Supreme Court in a series of cases has sustained the power of Congress to grant taxexemptions over and above the power of the local governments delegated power totax.(Quezon city, e.t al.., v, ABS-CBN Broadcasting Corporation, G. R No. 166408, October6,2008 citing City Government of Quezon City, et al. v. Bayan Telecomunications, Inc.., G.R No162015, March 6, 2006, 484 SCRA 16)

    Indeed, the grant of taxing power to local government units under the Constitution and the LGCdoes not affect the power of Congress to grant exemptions to certain persons, pursuant to adeclared national policy. The legal effect of the constitutional grant to local governments simplymeans that in interpreting statutory provisions on municipal taxing powers doubts must beresolved in favor of municipal corporations. [Ibid.., referring tp Phil Long Distance TelephoneCompany., Inc (PLDT) vs. City of Davao]

    11.Requisites for delegation to administrative bodies also known as the power ofsubordinate legislation. The delegation must comply with

    a. The completeness test andb. The existence of sufficiency determinate standards test. (Pelaez v. Auditor General.,

    15 SCRA569 ).

    12.Completeness test.In order for the delegation to be valid the law must be complete in itself,setting forth therein the policy to be executed, carried out, or implemented by the delegate .[Abakada Guro Party List ( Formerly AASJS)., etc.., v Ermita., et al., G.R No 168056,September 1 2005 citing Pelaez., v., Auditor General, No L23825, December 24., 1965, 122Phil. 965,974., 15 SCRA 569,577 in turn citing various cases] The only thing left for thedelegate to do is implement the law. (U.S v. Ang Tang Ho., 43 Phil .,1)

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    13.Sufficiently determinate standards test.The law fixes a standard- the limit of which aresufficiently determinate and determinable- to which the delegate must conform in theperformance of his functions.[ Abakada Guro Party List ( Formerly AASJS)., etc.., v Ermita., et al., G.R No 168056,

    September 1 2005 citing Pelaez., v., Auditor General, No L23825, December 24., 1965, 122Phil. 965,974., 15 SCRA 569,577 in turn citing various cases] The only thing left for thedelegate to do is implement the law. (U.S v. Ang Tang Ho., 43 Phil .,1) A sufficientstandards is one which defines legislative policy, marks its limits maps out its boundaries andspecifies the public agency to apply it. It indicates the circumstances under which the legislativecommand is to be affected..[ Abakada Guro Party List ( Formerly AASJS)., etc.., v Ermita.,et al., G.R No 168056, September 1 2005 citing Eastern Shipping Lines, Inc., v., philOverseas Employment administration., No L-76633 , October 18., 1988,. 166 SCRA 533,543-544)

    The sufficient standards limits the boundaries of the delegates authority by defininglegislative policy and the circumstances under which it is to be pursued and implemented. The

    standards would prevent a total transference of the legislative authority to enact laws. ( Ynot ., vIntermediate Appellate Court, et al.., de Llana v. Alba, 112 SCRA 294; Demetria v., Alba 148SCRA 208; Lozano v. Martinez, 146 SCRA 323)

    14.Rationale for the completeness and sufficiently determinate standard tests. Both testsare intended to prevent a total transference of legislative authority to the delegate who is notallowed to step in to the shoes of the legislature and exercise a power essentially legislativeauthority to enact laws.

    15. Illustrations where there was no delegation of legislative authority to tax:

    a. The petitioner impugn the validity of the establishment of tax and duty-free shopswithin the Subic Special Economic Zone ( SSEZ) and the removal of consumergoods and items from the zones without payment of corresponding duties and taxesfor the reason that this constitute executive legislation in violation of the rule onseparation of powers that only raw material, capital and equipment should beallowed the privilege.

    HELD: The objections should not be given credence. It is legal to set up dulyauthorized duty-free shops in the SSEZ to sell tax and duty free consumer items inthe Secured Area. This is in line with the policy enunciated in the law that the SSEZshall be developed into a self-sustaining industrial, commercial, financial andinvestment center to generate employment opportunities in and around the zone and

    to attract and promote productive foreign investments.

    While it is true that Section 12 (b) of Rep. Act No 7227 mentions only raw materialscapital and equipment, this does not necessarily mean that the tax and duty freebuying privilege is limited to these types of articles to the exclusion of consumergoods.

    It must be remembered that in construing statues, the proper course is to start outand follow the true intent of the Legislature and to adopt that sense which

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    harmonizes best with the context and promotes to the fullest manner the policy andobjects of the legislature.

    The concept of conclusion unius est exclusion alterius does not find applicationbecause the phrase tax and duty free importations of raw materials, capital andequipment was merely cited as an example of incentives that the SSEZ is

    authorized to grant, in line with its being a free port zone., Thus, the legislative intentis that consumer goods entering the SSEZ which satisfy the needs of the zone andare consumed there are not subject to duties and taxes in accordance with PhilippineLaw.

    The ruling would not be the same if the Presidential Proclamation allowed for thelimited withdrawal from the Clark Special Economic Zone or the John Hay EconomicZone of consumer goods tax and free duty.

    This time, The Presidential Proclamation would be invalid as the statutory tax exemptprivilege was granted only to the Subic Special Economic Zone and not to John Hay

    or Clark. This is so because the Constitution mandates that no law granting taxexemption shall be passed without the concurrence of a majority of all the membersof Congress.

    Furthermore, the law is very clear that the exportation or removal of goods from theterritory of the Subic Special Economic zone to other parts of the Phil territory shallbe subject to customs duties and taxes under the Customs and Tariff Code and otherrelevant tax laws of the Phil., (ibid).

    b. The VAT law provides that, the president, upon the recommendation of the Secretaryof Finance, shall, effective January 1, 2006 raise the rate of value added tax to

    twelve percent ( 12%) after any of the following conditions have been satisfied (i)value added tax collection as a percentage of Gross Domestic Product ( GDP) of theprevious year exceeds two and four- fifth percent ( 2 4/5%) or ( ii) nationalgovernment deficit as a percentage og GDP of the previous year exceeds one andone-half percent ( 1 %)

    HELD: There is no undue delegation of legislative power but only of the discretion as toexecution of the law. This is constitutionally permissible.

    Congress does not abdicate its function or unduly delegate power when it describeswhat job must be done, who must do it, and what is the scope of his authority, In the

    above case, the Secretary Finance becomes merely the agent of the legislativedepartment, to determine and declare the event upon which its express will takes place.The president cannot set aside the findings of the Secretary of Finance, who is not underthe conditions acting as the execute alter ego or subordinate,[ Abakada Guro Party List9 etc v. ermita., etc.., et al.., G.R No. 168056, September 1, 2005 and companion casesciting various cases]

    Recognition of government exemption as a limitation on the power of taxation.

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    1. Generally , the state may not be subject to taxation.., one of the inherent limitations

    on the power of taxation is recognition of tax exemptions of the government . This ispremised on the concept that with respect to the government, exemption is the rule andtaxation is the exception. REASON: Government is usually exempt from taxation in orderto reduce the amount of money that the government is handling.

    *2. The state may tax itself.While this may be so, sovereignty being absolute and taxationbeing an act of high sovereignty , the state, if it is so minded, could tax itself, including itspolitical subdivisions.

    3. Government importations subject to duties and taxes. All importations by thegovernment for its own use or that of its subordinate branches or instrumentalities, orowned or controlled by the government, shall be subject to the duties, taxes fees andother charges provided for in the Tariff and Customs Code. ( TCC, sec 1205).

    Importations of the Philippine National Police (PNP) are released from customs custodyonly if there is a certification from the Department of Budget and Management that there

    are funds available for the payment of customs duties and other taxes.

    4.Government corporations exemptions from local government taxes already withdrawn.The primary reason for the withdrawal of tax exemption privilege granted to governmentowned and controlled corporations and all other units of government was that suchprivilege resulted to serious tax base erosion and distortion in the tax treatment ofsimilarly situated enterprise, hence resulting in the need for these entities to share in therequirements of development, fiscal or otherwise, by paying the taxes and other chargesdue them.( Phil ports Authority v. City of Iloilo, G.R no 109791, July 14, 2003)

    5.In taxing itself the State ultimately suffers no loss.To all intents and purposes, realproperty taxes are funds taken by the State with one hand and given to the other. In no

    measure can the government be said to have lost anything. .( Phil ports Authority v. Cityof Iloilo, G.R no 109791, July 14, 2003 citing National Power Corporation v. PresidingJudge, RTC, Br. XXV, 190 SCRA 477)

    Comity as a limitation on the power of taxation

    1. Comity, defined.Comity is the respect accorded by nations to each other because

    they are sovereign equals.

    2. Comity as a limitation on the power of taxation.The property or income of a

    foreign state or government may not be the subject of taxation by another. This is

    based on:

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    a. The Latin maxim, In par parem non habet imperium. As between equals

    there is no sovereign. Taxation is ahigh prerogative of sovereignty, hence

    may not be imposed upon foreign sovereigns.

    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 becollected.

    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.

    Constitutional Restrictions on the Power of Taxation

    A. Constitutional restrictions, In General1. The nature of constitutional restrictions. The constitutional restriction area in the

    nature of limitations upon various powers of government, such as the power of

    taxation, in order to protect the lowly individual from abuse by the all mighty state inthe exercise of its powers.

    2. Two kinds of constitutional limitations.a. General or indirect constitutional restrictions and; and

    b. Specific or direct constitutional restriction.

    3. General or indirect constitutional limitations on the power of taxation. These

    are the

    Constitutional provisions that serve to limit the exercise by the state of the plenary

    and unlimited power of taxation. They are reffered to as general or indirect limitations

    because they find application not only to taxation but to all powers exercised by thestate such as police power and the power of eminent domain. Another reason why

    they are reffered to as general or indirect limitations is the fact that these provisions

    do not include the words tax or taxation. Among such provisions are the following:

    a. Due process clause ( Sec. 1 art , III 1987 Constitution)

    b. Equal protection clause ( Ibid)

    c. Freedom of the press ( Sec 4 Ibid)

    d. Religious freedom ( Sec 5, ibid)

    e. No taking of private property without just compensation, ( Sec 9 Ibid)

    f. Non- Impairment clause ( Sec.10 Ibid.) Lawmaking process

    1) Bill should embrace only one subject expressed in the tittle thereof ( Sec. 26 (i) Art VI ,


    2) Three readings on three separate days. ( Sec. 26 (2) Ibid.)

    3) Printed copies in final form distributed three days before passage. ( Ibid)

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    g. Presidential power to grant reprieves, commutations and pardons and remit

    fines and forfeitures after conviction by final judgement. ( Sec. 19 Art VII, Ibid)

    **4. Specific or direct constitutional limitations on the power of taxation.

    a. No imprisonment for non- of poll tax. ( Sec., 20 Art III, 1987 Constitution).

    b. Taxation shall be uniform and equitable. ( Sec 28 Art VI, Ibid)

    c. Congress shall evolve a progressive system of taxation. ( Ibid)

    d. All appropriation, revenue or tariff bills shall originate exclusively in the house of

    Representative, but the Senate may propose or concur with amendments. ( sec.24,


    e. The President shall have the power to veto any particular item or items in an

    appropriation, revenue or tariff bill, but the veto shall not affect the item or items to

    which he does not object. ( Sec. 27 (2) , Ibid).

    f. Delegate authority of President to impose tariff rates, import and export quotas,

    tonnage and wharfage dues

    1) Delegation by Congress2) Through a law

    3) Subject to congressional limits and restriction

    4) Within the framework of national development program. (par,2, Sec,28,

    Art VI, Ibid)

    g.Tax exemption of charitable institution, churches ,parsonages, convents, all lands,

    buildings and improvements actually, directly and exclusively used

    1) For religious, charitable or educational purposes ( par.3, Ibid)

    h.No tax exemption without concurrence of Congress majority, ( par. 4 , Ibid)

    i. No use of public money or property for religious purposes EXCEPT if priest is

    assigned to armed forces, penal institutions government orphanage or leprosarium. ( par

    2, Sec. 29, Ibid.)

    j.Money collected on tax levied for special purpose to be used only for such purpose ,

    balance if any , to general funds. ( par.3 , Sec 29 Ibid)

    k. Supreme Courts power to review judgments or orders of lower courts in all cases


    1) Legality of any tax, impose assessment or toll

    2) Legality of any penalty imposed in relation to the above. ( Sec. 5 Art VIII, Ibid.)

    l.Delegate authority to local governments units

    1.) To create their own sources of revenue

    2) levy taxes, fees and charges

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    Subject to:

    a) Guidelines and limitations imposed by Congress consistent with the basic

    policy of local autonomy.

    b) Such fees, taxes and other charges accrue exclusively to the local

    governments.( Sec.5 Art X, Ibid.)

    c) Automatic release of LGUs just share in national taxes: ( Sec.6, Ibid.)

    m. Tax exemption of all revenues and assets of

    1) Non- profit, non-stock educational institutions

    2) Proprietary or cooperative educational institutions subject to limitations

    provided by law including

    a) restriction or dividends

    b)provisions for reinvestments. ( Sec 4, Art, XIV, 1987 Constitution)

    n. Tax exemption of grants, endowments, donations or contributions

    1.Used actually, directly and exclusively for educational purposes.

    2.Subject to conditions prescribed by law. (Ibid).

    Constitutional due process as a limitation on the power of


    1. Due process clause in the Constitution. No person shall be deprived of life, liberty orproperty without due process of law, xxx ( Sec 1 Art III, 1987 Phil Cons)

    2. Due process, general definitions.a. A law which hears before it condemns, which proceeds upon inquiry and renders

    judgement only after trial. :b. Responsiveness to the supremacy of reason, obedience to the dictates of justice.:

    3. Meaning of deprivation to fall within the ambit of the due process protection. A deprivation of liberty or property, as a result of the exercise of the power of taxation,which requires compliance with due process, requires something more than merenegligent conduct by government officials, even though such conduct causes injury. Itmay occur as a result of a legislative act enacting a tax statue or that of admninistrativeauthorities implementing a tax statute.

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    4. Liberty, defined.

    a. The right to exist and the right to be free from arbitrary personal restraint orservitude.

    b. The right of the citizen to be free to use faculties in all lawful ways.c. The right to be free of physical restraints imposed by government in the noncriminal

    context as well as by the criminal context.d. It also include the right to contract and to engage in gainful employment.

    5. Property, defined,a. Tangible or tangible objects which could be legally appropriated by man, subject of a

    contract, including the right to own, use and dispose.b. It denotes more than ownership of realty, chattels or money. It also includes interest

    already acquired in specific benefits which requires a legitimate claim to the benefitunder applicable law.

    6. The VAT law does not violate the due process and equal protection clauses when

    it reduced the input credits to only 70% of output VAT because input VAT is notproperty right within the constitutional purview of the due process clause being merely astatutory privilege. Persons have no vested rights in statutory privileges.The state may change or take away rights, which were created by law of the state,although it may not take away property, which was vested by virtue of such rights.

    7. Due process issue not passed upon in anti- VAT petition.There is no justification forpassing upon the claims that R.A No 7716; the Expanded VAT Law violates dueprocess:Reason:a. The absence of threat of immediate harm makes the need for judicial intervention

    less evident and underscore the essential nature of the attack on the law on the

    ground of denial of due process as a mere academic discussion of the merit of thelaw.

    b. There were no notice of assessments issued to the petitioners and no determinationsat the administrative levels of their claims so as to illuminate the actual operation ofthe law and enable of the Court to reach sound judgment regarding the fundamentalquestions of denial of due process.

    8. Kinds of due process.a. Substantive due process, which limits the govern-ments law and rulemaking powers ,

    andb. Procedural due process, which limits the actions of judicial and quasi-judicial bodies.

    9. Concept to remember: Due process in taxation.a. Due process in taxation REQUIRES:

    1) Tax must be for public purpose2) Imposed within territorial jurisdiction3) No arbitrariness or oppression in

    a. Assessment andb. Collection

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    b.Due process in taxation DOES NOT REQUIRE:

    1) Determination through judicial inquiry ofa) property subject to taxb)amount of tax to be imposed2)notice and hearing as to:

    1) amount of the tax2)manner of apportionment.

    c.Publication of presidential decrees, executive orders administrative rules andregulations, except interpretative legislation is an indispensable part of due process.

    d.As a general rule, appeal is not part of due process except when the Constitution or astatue provides for an appeal in which cases its denial is aviolation of due process.

    e. No due process where a statute is so arbitrary that it finds no support in theConstitution.

    f. No violation of due process although tax will result in an injury rather than benefit to aparticular taxpayer.

    REASON: taxing authority could select objects of taxation.BASIS: Lifeblood theory.

    10. Procedural due process in taxation.In the observance of procedural due process, theSupreme Court is always mindful that taxpayer being made liable with his propertyshould be given an opportunity to be heard which is one of its essential elements.

    11. An adversarial, trial type of hearing, whether before or after deprivation of aprotected liberty or property interest, is not always required.

    12. The following criteria may be used in determining the needs for hearing and theextent of the procedural requirements:a. The importance of the individual interest involved;b. The value of specific procedural safeguards to that interest; and c. The government interest in fiscal and administrative efficiency.

    13. Doctrines on due process in taxation:a. A tax assessments supported by unsubstantial evidence amounts to deprivation of

    property without due process of law.(Ang Tibay et al,. v. CIR, et al., 69 Phil695)

    b. Compliance wit