tax dats

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A. Defnition and concept o taxation

Defne taxation.

Taxation is the power by which the sovereign, through its law-making body, raises revenue to defray the necessary expenses ofthe government.

What are the two concepts o taxation?

1. Power to tax; and. The act or process by which the taxing power is exercised.

B. Nature o Taxation (as a Taxing Power)

What is the nature o taxation (as the power to tax)?

 The nature o taxation (as the power to tax) is two-old. (! "#

1. !t is an inherent power. The power to tax is a necessar attri!ute o so"ereignt. The

#o#ent the $tate exists% the power to tax ipso acto exists. &t does notneed coner#ent.

 Ta'e note% howe"er% that the taxing power is inherent in the Nationalo"ern#ent !ut not in the ocal o"ern#ent *nits (autono#ousregions% pro"inces% #unicipalities and cities) !ecause the latter is#erel an agenc o the $tate. As such% *s can onl i#pose taxeswhen expressl conerred to the# ! the +onstitution or ! lawsenacted ! +ongress.

,. !t is legislative in character. What is the nature o the taxing power o the provinces, municipalities andcities?

As it stands% the taxing power o the pro"inces% #unicipalities and citiesis directl conerred ! the +onstitution ! gi"ing the# the authorit tocreate their own sources o re"enue (Article % $ection % +onstitution).

/ith regard to the autono#ous regions% their taxing power is conerred! the +ongress !ecause the pro"ision o the +onstitution re0uires anena!ling law as it is non-sel-executing 1Art. % $ec. ,2 (par. ,)%+onstitution3.

I the taxing power o the autonomous regions is conerred to them b the!ongress, is it correct to sa that in e"ect the !ongress delegated the power to tax to #$%s, specifcall the autonomous regions?

No. The autono#ous regions% also the pro"inces% cities and #unicipalities%do not exercise the power to tax either as inherent power or ! a "aliddelegation o the power ! +ongress% !ut pursuant to a direct authoritconerred ! the +onstitution or ! laws enacted ! +ongress (4actan

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+e!u &nternational Authorit "s. 4arcos% ,65 $+7A 668 159963): NP+ "s.+it +a!anatuan% ;25 $+7A ,9 1,22#inent Do#ain)

&or the purpose o raising taxes, ma police power b itsel alone beexercised b the state?

  Police power may not be exercised by itself alone for thepurpose of raising taxes. 'owever, police power may beexercised (ointly with the power of taxation for the purposeof raising revenues )Lutz vs. Araneta#.

>. Purpose o Taxation

What are the purposes o taxation?5. 7e"enue-raising

,. Non-re"enue $pecial or regulator purposes (P7,>P)

Pro#otion o general welare: 7egulation: 7eduction o social ine0ualitco#pensator purpose: >ncourage econo#ic growth: andProtectionis#.

@. Principles o $ound Tax $ste# (@AT)

What are the principles o sound tax sstem?5. *iscal ade+uacy  sources o go"ern#ent re"enue #ust !e sucient

to #eet go"ern#ent expenditures and other pu!lic needs,. dministrative feasibility  tax laws #ust !e capa!le o !eing

eCecti"el enorced with the least incon"enience to the taxpaer

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. Theor and Bases o Taxation (iNeBenK)

What are the theor and bases o taxation? Wh is there a need or taxation?

The theory and bases of taxation are1. "ife-blood theory Taxes are the lifeblood of government.

/ithout revenue raised from taxation, the government will notsurvive resulting in detriment to society.

. 0ecessity theory The existence of the government is anecessity.

. 2ene3ts-protection4 5eciprocity theory )6octrine of &ymbiotic5elationships Taxes are paid for the en(oyment of the bene3tsof organi7ed society.

!an one ob'ect to or resist the pament o taxes solel because no personal beneft to him can be pointed out arising rom the tax?

0o. person cannot ob(ect to or resist the payment of taxessolely because no personal bene3t to him can be pointed outarising from the tax. &pecial bene3ts to taxpayers are notre+uired. )Lorenzo vs. Posadas, etc.)

;. Kurisdiction o"er su!Jects and o!Jects The power to tax can onl !eexercised within the territorial Jurisdiction o a taxing authorit.

+A$>$L

1. Paseo 5ealty 8 6evelopment $orporation vs. $ourt of Tax ppeals

&ssueL /hether the alleged excess taxes paid ! Paseo 7ealt andDe"elop#ent +orporation in 59HH should !e reunded or credited againstits tax lia!ilities or 5992.

7ulingL No. The alleged excess taxes paid ! Paseo in 59HH should

not !e reunded or credited against its tax lia!ilities or 5992.

5) &t should not !e reunded !ecause in the frst place there were no

excess taxes paid. The +ourt ound that Paseo ailed to pro"e that there

were excess taxes paid: it did not present its tax return or 5992.

,) &t should not also !e credited against its tax lia!ilities or 5992.

Because the applica!le regulation at that ti#e% 7e"enue 7egulation No.

52-88% pro"ides that the carring orward o an excess or o"erpaid

inco#e tax or a gi"en taxa!le ear is li#ited to the succeeding taxa!le

ear onl. Although the present law allows clai# or reund% i.e. excess

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credits or 59HH to !e applied to 5992 tax lia!ilities% !ut this should not !e

#ade applica!le in the case: 77 No. 52-88 applies. 1The law rowns against

exe#ptions ro# taxation and statues granting tax exe#ptions are thus

construed strictissimi 'uris against the taxpaer and li!erall in a"or o the

taxing authorit.3

 Taxation is a destructi"e power which intereres with the personal

and propert rights o the people and ta'es ro# the# a portion o theirpropert or the support o the go"ern#ent. And since taxes are what we

pa or ci"iliMed societ% or are the lie!lood o the nation% the law rowns

against exe#ptions ro# taxation and statutes granting tax exe#ptions

are thus construed strictissimi 'uris against the taxpaer and li!erall in

a"or o the taxing authorit. claim of refund or exemption from tax

payments must be clearly shown and be based on language in the

law too plain to be mistaken. 9lsewise stated, taxation is the rule,

exemption therefrom is the exception.

. $!5 vs. lgue, !nc. and the $T

&n this case% the $upre#e +ourt co##enced with this elucidationL ETaxesare lie!lood o the go"ern#ent and so should !e collected withoutunnecessar hindrance. =n the other hand% such collection should !emade in accordance with law as an ar!itrariness will negate the "erreason or go"ern#ent itsel. &t is thereore necessar to reconcile theapparentl conicting interests o the authorities and the taxpaers so thatthe real purpose o taxation% which is the pro#otion o the co##on good%#a !e achie"ed.F 1$ounds a#iliarL ie-!lood theor3

And ended with thisL E&t is said that taxes are what we pa or ci"iliMedsociet. /ithout taxes% the go"ern#ent would !e paralMed or lac' o the#oti"e power to acti"ate and operate it. Ience% despite the naturalreluctance to surrender part o ones hard earned inco#e to the taxingauthorities% e"er person who is a!le to #ust contri!ute his share in therunning o the go"ern#ent. The go"ern#ent or its part is expected torespond in the or# o tangi!le and intangi!le !enefts intended toi#pro"e the li"es o the people and enhance their #oral and #aterial"alues. This s#!iotic relationship is the rationale o taxation and shoulddispel the erroneous notion that it is an ar!itrar #ethod o exaction !

those in the seat o power. 1$ounds a#iliarL @irst part% lie-!lood theor:second part% !enefts-protection 7eciprocit theor (Doctrine o $#!iotic7elationships)3

But e"en as we concede the ine"ita!ilit and indispensa!ilit o taxation% itis a re0uire#ent in all de#ocratic regi#es that it !e exercised reasona!land in accordance with the prescri!ed procedure. & it is not% then thetaxpaer has a right to co#plain and the courts will then co#e to his

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succor. @or all the aweso#eness power o the tax collector% he #a still !estopped in his trac's i the taxpaer can de#onstrate% as it has here% thatthe law has not !een o!ser"ed.

What law has not been observed?  There are two laws. =ne% $ection

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4arshalls "iew that Ethe power to tax in"ol"es the power to destro%F to!e !inding% reers to the power to tax used "alidl as an i#ple#ent o the policepower in discouraging and in eCect% ulti#atel prohi!iting certain things orenterprise ini#ical to the pu!lic welare. =n the other hand% Iol#es "iew thatEthe power to tax is not the power to destro while this +ourt sits%F to !e!inding% reers to the power to tax used solel or the purpose o raisingre"enues% or which the #odern "iew is that the power to tax cannot !e allowedto confscate or destro.

5.5 The police power% the power to tax and the power o e#inentdo#ain are inherent powers o go"ern#ent. 4a a tax !e "alidl i#posedin the exercise o the police power and not o the power to tax? & ouranswer is in the ar#ati"e% gi"e an exa#ple.

1Qes. A tax #a !e "alidl i#posed in the exercise o the policepower and not o the power to tax. The purpose thereo #ust !e or theregulation o useul occupations or non-useul occupations% and not toraise re"enue. Police power #a not !e exercised ! itsel alone or thepurpose o raising taxes. Iowe"er% police power #a !e exercised Jointl

with the power o taxation or the purpose o raising re"enues. (#ut vs. raneta)3

 The police power #a !e exercised or the purpose o re0uiringlicenses or which license ees #a ha"e to !e paid. The a#ount o thelicense ees or the regulation o useul occupations should onl !esucient to pa or the cost o the license and the necessar expense o police sur"eillance and regulation. @or non-useul occupations% license ee#a !e sucientl high to discourage the particular acti"it sought to !eregulated. &t is clear ro# the oregoing that police power #a not !eexercised ! itsel alone or the purpose o raising taxes. Iowe"er% police

power #a !e exercised Jointl with the power o taxation or the purposeo raising re"enues. (#ut vs. raneta, *+ hil. -+)

Alternati"e answerL

 Taxation in"ol"es the power to raise re"enue not onl in order tosupport the existence o go"ern#ent !ut li'ewise to carr out legiti#ateo!Jects o go"ern#ent. A#ong such legiti#ate o!Jects are those thatpolice power itsel can co"er. As earl as the case o #ut vs. raneta (9HPhil. 5;H)% the $upre#e +ourt has ruled that taxation #a !e used toi#ple#ent an o!Ject o police power. An illustration o such exercise would!e an i#position o taxes on ga#!ling% the rates o which are #adeso#ewhat onerous in order to discourage ga#!ling instead o an outrightprohi!ition thereo ! an exercise o a police power #easure such as !present pro"isions o the 7e"ised Penal +ode.

5., Discuss the #eaning and i#plications o the ollowing state#entL

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ETaxes are the lie!lood o go"ern#ent and their pro#pt and certain

a"aila!ilit is an i#perious need.F

 The phrase% Etaxes are the lie!lood o go"ern#ent% etc.F expresses theunderling !asis o taxation which is go"ern#ental necessit% or indeed% withouttaxation% a go"ern#ent can neither exists nor endure. Taxation is theindispensa!le and ine"ita!le price or ci"iliMed societ: without taxes% thego"ern#ent would !e paralMed. This phrase has !een used% or instance% to

 Justi the "alidit o the laws pro"iding or su##ar re#edies in the collectiono taxes. As a conse0uence o the a!o"e rule% an inJunction against theassess#ent and collection o taxes is generall withheld ! the laws i#posingsuch taxes. >"en when it is not so% under procedural laws such an inJunction #anot !e o!tained as held in the case o /alle 0rading !o. vs. !&I (.7. No. ;9,9%4arch

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support o the sugar industr thus #a'ing it "oid and unconstitutional. Thesugar industr situation at the ti#e o the enact#ent was in an i##inent threato loss and needed to !e sta!iliMed ! i#position o e#ergenc #easures.

&ssueL &s +A 68 constitutional% despite its !eing allegedl in "iolation o thee0ual protection clause% the purpose o which is not or the !eneft o thegeneral pu!lic !ut or the reha!ilitation onl o the sugar industr?

7ulingL Qes. The protection and pro#otion o the sugar industr is a #atter o pu!lic concern% it ollows that the egislature #a deter#ine within reasona!le!ounds what is necessar or its protection and expedient or its pro#otion.Iere% the legislati"e discretion #ust !e allowed to ull pla% su!Ject onl to thetest o reasona!leness% and it is not contended that the #eans pro"ided in thelaw !ear no relation to the o!Jecti"e pursued or are oppressi"e in character. & o!Jecti"e and #ethods are ali'e constitutionall "alid% no reason is seen wh thestate #a not le" taxes to raise unds or their prosecution and attain#ent. Taxation #a !e #ade the i#ple#ent o the states police power.

 The tax pro"ided or in +A 68 is not a pure exercise o the taxing power.

Analsis o the Act will show that the tax is le"ied with a regulator purpose% topro"ide #eans or the reha!ilitation and sta!iliMation o the threatened sugarindustr. &n other words% the act is pri#aril an exercise o the police power.

$aston vs. 1epublic lanter 2an3 

•  The sta!iliMation ees collected are in the nature o a tax% which is withinthe power o the $tate to i#pose or the pro#otion o the sugar industr.

•  The tax collected is not a pure exercise o the taxing power: it is le"iedwith a regulator purpose and is pri#aril in the exercise o the policepower o the $tate.

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'. 6:$T5!09& !0 TT!:0

1. Prospectivity of Tax "aws

What is the rule on the application o tax laws?

Taxes must only be imposed prospectively )Hydro Resourcesvs. CA, ?@, 6ecember 1, 1AA>#. Tax laws are notretroactive in nature.

Wh tax laws are prospective in application?

Tax laws are prospective in application because they are civilin nature and not penal in character; hence, not sub(ect to ex post facto law prohibitions.

rticle B of $ivil $ode provides C"aws shall have noretroactive eDect, unless the contrary is provided.E

1+ri#inal penalties arising ro# tax "iolations #a not!e gi"en retroacti"e eCect.3 

1>x post acto law% defned. A law that #a'es illegalan act  that was legal when co##itted% increases the penaltiesor an inraction ater  it has !een co##itted% or changes the

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rules o e"idence to #a'e con"iction easier. The +onstitutionprohi!its the #a'ing o ex post acto law.3

Is the rule absolute? I not, what are the exceptions?

0o, the rule is not absolute. 5etroactive application of taxlaws may be allowed when the law so provides and if it will notamount to denial of due process. There is violation of due process

when the tax law imposes harsh and oppressive tax (DIMAAMPAO,supra at !").

The legislative intent evincing that a tax statute shouldoperate retroactively should be explicit and perfectly clear. Thus,as statute should be considered as prospective in its operation,whether it enacts, amends or repeals, unless the language of thestatute clearly demands or expresses that it shall have aretroactive eDect (Lorenzo v. Posadas, #.R. $o. L%!&', *une ,+&).

5ulings promulgated by the $!5 shall be retroactive in thefollowing cases

a. /here the taxpayer deliberately misstates or omitsmaterial facts from his return or any document re+uired of him by the 2!5;

b. /here the facts subse+uently gathered by the 2!5 arematerially diDerent from the facts on which the ruling isbased; or

c. /here the taxpayer acted in bad faith.

Idro 7esources "s. +A% 7 H2,86: Dece#!er ,5% 5992

*acts Idro 7esources +ontractors +orporation (Idro) entered

into an agree#ent with the National &rrigation Authorit (N&A) or the

construction o the 4agat 7i"er 4ultipurpose ProJect in &sa!ela in August

598H. *nder the contract% Idro was allowed% as agent o N&A% to procure

new construction e0uip#ent and tools ro# a!road% the pa#ent or which

was ad"anced ! N&A which also underta'es to pa all the i#port duties

and taxes incident to the i#portations deducti!le ro# the proceeds o the

contract price. The e0uip#ent and tools arri"ed in 598H and 5989. N&A

reneged and ailed in the co#pliance o its tax o!ligations. &n the

#eanti#e% Idro had ull repaid the "alue o the construction e0uip#ent

so #uch so that on Dece#!er 6% 59H, and 4arch ,;% 59H

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Idro was assessed = No. H62 which was the !asis or the i#position o the xecuti"e =rder No. H62 does notpro"ide or its retroacti"it. +onse0uentl% the i#portations which arri"ed

in 5988 and 598H are not su!Ject to the

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9xamples5. National &nternal 7e"enue +ode which pro"ide or the prescripti"e period

o #a'ing tax assess#ent and collection (8I1!, 5ec. 7xceptionL Tax statutes #a pro"ide or statute o li#itations (a statuteprescri!ing a period o li#itation or the !ringing o certain 'inds o legalaction).F

. 6ouble taxation

What is double taxation?

6ouble taxation means taxing the same person )same sub(ect orob(ect# twice, by the same (urisdiction over the same thing )-ctorasM//n0 v. Muncpa/ty of -ctora, $e0ros Occdenta/, #.R. $o. L%&,1epte23er , +")

 Thus% it can !e said that plaintiCSs pa#ent o storage ees i#posed ! the=rdinance in 0uestion does not a#ount to dou!le taxation. @or dou!le taxationto exist% the sa#e propert #ust !e taxed twice% when it should !e taxed !utonce. 6ouble taxation has also been de3ned as taxing the same persontwice by the same (urisdiction for the same thing. A $urel% a tax onplaintiCSs products is diCerent ro# a tax on the pri"ilege o storing copra in a!odega situated within the territorial !oundar o deendant #unicipalit.(rocter = $amble vs. >unicipalit o agna, $.1. 8o. #97764, December 7+,-*:*, citing /ictorias >illing vs. >unicipalit o /ictoria, 8egros @ccidental)

a# &trict sense

What is double taxation in strict sense?

6ouble taxation, in the strict sense, refers to direct duplicatetaxation, which is the ob(ectionable kind of double taxation and

prohibited under the $onstitution because it violates the e+ualprotection clause of the $onstitution, as well as the concept of uniformity and e+uitableness of taxation.

What are the elements o direct duplicate taxation?

The elements of direct duplicate taxation area# &ame

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1# sub(ect or ob(ect is taxed twice# by the same taxing authority# for the same taxing purposeB# during the same taxable period

b# Taxing all of the sub(ects or ob(ects for the 3rst time withouttaxing all of them for the second time.

  What is the e"ect i an o the elements are absent?

!f any of the elements are absent then there is indirect duplicatetaxation which is not prohibited by the $onstitution.

!f only the 1st  element is present, taxing the same sub(ect orob(ect twice, by the same taxing authority, etc., there is no violation of the e+ual protection clause because all sub(ects and ob(ects that aresimilarly situated are sub(ect to the same burdens and granted thesame privileges without any discrimination whatsoever.

The presence of the nd element, taxing all of the sub(ects andob(ects for the 3rst time, without taxing all for the second time, resultsto discrimination among sub(ects and ob(ects that are similarlysituated, hence violative of the e+ual protection clause.

 The >le#ents o Direct Duplicate Taxation are the ollowingL

a# The same property or sub(ect matter is taxed twice when itshould be taxed only once;b# 2oth taxes are levied for the same purpose;c# !mposed by the same taxing authority;

i# /ithin the same (urisdiction;ii# 6uring the same taxing period; and

iii# $overing the same kind of character of tax )-//anueva vs.Cty of I/o/o, #.R. $o. L%"4, Dece23er , +"#

Is double taxation a valid deense against the legalit o a tax measure ithe double taxation is direct duplicate taxation?

 Ges. 6ouble taxation is a valid defense against the legality of atax measure if the double taxation is direct duplicate taxation, becauseit would violate the e+ual protection clause of the $onstitution.

# 2road &ense

What is double taxation in broad sense?

6ouble taxation, in the broad sense, refers to indirect duplicatetaxation, which is the permissible kind of double taxation. This arises inthe absence of one or more of the elements of direct double taxation.

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!n the broad sense, double taxation means indirect duplicatetaxation. !t extends to all cases in which there are two or morepecuniary impositions. The $onstitution does not prohibit theimposition of double taxation in the broad sense )-//anueva v. Cty of I/o/o, #.R. $o. L%"44, Dece23er , +"#. !t is something notfavored, but is nevertheless permissible.

$ive examples o indirect duplicate taxation.

a# tax upon a corporation for its property and upon itsshareholders for their shares;

b# tax upon the same property imposed by two diDerent states;and

c# tax on a mortgage as personal property and upon themortgaged property as real estate.

c# $onstitutionality of double taxation

Is double taxation constitutional?

!t depends. !t is constitutional if the double taxation is in thebroad sense, or indirect duplicate taxation, that is if any of theelements of direct duplicate taxation is absent, because the$onstitution does not prohibit the imposition of double taxation in thebroad sense )-//anueva vs. Cty of I/o/o#. !t is unconstitutional if it is inthe strict sense, or direct duplicate taxation, because it violates thee+ual protection clause of the $onstitution and the concept of uniformity and e+uitableness of taxation.

  Is there a double taxation i the tax is levied b the #$% and another b 

the national government?

0o. There is no double taxation if the tax is levied by the "

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0o. There is no double taxation because there are two )#diDerent taxing authorities. This is called international (uridical doubletaxation. 

What is international 'uridical double taxation?

!nternational (uridical double taxation is the imposition of comparable taxes in two or more states on the same taxpayer in

respect of the same sub(ect matter and for identical periods )CIR vs. 1C *o8nson 9 1on, Inc., #.R. $o. '4, *une 4, +++). H/hen anitem of income is taxed in the Philippines and the same income is taxedin another country.F

This double taxation usually takes place when a person is aresident of the 3rst contracting &tate and derives income from, or ownscapital in the second contracting &tate and both &tates impose taxeson such income or capital. !n order to eliminate double taxation, a taxtreaty is entered into by the two contracting &tates.

!nternational (uridical double taxation only occurs when the &tateof residence of the taxpayer imposes tax on the income of saidtaxpayer from sources within and without their &tate.

d# Iodes of eliminating double taxation

 The Philippine tax sste# pro"ides or certain sche#es in order to a"oid or#ini#iMe the harsh or !urdenso#e eCects o dou!le taxation. The #eans%howe"er% depend on whether there is international dou!le taxation or localdou!le taxation (7>+AD>% p. 8)

What is the reason or avoiding international 'uridical taxation?

The reason for avoiding international (uridical taxation is toencourage the free Jow of goods and services and the movement of capital, technology and persons between countries, conditions deemedvital in creating robust and dynamic economies )CIR vs. 1C *o8nson 91on, Inc., #.R. $o. '4, *une 4, +++)..

What are the modes o eliminating double taxation?

The modes of eliminating double taxation )methods of reducing

the rigors of double taxation# are )$6-59T#

1. Tax $redits n amount is subtracted from an individualKs orentityKs tax liability to arrive at the total tax liability. HTax credits iswhere foreign taxes are allowed as deductions from local taxes that aredue to be paid.F

What is tax credit?

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Tax credit generally refers to an amount that issubtracted directly from oneKs total tax liability, anallowance against the tax itself, or a deduction from what isowed.

tax credit reduces the tax due, including wheneverapplicable the income tax that is determined after applying

the corresponding tax rates to taxable. (CIR vs. Centra/ Luzon Dru0 Corporaton, #.R. $o. 4+"!, Apr/ 4, ''4)

. Tax 6eductions The amount of tax is written oD or treated asdeduction from an individualKs or entityKs gross income on which theresulting amount the tax liability is calculated. Hllowing foreign taxesas a deduction from gross income.F

What is tax deduction?

Tax deduction is de3ned as a subtraction from incomefor tax purposes, or an amount that is allowed by law toreduce income prior to the application of the tax rate tocompute the amount of tax which is due.

tax deduction reduces the income that is sub(ect totax in order to arrive at taxable income. (CIR vs. Centra/ Luzon Dru0 Corporaton, #.R. $o. 4+"!, Apr/ 4, ''4)

. 5eduction of the Philippine !ncome Tax 5ate n example is theTax &paring 5ule wherein the dividend earned by a non-resident foreign

corporation )05*$# within the Philippines is reduced by imposing alower rate of 1LM )in lieu of the >M#, on the condition that the countryto which the 05*$ is domiciled shall allow a credit against the tax duefrom the 05*$, which taxes are deemed to have been paid in thePhilippines. )0!5$, &ec. =H2FHLFHbF; CIR vs. Procter 9 #a23/e, #.R. $o.L%""&, Dece23er , ++)

B. Tax 9xemptions a grant of immunity to particular persons orcorporations form the obligation to pay taxes.

L. Tax Treaties greement between two countries specifyingwhat items of income will be taxed by the authorities of the countrywhere the income is earned. HTax treaties which exempts foreignnationals from local taxation and local nationals from foreign taxationunder the principle of reciprocity.F

What are the methods resorted to b a tax treat in order to eliminatedouble taxation?

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There are two methods

1. n exclusive right to tax is conferred in one of the contractingstates; however, for other items of income or capital, both states aregiven the right to tax although the amount of tax that may be imposedby the state of source is limited.

. The state of source is given a full or limited right to taxtogether with the state of residence. !n this case, the treaty makes itincumbent upon the state of residence to allow relief in order to avoiddouble taxation.

What are the was to appl the second method?

a# The 9xemption Iethod The income or capital which is taxablein the state of source or situs is exempt in the state of residence,although is some instances it may be taken into account in determiningthe rate of tax applicable to the taxpayerKs remaining income or capita.

)This may be done by using the tax deduction method which allowsforeign income taxes to be deducted from gross income, in eDect,exempting the payment from being further taxed#. The focus here is onthe income or capital itself.

b# The $redit Iethod lthough the income or capital which istaxed in the state of source is still taxable in the state of residence, thetax paid in the former is credited against the tax levied in the latter)$!5 vs. &.$. Nohnson 8 &on !nc., L, Nune L, 1AAA#. Thefocus is on the tax.

  What is the >ost &avored 8ation !lause in 0ax 0reaties? Axplain.

The purpose of the most favored nation clause is to grant to thecontracting party treatment not less favorable than that which hasbeen or may be granted to the Cmost favoredE among other countries.The most favored nation clause is intended to establish the principle of e+uality of international treatment by providing that the citi7ens orsub(ects of the contracting nations may en(oy the privileges accordedby either party to those of the most favored nation )$!5 vs. &.$. Nohnson 8 &on, !nc. and $, L, Nune L, 1AAA#.

B. 9scape from taxation

a. &hifting of the tax burden

What is shiting o the tax burden?

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&hifting of the tax burden is the transfer of the burden of tax bythe original payer or the one on whom the tax was assessed )impact of taxation4 statutory taxpayer# or imposed to another or someone else)incidence of taxation#.

i. /as o shiting the tax !urden

:8at are t8e ;ays (or

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What does impact o taxation mean?

!mpact of taxation is the point on which tax is originally imposedor the one on whom the tax is formally assessed.

What does incidence o taxation mean?

!ncidence of taxation is the point on which the tax burden 3nallyrests or settles down.

Illustrate.

OT. The seller is re+uired by law to pay tax, but the burden isactually shifted or passed on to the buyer.

b. Tax avoidance

What is tax avoidance?

Tax avoidance, also called tax minimi7ation, is the exploitation bythe taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income, in order to avoid or reduce taxliability.

Tax avoidance is the tax saving device within the meanssanctioned by law. This method should be used by the taxpayer in goodfaith and at armKs length Hthe condition or the fact that the parties to atransaction are independent and on an e+ual footing, walanglamanganF (CIR vs. >state of 5en0no 6oda *r., #.R. $o. !,

1epte23er !, ''!).

taxpayer has legal right to decrease the amount of what wouldotherwise be his taxes or altogether avoid them by means which thelaw permits )De/p8er 6rades Co. v. IAC, #.R. $o. L%"+4+, *anuary ",+)

>xa#pleL A"ailing o all deductions allowed ! law or reraining ro#engaging in acti"ities su!Ject to tax.

c. Tax evasion

What is tax evasion?

Tax evasion is an illegal means of escaping taxation. !t connotesfraud through the use of pretenses and forbidden devices to lessen or

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defeat taxes )?utvo 1ons Hard;are vs. C6A, #.R. $o. L%&'&, *anuary , +"#. 'ence, it sub(ects the taxpayer to further additional civil orcriminal liabilities. Tax evasion is sometimes referred to as tax dodging.

scheme used outside of those lawful means and when availedof, it usually sub(ects the taxpayer to )further or additional# civil orcriminal liabilities (CIR vs. >state of 5en0no 6oda, *r., #.R. $o. !,1epte23er !, ''!).

What are the actors o tax evasion?

The factors of tax evasion are )9&$#a. The 9nd to be achieved, i.e., payment of less than that known

by the taxpayer to be legally due, or paying no tax when it isshown that the tax is due;

b. n accompanying &tate of mind which is described as beingevil, in bad faith, willful or deliberate and not coincidental; and

c. $ourse of action which is unlawful (CIR vs. >state of 5en0no6oda, *r., #.R. $o. !, 1epte23er !, ''!). 

What are the proos o tax evasion?

The proofs of tax evasion are

a. *ailure to declare for taxation purposes true and actual incomederived from business for two )# consecutive years )Repu3/cvs. #onza/es, #.R. $o. L%+", Apr/ &', +"4); or

b. &ubstantial under-declaration of income in the tax returns of the taxpayer for four )B# consecutive years coupled withintentional overstatement of deductions )CIR vs. Reyes, #R

$os. L%4&! and L%44, $ove23er 4, +4)

7A No. H;,;% N&7+ o 5998$>+T&=N ,;. Atte#pt to >"ade or Deeat Tax. - An person who willullatte#pts in an #anner to e"ade or deeat an tax i#posed under this +ode orthe pa#ent thereo shall% in addition to other penalties pro"ided ! law% uponcon"iction thereo% !e punished ! a fne o not less than Thirt thousand pesos(P

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the polic at the ti#e o issuance) should not !e included in the co#putation o the docu#entar sta#p taxes due on the polic would !e a clear e"asion o thelaw re0uiring that the tax !e co#puted on the !asis o the a#ount insured !the polic.

Di"erentiate tax avoidance rom tax evasion.

Tax voidance Tax 9vasion

Galiditegal and not su!Ject to cri#inalpenalt

&llegal and su!Ject to cri#inal penalt

>Cect4ini#iMation o taxes Al#ost alwas results in the a!sence

o tax pa#ents

L. 9xemption from taxation

a# Ieaning of exemption from taxation

What is the meaning o exemption rom taxation?

 Tax exe#ption is the grant o i##unit% express or i#plied (or contractual)to particular persons or corporations or to persons or corporations o a particularclass ro# a tax which persons or corporations generall within the sa#e stateor taxing district are o!liged to pa (5 A#. Kur. 2

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 pro!ected and planned subdivision roads, not yet constructed within the Antonio 'ubdivision,

 belonging to private respondent (ulueta, situated at Pasig, Rial) and which pro!ected feeder roads do

not connect any government property or any important premises to the main highway. *he

respondents+ contention is that there is public purpose because people living in the subdivision will

directly be benefitted from the construction of the roads, and the government also gains from the

donation of the land supposed to be occupied by the streets, made by its owner to the government.

ISSUE: 'hould incidental gains by the public be considered "public purpose" for the purpose of  !ustifying an expenditure of the government

HELD: o. -t is a general rule that the legislature is without power to appropriate public revenue for 

anything but a public purpose. -t is the essential character of the direct ob!ect of the expenditure

which must determine its validity as !ustifying a tax, and not the magnitude of the interest to be

affected nor the degree to which the general advantage of the community, and thus the public welfare,

may be ultimately benefited by their promotion. -ncidental to the public or to the state, which results

from the promotion of private interest and the prosperity of private enterprises or business, does not

 !ustify their aid by the use public money.

  *he test of the constitutionality of a statute reuiring the use of public funds is whether the statute is

designed to promote the public interest, as opposed to the furtherance of the advantage of individuals,although each advantage to individuals might incidentally serve the public.

b) Inherentl Le!"sl#t"ve

General Rule/ 0elegata Potestas non 0elegari Potest1 A delegated power cannot be further delegated.

'ince the power of taxation is a power that is exercised by 2ongress as delegates of the people, then

as a general rule, 2ongress could not re1delegate this delegated power.

3xceptions/

$) Dele!#t"%n t% L%l '%vern(ents1 the 2onstitution grants each 4G5 the power to create its ownsources of revenue and levy taxes, fees and charges which shall accrue exclusively to the 4G5 67#89

2onstitution, Article :, 'ection ;

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1 -t is also &nown as the place of taxation. -t is the place of authority that has the right to impose andcollect taxes 62-R v Barubeni 2orp<

General Rule/ A 'tate may not tax property lying outside its borders or lay an excise or privilege tax

upon the exercise or en!oyment of a right or privilege derived from the laws of another state andtherein exercised or en!oyed.

'itus or sub!ects of tax/

$) Pers%ns1 poll, capitation or community taxes are based upon the residence of the taxpayer 

regardless of the source of income or location of the property of the taxpayer.

) Pr%/ert

a< Real property1 4ex rei sitae or lex situs 6where the property is located< b< *angible personal property1 where the property is physically located although the owner 

resides in another !urisdiction.

c< -ntangible personal property

General rule/ Mobilia sequuntur personam 6movables follow the person

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7< -n par parem non habet imperium1 as between euals, there is no sovereign 60octrine of 'overeign 3uality<

$< *he rule of international law that a foreign government may not be sued without its

consent. *hus, it would be useless to impose a tax which could not be collected.

@< *he concept that when a foreign sovereign enters the territorial !urisdiction of another, itdoes not sub!ect itself to the !urisdiction of the other.

,.+onstitutional li#itations

a) Pro"isions directl aCecting taxation

)i# Prohibition against imprisonment for non-payment of poll tax-Tax imposed on persons without any +uali3cation or on a per headbasis. The present Cpoll taxE is the Ccommunity tax.E5eason :ne cannot be imprisoned for non-payment of poll tax,because payment thereof is not mandatory.

(ii) *nior#it and e0ualit o taxation-%niformity ll taxable articles or properties of the same classshall be taxed at the same rate. tax is considered to be uniformwhen it operates with the same force and eDect in every placewhere the sub(ect may be found. /hen the tax law applies e+uallywell to all persons, 3rms, and corporations placed in a similarsituation, there is no infringement of the rule )$ity of 2aguio v. 6e"eon#

-%niformity, not e+uality The e+ual protection clause does notre+uire the universal application of the laws on all persons withoutdistinction. This might in fact result in une+ual protection. /hatthe clause re+uires is e+uality among e+uals as determinedaccording to a valid classi3cation )bakada

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on "arious grounds. The "alue added tax (GAT) is le"ied on the sale% !arter or exchange

o goods and properties as well as on the sale or exchange o ser"ices. &t ise0ui"alent to 52R o the gross selling price or gross "alue in #one o goods or properties sold% !artered or exchanged or o the gross receiptsro# the sale or exchange o goods and ser"ices. 7A No. 8856 see's towiden the tax !ase o the existing GAT sste# and enhance itsad#inistration ! a#ending the N&7+.

A#ong the petitioners was the Philippine Press &nstitute (PP&) whichclai#ed that 7A 8856 "iolates their press reedo# and religious li!ert%ha"ing re#o"ed the# ro# the exe#ption to pa Galue Added Tax. &t iscontended ! the PP& that ! re#o"ing the exe#ption o the press ro# theGAT while #aintaining those granted to others% the law discri#inates againstthe press. At an rate% it is a"erred% Ee"en nondiscri#inator taxation o constitutionalit guaranteed reedo# is unconstitutional.F PP& argued thatthe GAT is in the nature o a license tax.

!&&%9 /=N the purpose o the GAT is the sa#e as that o a license tax?

'9"6A license tax% which unli'e an ordinar tax% is #ainl or regulation. &tsi#position on the press is unconstitutional !ecause it las prior restraint onthe exercise o its right. Ience% although its application to others% suchthose selling goods% is "alid% its application to the press or to religiousgroups% such as the Keho"ahs witnesses% in connection with the latters saleo religious !oo's and pa#phlets is unconstitutional. As the *$ $upre#e+ourt put it% Eit is one thing to i#pose tax on inco#e or propert o apreacher. &t is 0uite another thing to exact a tax on hi# or deli"ering aser#on.F

 The GAT is howe"er% diCerent. &t is not a license tax. &t is not a tax onthe exercise o a pri"ilege% #uch less constitutional right. &t is i#posed onthe sale% !arter% lease or exchange o goods or properties or the sale orexchange o ser"ices and the lease o properties purel or re"enuepurposes. To su!Ject the press to its pa#ent is not to !urden the exerciseo its right an #ore than to #a'e the press pa inco#e tax or su!Ject it togeneral regulation is not to "iolate its reedo# under the +onstitution.

(iii)rant ! +ongress o authorit to the president to i#pose tariC rates-The $ongress may, by law, authori7e the President to 3x withinspeci3ed limits, and sub(ect to such limitations and restrictions asit may impose, tariD rates, import, and export +uotas, tonnage andwharfage dues, and other duties or imposts within the framework of the national development program of the

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taxation )1A=? $onstitution, rticle O!, &ection =,

paragraph #

merican 2ible &ociety v $ity of Ianila

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("i) 4aJorit "ote o +ongress or grant o tax exe#ption-0o law granting any tax exemption shall be passed without theconcurrence of a ma(ority of all the members of the $ongress )1A=?$onstitution, rticle O!, &ec. =, par. B#7easonL to pre"ent indiscri#inate grant o tax exe#ptions.

-The phrase Cma(ority of all the members of the $ongressE meansat least plus 1 of "" the members voting separately.!n granting tax exemptions, an absolute ma(ority of the members of $ongress is re+uired, while in cases of withdrawal of such taxexemption, a relative ma(ority is suQcient.5eason Taxation is the rule and exemption is the exception. Thus,the law makes it easier, by re+uiring a smaller number of votes, towithdraw exemption compared to its grant.- Tax amnesties, condonations and refunds are in the nature of 

tax exemptions, such being the case, a law granting themre+uires the vote of an absolute ma(ority.

("ii) Prohi!ition on use o tax le"ied or special purpose

-ll money collected on any tax levied for a special purpose shall betreated as a special fund and paid out for such purpose only. !f thepurpose for which a special fund was created has been ful3lled andabandoned, the balance, if any, shall be transferred to the generalfunds of the

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wharfage dues, and other duties and imposts within the framework of the national xe#ption ro# real propert taxes-$haritable institutions, churches, and parsonages, or conventsappurtenant thereto, mos+ues, non-pro3t cemeteries and all lands,buildings, and improvements, actually, directly, and exclusively,used for religious purposes shall be exempt from taxation )1A=?$onstitution, rticle O!, &ection =, par #- Test of 9xemption !t is the use of the property and not ownership)bra Oalley $ollege, !nc. v +uino#- 0ature of %se The properties must be actually, directly, andexclusively used for the religious, charitable, or educationalpurposes#-The exemption extends to facilities which are incidental to andreasonably necessary for the accomplishment of said purposes,such as school for training nurses, nursesR home, and recreationalfacilities )'errera vs. S$ 2oard of ssesment ppeals, &$5 1=@#

(xiii) No appropriation or use o pu!lic #one or religious purposes

-0o public money or property shall be appropriated, applied, paid,or employed, directly or indirectly, for the use, bene3t, or supportof any sect, church, denomination, sectarian institution, or systemof religion, or of any priest, preacher, minister, or other religiousteacher, or dignitary as such, except when such priest, preacher,minister, or dignitary is assigned to the armed forces, or to anypenal institution, or government orphanage or leprosarium.)1A=?$onstitution, &ection A, HF.

!) Pro"isions indirectl aCecting taxation

)i# 6ue process

-0o person shall be deprived of life, liberty or property without dueprocess of law )1A=? $onstitution, rticle !!!, &ection 1#.-Two )# aspects of due processa# &ubstantive due process- The tax statute must be within the

constitutional authority of $ongress and that it must be fair, (ustand reasonable.b# Procedural due process- re+uires notice and hearing, or at least

an opportunity to be heard

-Iust the adverse party be always noti3ed-0o. s a rule, notice and hearing or the opportunity to be heard isnecessary only when expressly re+uired by law. /here there is no

such re+uirement, notice and opportunity to be heard aredispensable.-/hile the &anggunians are re+uired to conduct public hearingsprior to the enactment of tax ordinances and revenue measures)"

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-6ue Process in taxation re+uiresa# Tax must be for a public purpose;b# !mposed within territorial (urisdiction; and

c# 0o arbitrariness or oppression in assessment or collection.

!llustration of violations of the 6ue Process $lausea# !f the tax amounts to a con3scation of property;b# !f the sub(ect of con3scation is outside the (urisdiction of the

taxing authority;c# !f the law is imposed for a purpose other than a public purpose;d# !f the law which is applied retroactively imposes un(ust and

oppressive taxes; ande# /here the law is in violation of inherent limitations.

(ii) >0ual protection-9+ual protection neither re+uires e+ual rates of taxation ondiDerent classes of property, nor prohibits une+ual taxation so longas the ine+uality is not based upon arbitrary classi3cation. !tmerely re+uires that all persons )or property, of the same class#sub(ected to such legislation shall be treated alike, under like

circumstances and conditions, both in the privileges conferred andin the liabilities imposed )$ooley cited in &ison v. ncheta#-Practical e+uality is constitutional e+uality. There is no imperativere+uirement that taxation shall be absolutely e+ual.-The e+ual protection clause may be violated in two ways

a# /hen classi3cation is made where there should be none;b# /hen classi3cation is called for but no corresponding

classi3cation is made on the basis thereof )Oillegas v. 'iu $hong#.-5e+uities for valid classi3cation

a# !t must be based on substantial distinctions;b# !t must apply both to present and future conditions;c# !t must be germane to the purpose of the law; and

d# !t must apply e+ually to all members of the same class ):rmoc&ugar $ompany v. Treasurer of :rmoc#

(iii)7eligious reedo#-The $onsitution provides for these two clauses

a# C0o law shall be made respecting an establishment of religion,or prohibiting the free exercise thereof.E- lso called the non-establishment clause, it covers the prohibition to establish anational or oQcial religion since in that case, there would be anappropriation from the taxes by the people; andb# The free exercise and en(oyment of religious profession andworship, without discrimination or preference, shall forever be

allowed. lso called the free exercise clause, which is the basis of tax exemptions granted to religious institutions.- municipal license tax on the sale of bibles and religious articlesby a non-stock, non-pro3t, missionary organi7ation at minimal pro3tconstitutes curtailment of religious freedom and worship which isguaranteed by the $onstitution )merican 2ible &ociety v. $ity of Ianila#-0ot every imposition of tax, however, constitutes curtailment of religious freedom. The free exercise of 5eligion $lause does not

,9

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prohibit imposing a generally applicable sales and use of religiousmaterials by a religious organi7ation.

i")Non-i#pair#ent o o!ligations o contracts

-  0o law impairing the obligations of contracts shall be passed.

)1A=? $onstitution, rticle !!!, &ection 1>#

- To impair the obligation of contract is to alter or change the terms

or eDect of the contract, and thus in contemplation of law, to weaken the

position or rights of one or all of the parties to it.- 0on-impairment clause as a limitation to the power to tax The

non-impairment clause becomes a limitation to the power to tax when the

taxpayer enters into an agreement with the government.

-!t applies only where one party is the

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V. Defnition% nature% and characteristics o taxes

Taxes are enforced proportional contributions from persons and propertylevied by the law-making body of the &tate by virtue of its sovereignty for thesupport of the government and for public needs.-They are not arbitrary exactions but contributions levied by authority of law,and by some rule of proportion which is intended to insure uniformity of 

contribution and (ust apportionment of the burdens of government.

Tan vs. 6el 5osario

*$T&

  Petitioners challenge the constitutionalit o 7A 8;96 or the si#plifed inco#etaxation sche#e ($N&T) under Arts (,6) and (,H) and &&& (5). The $N&T contained changesin the tax schedules and diCerent treat#ent in the proessionals which petitioners assailas unconstitutional or !eing isolati"e o the e0ual protection clause in the constitution.

 !&&%9 &s the contention #eritorious?

'9"6

  No. unior#it o taxation% li'e the hindered concept o e0ual protection%#erel re0uire that all su!Jects or o!Jects o taxation si#ilarl situated are to !e treatedali'e !oth pri"ileges and lia!ilities. *nior#it% does not oCend classifcation as long as itrest on su!stantial distinctions% it is ger#ane to the purpose o the law. &t is not li#ited toexisting onl and #ust appl e0uall to all #e#!ers o the sa#e class.

  The legislati"e intent is to increasingl shit the inco#e tax sste# towards the

scheduled approach in taxation o indi"idual taxpaers and #aintain the present glo!altreat#ent on taxa!le corporations. This classifcation is neither ar!itrar norinappropriate.

$!5 vs. &antos, ,88 $+7A 658 (5998)

*$T&uild o Phil. Kewellers 0uestions the constitutionalit o certain pro"isions o the

N&7+ and TariC and +usto#s +ode o the Philippines. &t is their contention that present

 TariC and tax structure increases #anuacturing costs and render local Jewelr

#anuacturers unco#petiti"e against other countries.% in support o their position% the

su!#itted what the purported to !e an exhausti"e stud o the tax rates on Jewelr

pre"ailing in other Asian countries% in co#parison to tax rates le"ied in the countr. Kudge $antos o 7T+ Pasig% ruled that the laws in 0uestion are confscator and

oppressi"e and declared the# &N=P>7AT&G> and /&TI=*7 @=7+> AND >@@>+T insoar as

petitioners are concerned.

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Petitioner +&7 assailed decision rendered ! respondent Judge contending that the

latter has no authorit to pass Judg#ent upon the taxation polic o the go"ern#ent.

Petitioners also i#pugn the decision ! asserting that there was no showing that the tax

laws on Jewelr are confscator.

!&&%9  /hether or not the 7egional Trial +ourt has authorit to pass Judg#ent upontaxation polic o the go"ern#ent.

'9"6 The polic o the courts is to a"oid ruling on constitutional 0uestions and to

presu#e that the acts o the political depart#ents are "alid in the a!sence o a clear and

un#ista'a!le showing to the contrar. This is not to sa that 7T+ has no power whatsoe"er to declare a law

unconstitutional. But this authorit does not extend to deciding 0uestions which pertain

to legislati"e polic.

7T+ ha"e the power to declare the law unconstitutional !ut this authorit does not

extend to deciding 0uestions which pertain to legislati"e polic. 7T+ can onl loo' into

the "alidit o a pro"ision% that is whether or not it has !een passed according to the

pro"isions laid down ! law% and thus cannot in0uire as to the reasons or its existence.

1%#I8$ @8 0BA AC0A80 @& #A$I5#0I/A @WA1 0@ 0C $+ held that it is within the power the legislature whether to tax Jewelr or not.

/ith the legislature pri#aril lies the discretion to deter#ine the nature ('ind)% o!Ject

(purpose)% extent (rate)% co"erage (su!Ject) and situs (place) o taxation

+haracteristics o taxes ($>P)a# !t is imposed by the &tate which has (urisdiction over the person,

property, or excises.b# !t is levied by the law-making body of the &tate;c# !t is an enforced contribution-not dependent on the will of the person

taxed, not a contract but a positive act of the government;d# it is generally payable in money-generally, it is a pecuniary burden

payable in money, but back pay certi3cates may be used in payment of tax)2or(a v

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!usiness illegal !ut #a!e ground or

cri#inal prosecution

9&&: &T0656 9&T950, !0$ vs. $:II!&&!:095 :* !0T950" 59O90%9

*$T& &n +TA +ase No. 5,5% >sso $tandard >astern &nc. (>sso) deducted ro# its gross

inco#e or 599% as part o its or din ar an d ne ces sa r !u s ine ss exp en se s%

the a#ount i t had spent o r d r i l l i ng and exp lo ra t i on o i t s pe t ro leu#

concessions. This clai# was disallowed ! the +o##issioner o &nternal 7e"enue (+&7) on

the ground that the expenses should !e capitaliMed and #ight !e written oC as a loss

onl when a Wdr holeW should result. >sso then fled an a#ended return where it as'ed

or the reund o Pssos appeal was

denied.

!&&%9 (5) /hether or not the #argin ees are taxes.(,) /hether or not the #argin ees

are necessar and ordinar !usiness expenses.

5%"!0ssoSs Iead =ce in New Qor'%

which is a separate and distinct inco#e taxpaer ro# the !ranch in the Philippines% orits disposal a!road% it can ne"er !e said thereore that the #argin ees were appropriate

and helpulin the de"elop#ent o >ssoSs !usiness in the Philippines exclusi"el or were

incurred or purposes proper to the conduct o the aCairs o >ssoSs !ranch in the

Philippines exclusi"el or or the purpose o realiMing a proft or o #ini#iMing a loss in the

Philippines exclusi"el.

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;. $pecial assess#entTax &pecial ssessment>norced proportional contri!utions ro#

persons or propert

>norced proportional contri!utions ro#

owners o lands especiall o peculiarl

!enefted ! pu!lic i#pro"e#ents Taxes are le"ied on land% persons%

propert% inco#e% !usiness% etc.

e"ied on hand

Personal lia!ilit o the taxpaer +annot !e #ade a personal lia!ilit o

the person assessedBased on necessit and partiall on

!enefts

Based solel on !enefts

eneral application $pecial application onl as to a particula

ti#e and place

postolic Prefect of Iountain Province vs. $ity Treasurer of 2aguio$ity

*$T&  The Apostolic Preect is a corporation sole% o religious character%organiMed under the Philippine laws% and with residence in Baguio% The +iti#posed a special assess#ent against properties within its territorial

 Jurisdiction% including those o the Apostolic Preect% which !enefts ro# itsdrainage and sewerage sste#. The Apostolic Preect contends that itsproperties should !e ree o tax.

!&&%9L /hether the Apostolic Preect% as a religious entit% is exe#pt ro# thepa#ent o the special assess#ent.

'9"6  &n its !road #eaning% tax includes !oth general taxes and specialassess#ent. Qet actuall% there is a recogniMed distinction !etween the# inthat assess#ent is confned to local i#positions upon propert or the pa#ento the cost o pu!lic i#pro"e#ents in its i##ediate "icinit and le"ied withreerence to special !enefts to the propert assessed. A special assess#ent isnot% strictl spea'ing% a tax: and neither the decree nor the +onstitutionexe#pt the Apostolic Preect ro# pa#ent o said special assess#ent.@urther#ore% arguendo that exe#ption #a enco#pass such assess#ent% theApostolic Preect cannot clai# exe#ption as it has not pro"en the propert in0uestion is used exclusi"el or religious purposes: !ut that it appears that thesa#e is !eing used to other non-religious purposes. Thus% the Apostolic Preectis re0uired to pa the special assess#ent.

. De!tTax 6ebtBased on law Based on contract or Judg#ent@ailure to pa tax (other than poll tax)

#a result in i#prison#ent

No i#prison#ent or non-pa#ent o

de!tenerall paa!le in #one Paa!le in #one% propert% or ser"iceNot assigna!le Assigna!le

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Not su!Ject to co#pensation or set-oC 4a !e su!Ject to co#pensation o se

oC  Tax does not draw interest unless

delin0uent

De!t draws interest i stipulated o

delaedposed ! pu!lic authorit posed ! pri"ate indi"idualsDeter#ined ! N&7+ Deter#ined ! +i"il +ode

$altex Philippines vs. $ommission on udit )$:#

*$T&  &n 59H9% +=A sent a letter to +altex% directing it to re#it its collectionto the =il Price $ta!iliMation @und (=P$@)% excluding that unre#itted or 59H6and 5HH o the additional tax on petroleu# products authoriMed under $ectionH o PD 596: and that pending such re#ittance% all its clai#s orrei#!urse#ent ro# the =P$@ shall !e held in a!eance. +altex re0uested+=A% notwithstanding an earl release o its rei#!urse#ent certifcates ro#the =P$@% which +=A denied. =n

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and de!tors o each other under Article 5,8H o the +i"il +ode and a clai# o taxes is not such a de!t% de#and% contract or Judg#ent as is allowed to !e set-oC.

4. Vinds o taxes

5.  As to o!Ject

a# Personal, capitation, or poll tax-tax of a 3xed amount imposed upon persons residing within aspeci3ed authority, whether citi7ens or not, without regard totheir property, occupation, or business in which they may beengaged )e.g. community tax#

b# Property tax- Tax imposed on property, whether, real or personal, in proportion

either to its value or some other reasonable rule of apportionment )e.g. real property tax#

c# Privilege tax 4excise1 -charge imposed upon the performance of an act, the en(oyment of 

a privilege or engaging in an occupation, profession, or business)e.g. donorKs tax, estate tax, OT, income tax#

,. As to !urden or incidence

a# 6irect- taxes which are exacted from the very person who, it isintended or desired, should pay them. The liability for the paymentof the tax )incidence#, as well as the impact )burden# of the tax,falls on the same person )e.g. income tax, estate tax, donorKs tax#

b# !ndirect tax wherein the incidence or liability for the paymentfalls on one person but the burden may be shifted or passed on toanother not as a tax but as a part of the purchase price )e.g. OT,excise tax, percentage tax#

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a# not political ion character, eDective even under belligerentoccupation )'ilado v $!5#

b# $ivil in nature and not penal in character, hence, not sub(ect toex-post facto law prohibitions.

'ilado vs. $ollector

*$T& >#ilio Iilado fled his inco#e tax return or 595 with the treasurer o Bacolod +it% clai#ing a deducti!le ite# o P5,%H