1
1
Notes In T
Notes In Taxation Iaxation I
By: Atty. Khaliquzzaman M. Macabato, CPA By: Atty. Khaliquzzaman M. Macabato, CPA
Professor, MSU-College of Law Professor, MSU-College of Law
I. Concept, U
I. Concept, Underlying Basis and Purpose nderlying Basis and Purpose of Tof Taxationaxation
T
Taxation is a axation is a mode of raising revenue for public purpose.mode of raising revenue for public purpose. (( Judge Cooley Judge Cooley, T, Taxation, 4axation, 4thth Ed. P.72). Ed. P.72).
It is a mode by which government make exactions for revenue It is a mode by which government make exactions for revenue in order to support their existence and carry out their legitimate in order to support their existence and carry out their legitimate objectives.
objectives. The term The term taxation refers taxation refers to either to either or bothor both i.i. the power to the power to tax or
tax or iiii. the act or process by which the taxing power is exercised.. the act or process by which the taxing power is exercised.
On the other hand, Professor Cooley define taxes as enforced On the other hand, Professor Cooley define taxes as enforced proportional
proportional contributions contributions from from persons persons and and propertyproperty, , levied levied by by thethe State by virtue of its sovereignty for the support of the government State by virtue of its sovereignty for the support of the government and for all its public needs.(
and for all its public needs.( 1 Cooley 621 Cooley 62))
Theory or underlying basis of taxation: Theory or underlying basis of taxation:
- Taxation proceeds from the theory that without money, the - Taxation proceeds from the theory that without money, the government cannot pay its expenses and it cannot, therefore, government cannot pay its expenses and it cannot, therefore, exist.
exist. That the existenThat the existence of the Gce of the Government is a overnment is a necessity isnecessity is the theory that underlies the power of taxation. The the theory that underlies the power of taxation. The government has to call upon its citizen and residents to government has to call upon its citizen and residents to assume monetary burdens and pay taxes so that it can assume monetary burdens and pay taxes so that it can perform
perform its its functions, functions, meet meet its its widely widely expanding expanding servicesservices and carry on its legal as well as constitutional functions. and carry on its legal as well as constitutional functions. Thus, in one case decided by the
Thus, in one case decided by the U. S Supreme Court (U. S Supreme Court ( Nicol Nicol vs. Ames
vs. Ames), it was held that taxation involves not only the), it was held that taxation involves not only the power to destroy but also
power to destroy but also the power to keep alive.the power to keep alive.
T
Taxes as Lifeblood axes as Lifeblood of the of the nation-
nation--
- TTaxes axes are are the the lifeblood lifeblood of of the the nation. nation. Their Their primary primary purposepurpose is to generate funds for the State to finance the needs of the is to generate funds for the State to finance the needs of the citizenry
Provin
Province of Albay)ce of Albay) -
- Without Without taxation, taxation, government government can can neither neither exist exist nor nor last.last. - “Taxes are the lifeblood of the government and their prompt - “Taxes are the lifeblood of the government and their prompt
and certain availability are an imperious need”(
and certain availability are an imperious need”(Comm. VsComm. Vs.. Pineda
Pineda). ). Upon Upon TTaxation depends the axation depends the GovernmenGovernment’s t’s abilitabilityy to serve the people for whose benefit taxes are collected to serve the people for whose benefit taxes are collected ((Vera vs. Fernandez Vera vs. Fernandez ).).
- Taxes are the lifeblood of the nation through which the - Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the government agencies continue to operate and with which the state effects its functions for the welfare of its constituents. state effects its functions for the welfare of its constituents. (CIR vs. CTA, G.R.
(CIR vs. CTA, G.R. 10666111066611, July 21, 1994; 234 SCRA, July 21, 1994; 234 SCRA 348.)
348.)
Symbiotic Relation of the State and its inhabitants, basis of Symbiotic Relation of the State and its inhabitants, basis of taxation
taxation..
- It is s
- It is settled, according to ettled, according to Professor CooleyProfessor Cooley, that , that taxation istaxation is based
based on on the the reciprocal reciprocal duties duties of of protection protection and and supportsupport between the State and its citizens as well as residents, and on between the State and its citizens as well as residents, and on the sovereign power as well as jurisdiction by State over its the sovereign power as well as jurisdiction by State over its people
people and and propertyproperty. . The The taxpayer taxpayer is is presumed presumed to to havehave received benefits and protection to life, liberty, and property received benefits and protection to life, liberty, and property from the Government for which they have to reciprocate by from the Government for which they have to reciprocate by paying taxes to support the existen
paying taxes to support the existence of the Government.ce of the Government.
While it is true that not all taxpayers receive benefits from While it is true that not all taxpayers receive benefits from the Government, the theory is that they are presumed to have the Government, the theory is that they are presumed to have received such benefits even in an unequal proportions for received such benefits even in an unequal proportions for uniformity in this respect is impossible of attainment. uniformity in this respect is impossible of attainment. Nowadays, it is hardly believable to conclude that there are Nowadays, it is hardly believable to conclude that there are taxpayers who receive no benefits at all from taxpayers who receive no benefits at all from Government-sponsored projects, all of which improvements are used, sponsored projects, all of which improvements are used, directly or indirectly by all people or inhabitants. In
directly or indirectly by all people or inhabitants. In Gomez Gomez vs. Palomar
vs. Palomar (L-23645, Oct. 29, 1968). it was held that as (L-23645, Oct. 29, 1968). it was held that as long as the tax is for public purpose, it matters not whether a long as the tax is for public purpose, it matters not whether a particular
particular taxpayer taxpayer stands stands to to be be benefited benefited by by the the taxtax imposed.
imposed.
- Taxation is the
- Taxation is the indispensable and inevitableindispensable and inevitable price for price for civilized society; without taxes, the government would be civilized society; without taxes, the government would be paralyzed
paralyzed for for lack lack of of the the motive motive power power to to activate activate andand operate it. Hence, despite the natural reluctance to surrender operate it. Hence, despite the natural reluctance to surrender part
part of of one’one’s s hard-earned hard-earned income income to to the the taxing taxing authorities,authorities, every person who is able must contribute his share in every person who is able must contribute his share in running of the government, for its part, it is expected to running of the government, for its part, it is expected to respond in the form of tangible or intangible benefits respond in the form of tangible or intangible benefits intended to improve the lives of the people and enhance intended to improve the lives of the people and enhance
Provin
Province of Albay)ce of Albay) -
- Without Without taxation, taxation, government government can can neither neither exist exist nor nor last.last. - “Taxes are the lifeblood of the government and their prompt - “Taxes are the lifeblood of the government and their prompt
and certain availability are an imperious need”(
and certain availability are an imperious need”(Comm. VsComm. Vs.. Pineda
Pineda). ). Upon Upon TTaxation depends the axation depends the GovernmenGovernment’s t’s abilitabilityy to serve the people for whose benefit taxes are collected to serve the people for whose benefit taxes are collected ((Vera vs. Fernandez Vera vs. Fernandez ).).
- Taxes are the lifeblood of the nation through which the - Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the government agencies continue to operate and with which the state effects its functions for the welfare of its constituents. state effects its functions for the welfare of its constituents. (CIR vs. CTA, G.R.
(CIR vs. CTA, G.R. 10666111066611, July 21, 1994; 234 SCRA, July 21, 1994; 234 SCRA 348.)
348.)
Symbiotic Relation of the State and its inhabitants, basis of Symbiotic Relation of the State and its inhabitants, basis of taxation
taxation..
- It is s
- It is settled, according to ettled, according to Professor CooleyProfessor Cooley, that , that taxation istaxation is based
based on on the the reciprocal reciprocal duties duties of of protection protection and and supportsupport between the State and its citizens as well as residents, and on between the State and its citizens as well as residents, and on the sovereign power as well as jurisdiction by State over its the sovereign power as well as jurisdiction by State over its people
people and and propertyproperty. . The The taxpayer taxpayer is is presumed presumed to to havehave received benefits and protection to life, liberty, and property received benefits and protection to life, liberty, and property from the Government for which they have to reciprocate by from the Government for which they have to reciprocate by paying taxes to support the existen
paying taxes to support the existence of the Government.ce of the Government.
While it is true that not all taxpayers receive benefits from While it is true that not all taxpayers receive benefits from the Government, the theory is that they are presumed to have the Government, the theory is that they are presumed to have received such benefits even in an unequal proportions for received such benefits even in an unequal proportions for uniformity in this respect is impossible of attainment. uniformity in this respect is impossible of attainment. Nowadays, it is hardly believable to conclude that there are Nowadays, it is hardly believable to conclude that there are taxpayers who receive no benefits at all from taxpayers who receive no benefits at all from Government-sponsored projects, all of which improvements are used, sponsored projects, all of which improvements are used, directly or indirectly by all people or inhabitants. In
directly or indirectly by all people or inhabitants. In Gomez Gomez vs. Palomar
vs. Palomar (L-23645, Oct. 29, 1968). it was held that as (L-23645, Oct. 29, 1968). it was held that as long as the tax is for public purpose, it matters not whether a long as the tax is for public purpose, it matters not whether a particular
particular taxpayer taxpayer stands stands to to be be benefited benefited by by the the taxtax imposed.
imposed.
- Taxation is the
- Taxation is the indispensable and inevitableindispensable and inevitable price for price for civilized society; without taxes, the government would be civilized society; without taxes, the government would be paralyzed
paralyzed for for lack lack of of the the motive motive power power to to activate activate andand operate it. Hence, despite the natural reluctance to surrender operate it. Hence, despite the natural reluctance to surrender part
part of of one’one’s s hard-earned hard-earned income income to to the the taxing taxing authorities,authorities, every person who is able must contribute his share in every person who is able must contribute his share in running of the government, for its part, it is expected to running of the government, for its part, it is expected to respond in the form of tangible or intangible benefits respond in the form of tangible or intangible benefits intended to improve the lives of the people and enhance intended to improve the lives of the people and enhance
their
their relation relation their their moral moral and and material material values. values. ThisThis symbiotic relationship is the rationale of taxation and should symbiotic relationship is the rationale of taxation and should dispel the notion that it is an arbitrary method of exaction by dispel the notion that it is an arbitrary method of exaction by those in the seat of power.. (
those in the seat of power.. (Comm. Vs. Algue, IncComm. Vs. Algue, Inc.).)
T
Taxation is an axation is an inherent prerogative of the inherent prerogative of the taxing authority.taxing authority.
- In
- In Antero vs. Antero vs. Ruben Ruben Ancheta,Ancheta, the SC declared that the power the SC declared that the power to tax, an inherent prerogative, has to be availed of to assure to tax, an inherent prerogative, has to be availed of to assure the perform
the performance of vital ance of vital state functions. state functions. It is the sIt is the source of ource of the bulk of
the bulk of public funds. public funds. TTo paraphrase a o paraphrase a recent decision,recent decision, taxes, being the lifeblood of the government, their prompt taxes, being the lifeblood of the government, their prompt and certain availability is of the essence,
and certain availability is of the essence, - Revenues, therefore, derived from taxes are
- Revenues, therefore, derived from taxes are intended primarilyintended primarily to finance the government and its activities and are exempt to finance the government and its activities and are exempt from execution (
from execution ( Mun. of Makati vs. CA Mun. of Makati vs. CA).).
The dynamism of government, as well as the expanding aims, The dynamism of government, as well as the expanding aims, correspondingly
correspondingly added new added new dimensions dimensions to the conto the concept of cept of taxation.taxation. Gone were the days where one can seriously question the use of Gone were the days where one can seriously question the use of taxation to attain what, traditionally, police power measures only taxation to attain what, traditionally, police power measures only could cover, such as social justice and the equitable distribution of could cover, such as social justice and the equitable distribution of wealth, economic
wealth, economic progress anprogress and the pd the protection of rotection of local local industries asindustries as well as public welfare and similar objectives.
well as public welfare and similar objectives.
Thus, in one case (
Thus, in one case ( Republic vs. Bacolod-Mur Republic vs. Bacolod-Murcia Milling Co.,cia Milling Co., et et al
al .) the defendants refused to pay the balance of the taxes due under .) the defendants refused to pay the balance of the taxes due under R. A. No. 632 ( a law levying tax on sugar production to support the R. A. No. 632 ( a law levying tax on sugar production to support the Philippine Sugar
Philippine Sugar Institute) Institute) on the on the ground ground that that considering considering tha thetha the Institute had acquired and operated a sugar refinery at a tremendous Institute had acquired and operated a sugar refinery at a tremendous loss, the funds created by the tax under R. A. 632 were no longer for loss, the funds created by the tax under R. A. 632 were no longer for the defend
the defendants’ ants’ benefit and benefit and interest. interest. The SuprThe Supreme Court eme Court rejectedrejected defendants’
defendants’ claim and held that claim and held that R. A. 632 was R. A. 632 was not so much an not so much an exerciseexercise of the power
of the power of taxation nor of taxation nor the imposition of the imposition of a special assessment,a special assessment, but
but the the exercise exercise of of the the police police power power for for general general welfare welfare of of the the entireentire country. Thus, it is clear that taxpayer need not derive direct benefit country. Thus, it is clear that taxpayer need not derive direct benefit from the tax, the paramount consideration being the welfare of the from the tax, the paramount consideration being the welfare of the nation or the greater portion of
nation or the greater portion of its population.its population.
Another example of the exercise of taxation, in conjunction Another example of the exercise of taxation, in conjunction with police pow
with police power, is er, is the imposition othe imposition of anti-dumping f anti-dumping duties imposedduties imposed on imported product to
on imported product to protect our local protect our local products and industry.products and industry.
Taxes effectively imposed and collected may be utilized to Taxes effectively imposed and collected may be utilized to finance project ( like housing projects for the homeless) designed to finance project ( like housing projects for the homeless) designed to
uplift the condition of the common tao and thus implement the social
justice program of the government.
II. Principles of a Sound Tax System; Canons of Taxation
The tax Commission of the Philippines, in its 1938 reports, characterize a sound tax system as follows:
1. Fiscal Adequacy- which means that sources of revenues must be adequate to meet Government expenditures and their
variations;
2. Theoretical Justice- Which means that the taxes must be based on ability to pay; and
3. Administrative Feasibility- which means that-a) The tax law must be clear and concise; b) It is capable of proper enforcement;
c) It is not burdensome; and
d) It is convenient as to time and manner of payment.
The cannons of taxation of Adam Smith can be summarized as follows:
1) Ability to pay;
2) Certainty and simplicity;
3) Convenience as to time and manner of payment; 4) Economical to administer; and
5) Adequate to meet the fiscal requirement of government.
The non-observance of these cannons, which are merely intended to make the tax system sound, will not render the tax impositions by the taxing authority invalid, except to the extent that specific constitutional or statutory limitations are impaired. Accordingly, an exaction in kind or in services, instead of money, although perhaps violative of administrative feasibility, may not outright be legally objectionable ( see 51 Am. Jur. 40) since no
specific constitutional or statutory limitations against it exist. An inequitable tax measure, however, may be declared void because of the constitutional provision requiring taxation to be “equitable”. ( Art. VI, Sec. 28, Phil. Constitution)
III. Scope and limitation of Taxation
Professor Cooley has described the wide spectrum of the power to tax as one that “reaches to every trade or occupation, to every object of industry, use or enjoyment, to every species of possession; and it imposes a burden which, in case of failure to discharge, may be
followed by seizure or confiscation of property. No attribute of sovereignty is more pervading and at no point does the power of government affect more constantly and intimately all the relations of life than through exactions made under it”. Others would simply refer to the power of taxation as being “ unlimited, plenary, comprehensive and supreme.”
The power to tax is an attribute of sovereignty. In fact, it is the strongest of all the power of government. But for all its plenitude, the power to tax is not unconfined as there are restrictions. Adversely affecting as it does property rights, both the due process and equal protection clauses of the Constitution may properly invoked to
invalidate in appropriate cases a revenue measure. If it were otherwise, there will be truth to a 1903 dictum of Chief Justice Marshall that “the power to tax involves the power to destroy.” The web of unreality spin from the Marshall’s famous dictum was brushed away by one stroke of Mr. Justice Holmes’ pen, thus: “ The Power to tax is not the power to destroy while this court sits.” So it is in the Philippines. ( Reyes vs. Almanzor , G.R. No. L-49839, April 26,1991).
In the same vein, the due process clause may be invoked where the taxing statute is so arbitrary that it finds no support from the constitution. And obvious example is where it can be shown to amount to confiscation of property. That would be a clear abuse of power. It then become the duty of the Court to say that such an
arbitrary act amounted to the exercise of an authority not conferred. (ibid).
Limitations of Taxation
Taxation is subject to established limitations, such as those that are inherent in the power itself or mandated by the constitutional precept.
I. Inherent limitations on the power of taxation
1. Taxation is for Public purpose 2. Legislative in character
3. Territorial in nature
4. Subject to international comity
5. Exemption of government entities must be respected.
A violation of these inherent limitations can amount to the taking of property without due process of law. ( Pepsi-Cola vs. Municipality of Tanauan, 69 SCRA 460); hence, it can be said that any tax law contravening any limitation of taxation, in effect, will
likewise be validly struck down as unconstitutional.
Nature of Taxation
Different authorities on the subject of taxation, sometimes, referred to the nature of taxation as the attributes, tenets, principles, due process, basic characteristics, elements, requisites, or inherent limitations of taxation.
1. Taxation is for a public purpose. - The proceeds of the tax must be used (a) for support of the State or (b) for some recognized objects of government or directly to promote the welfare of the community.
The tax is for public purpose if it is designed to support the services of Government and the recognized public needs. The tax must affect the area as a community rather than as individuals. ( Lowell vs. City of Boston, 111 Mass. 454.)
It was held that in order that a tax be for public purpose, the proceeds thereof must be used for the support of the Government, for some of the recognized objects of the country.
In Pascual vs. Sec. of Public Works ( 110 Phil 331), the Supreme Court ruled that the legislature is without the power to appropriate public revenues for anything but public purpose. x x x Said the SC, incidental advantage to the public or the State, which results from the promotion of private enterprises or business, does not justify their aid by the use of public money.
Thus, where, for instance, the land on which projected feeder roads are to be constructed belong to private persons, an appropriation made by Congress for that purpose is null and void, and a donation to the government, made over five (5) months after the approval and effectivity of the Act for the purpose of giving a "semblance of legality” to the appropriation, does not cure the basic defect. Hence, it can be said “that whether or not a public purpose exist is determined at the time of the enactment of the law and not at the time of its implementation.
If taxes were spend for private ends, then it would be robbery. Thus, Justice Miller in Loan Association Vs. Topeka (30 Wall 655) said: “To lay with one hand the power of government on the property of the citizen, and with the other bestow it upon favored individuals to aid private enterprises and build up private fortunes, is nonetheless a robbery because it is
done under a form of law and is called taxation. This is not legislation. It is a decree under legislative form.”
On the other hand, the use of tax proceeds for putting up experimental facilities to increase sugar production and benefit that Industry ( Lutz vs. Araneta, 98 Phil. 148); for granting assistance to the BSP and GSP (City of Baguio vs. De la Rosa, 97 Phil, 994); for the support of public educational system (see Gomez vs. Palomar , 25 SCRA 827); and other special public purposes, without any part of such money being channeled
directly to private interest, cannot seriously be assailed.
Additionally, the Supreme Court ruled in Lutz vs. Araneta, that taxation may be used to implement an object of police power, being a legitimate aim of Government. In
Commissioner vs. Algue, Inc (158 SCRA 9), it was held that “the mere fact that a particular taxpayer received no special or immediate benefit is of moment for it is the general good that matters in taxation. The symbiotic relation between the taxing authority and the subject is enough to justify the imposition. In
Valentin Tio vs.Videogram Regulatory Board, et. al. (151 SCRA 208) the SC declare, “that it is beyond serious question that tax does not cease to be valid merely because it regulates, discourage or even definitely deters the activity taxed. The power to impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in the discretion of the authority which exercise it.
In another case, it was held that the Anti-TB Stamp Law is an exercise of the power to tax and it is an excise tax levied upon the privilege of using the mails. It was also held that the eradication of the dreaded disease like tuberculosis is a public purpose.
2. Taxation is inherently legislative. – Even in the absence of any constitutional provision, the power falls to the legislature as part of the more general power of law-making Like police power (for public good or welfare) and eminent domain (for public purpose), taxation is a inherent power of sovereignty
( Luzon Stevedoring Co. vs. CA, 163 SCRA 647). It follows that it is also legislative in character and a legislative prerogative. But, these powers are not inherent in, but merely delegated by constitutional mandate or by law to, local governments.
i) The power can also be exercised by Local government units (as a delegated power), independently of legislation, but
“subject to such limitations and guidelines” as may be provided by law. ( see Constitution, Art. X, Sec 5);
ii) By virtue of amendment No. 6 to the 1973 Constitution, the President was given concurrent legislative authority independent of the defunct Batasang Pambansa, which he exercised through the issuance of Presidential decrees and executive orders even after the lifting of Martial Law; and
iii) Under the Transitory Provisions of the 1987 Constitution, The incumbent President shall continue to exercise legislative powers until the first Congress elected under the New Constitution is convened.” (Art. XVIII, Sec. 6 Constitution). This power was exercised through the issuance of executive orders; and
iiii) Pres. Corazon C. Aquino, under the Freedom Constitution, immediately after the EDSA Revolution in 1986, exercised legislative power until the ratification of the 1987 Constitution.
Extent of the authority of the legislative taxing power.
(a) To determine the nature (kind ), object ( purpose) extent (amount or rate), coverage ( subjects and objects) and situs ( place) of the tax imposition;
(b) To grant tax exemptions or condonations ( see Petro vs. Pililla, 198 SCRA); and
(c) To specify or provide for administrative, as well as judicial, remedies that either the government or the taxpayers may avail themselves of in the proper implementation of tax measure.
Being legislative in nature, the power to tax may not be delegated, except –
a) To local; governments (to be exercised by the local legislative bodies thereof) or political subdivisions ( see Unjieng vs. Pastones, 42, Phil. 818);
b) When allowed by the Constitution; e.g. Executive power to fix tariff rates, etc.
- The Congress may, by law authorize the President subject to such limitations and restrictions as it may impose, to fix, within specified limits, tariff rates, import or export quota and tonnage and wharfage dues, and other duties or imposts within the framework of national development program of the Government. (See Sec. 28(1), Art. VI, Id.)
c) When the delegation relates merely to administrative implementation that may call for some degree of discretionary powers under a set of sufficient standard express by law ( see Cervantes vs. Auditor General, 197 SCRA 771).
Stated otherwise, authorities on taxation state that the power to tax may exceptionally be delegated, subject to such
well-settled limitations
as-a) The delegation shall not contravene any constitutional provision or the inherent limitations of taxation
b) The delegation is authorized either by the constitution or a validly enacted legislative measures or statute; and c) The delegated power to tax, except when expressly
authorized by the Constitution, should only be exercised by local legislative body of local or municipal
government concerned.
It has been said that the power of taxation may be delegated to local governments in respect of matters of local concern. By inevitable inference, the legislative power to create political corporations for purposes of self government carries with it the power to confer on such local government agencies the power to tax. And, the plenary nature of the taxing power thus delegated would not suffice to invalidate the said law as confiscatory and oppressive. In delegating authority, the State is not limited to exact measure of the power which is exercised by itself. X X X Thus, municipalities may be permitted to tax subjects, which for reasons of public policy the State has not deemed wise to tax for general purposes ( Pepsi-Cola Bottling Co. of the Phil. vs. Mun. of Tanauan, 69 SCRA 460).
The assessment and collection of taxes duly levied are executive or administrative function, and these aspect of taxation are not covered by the non-delegation rule (see infra).
3. Taxation is territorial- The general rule is that the taxing power cannot go beyond the territorial limit of the taxing authority.
Thus, the situs or of taxation is important. Situs of taxation is the State or country which has jurisdiction to tax the person, property, activity or interest. In short, situs of taxation
is the place of taxation.
The following are the places (situs) of taxation of various
taxes-1) Property tax
a) In case of real property, it is the place where it is located regardless of domicile or citizenship of the owner. Mortgages over real property are likewise, taxed in the place where such property is situated.
b) If the personal property is intangible like credits, bonds and bank deposits, the general rule is that it is taxable in the domicile of the owner under the maxim mobilia sequuntur personam. This rule proceeds from the theory that intangibles do not admit of an actual location and may easily be transferred from one place to another so that the possibility of escaping taxes is great, thus needing a fixed situs for taxation. (Wells Fargo vs. Collector, 40 O.G. 159). This rule of mobilia sequuntur personam is not absolute because it must yield to actual presence of and control over the property. Thus, it was held that shares of stock can be taxed at the domicile of the shareholder and also at the principal place of business (domicile) of the corporation. ( Ibid .) The rule was set forth that the maxim of mobilia sequuntur personam
has been decided as mere fiction of law having its origin in considerations of general convenience and public policy and cannot be applied to limit or control the right of the State to tax property within its jurisdiction and must yield to established fact or legal ownership, actual presence and control elsewhere and cannot be applied if to do so would result in inescapable and patent injustice. ( Ibid.)
c) In the case of Shell Co. of the Philippines vs. Mun. of Sipocot , L-12680, March, 1959, the Municipality of Sipocot, Camarines Sur, levied by ordinance, pursuant to R.A. 1435, additional tax on oil sold or distributed within the limits of the municipality’s territory. Does the ordinance subject to tax oil sold by the Shell Co. of the Philippines stored in Sipocot deposit and delivered outside Sipocot to the Shell customer? It was held
that “sold” means consummated sale and the latter is consummated upon delivery of the oil. Delivery being made outside Sipocot, the sale of the oil is not subject to the ordinance. It was likewise held that the word “distributed” had the same meaning as “sold”.
d) Thus, the real property tax under the Real Property Tax Code cannot be imposed on real property located abroad, although owned by Filipino citizens (see Am. Jur. 458). Reason: the property do not have situs in the Philippines.
2. Income tax- Residence and/or citizenship of the taxpayer, as well as sources of income.
3. Poll or residence tax – Residence or domicile of the persons taxed
Note: It would be violative of the rule on territoriality for the Philippine poll tax to be imposed even on its non-resident citizens (see Am Jur. 88)
4. Transfer taxes – The tax situs is the residence or citizenship or location of the property. The reason is that the activity or privilege to transfer property is exercised in the Philippines.
5. Business and occupation taxes – Place where the act is done or occupation is pursued regardless of the domicile of the owner or proprietor and regardless of the location of the property used for the business.
Thus, In the case of Allied Thread Co., Inc. vs. City Mayor of Manila (133 SCRA, 343), The Supreme Court ruled that “x x x The power to levy an excise (tax) upon the performance of an act or the engaging in an occupation does not depend upon the domicile of the person subject to the excise tax not upon the physical location of the property and in connection with the act or occupation taxed, but depends upon the place in which the act is performed or occupation engaged in.”
-a) Where the privilege is exercised;
b) Where the taxpayer is a national of; or c) Where the taxpayer has residence.
The taxing authority is given wide latitude in the selection of the appropriate criteria; among the circumstances often considered are –
i. The nature of the tax, the extent of the benefit that may be derived by the taxpayer (see Wells Fargo Bank
& Union Trust Co. vs. Coll ., 70 Phil 325; Meralco vs. Yatco, 69 Phil 69); and
ii. Equity Principles (see Art. VI, Sec. 28, Constitution)
But, unless otherwise stated, the tax situs is deemed to be
the place where the privilege is exercised. However, under the provisions of the National Internal Revenue Code all three criteria (nationality, residence, and place where the privilege is exercised) are used in the levy of income tax, as well as estate and gift taxes, but not of business taxes ( see
Business taxes provisions of the NIRC ).
Factors considered in determining Situs of
Taxation-1. Kinds of taxes;
2. Nature of the Property
3. Jurisdiction by the taxing power and State control over the property taxed;
4. Protection and benefits, actual or presumed; and 5. Residence or domicile of the taxpayer.
Cases on Situs of Taxation:
Where incidents are attended to in the
Philippines-It was held that where the insured resides in the Philippines, the risk insured against being in the Philippines and other incidents of the contract were to be attended in the Philippines, the tax shall be imposed upon the insured regardless of whether the insurance contract is executed in a foreign country and withj a foreign corporation. ( Manila Electric Co. vs. Yatco, 69 Phil., 89 )
abroad-In the case of A. Soriano Y Cia vs. Collector, (54 O.G. 1938), it was held that where a broker received commissions for negotiating and consummating sales in Japan for produced from mining properties in the Philippines, such broker shall be subject to payment of broker’s tax, his privilege to act as broker being recognized by Philippine
Laws. NOTE: Brokers are now subject to VAT
7. Taxation is subject to International Comity- The Philippine Constitution, under the so-called incorporation clause, has expressly adopted the generally accepted principles of international law as part of the law of the land ( Art. II, Sec. 2, 1987 Contitution). Under international comity, a State must recognize the generally accepted tenets of international law, among which is the sovereign equality of all states and their freedom from suit without their consent. Even where one state enters with another’s territory, there is an implied understanding that the former does not subject itself to the authority and jurisdiction of the latter. Hence, the principle of international comity limit the authority of a government to effectively impose taxes on sovereign state and its instrumentalities, as well as on its property held, and activities undertaken, in that capacity
Although the this principle of international comity is not covered directly or expressly by a constitutional provisions or limitations, the Supreme Court had the opportunity to rule in
Pepsi-Cola vs. Mun. of Tanauan(69 SCRA 460), x x x that a violation thereof would contravene the general clause on due process (Art. III, Sec. 1, 1987 Constitution), and any tax
thereby levied shall amount to taking of property without due process of law. The Court, further, held that the constitutional
injunction against deprivation of property without due process of law may not be passed over under the guise of the taxing powers, except when the taking of the property is in the lawful exercise of the taxing power, as when: (1) the tax is for a public purpose; (2) the rule on uniformity of taxation is observed; (3) either the person or property taxed is within the jurisdiction of the government levying the tax; and (4) in the assessment and collection of certain kinds of taxes, a notice and opportunity for hearing are provided. In a way, therefore, the due process clause can be said to be the constitutional basis for these inherent limitations.
So, in observance of international comity, property of foreign sovereign cannot be a subject of Philippine taxation.
Likewise, persons and properties exempt under International Law like salaries of ambassadors and residences of Foreign State are exempt under our domestic law in obedience to international comity.
8. Exemption of Government entities must be respected.
Government agencies performing governmental function are exempt from taxation. But, there is no law prohibiting the government from taxing it self. Thus, certain taxes are imposed on the government, such as the Value-Added Tax (VAT). Being an excise tax, the producer or the seller of goods or services may shift the burden to the succeeding buyer or until it reaches the ultimate users. Thus, in this sense, the producer or the seller may shift the burden to the government agencies if they happened to be the buyer of goods or services.
May the Government tax itself?
IN Standard Oil Co.. vs. Posadas,( 55 Phil. 715), It was held that tax statutes of the State are not construed to include its own property or that of its municipal corporation as subject to taxes although the terms of the statutes do not exempt them from taxation. The sovereign may not ordinarily tax itself or its subdivisions unless it appears from the tax statutes themselves that it subjects itself or any subdivision or instrumentality thereof to such statutes.
Under present practice, the State, in the exercise of sovereignty does not tax itself or any of its political subdivisions but the State may tax itself or any of its government owned or controlled corporations exercising proprietary functions. Hence, the GSIS and DBP are subject to
income taxes.
II. Constitutional Limitations on the power to tax.
Taxation, being an inherent power of the State, need not be cloth with any constitutional authority for it to be exercised by the sovereign state. Instead, constitutional provisions are meant and intended more to regulate and define, rather than to
grant, the power emanating therefrom.
The constitution provides for limitations upon the power to tax. These are –
1) Observance of the due process and equal protection clauses in the constitution.
a) Thus, the Constitution provides that- “ No person shall be deprived of life liberty or property without due process of law, nor shall any person be denied the equal protection of laws. (Sec. 1, Art. III, 1987 Constitution)
Due process
clause-Due process in taxation may involve previous notice and hearing. It may also refer to exercise of taxation within the territorial jurisdiction of the taxing authority. If a tax is levied for private purpose, the taxpayer is deprived of his property without due process of law. (22 J. Nolledo, Bar Reviewer in Taxation, 1998, 13th Edition).
In the following instances, due process is said to be denied in the exercise of taxation.
1. If by giving the tax law retroactive effect, there would be harshness or oppressiveness;
2. If the taxpayer is denied the right to question an assessment;
3. If a tax is levied for private purpose; and
4. If the taxing authority is exercised beyond its territorial limits.
In one case ( Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. Mun. of Tanauan , L-31156, Feb. 27, 1976), The SC
observed:
“Due process is usually violated where the tax imposed is for a private as distinguished from public purpose; a tax imposed on property outside the state, i.e.,
extra territorial taxation, and arbitrary or oppressive methods are used in assessing and collecting taxes. But, a tax does
not violate the due process clause, as applied to particular taxpayer, although the purpose of the tax will result in injury rather than benefit to such taxpayer. Due process does not require that the property subject to the tax or the amount of tax to be raised should be determined by judicial injury, and notice and hearing as to amount of tax and the manner in which it shall be apportioned are generally not necessary to due process of law.”
Denial of the equal protection
clause-There is denial of equal protection of law if there is discrimination that finds no support in reason. It suffices that (there is equal protection) the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different, both in privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the principle is that equal protection and security shall be given to every person under circumstances, which if not identical, are analogous. If law be looked upon in terms of burden or charges, those that fall within a class should be treated in the same fashion, whatever restrictions cast on some of the group equally binding on the rest. (Sison vs. Ancheta, G. R. No. 59431, July 25, 1984) The equal protection clause is, of course, inspired by the noble concept of approximating the ideal of the law’s benefit being available to all and the affairs of men being governed by the serene and impartial uniformity, which is of the very essence of idea of law. The equality is not a disembodied equality. The Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same. Hence, the constant reiteration of the view that classification if rational in character is allowable. (Ibid) The State is free to select the subject of taxation, and it has been repeatedly held that “inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.” ( Ibid) A kindred principle is uniformity and equality of taxation. The rule of uniformity does not call for perfect uniformity or perfect equality because this hardly attainable. Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. Where the differentiation complained of conforms to the practical
dictates of justice and equity, it is not discriminatory within the meaning of the constitutional clause and therefore uniform. (Ibid).
Taxpayers may be classified into different
categories.-It is enough that the classification must rest upon substantial distinctions that make real differences. In the case of gross income taxation embodied BP 135, the discernible basis of classification is the susceptibility of the income to the application of generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of compensation income are set apart as a class. As there is practically no overhead expense, these taxpayers are not entitled to make deductions for income tax purposes because they are in the same situation more or less. On the other hand, in the case of professionals in the practice of their calling and businesses,
there is no uniformity in the costs or expenses necessary to produce their income. It would not be just then to disregard
the disparities by giving all of them zero deduction and indiscriminately impose on all alike the same tax rate in the basis of gross income. This an ample then for the Batasang Pambansa to adopt the gross system of income taxation to compensation income, while continuing the system of net income taxation as regard professional and business income. (Sison vs. Anceta, supra).
2) Non-impairment of the obligations of contracts.
- No law impairing the obligations of contracts shall be passed. (Sec. 10, Id.)
3) Non imprisonment for non-payment of poll tax.
- No person shall be imprisoned for debt or non-payment of a poll tax. (Sec. 20, Id.)
4) Non-infringement of religious freedom.
a. No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof, and the exercise and enjoyment of religious profession and worship without discrimination or preference, shall be
allowed x x x (Sec. 5, Id.)
b. It has been held that it is unconstitutional to impose license fee upon the distribution and sale of bibles and other religious literature by a religious and non-profit organization. To rule otherwise would be to impair the free exercise and enjoyment of religious profession and worship as well as the right of dissemination of religious beliefs. (See American Bible Society vs. City of Manila, L-9637, April 30, 1957.)
5) Executive power to veto any separate item or items in a revenue or tariff bill.
- 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), Art. VI, 1987 Constitution.)
6) The rule of taxation shall be uniform and equitable. The congress shall evolve a progressive system of taxation.
- How does the authority to classify taxpayer be exercised?
The taxing power has the authority to make a reasonable and natural classification for purposes of taxation but the government’s act must not be prompted by a spirit of
hostility, or at the very least discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different both in the privileges conferred and the liabilities imposed. ( Reyes vs. Almanzor, G.R. No. L-49839, April 26, 1991).
- Uniformity,
defined-Uniformity is tat principle by which all taxable articles or kinds of property of the same class shall be taxed at the same rate. (Reyes vs. Almanzor, G.R. No. L-49839, April 26, 1991.)
of-Taxation is said to be equitable when the burden falls on those better able to pay. Taxation is progressive when its rate goes up depending on the resources of the person affected. (Reyes vs. Almanzor, G.R. No. L-49839,
April 26, 1991)
- Uniformity Rule Distinguished From Equality In
Taxation-Uniformity of taxation means, as already indicated, that the properties or persons of the same class must be taxed at the same rate while equality in taxation means that the tax must be imposed based on ability to pay or in proportion to the relative value of the taxable property. Courts, however, have interchangeably used the two terms.
- Instances where uniformity of taxation has been upheld:
1. A license tax was imposed on boarding stables for race horses. It was held that the imposition is valid although other boarding stables are not subject to license tax. ( Manila Race Horse Owners Association vs. De la Fuente, 88 Phil. 60.)
2. Uniformity is attained if the rates of taxes imposed on fishing privileges are classified according to the kind of fishing apparatus used by persons who apply for the privilege. (U.S. vs. Sumulong, 30 Phil. 381; cited in
Sinco, p. 578.)
3. Uniformity is likewise observed is a statute imposes a tax of two pesos a square meter or fraction thereof on every billboard or sign anywhere in the country. (Churchill vs.
Conception, 34 Phil. 969; Sinco, p. 578.)
4. There is no violation of the uniformity rule if sales tax is imposed on the sales of lumber on the basis of gross selling price while operators or proprietors of sawmills who buys logs to be sawn or cut into lumber are subject to tax on their sales based only on the 33 1/3% of this gross cost of logs purchased there being two classes of taxpayers involved. ( Lion Tiong vs. Collector L-10964, Feb. 27, 1959.) Note: Under RA 6110, computation of
the sales tax above on 33 1/3% of the gross cost of logs was repealed. The VAT has superseded the sales tax.
5. Wholesale dealers in oil are not illegally discriminated against by an occupation tax which is not exacted of wholesale dealers in such other articles or merchandise as sugar, bacon, coal, iron, and other things. (Sinco, p. 579 citing Southern Oil Co. vs, Texas, 217 U.S. 114)
6. Ordinances imposing fees at different rates within each class on foot peddlers and peddlers using carts or wagons are valid. ( Kneeland vs. Pittsbur, 10 Cent, 421.)
7. Classification of cities according to population for purposes of taxation is valid. (Sinco, p. 579.) So also, it
was held that a law granting a certain city the power to tax certain businesses or occupations, withholding such power from other cities does not violate the uniformity rule, it being the legislative domain to authorize any city what occupations to tax and withhold the same from other cities. ( Punzalan vs. Mun. Board of Manila, 50 O.G. 2485.)
8. An ordinance imposing a graduated license tax upon hotels depending on the number of rooms used for accommodation of the public is valid. (St. Luis vs. Briber, 7 Mo. Anno. 69.)
9. Condonation of taxes due and payable excluding therefrom taxes already collected does not violate the uniformity rule because the property of persons exempted constitute a class by themselves, determination of which is within the legislative domain. ( Juan Luna Subdivision, Inc. vs. Sarmiento, 91 Phil. 371.)
10. The Supreme Court held that there is no constitutional injunction against granting tax exemptions to particular persons. What the fundamental law forbids, observed
the Supreme Court, is the denial of equal protection, such as through unreasonable discrimination or classification. (Comm. vs. Botelho Shipping Corp., et al., June 29, 1967.)
11. Imposing tax on the occupation of installation managers is not discriminatory even if it happens that there is only one installation manager in the municipality. (Shell Co.
vs. Mun. of Cordova, 50 O.G. 1046.)
12. In one case, the constitutionality of the Anti-TB Stamp Law was assailed as denying equal protection of the law. The trial court held the law invalid on the ground that it singles out tuberculosis to the exclusion of other diseases which, it is said, are equally a menace to public health. The Supreme Court reversing the trial court and upholding the validity of the Anti-TB Stamp Law said that “it is never a requirement of equal protection that all evils of the same gems be eradicated or none at all.” Observed the SC: “If the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other instances to which it might have been applied.” (Gomez vs. Palomar, L-23645, October 29, 1968.)
- Cases Where Uniformity Of Taxation Was Not Adhered
To-1. An ordinance of the city of Manila levying ad valorem tax on all motor vehicles registered within the City was held as violative of the uniformity rule because the ordinance applies only to those vehicles registered in Manila and not to those vehicles which come to Manila temporarily and therefore, these vehicles also contribute to the deterioration of the city streets. (Association of Customs Brokers, Inc. vs. Municipality Board, L- 4376, 1953.)
2. A tax upon receipts of corporations operating taxicabs not levied upon individuals or partnerships engaged in similar business is invalid, the discrimination not being justified by any difference in the source of receipts or in the situation or character of the property employed. (Quaker City Cab Co. vs. Pennsylvania, 277 U.S. 389.)
3. A City ordinance imposing P50.00 permit fee upon an alien seeking employment is invalid for being excessive (not a police measure but a revenue measure) because it failed to consider substantial differences among aliens required to pay it. The same amount of P50.00 is being exacted upon any employed alien, whether a casual or permanent employee, or whether lowly or highly paid.
(See Villegas vs. Hui Chienf Tsai, 86 SCRA 270.)
statutory limitations or restrictions.
- The Congress may, by law, authorize the President subject to such limitations and restrictions as it may impose, to fix, within specified limits, tariff rates, import or export quotas, and tonnage and wharfage dues, and other duties or impost within the framework of the national development program of the Government. (See Sec. 28(1), Art. VI, Id .)
8) Exemption from property tax of non-profit cemeteries, charitable institutions, churches and parsonages or convents appurtenant thereto, mosque and all lands, buildings and improvements used exclusively, actually and directly for religious, charitable or educational purposes. (See Sec. 28(3), Art. VIII, Id.)
- Nature of exemption of property used for religious, charitable, etc.
purposes-The exemption of churches, non profit cemeteries, lands, buildings and improvements used exclusively for charitable, religious or educational purposes refers only to exemption from property tax. Thus, if the church receives donation, donor’s (and donee’s) taxes must be duly paid because these taxes are not property but excise taxes. (see Fr. Casimiro Lladoc vs, Commissioner of Internal Revenue, L-19201, 16, June 1965.) Note: Pd No. 69 eliminated the donee’s tax.
It was held that the residence of the Catholic Archbishop of Manila 80 to 100 meters away from the Cathedral Church was tax exempt. (Catholic Church vs. Hastings, 5 Phil. 701.)
- The tax exemption covers property taxes only; accordingly, a conveyance of such exempt property can be subject to transfer taxes. (see Hodges vs. Municipal Board of Iloilo City, 19 SCRA 28.) Special levies or assessments, not being taxes, are not covered by the exemption (see Apostolic Prefect vs. City Treasurer of Baguio, 71 Phil. 547.) But, the Local Government Code, extends the exemption to special assessments.
- Exemption extends to facilities “incidental and reasonably necessary for” the accomplishment of said religious, etc. Purpose.
The exemption in favor of property used exclusively for charitable purposes is not limited to property actually “indispensable” therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends to facilities which are “incidental to and reasonably necessary for” the accomplishment of said purpose, such as in the case of hospitals, “a school for
training nurses, a nurses’ home, property used to provide housing facilities for interns, residents doctors, superintendents, and other members of hospital staff and recreational facilities for students, nurses, interns, and residents” (84 C.J.S. 621), such as athletic “fields”, including “a farm used for the inmates of the institution” [Cooley on Taxation, Vol. 2, p.430]. (Herrera vs. Q.C. Board of Assessment Appeals, 3 SCRA 186).
An adjacent ground or vegetable garden destained to the incidental use of the parish priest in his ordinary life is tax exempt. Likewise, a lot formerly a cemetery used as lodging place for those who participate in religious ceremonies for the dead is exempt from tax, there being incidental use in religious functions. ( Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte, 51 Phil. 252.)
- In the case of Abra Valley College, Inc. vs. Aquino (G.R. No. 39086, June 15, 1988 {162 SCRA 106}, it was held that the portion of the school building which was being used for the residence of the school director was exempted from the real property tax, but another portion thereof which was being leased to a marketing firm for commercial purposes was subjected to tax.
- The test of exemption is the “use” of the property.
The 1987 Constitution specifically requires that the property be “actually” and “directly” used for religious, educational or charitable purposes. It would thus appear that ‘idle” land of, or property let to others for unlike purposes although owned by, religious, educational and charitable institutions could be subject to real estate tax. The test, therefore, is use. ( Abra Valley College, Inc. vs. Aquino, 162 SCRA 106) The issue of title or ownership is not relevant; accordingly, a piece of real property that is leased for a consideration by a religious entity, which is then used by the latter actually, directly and exclusively for religious, educational or charitable purposes would be exempt from
property taxes. (see Roman Catholic Church vs. Hastings, 5 Phil. 701; Bishop of Nueva Segovia vs. Provincial Board, 51 Phil. 352, but, see Opinion of Secretary of Justice of 14
January 1941).
9) All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties. (Sec. 4(3) Art. XIV, 1987 Constitution.)
- The above provision covers exemption from tax of revenues and exemption from customs duties of importation.
- Meaning of the term ‘exclusively”.
The term “exclusively” means primarily, not Solely ( Herrera vs. Board of Assessment Appeals, 3 SCRA 186). Thus, the admission of pay patients does not detract from the charitable character of a hospital, if all its funds are devoted exclusively to the maintenance of the institution as a “public charity” (84 C.J.S. 617 ); see also 51 Am. Jur. 607; Cooley on Taxation, Vol. 2, p.1562; 144 A.L.R. 1489-1492). In other words, “where rendering charity is its primary object, and the funds derived from payments made by patients able to pay are devoted to the benevolent purposes of the institution, the mere fact that a profit has been made will not deprived the hospital of its benevolent character” ( Praire Du Chian Sanitarium Co. vs. City of Praire Du Chian, 242 Wis. 262, 7NW[2d] 832, 144 A.L.R. 1480). The fact, therefore, that a hospital, which is a charitable institution, admits paying patients does not bar it from claiming that it is devoted exclusively to benevolent purposes, if the income derived from pay patients is devoted to improvement of charity wards which represents two-third (2/3) of the bed capacity of the hospital, aside from “out-charity patients” who come only for consultation.
10) Subject to conditions prescribed by law, all grants, endowments, donations, or contributions used actually, directly, and exclusively for educational purposes shall be exempt from tax. (Sec. 4(4); Art. XIV, 1987 Constitution).
11)Tax money collected for special purpose must be applied only for that purpose.
- All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the government. (Sec. 29 (3), Art. VI, Id.)
- The Supreme Court ruled in Gascon vs. Republic Planters Bank (158 SCRA 626) that the “stabilization fees” collected by the State (PHILSUCOM) for the promotion of the sugar
industry were in the nature of taxes and no implied trust was created for the benefit of sugar producers. Thus, the revenue derived therefrom are to be treated as a special fund to be administered for the purpose intended. No part thereof may be used for the exclusive benefit of any private person or
entity but for the benefit of the entire sugar industry. Once the purpose is achieved, the balance if any remaining, is to be transferred to the general funds of the government. (See Art. VI, Sec 29, par. 3, 1987 Constitution).
12) Prohibition against use of public funds for sectarian purposes.
- No public money or property shall be appropriated, applied, paid, or employed, directly or indirectly, for the use, benefit,
or support of any sect, church, denomination, sectarian institution, or system of religion, or of any priest, preacher, minister, or other religious teacher, or dignitary as such, except when such priest, preacher, minister, or dignitary is assigned to the armed forces, or to any penal institution, or government orphanage or leprosarium. (Sec 29 (2), Art VI, Id.)
13) No law granting any tax exemption shall be passed without the concurrence of a majority of all the members of the Congress. (Sec. 28(4) Art VI, Id.)
- Note the use of the words “majority of all the members of the Congress”, not just majority of a quorum. A tax exemption being an exception to an imperative power of taxation, it
needs a bigger vote in the legislature.*
• Asked in the 1989 Bar Exam. The Question is: Does the
Constitution provide for any limitation on the exercise of the power of Congress to grant tax exemption? Explain.
14) No money shall be paid out of the treasury except in pursuance of an appropriation made by law. (Sec. 29(1), Art VI, Id.)
15)All appropriation, revenue or tariff bills, bills authorizing increase of public debt x x x shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments. (Sec. 24, Art. VI, Id.)
16)Non-impairment by Congress of the Supreme Court jurisdiction to review, revise, reverse, modify or affirm on appeal or certiorari final judgements or decrees of inferior courts in, among others, all cases involving the legality of any tax, impost, assessment or toll or any penalty imposed in relation thereof. (Sec. 2 and 5, Art. VIII, Id.)
17)
Miscellaneous-- The provisions on appropriation in sec. 25 of Art. VI of the `1987 Constitution can also be considered as constitutional limitation on the power to tax. Thus, among others, the Congress may not increase the appropriations recommended by the President for the operation of the Government as specified in the budget; no provision or enactment shall embrace in the general appropriations bill unless it relates specifically to some particular appropriation therein; a special appropriations bill shall specify the purpose for which it is intended and shall be supported by funds actually available as certified by the National Treasurer, or to be raised by a corresponding revenue proposal therein; in general, there should be no transfer of appropriations; discretionary funds appropriated for particular officials shall be disbursed only for public purposes to be supported by appropriate vouchers and subject to such guidelines as may be prescribed by law, etc.
- Taxation is subject to and subordinated by constitutional provisions and precepts; hence such set of rules as those affecting Due process (Pipsi-Cola Vs. Mun. of Tanauan, 69 SCRA 460), Separation of Church and the State (See Garces vs. Estenzo, L-53487, 25 May 1981 ), as well as the non-impairment clause (where the taxing authority binds itself in contracts), may also affect, although indirectly,
taxation. In this context, it has been said that taxation is the weakest of all the three sovereign powers of government as distinguished from the scope of area that taxation can cover and reach over which matter it is concededly the strongest( See Sison vs. Ancheta, G.R.59431, 25 July 1984, 130 SCRA 654).
- The Supreme Court in American bible Society Vs. City of Manila held: “ The constitutional guaranty of the free exercise and enjoyment of religious profession and worship carries with it the right to disseminate religious information. Any restraint of such right can only be justified, like other restraint of freedom of expression, on the ground that there is a clear and present danger of any substantive evil which the State has the right to prevent. x x x. It is true, the price asked for the religious articles was in some instances a little bit higher than the actual cost of the same, but this cannot mean that plaintiff was engaged in the business or occupation of selling merchandise for profit. For this reason, the provision of City Ordinance No. 2529, as amended, which requires the payment of license fee for conducting the business of general merchandise, cannot be applied to plaintiff society for, in doing so, it would impair its free exercise and enjoyment of its religious profession and worship, as well as its right of dissemination of religious beliefs. Upon the other hand, City Ordinance No 3000, as amended, which requires the obtention of the Mayor’s Permit before any person can engage in any business, trades, occupations enumerated therein, does not impose any charge upon enjoyment of a right granted by the Constitution, nor tax the exercise of religious practices. Hence it cannot be considered unconstitutional, even if applied to plaintiff society. But Ordinance No. 2529 is not applicable to plaintiff and the City of Manila is powerless to license or tax the business of plaintiff society involved therein, for the reason above stated, Ordinance No. 3000 is also in applicable to said business, trade or occupation of the plaintiff.
“ x x x.
“We do not mean to say that religious groups and the press are free from all financial burdens of government ( See Grosjean vs. American Press Co., 297 U.S. 233, 250, 80 L. Ed. 660, 668, 56 S. Ct. 444). ‘We have here something quite different, for example, from a tax on the income of one who engages in religious activities or a tax on the property used
