Law on Basic Taxation - BBAban Ch1-4

TABLE OF CONTENTS Page

EIC{:I

(lhapter I. GENERAL PRINCIPLES

m Assoclation of Lnw Studenh of the Phlllppines Itfuulr awardr this

CERTIFICATE OF APPRECIATION

1 ,'flilxation Defined 1 .'l'axes Defined 3 Irnportance of Taxes ..'.'....".....'. 3 '['axes, Personal to Taxpayer 4 Nature of the Taxing Power 5 of Taxation and Objectives lurposes /'l'heory 7 and Basis of Taxation 8 ............'.'...... /lcope of the Legislative Taxing Power 9 ls the Power to Tax the Power to Destroy? Constitutional Restraints Re: "Taxation is the 9 Power to Destroy" 11 Power of Judicial Review in Taxation .:.............'....

Aspects of

llasic Principles of a Sound Tax System Taxation Distinguished from Police Power and Eminent Domain Taxes Distinguished from Other Impositions Taxes Classified Taxpayer's Suit............

tu{rs, 9{ntwilnd A, 6 an d f affiiqy For thoir kind underctrnding and generooity in allowing the Association of Law Students of tlto Ptilippino to grart to thcir patriarch thc posthumous BENJAMIN B. ABAN t-AW PROFESSOR

Cases Exercises

OFTHEYEARAWARD; For such gesturo, thoy havc allowed thc Aesociation, in its very modcst wa5 to show apprcciation for thc contribution of Profoasor BENJAMIN B. ABAN in a vory domanding disciplinc which he faithfully sorvod whilc rtill living, ths Award givon during the loth National Confercnce of Law Students throughout thc couutry wherc Oe studoflts discussed the thems "The Rolc of law Students in tho Next

Millotnium."

Taxation

C)

- kl,''"t.'-('tmnuofw meNcrscA

A. caBIE

National Ctairman

13 14

23 28 29 49

hapter II. LIMITATIONS ON THE TAXING POWER Inherent Limitations on the Taxing Power

Given thie 7th day of Novembcr 1999, at Oc Traders Hotel, Roxag Boulovard, Metro Mmila.

L2 12

B. Non-Delegability of the Taxing Power C. Tenitoriality or the Situs of Taxation D. Exemption of the Government from Taxes E. International Comity Constitutional Limitations on the Taxing Power Constitutional Limitations Explained ..'...'.......... A. Due Process of Law B. Equal Protection of the Law ............ C. Freedom of Speech and of the Press D. Non-Infringement of Religious Freedom E. Non-Impairment of Contracts vtl

53 53 54 57 64 65 66

o/ 67 70 73 75 77

rI TABLE OF CONTENTS

LAW OF'BASIC TAXATION IN THIT P}IILIPPINES

Page

Poge

Non-Imprisonment for Debt or Non-Payment 80 of PoIl Tax ........'... -80 BiIIs Tariff and ".'"""' G. Origin of Appropriation, Revenue H. Uniformity, Equitability and Progressivity of Taxation ' 81

F.

I.DelegationofLegislativeAuthoritytoFixTariffRates,

J. K. L.

83

Import and Export Quotas, etc' ".'""""' Tax Exemption of Properties Actually, Directly and Exclusively Used for Religious, Charitable and

84

Voting Requirements in Connection with the Legislative Grant of Tax Exemption Non'Impairment of the Supreme Court's Jurisdiction

87 87

in Tax Cases M. Tax Exemption of Revenues and Assets, including Grants, Endowments, Donations or Contributions to Educational Institutions """"""' Provisions Related to Taxation Constitutional Other

88 92 94 110

Cases

Exercises

ChapteTIII.DoUBLETAXATIoNANDTAxEXEMPTIoNS

""' Double Taxation Defined Taxation Double """"""""" Against No Prohibition "" Kinds of Double Taxation Taxation """"".'""""""""""' Means Employed to Avoid Double

113 113 113 115 118 118 118 120

""""" Tax Exemptions.....'...'. ""' Tax ExemPtions Kinds of """""" Exemptions Tax """""' Principles Governing "".'""""' Illustrative Situations on Tax Exemptions Tax-Exempt Persons Required to Keep Books of Accounts """"' 124 """""""""' L24 Tax Avoidance; Tax Evasion; Tax Fraud ................... 128

cases Exercises

Chapter IV.

""""""

141

TAX LAWS AND REGULATIONS

Nature of Tax Laws .--'.'.... Interpretation of Tax Laws Sources of Tax Laws ......'...

""

143

"""""""""""

144

"'

VIII

145

........ 145 Mandatory and Directory Provisions ................. ....... L47 Ilublication Requirement .................. ................... 148 Are Tax Laws Special Laws? 'l'ax Regulations .......... .......... 148 1'ax

Rulings..................

.......... 149

I'ower of the Commissioner to Interpret Tax Laws ..................... 150 and to Decide Tax Cases

Non-Retroactivity of Rulings Legislative Adoption of Tax Rulings Doctrine of Implications.............. 'lax Treaties and International Agreements

Cases Exercises

................... ...... ............. .......,.... .........,.,....... ............

150

L52 L52 153 154 168

Chapter V. TAX ADMINISTRATION AND ENFORCEMENT ..... Agencies Involved in Tax Administration ............ .................... Bureau of Internal Revenue Agents and Deputies for Collection of National Internal .................. Revenue Taxes Powers and Duties of the Bureau of Internal Revenue ............... Power and Duty of the Commissioner to Interpret ........... Laws and to Decide Tax Cases Appellate Jurisdiction of the Court of Tax Appeals ..................... ....... RuIe of "No Estoppel Against the Government"

Is There Estoppel Against the Taxpayer? .............. ................ Nature and Kinds of Assessments.............. ......... Principles Governing Tax Assessrnents............ Investigative Powers of the Commissioner; Factual Basis of Assessments................. ............... .......... Means Employed in the Assessment of Taxes A. Examination of Returns; Confidentiality Rule ................... B. Assessments Based on the Best Evidence Obtainable ......' C. Inventory-Taking, Surveillance and Presumptive ............ Gross Sales and Receipts.................. ..... D. Termination of Taxable Period ..... E. Fixing of Real Property Values ........... F. Inquiry into Bank Deposits Tax Agents.................... Registration of Accreditation and G.

170 170

172 172

L72 173

173

... L75

ix

175 176 178 779. 179 181

182 183 183 183 184

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H. Imposition of Additional Procedural or Documentary Requirements.'..".'.... Enforcement of Forfeitures and Penalties... Supervisory and Police Powers of the BIR '...'......' Authority of the Commissioner to Delegate Power Powers and Duties of the Regional Director Duties of Revenue District Officers and Other Internal Revenue Officers

Puge

Page

188 188

()olk-rction Thru Filing of the BIR's Answer in the CTA.".........'. 248 l,inbility of Stockholders for Unpaid Taxes of ..... 248 Dissolved or Defunct Corporation

......'.......

t92 1.92

193

794

198

Brief Survey of Compliance Requirements, Statutory Offenses and Penalties ........."..... A. Compliance Requirements B. Statutory Offenses and Penalties ... ".....'..... L Additions to the Tax ............:.............i,'." II. Statutory Offenses and Penalties ..............'. a. General Considerations ..............

198 198 207 207 21_3

2t3

Survey of Some Specific Offenses and Penalties '.. 214 222

.............

223

Cases

qqo

Exercises

Chapter VI. TAX REMEDIES REMEDIES OF THE GOVERNMENT 23t ...'.....:......-........ Importance of Tax Remedies 231 Tax Collection" to Restrain Rule on "No Injunction Collectibility of Tax as a Basis for Collection Enforcement ......' 232 233 Remedies of the Government '.........'...... 233 Tax Liens Compromises................

Collection by Distraint and

235

Levy

Civil Action Collection in Cases Where the Assessment is Final

(1lscs l,lxorcises

.......".'.....- 250 ........-'.....'...' 250 ...'..'...'....... 255 .,....'..-. 265

195

Sources of Revenue

b. c. Forfeitures

(lollcction Thru Application of a Disputed Tax Against a Refundable Tax (lrirninal Action

.........:.' 237 244

and Unappealable Collection in Ca'bes Where the BIR's Decision is '."""""" Final, Executory and Demandable .........' Defenses Precluded by Final and Executory Assessments ......." .".""" Prescription of Government's Right to Assess

(ihlpter VII. TAX REMEDIES - BEMEDIES OF THE GOVEBNMENT - STATUTE OF LIMITATIONS l)rcscription of Government's Right to Assess Taxes ........'....-.-.- 267 Whon is a Tax Assessment Deemed Made? ".'..."..-... 268 ll,Lrlease of Assessment Notice or Demand Before the --.-.... 269 Lapse of the Prescriptive Period I rnportant Considerations Re Prescription of (lovernment's Right to Assess Taxes ....................270 A. Date of Filing Tax Returns - A Material Factor in Resolving Questions on Prescription..'.."'.. ". ............. 27 O ...........-..'- 277 B. Effect of Filing an Amended Return ......'.'.......272 Wrong Return'.'...'. C. Effect of Filing a D. Period Applicable When the Law Does Not Require ........... 272 the Filing of Any Return E. Applicable Prescriptive Period if Taxpayer Fails ....'...........:..-. 273 to File a Beturn.... F. Prescriptive Period of Assessment When There ..................274 is Fraud llrescription of Government's Right to Collect Taxes .'.....'......'... 281 ...................287 I4quitable Recoupment and Preecription ...............'..'.. 287 Interruption of the Prescriptive Period .'.............'-'... 293 RuIe of Prescription in Criminal Cases When Defense of Prescription May be Raised Even on Appeal .. 294 Prescriptive Period in Criminal Cases ' When Does It ......-.- 294 Start to Run? ..........

245

't

246

Exercises

........... 311

247

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TAXA'I'ION

'IAIILE ()l'(I0NTENTS

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Chapter

VIII.

('hlptcr X. LOCAL TAXATION

TAXPAYER'S REMEDIES

...'.'....'....' Nrrture and Source of Local Taxing Power Law .'....................' Existing under Power Taxing lrant of Local I)ower to Prescribe Penalties for Tax Violations "' and Limitations Thereon....-.'.........' .............'....".' l'ower to Grant Local Tax Exemptions ..........'.."."."' l'ower to Adjust Local Tax Rates....."... ll,osidual Taxing Powers of Local Governments........,.'.......'." "" " """""' l'rcemption or Exclusionary Rule Power Taxing of Local lrundamental Principles """'

"""" 313 Administrative Protests """"""""" Effect of Taxpayer's Failure to File an Administrative of Protest o" to App"ul the BIR's Decision to the Court "" 320 Tax Appeals .,'........'..... Refund or Recovery of Erroneously or IIlegaIIy """""""' 321 Collected Taxes 325 Distinction Between Tax Refund and Tax Credit""""""""""""'

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IsPaymentUnderProtestNecessaryinClaimsforRefund?....,326 Principle of Equitable Recoupment in Relation to

lrr-rndamental Principles Briefly Explained ()ommon Limitations on Local Taxing Power ()ommon Lirrritations Explained l,cvying of Local Taxes - Local Ordinances llrief Survey of Taxes and Other Impositions that Local Governments May Levy - Enumerated Taxes

"' Tax Refunds....."...."""' Refund """"""' 336 Legal Capacity of Withholding Agents to Claim """"""""""' 337 Interest on Tax Refunds""' 336

Cases Exercises

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338

352

Situs of Local Taxation ........'...'. ()ommon Revenue-Raising Powers ......'.......'.. Oommunity Tax............. (lollection of Local Taxes tlemedies of the Taxpayer in Local Taxation

Chapter IX. COURT OF TAX APPEALS

'""""" 354 Origin of the Court of Tax Appea1s""""""""" """"" 354 Salient Features of the Court of Tax Appeais Cases Organization, Quorum; Disposition of "Brought """"""""""" 355 Before the Tax Court""""" """"' 356 Powers of the Court of Tax Appeals """"""""" """""""""' 356 Jurisd.iction of the Court of Tax Appeals """""" 359 "Compromise Penalties" and the CTA """""' """""""""' 359 Whose Decisions Are Appealable? """""' Finality of """' 360 The Question What Decisions Are Appealable "' 362 Appeal"""' Tax Collection Not Suspended During """"""""' 363 Thirty-Dav Prescriptive Period of Appeal AdministrrrtiveActionsTantamounttoAppealableDecisions'..366 """"' 369 Appeal from Decisions of the CTA 374 """""" Interlocut,ory Orders """""' 375 Findings of Iract of the CTA, Not Reviewable """"" 379 Ancillary Jurisdiction of the CTA """""" 380 Other Matters Bearing upon the CTA """""' """""""" 380 Damages in C'l'A Proceedings Cases Exercises

""""""""" """""

381 388

(lases I,)xercises

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391 393 394 394 396 396 397 399

.".""."""

400

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401 402 406

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407

........"."' 412

"""""" 416 """' 4L7 .... 418

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422

.................. 424

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434

llrapter XI. REAL PROPERTY TAXATION

"" 436 A. Substantive Aspect of Real Property Taxation """"""""' 436 Real Property Tax Defined Nature and Scope of the Local Taxing Power in ReaI Property Taxation '.."""""" 437 """""" 438 Extent of Local Taxing Power Power to Prescribe Penalties for Tax Violations '."""""""""' 438 Fundamental Principles Governing ReaI Propertv Taxation """""""' 439' Tax 441 from Exempt Properties Exemptions Tax of Question """"" 442 Proof of Tax Exemption......'.""' Brief Survey of Cases Involving Real Property """"""""" 443 Tax Exemptions......'.."

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""""""""""" 444 Real Properties Subject to Tax""""' Taxability of Some Court Rulings on the Question "" 445 of Real ProPertY."' Taxation """""""" 447 "I]se" and "Ownership" In Real Property is Rule Applied Where the Person Assessed 448 Neither Owner Nor User - Concordiu Lim Case"""""""' 450 B. Administration of the Real Property Tax """"""""""""""""' Administration the Basic Considerations Relating to ""' 450 of the ReaI Estate Tax """"""' 450 """"' I. Administrative Requirements """""""" II. Listing of Property for Assessment Purposes """""' 452 Assessment RoIl """""" "" 452 tII. ReaI Property Tax Assessment in General """""" 455 IV. Mechanics of Assessment """""""""" 458 C. Remedies in ReaI Property Taxation ""' 458 I. Remedies of Local Governments """".'".'" """""" 462 II. Remedies of the Taxpayer 462 (a) Remedy Against the Assessment """"""""""""""""" Appeals """"""" 464 ( i) The Local Board of Assessment Appeals """"" 464 (ii) The Central Board of Assessment of pffect Payment of Appeal on the (iii) """"""""""" 464 RealProperty Tax """"' (b) Administrative Protest (c) Tax Refund or Credit

Special Levies on Real Property """""""" Condonation of ReaI Property Taxes

Cases Exercises Chapter

XII. TARIFF AND CUSTOMS

""""" 465 .'"""""' 466 """"""""' 466 """ 468 """"""".'" 468 """""" 489

LAWS

A. Substantive Aspect of Tariff and Customs Laws """""""""" Meaning and Scope of Tariff and Customs Laws """""""""" """"""""" Nature of Cusioms Duties and Tariff" Purposes Duty """.'""""""""' Customs for Goods of Concept """"""""" Kinds of Goods Liens """"" Tax and """"' Importation, Liability Jurisdiction and Importations Vis-i-vis Powers of the Bureau of Customs Kinds of Customs Duties

"""' ""' """""""""'

492 492 493 493

494 506 507 507

........... Vrrlrration of Goods ...... Ilonro (lonsumption Va1ue (HCV) .......... l,'lcxible Tariff ......... It. Acl ministrative Aspect of Tariff and Customs Laws...............

508 510 511 513

'l'rrriff Commission ........... 513 .......... 515 of lltrreau Customs ................."".. 515 lrrrnctions of the Bureau of Customs Ot,hcr Powers and Duties of the Bureau of Customs ........"..... 515 (' l'rricr.rdural Aspect of Tariff and Customs Laws ................"..'.. 515 Nirt,ure of Customs Protesb; Seizure and Forfeiture Cases.... 515 porfeiture Cases .......... 515.................... 516 I)rocedure in Customs Protest Cases ......... 518 Atrl,omatic Review in Customs Proceedings (ltrstoms Seizure and Forfeiture Cases - Basic Concepts......' 518 Srrrne Court Rulings on Searches and Seizures ..................-.... 521 (iustoms Forfeiture Actions ................ 523 ...........536 l'roperties Subject to Forfeiture................. (lornmon Carriers; Forfeiture ............. 538 oLhcr Considerations Affecting Seizure and .......... 538 lt'orfeiture Cases Sorne Illustrative Court Rulings on Customs Forfeiture Cases '...'....'..' 539 ( )llrcr Considerations Relating to Tariff and Customs Cases .... 541

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................... 543

............577

Chapter I GENERAL PRINCIPLES 'I'AXATION DEFINED. Taxation is the power by which the its law-making body, r35:'s revenue to defray llrl rrccessary expenses of government. Ii is merely a way of :rplrort,ioning the costs of government among those who in some ,r{,!(.r'ci[an, through

lll1,]ll.ittrearepriv@efitsandmustbearitsburdens

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Jur.

34).

Irr one decided case, the Supreme Court of the Philippines it as a "syml:iotic" relationship whereby in exchange for I lrr. lrrgtoction thaf lhe citizens gel from the Government, laxes are al., L-28896, ;,,r rrl (( iLtn'rrnissioner of ll,ternal Reuenue u. Algue, Inc., et

rl,'r;t:r'illcd

17, 1988). 'l'hc rationale of taxation is graphically described by the Supreme ('.lu't, in these words: "It is said that taxes are what we pay for , rv rlized society. without taxes, the government would be paralyzed 1,,r. lltck of the motive power to activate and operate it. Hence, despite tlrc rrirtural reluctance to surrender part of one's hard-earned income Io l [rr taxing authorities, every person who is able must contribute lr rs share in the running of the government. The government for its 1,rr|t, is expected to respond in the form of tangible and intangible lrr,rrofits intended to improve the Iives of the people and enhance llr('ir moral and material values. The symbiotic relationship is the I rrl,ionale of taxation and should dispel the erroneous notion that it r:r irn arbitrary method of exaction by those in the seat of power" I,','1,.

(:;tr.pra).

Moreover, fair-dealing on both sides of this symbiotic relationship

rs ()1'paramount importance in order to maintain its harmonious r.lritracter. As stated by the supreme court, "taxpayers owe honesty l.o government just as government owes fairness to taxpayers" 1(lommissioner of Interna.l Reuenue u. Tokyo Shipping Co., Ltd., etc.,

al., G.R. No. 68252, May 26, 1995). "If the State expects its Laxpayers to observe fairness and honesty in paying their taxes, so rnust it apply the same standards against itself x x x' No one' not .ven the Siui", should enrich itselfat the expense ofanother' x x x" (BPI-Family Sauings Baruk, Inc. u. Court of Appeals, et al., G.Rr't,

No. 122480,

Apr. 12, 2000)'

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'rAxES DEFINED. 'faxr:s arc trrc e.rbrcect pr.port,io,.r contributions from persons and property leviecl by the law-making body of the state by virtue of its sovereignty for the support of government and for public needs (l Cooley 62_65). From this definition, the foilowing may be said to be the attributes or characteristics of taxes: (a) A tax is a forced charge, imposition or contribution and as such it operates in inuitum, which means that it is in no way dependent on the will or contractual assent, express or implied, of the person taxed. They are not contracts, either expressed or implied, but positive acts of government (Rochester u. Bloss, lrs Ny 42, zr NE 794, 61 LRA [NS] Ann T, Cas. 1S). (b) It is a pecuniary burden payable in money, such that a tax is not necessariiy confined to those payable in money (r cooley 6J), as in the case, for instance, of backpay certificates which under R.A. 304 could be used as payment of taxes (De Borja u. Geila,

L-18330, July 31, 196J). In one case, the supreme court held that backpay certificates under R.A' 304 may be used to pay real estate taxes (Tirona u. city Treasurer of Manila, et al., L-24607, Jan. 2g, 196S). (c) It is levied by the legislative body of the state because the taxing power is peculiarly and exclusively legislative in character (51 Am. Jur. 71). Taxes are obligations created by la* (Vera, etc., et al. u. Fernarudez, etc., et al., L-SlJ64, Mar. 50, lif il. (d) It is assessed in accordance with some reasonable rule of

apportionment, which means that conformably with the constitutional mandate on progressivity of a taxing system

(sec. 28[1J, Art. vI, 1g8T constitution), taxes must be based on ability to pay. Do regressiue taxes go against the constitutional mond,ate in, Sec. 28(1), Art. VI of the Constitution? In the case of Philippi*e Airli*es, Inc. u. secretary of Fi*ance, et al. (G.R. No. 115852, Oct. 30, 199b [Resolution]), and companion cases' the supreme court, in upholding the validity of the Expanded Value-Added Tax Law (R.A. 7716), said: "The constitution does not realry prohibit the imposition of indirect taxes which, Iike the VAT, are regresslve. What it simply provides is that congress shaUeuotie a progressive system of taxation.'x x x Resort to i,direct taxes should be minimized but not ouoided entirely because it is difficult, if

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rr.l nulrossible, to avoid them by imposing such taxes ,,,,,,r'rling trgaYer'

lnr:itlentally, the power to tax is not granted in the Constitution' d6 not t ',,rr;il rt.ulictnal provisions relating to the power of taxation rr1,r'r;rlt its grants of the power oitaxation to the Government,,"Wrt I rrr';l.ir(l rnerely .orrrtgrrgliA$gtions upon a power yhich would ,,1lr, r'wrst'be pr?[tically without limtt' and A:; trlready mentioned, the taxing power is- peculiarly the in undiminished , ,., lrr:rivcly Iegislati,re in character and remains and thereof'glear 1,,1.r:;l:rt,rtre in the absence of an express surrender

..1,lrt.it,initsterms(sl,q,*Jur.il-zavIrbe_@9t t,, ittlrorcnt and constitutional iimitationb'

I'I III I'OSES AND OBJECTIVES OF TAXATION (ti Reuenue - Basically, the purpose of taxation is to provide welfare , ,,,,i,,i,,.'fr fo with which the State promotes the general 71'73)' (51 Jur' Am' ,,,,1 1,r'ol,cct,ion of its cilizens in rltt,77..---Repulation. - Taxation also has a regulatory purpose as r1,,.(:rse of taxes tevied on excises or privileges like thoseimposed like night ,,rr l,lraggo and alcoholic products, or amusement places 1,,

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"[bu""tr, ,l,,,xation-is not

rnlely a power that is exercised in order to raise also be r(,\'(.nue for the ,rppori of the Government' Taxes may in the ,,,'t,osed for a regulatory purpose as' for instance' wXiEET iqdg.ltry ,, b ilitatio' urrd. itubitiruiio.r-gi ",lhreatened Tte;Ffrlloi[ffi' ,,''i,.,'r; 8' 1992)' trrr' o. Commission o"=a-,"ait, et al', G'R' No' 92585' May (t'.\ Prom.otion. of General Welfare - In one decided case' the .

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be used as an imPlement of of the peopie. rl,,: police power in order to promote the general welfare 'lhus, in the case of Lutz u' Araneta (98 Phil' 148)' the Supreme

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('orrrt upheld the validity of the Sugar Adjustment Act' which the law was to ,rrrposed a tax on milled sugar since the purpose of

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strengthen an industry that is so undeniably vital to the economy the sugar industrY. How the police power is enhanced through taxation is further illustrated in the existence of the oil Price stabilization Fund (oPSF), a device designed to protect the public from the adverse effects of fluctuations in the prices of imported crude oil' As ruled in the case qf Osmefi,a u. Orbos, etc., et ol' (G'R' No. 99886, Mar. 31, 1993), while the funds collected under the OPSF may be referred to as taxes, they are exacted in the exercise of the police power of the State. From such fund, amounts are drawn to reimburse oil companies when appropriate situations arise for increases in, as well as under-recovery of, the cost of crude oil importation. (d) Red.uction of social Inequality - This is made possible through the proglessive system of taxation where the objective is to prevent the undue concentration of wealth in the hands of a few individuals. Progressivity is keystoned on the principle that those who are able to pay should shoulder the bigger portion of the tax burden' Incidentally, the present rates ofincome, estate and gift taxes present a good example of progressivitY. (e) Encourage Economic Growth - Taxation does not only raise public r&enue, but in the realm of tax exemptions and tax reliefs, ior instance, the purpose is to grant incentives or exemptions in order to encourage investments and thereby promote the country's economic growth. It is worthwhile to note that since the power to tax is inherent in the state, the power to exempt from tax is inherent in the state also. This is not necessarily so in the domain of local taxation. Since in local taxation, the taxing power is only delegated, i.e., either under the constitution or by virtue of legislation or both, it follows that in order to grant tax exemptions, Iocal governments must justify its exercise under constitutional or statutory law or both, as the case may be. In the Locai Government code (sec. 192),local governments may grant tax exemptions. It is, however, significant to note that with respect to real property taxes, no such power exists, save in the case of condonation of taxes which can be granted only for certain justifiable reasons which are expressly stated in the law (see Sec. 276, Local Gouernment Code). (fl Protectionism - In some important sectors of the economy, in tlTe case of foreign importations, taxes sometimes provide as

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lrurl industries like protective tariffs and customs

'l'll l'l()ltY AND BASIS oF TAXATION. There are two reasons I lr. r'xcrcisr,' by the state of its taxing power is justified. one is

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the other is the grant of Brotection and benefits by its citizens. ' (rr) ly'r,r'.:ssity Theory - Taxes proceed upon the theory that the r''',lr'rrr:t'o['government is a qecessity; that it cannot continue ,: rr l,rr I I lre rneans to pay its exp?nse_-$ and that for those means, it l,r , rlr. right, to compel all citizens and property within its limits to ,, r,lr rlrrrlt,(5/ Am. Jur.42). \, , ,r'rli.g tpour supreme court, taxation is a power emanating lr 'r, .,'(','s*i!rf It is a necessary burden to preserve the. state's ,,,\. r,.'sirrtydnYa means to give the citizenry an army [o resist ,,r,l,rt,,r,,r,,ni a navy to defend its shores from invasion, a corps ofqvil ,,r r r irrl. l. serve, public improvements designed for the enjoyme\t ,,t tlr,'r'rlrzcnry and those which come within the state's territor\ 'rrr,l lrr.rlities, and protection which a government is supposed to. I',,,\ r(li. Ql 'hilippine Guaranty Co., Inc. u. Commissioner of Internal /i, ,,, ,rrriJ t'l ttL., supra). rl,t 'l'lrr llenefits-Protection Theory - According to this theory, r lr, I ll;r l. rlcrnands q]}d :eceives taxes from the subjects of taxation ,, r r lr r r. r ,,lii-.iJai"tio" ro trruilt mayTe enabled to carry its mand.ate irr I , r r'l l,'r'1, irnd perform the functions of governmentl/and the citizen 1',,1 , lr,,rrr his property the portion demanded in order that he may, l,: rrrr':rrrs t,hereof, be secured in the enjoyment of the benefits of ., r. ,r rr r;,,'tl society. However, the foundation of the obligation to pay r ,r 'i,' , rr,l, t,he privileges enjoyed or the protection given to a citizen ',, l,r tlr,.(lrv.rnment, although the payment of taxes gives a right to ni't,', lr,r.; lroth are enjoyed as well by those members of a state ,, lr,, rlrr rrot, pay taxes because they are not able to do so (51 Am. tttr l:: '1,'t). l\lrrlr,rrver, as pointed out in the Algue, Inc. case, supra, in r '., lrr,rit' lirr the protection that the state gives to its citizens, taxes rrr,r ,t lrr.r:orrespondingly paid to it. f, ll ,,lr,rrrlcl be noted that while taxes are intended for general 1,, 111.1,qr;, spccial benefits to taxpayers are not required. Thus, the I',,rrr I lrt'lrl that from the contribution received, the Government r, rrrl.r'ri r, special or commensurate benefit to any particular person ,,r i,r iltr'r'(..y. A tax is not imposed on the basis of a special or particular 1,, r,,.lrt rrt..ruing to each citizen in proportion to the tax paid. I

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t,AW ()t. I]ASIC TAXA'I'ION IN'I'II U I'IIILII'I'INI'S

According to the Supreme Court, a person cannot object to or resist the payment of taxes solely because no persc,nal benefit to him can be pointed out as arising from the tax (Lorenzo u. Posadas, etc., 64

Phil.353). In the case of Gomez u. Palomar, etc., et al. (L-23645, Oct. 29, 1988), the Supreme Court upheld the validity of the Anti-TB Stamp Law (R.A. 1635) which required the affixture of a semi'postal stamp on mail matter between Aug. 19 and Sept. 30 of each year. It was held that although no special benefit accrues to mail users by such stamp, it is not necessary, to constitute a public purpose, that special benefits accrue to a taxpayer; it is enough that he enjoys the benefits of living in an organized society

gtr scoPE oF THE LEGISLATM TAXING POWER.

Legislative taxing power or discretion extends to the following: (g) the person, property, or occupation to be taxed (51 Am. Jur. 172f. Excises or privileges, provided they are within the taxing jurisdiction, are also included. As stated in the case of Gomez u. Palomar, etc., et ol., sttpra, the taxing authority can select the subjects of taxation. Ib) the amount or rate of the tax; p) the purposes for which taxes shall be levied provided they are public purposes; (*) the kind of tax to be collected; (eN the apportionment of the tax, i'e., whether the tax shall be general or lirnited to a particular locality cr partly general and partly the situs of taxation; and (g) the method of collection' 'Going back to the purpose of taxation, as further elucidated by an eminent authority, the purpose of the levy is exclusively within the discretion of the legislature, but courts may determine whether the purpose is public or not. The legislature also has full discretion as to the persons, property, occupation or business to be taxed provided these are all within the state's territorial jurisdiction. It can also finally determine the amount or rate of tax, and lastly, legislative discretion atrso extends to the mode, method or kind of tax like property, excise, license, occupation or income tax (1 Cooley 176-184).

URAI, PITINCII}LES

IS'I'IIF]POWT]RTOTAXTHEPOWEBTODESTBOY?

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