H.

DEFINITION, NATURE AND CHARACTERISTICS OF TAXES

DEFINITION

TAXES are ENFORCED PROPORTIONAL CONTRIBUTIONS from persons and

property, levied by the state, by virtue of its sovereignty for the support of the
government and for all its public needs.

CHARACTERISTICS OF TAXES

(1) Taxes are ENFORCED CONTRIBUTIONS (not a contract but a positive act of the
government)
(2) Taxes are PROPORTIONAL IN CHARACTER, since taxes are based on ones ability
to pay
(3) Taxes are LEVIED by the authority of the law
(4) Taxes are levied on persons, property and excise;
(5) Taxes are levied for public purpose
(6) Taxes are personal to the taxpayer
(Ex: a corporations tax delinquency cannot, for instance, be enforced against its
stockholders because not only would this run counter to the principle that taxes
are personal, but it would not also be in accord with the rule that a corporation
is vested by law with a personality that is separate and distinct from those of the
persons composing it as well as from that of any other legal entity to which it
may be related. Nevertheless, stockholders may be held liable for the unpaid
taxes of a dissolved corporation if it appears that the corporate assets have
passed into their hands) (DOCTRINE OF PIERCING THE CORPORATE VEIL)
I.REQUISITES OF A VALID TAX

(1) That either the person or property taxed be within the JURISDICTION OF THE TAXING
AUTHORITY

(2) That the ASSESSMENT AND COLLECTION OF CERTAIN KINDS OF TAXES GUARANTEE
AGAINST INJUSTICE TO INDIVIDUALS, Especially by providing notice and opportunity for
hearing;

(3) That it SHOULD BE FOR PUBLIC PURPOSE;

(4) The rule of taxations shall be UNIFORM; and

(5) The tax must not impinge on the inherent and constitutional limitations on the power of
taxation.

J. TAX AS DISTINGUISHED FROM OTHER FORMS OF EXACTIONS/IMPOSITIONS

TAX SPECIAL ASSESSMENT

Are levied on persons, property and
excise;
Personal liability of the taxpayer
Based on necessity and partially on
benefits
Can be levied ONLY ON LAND
Cannot be made a personal liability
of the persons assessed
Is based wholly on benefits

TAX
Levied in the exercise of the taxing
power
PRIMARY PURPOSE: to generate
revenues for the support of the
government; and REGULATION is
merely INCIDENTAL
LICENSE
Emanate from the police power of
the state
Are imposed for REGULATORY
PURPOSES; If REGULATION IS THE
PRIMARY PURPOSE, the fact that
incidental revenue is also obtained
DOES NOT MAKE THE IMPOSITION A
TAX

TAX TOLL
Demand of SOVEREIGNTY for the Demand of PROPRIETORSHIP, an
purpose of raising revenues for the amount charged for the cost and
support of the government maintenance of the property used
 TAX PENALTY
Is a CIVIL LIABILITY. A person is Punishment for the commission of a
criminally liable in taxation ONLY crime
when he fails to satisfy his civil
obligation to pay taxes

TAX DEBT
Is NOT A DEBT for the reason that a an obligation based on contract or
tax DOES NOT depend upon the judgment
consent of the taxpayer and there is assignable
NO express or implied contract to Imposed by private individuals
pay taxes.
An obligation based on LAW
NOT ASSIGNABLE
Imposed by public authority

K. KINDS OF TAXES

DIRECT
A direct tax is a tax for which a taxpayer is
directly liable on the transaction or business
it engages in.
Ex: custom duties and ad valorem taxes
INDIRECT
Indirect tax is a tax primarily paid by
persons who can shift the burden upon
someone else.
Ex: excise and ad valorem taxes

SPECIFIC AD VALOREM
A specific tax is imposed and based on Based on selling price or other specified
weight or volume capacity or any other value of the goods.
physical unit of measurement. Ex: excise tax on automobiles and non-
Ex: excise taxes on distilled spirits, tobacco essential goods.
products and petroleum products.

NATIONAL LOCAL
Is imposed by the national government Levied and collected by the local
Ex: revenue taxes under the NIRC and government
custom duties Ex: real property tax and business tax
 PERSONAL PROPERTY
Of fixed amount imposed on individuals, Imposed on property, real or personal, in
whether citizens or not, residing within a proportion to its value.
specified territory, without regard to their Ex: real estate tax
property or occupation.
Ex: community tax

PROGRESSIVE
Is one whereby the rate increases as the tax
base (amount) increases.
Ex: income tax, estate and donors tax under
the NIRC
REGRESSIVE
Is one where the tax rate decreases as the
tax base increases.
Ex: In Tolentino v. Secretary of Finance, the
Supreme Court ruled that VAT is a form of
regressive tax.

L. SITUS OF TAXATION

It is the place or authority that has the right to impose and collect taxes.

GENERAL RULE:

A state may not tax property lying outside its borders or lay an excise or privilege
tax upon the exercise or enjoyment of a right or privilege derived from the laws of another
state and therein exercised or enjoyed.

Basis: BENEFITS-PROTECTION THEORY

The state has the power to demand and receive taxes on the reciprocal duties of
support and protection. The citizen supports the State by paying the portion from his property
that is demanded in order that he may, by means thereof, be secured in the enjoyment of the
benefits of an organized society.

EXCEPTIONS:

(1) WHERE TAX LAWS OPERATE OUTSIDE TERRITORIAL JURISDICTION

(2) WHERE TAX LAWS DO NOT OPERATE WITHIN THE TERRITORIAL JURISDICITION OF
THE STATE:
a. When exempted by treaty obligations; or
b. When exempted by international comity
M. CONSTRUCTION AND INTERPRETATION OF TAX LAWS

1. TAX LAWS

NATURE: NOT POLITICAL IN CHARACTER; EFFECTIVE EVEN UNDER BELLIGERENT

OCCUPATION.

2. TAX EXEMPTION AND EXCLUSION

CIR v. YMCA (1998) Because taxes are the lifeblood of the nation, the Court has always
applied the doctrine of strict interpretation in construing tax exemptions. Furthermore, a
claim of statutory exemption from taxation should be manifest and unmistakable from the
language of the law on which it is based. Thus, the claimed exemption must expressly be
granted in a statute stated in a language too clear to be mistaken.

3. TAX RULES AND REGULATIONS

Statutes levying taxes or duties are to be construed strongly AGAINST THE GOVERNMENT
AND IN FAVOR OF THE SUBJECT OR CITIZENS, because burdens are not to be imposed or
presumed.

4. PENAL PROVISIONS OF TAX LAWS

CIVIL in NATURE AND NOT PENAL IN CHARACTER; HENCE NOT SUBJECT TO EX POST
FACTO LAW PROHIBITIONS.

5. NON-RETROACTIVE APPLICATION TO TAXPAYERS

TAX LAWS ARE PROSPECTIVE IN OPERATION.

N. SOURCES OF TAX LAWS

(1) Constitution

(2) Legislation or statues, including presidential decrees and executive orders on taxation
and tax ordinance, tax treaties and conventions with foreign countries;

(3) Contemporaneous construction by executive or administrative officers, including

Revenue Regulations by the Department of Finance and administrative issuances by the
BIR or the BOC;

(4) Administrative rules and regulations, rulings and opinions of tax officials particularly
the CIR, including opinions of the Secretary of Justice; and

(5) Judicial decisions