Distinguished the inherent powers of the state

- taxation
- police power
- eminent domain
=> all these powers are vested in the Congress (through the passage of laws)

INTERNATIONAL COMMITY
- property of a foreign state cannot be taxed by a foreign state
- basis: principle that all sovereign states are equal + a state may not be sued
without its consent (Sec. 32 NIRC example which reflects this principle)
*tax code - generally refers to passive income
*what if active income -

If the rule on exemption of sovereign governments is ABSOLUTE, why the need to

express this? (what if active income of a foreign sovereign) - May be no longer
exempted because, like in local instrumentalities, proprietary activities are
taxed.

GOCCs do not enjoy the tax exemption, unless the charter creating them provides for
the taxation.

Why the distinction? What is the basis of the distinction why the government
instrumentalities enjoy the exemption when GOCCs are not? - Because GOCCs are
engaged in proprietary functions. Unlike instrumentalities like MIAA where they are
regulatory bodies; essentially governmental functions.

How about tolls (fees for the use of roads/bridges) by local governments? Are these
tolls subject to tax? - NO, they are not subject to tax. Like special assessments -
special assessments are not a tax. It's an exchange for the benefits taken by the
property owners from the public works made by the local government. (A form of
reimbursement).

Local governments cannot derive income from the special assessment. Because the
returns are only equal to the expense made/amount benefited from the public work.

Rationale why governments are not taxed? - no tax. Government pays tax to itself -
same pocket.

Before GOCCs are exempt by law. Now, hindi na. Policy has changed. What could be
the rationale of the Congress before for granting the exemption? - These GOCCs
perform governmental functions, derive subsidy from the government, their income
are declared as dividends to the government.
- however, di mamaintain ng government kaya prinivatize.

GOCCs distinction
1. Stock or nonstock corporation
2. Have capital (unlike government instrumentalities - some only require capital);
capital is divided into shares
*How are GOCCs created? Aside by law? - Created by the corporation code, by filing
AOI with the SEC.
3. Proprietory(GOCCs) v governmental functions(Instrumentality)

MIAA - exempt. Not a GOCC by an instrumentality of the national government.

Application of 133(o), LGC and the exception to the exemptino in 234(a), LGC. (as
far as RPT is concerned).
*what about rental payments, is it subject to income tax? VAT? (lessor is MIAA,
declared as a government instrumentality; statutory tax payer is MIAA) - not part
of the exempted transactions in VAT (Sec. 109, NIRC); assume that it will have to
pay VAT.
- income tax - not exempt because it is in the exercise of the proprietary
functions of the government and section 32 of the NIRC(express provision in the
law).

B. CONSTITUTIONAL LIMITATIONS
POLL TAX
If taxpayers would not pay taxes - can they be imprisoned? - YES. EXC: Sec. 20,
Article III, with regard to poll tax. (Non-payment of taxes is tax evasion).

How about non-payment of debt? Can you be imprisoned? - NO. (distinction between
taxes and debts).

UNIFORMITY AND EQUITY IN TAXATION

*what is prohibited is class legislation; exc: class legislation is allowed

Equal protection allows for valid discrimination:

1. substatial distinctions
2. germane to the purpose of the law
3. not limited to existing conditions only
4. applies equally to all members of the same class

"Shall evolve a progressive system of taxation."

Corporate income tax - proportional tax; same with VAT. (flat rate)

EXEMPTION OF RELIGIOUS, CHARITABLE ENTITIES

- also exempted from income tax, according to the NIRC (Sec. 30 NIRC)
- ADE used for their specific purposes (religious, charitable, educational); if
not, subject to tax

TAX EXEMPTION OF NON-STOCK, NON-PROFIT

non-stock, non-profit -- absolutely exempt
proprietary -- tax of ten percent (10%) on their taxable income
*Provided, that if the gross income from 'unrelated trade, business or other
activity' exceeds fifty percent (50%) of the total gross income derived by such
educational institutions or hospitals from all sources, the tax prescribed in
Subsection (A) hereof shall be imposed on the entire taxable income. (THEN MAGIGING
30%)

MAJORITY VOTE OF CONGRESS

Income tax (apply 30 NIRC)
Donor's tax; is donation exempt? -yes.

deductibility - if accredited, full deduction; IF not, partial (5% if person, 10%

if juridical)

who accredits? - PCNC--not a gov't agency (PH Council for NGO Certification)

Who may grant tax exemptions? - Congress.

What are the requirements to grant tax exemptions? - Majority vote of all members
of Congress! (versus majority of the quorum); Senate and HoR voting separately
Withdrawal of tax exemption voting requirement? - Majority vote of the quorum.

SPECIAL PURPOSE
Can the govt divert the funds from the special purpose for another project? - NO,
the sum has already been earmarked. (Principle of Non-diversion).

Revenue bills originate from the HoR

Can the Senate also create a counterpart bill? - YES.
Do lower courts have the authority/jurisdiction to review tax cases? - Yes. MTC to
RTC. RTC to CTA.
Can Congress pass a law declaring that decisions passed by the CTA will be final
and executory without need to go to the Supreme Court? - NO, because of non-
impairment of jurisdiction of the SC. However, Congress has the authority to
determine the jurisdiction of courts.

DUE PROCESS
substantive
procedural - right to be heard

RELIGIOUS FREEDOM
May tax be imposed when religious institutions lease out their properties, may the
rental income be subject to income tax and VAT? (Can Catholic church refuse to pay
tax on the gorund of infringement of religious freedom?) - NO, it is not religious
infringement. It is subject to VAT.

May business taxes be imposed? - Yes.

License fees are not allowed for being an infringement of the right to religious
freedom? (American Bible Society)
License tax is a PRE-activity imposition. TAX is a POST-activity imposition, after
the activity.

NON-IMPAIRMENT OF OBLIGATIONS OF CONTRACTS

GR: Congress may not pass a law impairing the obligations of contracts.

Contract of lease between private parties, before passage of VAT law; now VAT is
imposed on the rental income. Who between lessor/lessee will pay the tax? Lessor is
liable because it is a direct tax, but he/she may shift the burden to the lessee.
Rule. - No (Tolentino v Sec). It would adversely affect them. (????)
*Contracts entered cannot restrain the government from passing tax laws, it cannot
tie the hands of the government just because parties would be adversely affected.
*existing and future laws are deemed incorporated in the contract; state reserves
the right to pass new laws

When the govt grants legislative franchise. (i.e. TeleComm Companies). - A

franchise is a mere privilege. They cannot complain now that tax has been imposed
on them. Such franchise may be impaired.

Under what instance may this constitutional provision applies? What is the element
required so that a contract cannot be impaired? - Contract must be a consideration
between the government and the private party. 1. Consideration. 2. Contract is
between the government and the private party.