CONSTITUTIONAL

LIMITATIONS
 CONSTITUTIONAL LIMITATIONS

• By virtue of the power of taxation being

inherent to the State, the Constitution need
not confer it.
• What the Constitution provides are its
limitations.
[Recalde, Eric R. (2016), A Treatise on Tax Principles and
Remedies, Rex Bookstore]
KINDS OF CONSTITUTIONAL LIMITATIONS

a. Direct or specific limitations.

Provisions directly affecting taxation.
These are provisions in the Constitution
that contain the words tax, taxation or
others, of similar import.
b. Indirect or general limitations.
Provisions indirectly affecting taxation.
 EXAMPLES

DIRECT OR SPECIFIC INDIRECT OR GENERAL

1. Prohibition against 1. Due process
imprisonment for non-
payment of poll tax.
2. Majority vote of Congress for 2. Equal protection
grant of tax exemptions
3. President’s veto power on 3. Religious freedom
appropriation, revenue or tariff
bills
4. Non-impairment clause
 DUE PROCESS CLAUSE

No person shall be deprived of life,

liberty, or property without due
process of law…

[1987 Constitution, Art. III, Sec. 1]

 DUE PROCESS CLAUSE

Two Kinds:
1. Substantive due process
2. Procedural due process
 DUE PROCESS CLAUSE

Substantive due process

• There must a valid law levying the tax as
no tax can be collected without a law
levying it.
• Due process is violated where the tax
imposed is for a private purpose as
distinguished from a public purpose.
 DUE PROCESS CLAUSE

Substantive due process

• Due process clause may be invoked
where a taxing statute is so arbitrary
that it finds no support in the
Constitution, as where it can be shown
to amount to a confiscation of property.
 DUE PROCESS CLAUSE

Substantive due process

• To nullify a tax law,
• Mere allegation is not enough.
• There must be a clear and unequivocal breach
of the Constitution;
• There must be proof of arbitrariness.
• The law must be unreasonable and unjust, not
merely hypothetical, argumentative, or of
doubtful implication.
 DUE PROCESS CLAUSE

Substantive due process

Situations illustrative of violations of the due process clause:
a) If the tax amounts to a confiscation of property;
b) If the subject of confiscation is outside the justification of
the taxing authority;
c) If the law is imposed for a purpose other than a public
purpose;
d) If the law which is applied retroactively imposes unjust
and oppressive taxes;
e) Where the law is in violation of inherent limitations.
 DUE PROCESS CLAUSE

Substantive due process

Cases:
1. Requiring a person before he can be employed to get a
permit from the City Mayor of Manila who may withhold or
refuse it at will is tantamount to denying him the basic
right to engage in a means of livelihood. Once an alien is
admitted, he cannot be deprived of life without due
process of law. The guarantee includes the means of
livelihood. The shelter of protection under the due
process and equal protection clause is given to all
persons, both aliens and citizens. (Villegas v. Hiu Chiong
Tsai Pao Ho, 86 SCRA 270)
 DUE PROCESS CLAUSE

Substantive due process

Cases:
2. Where there is a claim of breach of the due process
and equal protection clauses, considering that they are
not fixed rules but rather broad standards, there is a
need for proof of such persuasive character as
would lead to such a conclusion. Absent such a
showing , the presumption of validity must prevail.
(British American Tobacco v. Camacho , 562 SCRA 511)
 DUE PROCESS CLAUSE

Substantive due process

Cases:
3. CREBA contains that the Minimum Corporate Income Tax
(MCIT) under Section 27(E) of RA No. 8424 is
unconstitutional because it is highly oppressive, arbitrary
and confiscatory which amounts to deprivation of property
without due process of law. Pegging the tax base of the
MCIT to a corporation’s gross income is tantamount to a
confiscation of capital because gross income, unlike net
income, is not “realized gain.”
 DUE PROCESS CLAUSE

Substantive due process

Cases:
CREBA’s contention:
Sales xxx
Less-Cost of sales xxx
Gross income xxx [MCIT is based on gross income]
Less-Operating expenses xxx [not taken into account]
NET INCOME xxx [normal tax is based on net income]
===
 DUE PROCESS CLAUSE

Substantive due process

Cases:
Court’s ruling in CREBA:
In Sison v. Ancheta, the Supreme Court held that the due
process clause may be properly invoked to invalidate a revenue
measure when it amounts to confiscation of property. It will
not strike down a revenue measure as unconstitutional on the
mere allegation of arbitrariness by the taxpayer. There must be
factual foundation to such an unconstitutional taint.
 DUE PROCESS CLAUSE

Substantive due process

This merely adheres to the authoritative doctrine that, where

the due process clause is invoked, considering that it is not
fixed but rather a broad standard, there is a need for proof of
such persuasive character.
 DUE PROCESS CLAUSE

Substantive due process

Certainly, an income tax is arbitrary and confiscatory if it taxes

capital because capital is not income. However, the MCIT is not a tax
on capital. The MCIT is imposed on gross income which is arrived at
by deducting the capital spent by a corporation in the sale of its
goods, i.e., the cost of goods and other direct expenses from gross
sales. Clearly, the capital is not being taxed.
 DUE PROCESS CLAUSE

Substantive due process

Furthermore, the MCIT is not an additional tax imposition. It is

imposed in lieu of the normal net income tax, and only if the
normal income tax is suspiciously low. The MCIT merely
approximates the amount of net income tax due from a
corporation, pegging the rate at a very much reduced 2% and
uses as the base the corporation’s gross income.
 DUE PROCESS CLAUSE

Substantive due process

3. Carlos Superdrug Corp. v. DSWD, 526 SCRA 130
Issue: Is the Expanded Senior Citizen Act (RA 9257)
unconstitutional because it constitutes deprivation of private
property?
Facts: The law compels drugstore owners and establishments to
grant the senior citizens 20% discount; thus, the discount will result
in a loss of profit and capital because: (1) drugstores impose mark up
only 5% to 10% on branded medicines; and (2) the law failed to
provide a scheme whereby drugstores will be justly compensated for
the discount.
 DUE PROCESS CLAUSE

Substantive due process

3. Carlos Superdrug Corp. v. DSWD, 526 SCRA 130
SC: RA 9257 is constitutional. The law is a legitimate exercise of police
power which, similar to the power of eminent domain, has general welfare for
its object. Police power is not capable of an exact definition, but has been
purposely veiled in general terms to underscore its comprehensiveness to
meet all exigencies and provide enough room for efficient and flexible
response to conditions and circumstances, thus assuring the greatest
benefits. x x x For this reason, when conditions so demand as determined by
the legislature, property rights must bow to the primacy of police power
because property rights, though sheltered by due process, must yield to
general welfare.
 DUE PROCESS CLAUSE

Substantive due process

3. Reyes v. Almanzor, 196 SCRA 322
The due process clause may be invoked where a
taxing statute is so arbitrary that it finds no support
in the Constitution, as where it can be shown to
amount to a confiscation of property.
 DUE PROCESS CLAUSE

Procedural due process

• The observance of fairness in the conduct of any investigation is
the very heart procedural due process.
• The essence of due process is to be heard, which means a fair
and reasonable opportunity to explain one’s side, or an
opportunity to seek reconsideration of the action or ruling
complained of.
• Due process does not always and in all situations require a trial-
type proceeding. It is satisfied when a person is notified of the
charge against him and given an opportunity to explain or
defend himself.
 DUE PROCESS CLAUSE

Procedural due process

• In CIR vs. Reyes, 516 Phil. 176 (2006), BIR issued an
assessment notice and demand letter for alleged deficiency
estate tax against the taxpayer estate. The assessment notice
and demand simply notified the taxpayer estate of petitioner’s
findings, without stating the factual and legal bases for said
assessment. The Court, absent a valid assessment, refused to
accord validity and effect to BIR’s collection efforts and declared
that it violated the cardinal rule in administrative law that the
taxpayer be accorded due process. Not only was the law here
disregarded, but no valid notice sent, either. A void assessment
bears no valid fruit.
 DUE PROCESS CLAUSE

Procedural due process

• In CIR v. BASF Coating + Inks Phils., Inc., 748 Phil.
760, 772 (2014), the Court similarly found that there
was no valid assessment as the assessment notice therein
was sent to the company’s former address. Without a
valid assessment, the Court pronounced that BIR’s
issuance of a First Notice Before Issuance of Warrant of
Distraint and Levy to be in violation of the taxpayer
company’s right to due process and effectively blocked
any further efforts to collect by virtue thereof.
 DUE PROCESS CLAUSE

Procedural due process

• In CIR v. Pilipinas Shell Petroleum Corporation, G.R.
No. 197945, July 9, 2018, the Court dismissed the
petitions filed by the BIR for it cannot allow petitioner to
collect any excise tax deficiency from respondents by
mere issuance of the 1998 and 2002 Collection Letters.
Petitioner had failed to comply with the prescribed
procedure for collection of unpaid taxes through summary
administrative remedies and, thus, violated respondent’s
right to due process.
 DUE PROCESS CLAUSE

Procedural due process

• It is clear from the wording of the 1998 and 2002
Collection Letters that petitioner intended to pursue,
through said collection letters, summary
administrative remedies for the collection of
respondent’s alleged excise tax deficiencies. The
collection letters were followed by the BIR’s issuance
of Warrants of Garnishment and Distraint and/or
Levy against it.
 DUE PROCESS CLAUSE

Procedural due process

• It is evident that the BIR proceeded with the
collection of respondents’ alleged unpaid taxes
without a previous valid assessment since the
BIR admitted that: (a) the collection letters were not
tax assessment notices; (b) the letters were issued
solely based on the DOF Center’s findings; and (c)
the BIR never issued any preliminary assessment
notice prior to the issuance of the collection letters.
 EQUAL PROTECTION OF THE LAW

“…nor shall any person be denied

the equal protection of the law.”
(Art. III, Sec. 1)
 EQUAL PROTECTION OF THE LAW

• All persons subjected to tax

legislation shall be treated alike,
under like circumstances and
conditions, both in the privileges
conferred and in the liabilities
imposed. (Cooley, Taxation, 534-
535 cited in Dimaampao)
 EQUAL PROTECTION OF THE LAW

• “Equal protection” does not require equal rates of

taxation on different classes of property, nor
prohibit unequal taxation so long as the inequality
is not based upon arbitrary classification.
• Legislation which, in carrying out a public purpose,
is limited in its application, does not violate the
provisions if, within the sphere of its operation, it
affects alike all persons similarly situated.
 EQUAL PROTECTION OF THE LAW

• It does not prohibit special

legislation or legislation that is
limited either in the objects to
which it is directed, or by the
territory within which it is to
operate.
 EQUAL PROTECTION OF THE LAW

Absolute equality not required

• There is no imperative requirement that taxation shall be
absolutely equal, only that tax laws be framed with a
view to apportioning the burdens of government so that
each person enjoying the government protection shall be
required to contribute so much as is his reasonable
proportion and no more.
• Perfect equality is impossible, hence, what constitutes a
violation of the equal protection clause is a glaring
inequality.
 EQUAL PROTECTION OF THE LAW

Classification, within the power of Congress

• Congress has the power to select the subjects of
taxation and apportion the public burden among
them, and this power includes, the power to make
classifications.
• Inequalities resulting from the singling out of one
particular class for taxation or exemption infringe
no constitutional limitation.
 EQUAL PROTECTION OF THE LAW

Requisites for a valid classification

a) It must be based on substantial distinction;
b) It must apply both to present and future
conditions;
c) It must be germane to the purposes of the
law;
d) It must apply equally to all members of the
same class. (Ormoc Sugar Company, Inc. v.
The Treasurer of Ormoc City, et.al., 22
 EQUAL PROTECTION OF THE LAW

Cases:
1. In Gomez v. Palomar, 25 SCRA 827, the
constitutionality of RA 1635 implementing the
special Anti-TB stamp and its implementing AO
was assailed for violation of the equal protection
clause because it constitutes mail users into a
class for the purpose of the tax while leaving
untaxed the rest of the population and even
among postal patrons the statute
discriminatorily grants exemptions.
 EQUAL PROTECTION OF THE LAW

Cases:
1. The Court ruled that RA 1635 is valid. The
legislature has the inherent power to select
the subject of taxation and to grant
exemptions. The classification of mail
users is based on the ability to pay, the
enjoyment of a privilege and on
administrative convenience. Tax
exemptions have never been thought of as
raising issues under the equal protection
 EQUAL PROTECTION OF THE LAW

Cases:
2. In Eastern Theatrical Co. v. Victor Alfonso, 83
Phil. 852, 12 corporations engaged in the motion
picture business, contested the validity of Ord. No.
2958 of the City of Manila, which imposes a fee on the
price of every admission ticket sold by
cinematographers, etc. Petitioners argued that the
ordinance does not tax “many more kinds of
amusements” than those therein specified, such as
“race tracks, cockpits, cabarets, concert halls,
circuses, and other places of amusement.
 EQUAL PROTECTION OF THE LAW

Cases:

2. The argument has no merit. The fact that some places of

amusement are not taxed while others, such
cinematographs, theaters, etc. are taxed, is no argument at
all against the equality and uniformity of tax imposition.
Equality and uniformity means that all taxable articles of
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; and the appellants cannot point out what places of
amusement taxed by the ordinance do not constitute a class
by themselves and which can be confused with those not
included in the ordinance.
 EQUAL PROTECTION OF THE LAW

Cases:
3. Ordinance No. 4, Series of 1964 imposing a municipal tax
equivalent to one percentum (1%) per export sale to the USA
and other foreign countries on any and all productions of
centrifugal sugar milled at the Ormoc Sugar Co. was assailed for
being violative of the equal protection clause and the rule on
uniformity of taxation. The Court declared the ordinance as
unconstitutional. A perusal of the requisites for a valid
classification shows that the questioned ordinance does not
meet them, for it taxes only centrifugal sugar produced and
exported by the Ormoc Sugar Co. and none other.
 EQUAL PROTECTION OF THE LAW

Cases:
4. In South Luzon Drug Corporation v. DSWD, et.al.,
G.R. No. 199669, April 25, 2017, the petitioner argues
that R.A. Nos. 9257 [Expanded Senior Citizens Act of 2003]
and 9442 [Magna Carta for Disabled Persons] are violative
of the equal protection clause in that it failed to distinguish
between those who have the capacity to pay and those
who do not, in granting the 20% discount. R.A. No. 9257, in
particular, removed the income qualification in R.A. No.
7432 of'₱60,000.00 per annum before a senior citizen may
be entitled to the 20% discount.
 EQUAL PROTECTION OF THE LAW

Cases:
4. SC: The contention lacks merit. The petitioner's
argument is dismissive of the reasonable
qualification on which the subject laws were based.
The equal protection clause is not infringed by
legislation which applies only to those persons falling
within a specified class. If the groupings are
characterized by substantial distinctions that make
real differences, one class may be treated and
regulated differently from another.
 EQUAL PROTECTION OF THE LAW

Cases:
4. SC: To recognize all senior citizens as a group, without
distinction as to income, is a valid classification. The
Constitution itself considered the elderly as a class of their
own and deemed it a priority to address their needs. When
the Constitution declared its intention to prioritize the
predicament of the underprivileged sick, elderly, disabled,
women, and children,71 it did not make any reservation as
to income, race, religion or any other personal
circumstances. It was a blanket privilege afforded the
group of citizens in the enumeration in view of the
vulnerability of their class.
 UNIFORMITY OF TAXATION

“The rule of taxation shall be uniform

and equitable.”
[Art. VI, Sec. 28(1), Constitution]
 UNIFORMITY OF TAXATION

• Uniformity in taxation (Black) means that all taxable

articles or kinds of property of the same class shall be
taxed at the same rate. A tax is uniform when it
operates with the same form and effect in every place
where the subject of its is found.
• It does not mean that the subjects of taxation shall be
taxed or assessed at the same rate. Different articles
may be taxed at different amounts provided that the
rate is uniform on the same class everywhere, with all
people and at all times.
 UNIFORMITY OF TAXATION

EQUALITY IN TAXATION UNIFORMITY IN TAXATION

When the burden of the tax falls equally Requires that all taxable property shall
and impartially upon all the persons and be alike subjected to the tax, and this
property subject to it, so that no higher requirement is violated if particular kinds,
rate or greater levy in proportion to the species or items of property are selected
value is imposed upon one person or to bear the whole burden of the tax,
species or property than upon others while others, which should be equally
similarly situated or of like character. subject to it, are left untaxed.

Tax should be strictly proportional to the Means that persons or things belonging
relative value of the property. to the same class shall be taxed at the
same rate.
 UNIFORMITY OF TAXATION

• In Kapatiran ng mga Naglilingkod sa Pamahalaan ng

Pilipinas v. Tan, 163 SCRA 371, petitioners seek to nullify E.O.
273 (VAT Law) for being in violation of the constitutional provision
that the rule of taxation shall be uniform and equitable.
• SC: E.O. 273 is valid. A tax is considered uniform when it
operates with the same force and effect in every place where the
subject may be found. 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.
 PROGRESSIVE TAXATION

Congress shall evolve a progressive system

of taxation.
[Art. VI, Sec. 28(1), Constitution]
 PROGRESSIVE TAXATION

• Taxation is said to be equitable when its burden

falls on those better able to pay; taxation is
progressive when its rate goes up depending on
the resources of the person affected.
• Progressive taxation is built on the principle of the
taxpayer’s ability to pay.
 PROGRESSIVE TAXATION

Are regressive taxes prohibited?

No. The Constitution does not really prohibit the
imposition of regressive taxes. What it simply provides
is that Congress shall evolve a progressive system of
taxation. The constitutional provision should be
construed to mean simply that “direct taxes are to be
preferred and indirect taxes, as much as possible,
should be minimized.”
 PROGRESSIVE TAXATION

Are taxes prohibited?

• The mandate of Congress is not to prescribe, but to
evolve progressive tax system. This is a mere
directive upon Congress, not a justiciable right or
legally enforceable one. We cannot avoid
regressive taxes but only minimize them. (EVAT En
Banc Resolution, Tolentino, et.al. v. Secretary of
Finance, October 30, 1995)
 NON-IMPAIRMENT CLAUSE

No law shall be passed impairing the

obligations of contract.
[Art. III, Sec. 10, Constitution]
 NON-IMPAIRMENT CLAUSE

• Any law which enlarges, or in any manner changes the

intention of the parties discoverable in it, necessarily
impairs the contract itself.

• The constitutional prohibition against impairment of the

obligation of contracts only applies, however, where it is
claimed that the obligation of a contract is impaired by a
law of the state – a statute or constitutional provision of
the state. It does not apply to mere decisions of courts
construing a contract.
 NON-IMPAIRMENT CLAUSE

REVOCABILITY OF TAX EXEMPTION

• If the grant of an exemption does not
constitute a contract, but is merely “a
spontaneous concession by the
legislature, not connected with any
service or duty imposed”, tax exemption
is REVOCABLE.
 NON-IMPAIRMENT CLAUSE

REVOCABILITY OF TAX EXEMPTION

• If the tax exemption constitutes a
binding contract and for valuable
consideration, the government cannot
unilaterally revoke the tax exemption.
 NON-IMPAIRMENT CLAUSE

Cases:
1. Casanova v. Hord, 8 Phil. 125: The
grant by the Spanish Government to the
plaintiff constituted a contract the obligation
of which declares that no other taxes be
imposed on those mining claims.
 NON-IMPAIRMENT CLAUSE

Cases:
2. Tolentino v. Secretary of Finance: The
Contract Clause has never been thought of as
a limitation on the exercise of the State’s
power of taxation save only where a tax
exemption has been granted for a valid
consideration.
 NON-IMPAIRMENT CLAUSE

Cases:
3. Cagayan Electric Power and Light Co., Inc. v. CIR,
138 SCRA 629: The non-impairment clause does not
apply to public utility franchises. Art. XII, Sec. 11 of the
1987 Constitution mandates that no public utility franchise
or right shall be granted “except under the condition
that it shall be subject to amendment, alteration, or
repeal by Congress when the common good so
requires.”
NON-IMPRISONMENT FOR NON-PAYMENT
OF POLL TAX

No person shall be imprisoned for non-

payment of a debt or poll tax.
[Art. III, Sec. 20, Constitution]

NOTE: Applies to poll tax only.

 BILLS TO ORIGINATE FROM THE HOUSE
OF REPRESENTATIVES

All appropriation, revenue or tariff bills, bills

authorizing the increase of the public debt, bills of
local application and private bills, shall originate
exclusively in the House of Representatives, but the
Senate may propose or concur with amendment.
[Art. III, Sec. 24, Constitution]
 VETO POWER OF THE PRESIDENT

The President shall have the power to veto any

particular item or items in an appropriation, revenue
or tariff bills but the veto shall not affect the item or
items to which he does not object.
[Art. VI, Sec. 27(2)], Constitution
 PRESIDENT’S POWER TO TAX

The Congress may, by law, authorize the

President to fix within specified limits and subject to
such limitations and restrictions as it may impose,
tariff rates, import and export quotas, tonnage and
wharfage dues and other duties or imposts within
the framework of the national development program
of the Government.
[Art. VIII, Sec. 28(2), Constitution]
 PRESIDENT’S POWER TO TAX

The term “flexible tariff clause” refers to the

authority given to the President to adjust tariff rates
under Section 401 of the TCC which is the enabling
law that made effective the delegation of the taxing
power to the President under the Constitution.
 FREEDOM OF THE PRESS

No law shall be passed abridging the freedom of

speech, of expression, or of the press…
[Art. III, Sec. 4, Constitution]
 FREEDOM OF THE PRESS

• In Tolentino v. Secretary, SC ruled that there is

no violation of press freedom when the exemption
previously granted to the press under Sec. 103(f)
of the NIRC. The press is not immune from general
regulation by the State. It has been held that the
publisher of a newspaper has no immunity from
the application of general laws. Like others, he
must pay equitable and nondiscriminatory taxes on
his business.
TAX EXEMPTION OF PROPERTIES ACTUALLY, DIRECTLY
AND EXCLUSIVELY USED FOR RELGIOUS, CHARITABLE
AND EDUCATIONAL PURPOSES

Charitable institutions, churches and parsonages or

convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings and improvements
actually, directly, and exclusively used for religious,
charitable or educational purposes shall be exempt from
taxation.
[Art. VI, Sec. 28(3), Constitution]
TAX EXEMPTION OF PROPERTIES ACTUALLY, DIRECTLY
AND EXCLUSIVELY USED FOR RELGIOUS, CHARITABLE
AND EDUCATIONAL PURPOSES

• Applicable only to real property taxes.