Introduction

The power to tax is an inherent attribute of sovereignty, essential for the existence and operation of government. In the Philippines, this power is vested primarily in the Congress, as provided under the 1987 Philippine Constitution. However, this authority is not absolute. The Constitution imposes several limitations to prevent abuse, ensure fairness, and protect individual rights. These limitations stem from principles of due process, equal protection, public purpose, and other fundamental rights enshrined in the Bill of Rights and specific taxation provisions.

This article explores the constitutional constraints on the taxation power in the Philippine context, drawing from Article III (Bill of Rights), Article VI (Legislative Department), and other relevant sections of the 1987 Constitution. It examines both inherent and express limitations, supported by jurisprudential interpretations from the Supreme Court of the Philippines. The goal is to provide a comprehensive understanding of how these safeguards balance governmental needs with citizen protections.

Inherent Limitations on the Power of Taxation

The power to tax, while plenary, is subject to inherent limitations that arise from the nature of taxation itself and the sovereign structure of the Philippine state. These are not explicitly stated in the Constitution but are implied from its framework and principles.

1. Public Purpose Requirement

Taxes must be levied for a public purpose, meaning the proceeds should benefit the general welfare rather than private interests. This principle ensures that taxation serves the common good, such as funding public services, infrastructure, education, and national defense.

In jurisprudence, the Supreme Court has consistently upheld this requirement. For instance, in Pascual v. Secretary of Public Works (1960), the Court invalidated a tax appropriation for a private subdivision road, emphasizing that public funds must address public needs. Violations of this principle render a tax measure unconstitutional, as it constitutes an unlawful taking of property without due process.

2. Territorial Limitation

The taxing power is confined to persons, properties, rights, or activities within the jurisdiction of the Philippines. This prevents extraterritorial taxation unless justified by international agreements or reciprocity. For example, income earned by non-residents from Philippine sources may be taxed, but the government cannot impose taxes on foreign-sovereign properties without consent.

3. International Comity

Taxation must respect international law and treaties. The Philippines, as a member of the international community, cannot tax foreign governments, diplomats, or international organizations unless waived. This is reflected in treaties like the Vienna Convention on Diplomatic Relations, which the Constitution recognizes under Article II, Section 2, adopting generally accepted principles of international law.

4. Non-Delegation of Legislative Power

The power to tax is inherently legislative and cannot be delegated except in constitutionally permitted instances. Congress may delegate tariff powers to the President under Article VI, Section 28(2), and local taxation authority to local government units (LGUs) under Article X, Section 5. However, the delegation must include sufficient standards to guide the delegate, as ruled in ABA KADA Guro Party List v. Ermita (2005), which scrutinized the delegation in the Expanded Value-Added Tax Law.

Unauthorized delegation violates the separation of powers doctrine, rendering the tax invalid.

Express Constitutional Limitations

The 1987 Constitution explicitly outlines several restrictions on taxation to safeguard individual liberties and promote equity.

1. Due Process and Equal Protection (Article III, Sections 1 and 14)

Taxation must comply with substantive and procedural due process. Substantively, taxes should not be confiscatory or arbitrary; procedurally, taxpayers must have notice and an opportunity to be heard before assessment or collection.

The equal protection clause requires that taxes be uniform and equitable, meaning persons or properties in similar circumstances are treated alike. Article VI, Section 28(1) states: "The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation."

Uniformity: Taxes apply equally to all within the same class, without geographic distinctions within the jurisdiction. In Tan v. Del Rosario (1994), the Court upheld uniformity in income tax classifications based on reasonable distinctions.
Equity: Taxes should be fair, often interpreted as ability-to-pay. This supports progressive taxation, where higher incomes bear higher rates.
Progressivity: Congress is mandated to develop a progressive system, as seen in the graduated income tax brackets under the Tax Reform for Acceleration and Inclusion (TRAIN) Law, though not all taxes need be progressive (e.g., VAT is regressive but upheld if overall system progresses).

Violations, such as discriminatory classifications without rational basis, can invalidate taxes, as in Ormoc Sugar Co. v. Treasurer of Ormoc City (1968), where a tax targeting a single entity was struck down.

2. Non-Impairment of Contracts (Article III, Section 10)

Tax laws cannot impair the obligation of contracts unless necessary for public welfare. However, this limitation is not absolute; taxes can affect contracts if enacted in the exercise of police power or eminent domain. In Philippine Rural Electric Cooperatives Association v. DILG (2003), the Court allowed taxes on electric cooperatives despite prior exemptions, prioritizing taxation over contractual obligations.

3. Freedom of Religion and Non-Establishment Clause (Article III, Section 5)

Taxes cannot be used to support religious institutions or inhibit religious freedom. No public money shall be appropriated for religious purposes, and religious properties used exclusively for worship are exempt under Article VI, Section 28(3). In Aglipay v. Ruiz (1937), a stamp tax for a religious event was upheld as secular in purpose, but direct subsidies to churches would violate this.

4. Exemptions for Charitable, Educational, and Religious Institutions (Article VI, Section 28(3))

Properties actually, directly, and exclusively used for religious, charitable, or educational purposes by non-stock, non-profit institutions are exempt from property taxes. This includes lands, buildings, and improvements. The Supreme Court in Lung Center of the Philippines v. Quezon City (2004) clarified that exemptions apply only to portions used for exempt purposes; revenue-generating areas remain taxable.

Additionally, Article XIV, Section 4(3) exempts non-stock, non-profit educational institutions from taxes on revenues and assets used for educational purposes.

5. Presidential Veto Power (Article VI, Section 27(2))

The President may veto specific items in revenue bills, preventing unconstitutional provisions from enactment. This line-item veto ensures targeted scrutiny of tax measures.

6. Prohibition on Taxing Judicial Salaries (Article VIII, Section 10)

Salaries of judges shall not be decreased during their continuance in office, implicitly prohibiting taxes that effectively reduce them. However, in Nitafan v. Commissioner of Internal Revenue (1987), the Court ruled that judicial salaries are subject to income tax, as the prohibition aims at legislative diminution, not general taxation.

7. Local Government Taxation (Article X, Sections 5-6)

LGUs have taxing powers, but these are limited by national laws and must not contravene constitutional principles. Taxes must be uniform within the locality, and LGUs cannot tax national government instrumentalities. The Local Government Code of 1991 operationalizes this, but Supreme Court cases like Manila International Airport Authority v. Court of Appeals (2006) affirm exemptions for government entities.

8. No Imprisonment for Non-Payment of Poll Tax (Article III, Section 20)

No person shall be imprisoned for debt or non-payment of a poll tax (community tax). This protects against punitive measures for tax defaults, though civil remedies like liens remain available.

9. Origin of Revenue Bills (Article VI, Section 24)

All appropriation, revenue, or tariff bills must originate exclusively from the House of Representatives, though the Senate may propose amendments. This ensures democratic representation in tax initiation, as the House is directly elected by districts.

Jurisprudential Developments and Additional Constraints

Supreme Court decisions have expanded these limitations:

Double Taxation: Not expressly prohibited, but indirect double taxation (same tax twice on the same subject) may violate uniformity if unjust. Direct double taxation (same tax by same authority on the same subject) is generally allowed if not oppressive, per Pepsi-Cola Bottling Co. v. Municipality of Tanauan (1976).
Exemption Revocation: Tax exemptions are construed strictly against the taxpayer and can be revoked by law, as in Smart Communications v. City of Davao (2008).
Eminent Domain Link: Taxation is distinguished from eminent domain, but excessive taxes amounting to confiscation violate due process, akin to taking without compensation (Article III, Section 9).
Human Rights Integration: Post-1987, taxation must align with human rights, such as non-discrimination under Article XIII.

In recent contexts, challenges to laws like the TRAIN Law (Republic Act No. 10963) tested progressivity and equity, with the Court in Coalition for Children's Rights v. Executive Secretary (2019) upholding it while emphasizing safeguards for the poor.

Conclusion

The constitutional limitations on taxation power in the Philippines embody a delicate balance between fiscal necessity and individual rights. By mandating uniformity, equity, public purpose, and protections for vulnerable sectors, the 1987 Constitution ensures that taxation remains a tool for nation-building rather than oppression. These safeguards, reinforced by judicial oversight, adapt to evolving societal needs while upholding democratic principles. Policymakers and taxpayers alike must navigate these constraints to foster a just and prosperous society.