I. Introduction

The Philippine tax system is a cornerstone of the nation's fiscal policy, designed to generate revenue for public services, infrastructure, and economic development. Rooted in the 1987 Philippine Constitution, the system is primarily governed by Republic Act No. 8424, as amended (the National Internal Revenue Code or NIRC), along with subsequent reforms such as Republic Act No. 10963 (Tax Reform for Acceleration and Inclusion or TRAIN Law) and Republic Act No. 11534 (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act). These laws embody fundamental principles that ensure fairness, efficiency, and compliance while addressing challenges like double taxation and tax evasion.

Taxation in the Philippines operates on the principle that taxes are the lifeblood of the government, essential for its survival and the performance of its functions. This doctrine, established in landmark cases such as Commissioner of Internal Revenue v. Algue, Inc. (G.R. No. L-28896, February 17, 1988), underscores that without taxes, the government cannot fulfill its obligations to the people. The system encompasses various taxes, including income tax, value-added tax (VAT), excise taxes, estate and donor's taxes, and documentary stamp taxes, administered by the Bureau of Internal Revenue (BIR) under the Department of Finance.

This article comprehensively examines the principles of taxation in the Philippine context, with specific focus on double taxation and tax evasion. It draws from constitutional provisions, statutory laws, judicial interpretations, and administrative issuances to provide a thorough understanding of these concepts.

II. Fundamental Principles of Taxation

The Philippine tax system is guided by several core principles derived from the Constitution, statutes, and jurisprudence. These principles ensure that taxation is exercised within the bounds of law, promoting equity and administrative feasibility.

A. Constitutional Foundations

Article VI, Section 28 of the 1987 Constitution outlines key taxation principles:

Rule of Uniformity and Equitability: Taxes must be uniform and equitable, meaning they apply equally to all persons or things in similar circumstances. Uniformity pertains to geographical application, while equitability ensures that the tax burden is distributed based on the taxpayer's ability to pay. This is reinforced by the principle of progressivity, where the tax rate increases as the tax base increases.
Progressivity: The tax system shall be progressive in nature. This is evident in the graduated income tax rates for individuals and the application of higher rates to higher income brackets under the NIRC.
Non-Delegation of Taxing Power: The power to tax is vested in Congress and cannot be delegated, except to local government units (LGUs) for local taxes under the Local Government Code (Republic Act No. 7160) or to the President for tariff adjustments in specific cases.
Exemptions for Charitable Institutions and Non-Stock, Non-Profit Entities: Properties actually, directly, and exclusively used for religious, charitable, or educational purposes are exempt from real property taxes. Similarly, non-stock, non-profit educational institutions are exempt from taxes on revenues and assets used for educational purposes.
Exemption of Government Entities: The government, its agencies, and instrumentalities are generally exempt from taxation, unless expressly provided otherwise, to prevent one government entity from taxing another.

Article II, Section 28 also mandates that Congress evolve a progressive system of taxation, aligning with social justice goals.

B. Inherent Limitations on Taxation

Beyond constitutional mandates, inherent limitations include:

Public Purpose: Taxes must be levied for a public purpose. Any tax without a legitimate public objective may be deemed invalid, as seen in Pascual v. Secretary of Public Works (G.R. No. L-10405, December 29, 1960).
Territoriality: The taxing power is limited to persons, properties, or transactions within the jurisdiction of the Philippines. However, the government taxes citizens on worldwide income under the global tax system for residents.
International Comity: Taxation must respect treaties and international agreements, avoiding undue interference with foreign sovereignties.
Non-Impairment of Contracts: Taxes cannot impair the obligation of contracts, though this is not absolute if the contract involves public interest.

C. Administrative Principles

Fiscal Adequacy: Taxes should generate sufficient revenue to meet government expenditures.
Theoretical Justice: The tax burden should be proportionate to the taxpayer's ability to pay, incorporating ability-to-pay and benefits-received theories.
Administrative Feasibility: Tax laws must be capable of convenient, just, and effective administration, as emphasized in Revenue Regulations and BIR rulings.
Prospectivity: Tax laws are generally prospective, not retroactive, unless expressly stated and not prejudicial to taxpayers.

D. Canons of Taxation

Drawing from Adam Smith's canons, Philippine taxation aims for:

Equity: Fair distribution of tax burden.
Certainty: Clear and predictable tax obligations.
Convenience: Easy payment methods.
Economy: Minimal collection costs.

These principles are operationalized through mechanisms like withholding taxes, self-assessment, and electronic filing under the Ease of Paying Taxes Act (Republic Act No. 11976).

III. Double Taxation

Double taxation refers to the imposition of two or more taxes on the same taxpayer for the same subject matter, period, and taxing authority. In the Philippines, it is not constitutionally prohibited but is generally avoided to prevent undue burden on taxpayers.

A. Definition and Types

Direct Double Taxation: Occurs when the same property or income is taxed twice by the same authority for the same purpose in the same period. This is considered obnoxious and invalid under the uniformity rule, as ruled in Pepsi-Cola Bottling Co. v. Municipality of Tanauan (G.R. No. L-31156, February 27, 1976).
Indirect Double Taxation: Involves taxation by different authorities or for different purposes. This is permissible, such as national income tax and local business tax on the same income.
International Double Taxation (Juridical Double Taxation): Arises when the same income is taxed by two or more countries. This is common in cross-border transactions and is mitigated through tax treaties.
Economic Double Taxation: Occurs when the same economic value is taxed multiple times, e.g., corporate income tax on profits and then dividend tax on distributions.

B. Methods to Eliminate or Mitigate Double Taxation

The Philippines employs several strategies to address double taxation:

Tax Treaties: The country has entered into double taxation agreements (DTAs) with over 40 countries, based on the OECD or UN Model Tax Conventions. These provide relief through:
- Exemption Method: Income taxed in one country is exempt in the other.
- Credit Method: Tax paid in one country is credited against tax liability in the other, limited to the Philippine tax rate (NIRC, Section 34(C)(3)).
Notable treaties include those with the United States, Japan, and Singapore. The BIR issues certificates of entitlement to treaty benefits.
Unilateral Relief under the NIRC:
- Foreign tax credits for taxes paid abroad on foreign-sourced income (Section 34(C)(3)).
- Deductions for foreign taxes if credit is not claimed.
Tax Sparing Credits: In some treaties, reduced withholding taxes on dividends, interests, and royalties are credited as if full tax was paid.
Shift to Territorial Taxation for Foreign Corporations: Under the CREATE Act, foreign-sourced income of non-residents is not taxed.

C. Judicial Perspectives

Courts have upheld measures against double taxation. In Commissioner of Internal Revenue v. S.C. Johnson and Son, Inc. (G.R. No. 127105, June 25, 1999), the Supreme Court applied treaty provisions to prevent double taxation on royalties. However, in the absence of treaties, double taxation may occur, as it is not inherently unconstitutional.

D. Current Reforms

The CREATE Act reduced corporate income tax rates to 20-25% and rationalized incentives to minimize economic double taxation. Ongoing multilateral efforts, such as the OECD's Base Erosion and Profit Shifting (BEPS) project, which the Philippines participates in, aim to curb artificial double non-taxation while addressing double taxation.

IV. Tax Evasion

Tax evasion involves illegal means to avoid paying taxes, distinct from legitimate tax planning. It undermines the revenue system and is penalized severely under Philippine law.

A. Definition and Elements

Tax evasion is the use of fraudulent methods to defeat or reduce tax liability. Key elements include:

Willful omission or understatement of income.
False entries in books or claims of fictitious deductions.
Use of fake receipts or invoices.

This is contrasted with tax avoidance, which uses legal means to minimize taxes, deemed permissible in Commissioner of Internal Revenue v. Estate of Benigno Toda, Jr. (G.R. No. 147188, September 14, 2004), where the Court distinguished between evasion (illegal) and avoidance (legal).

B. Legal Framework

Criminal Provisions under the NIRC:
- Section 254: Attempt to evade or defeat tax, punishable by fine (P500,000 to P10,000,000) and imprisonment (2-6 years).
- Section 255: Failure to file returns or supply information.
- Section 257: Making false entries or using fake documents.
Anti-Money Laundering Act (Republic Act No. 9160, as amended): Tax evasion involving P500,000 or more is a predicate crime.
Run After Tax Evaders (RATE) Program: BIR's initiative to prosecute evaders, involving coordination with the Department of Justice.
Penalties: Civil penalties include 50% surcharge for willful neglect, 25% for non-willful, plus interest. Criminal cases require proof beyond reasonable doubt.

C. Common Schemes and Detection

Common evasion tactics include:

Underreporting sales or income.
Inflating expenses or claiming unauthorized deductions.
Using shell companies or offshore accounts.
VAT evasion through fake invoices.

Detection methods involve BIR audits, third-party information (e.g., from banks under Republic Act No. 10021, Exchange of Information on Tax Matters Act), and data analytics. The Taxpayer Bill of Rights ensures due process during investigations.

D. Judicial and Administrative Remedies

Taxpayers accused of evasion can appeal assessments to the Court of Tax Appeals (CTA) and Supreme Court. Landmark cases include People v. Kintanar (G.R. No. 196057, September 5, 2012), affirming convictions for false returns.

Amnesty programs, such as those under Republic Act No. 11213 (Tax Amnesty Act), offer relief for past evasions in exchange for payment and compliance.

E. Consequences and Prevention

Beyond fines and imprisonment, evasion leads to business closures, asset forfeitures, and reputational damage. Prevention involves taxpayer education, simplified compliance (e.g., via eBIRForms), and international cooperation under treaties for information exchange.

V. Interplay Between Principles, Double Taxation, and Tax Evasion

The principles of taxation provide the framework to combat evasion while mitigating double taxation. For instance, progressivity discourages evasion among high earners, while treaties ensure equitable treatment in international contexts. Violations of these principles can lead to invalid taxes or penalties, as courts strictly interpret tax laws in favor of taxpayers when ambiguous (strictissimi juris rule).

VI. Conclusion

The Philippine taxation system, built on robust principles, balances revenue generation with fairness. Addressing double taxation through treaties and domestic relief mechanisms protects economic activities, while stringent measures against tax evasion safeguard public funds. Continuous reforms, such as digitalization and alignment with global standards, enhance efficiency. Taxpayers and practitioners must adhere to these principles to foster a compliant and prosperous fiscal environment. Compliance not only fulfills civic duty but also contributes to national development.