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Tax Exemptions: Section 30. Exemptions From Tax On Corporations. - The Following Organizations Shall Not Be Taxed Under

The document discusses tax exemptions under the National Internal Revenue Code for certain organizations like religious, charitable, scientific, and cultural non-stock corporations. It provides details on the criteria for tax exemption, including that an organization must be operated exclusively for its exempt purpose and that no part of its net income benefits any private individual. It also discusses Supreme Court rulings that define terms in the exemption criteria like "exclusively" and "actually, directly." Constitutional provisions on tax exemptions and the rationale for granting exemptions to charitable institutions are also summarized.

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232 views3 pages

Tax Exemptions: Section 30. Exemptions From Tax On Corporations. - The Following Organizations Shall Not Be Taxed Under

The document discusses tax exemptions under the National Internal Revenue Code for certain organizations like religious, charitable, scientific, and cultural non-stock corporations. It provides details on the criteria for tax exemption, including that an organization must be operated exclusively for its exempt purpose and that no part of its net income benefits any private individual. It also discusses Supreme Court rulings that define terms in the exemption criteria like "exclusively" and "actually, directly." Constitutional provisions on tax exemptions and the rationale for granting exemptions to charitable institutions are also summarized.

Uploaded by

martina lopez
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We take content rights seriously. If you suspect this is your content, claim it here.
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TAX EXEMPTIONS

Another favorite question of Bar Examiners is that which is found in Art. 6, Sec. 28 par. 3 of the
Constitution
Compare this with another constitutional provision Art. 14, Sec. 4, par. 3. Now, point out the distinctions.

Tax Exemptions under NIRC


Section 30. Exemptions from Tax on Corporations. - The following organizations shall not be taxed under
this Title in respect to income received by them as such;
xxx
(E) Nonstock corporation or association organized and operated exclusively for religious, charitable,
scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or
asset shall belong to or inures to the benefit of any member, organizer, officer or any specific person;
xxx
Dimaampao: Sec. 30(e) of NIRC, grant exemptions from income tax to Religious and Charitable Institutions,
but for Educational Institutions, it depends.
There are 3 kinds of educational institutions;
1. Private;
2. Public; and
3. Non-stock non-profit.
Q: Which of these 3 are exempt?
A: Non-stock non-profit educational institutions.
Dimaampao: You must read Sec. 30 (e) of the NIRC (National Internal Revenue Code), because it likewise
provides exemptions for religious and charitable institutions from corporate income tax.
SECTION 28. (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive
system of taxation.
xxx
(3) 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.
xxx
Q: Now what are the constitutional criteria?
A: It must be actually, directly, and exclusively used for that purpose.
Q: What is the Ruling of the Supreme Court in the case of Lung Center v. Quezon City? [1]
A: The commercial establishments are not tax exempt. Only those properties, directly, & Exclusively
Used shall be exempt from tax.
Q: What was the definition of the court of the word exclusively?
A: Apart from all others; without admission of others to participation; in a manner to exclude. [2]
Q: What do you mean by the word “Actually”?
A: Actually- opposed to seemingly, pretendedly, or feignedly as actually engaged in farming means, truly in
fact.
Q: What do you mean by the word “Directly”?
A: Directly- in a direct way without anything intervening; not by secondary, but by direct means.
J. DIMAAMPAO: You answer this basic question. You always hear about these, “exemptions”. Exemptions
are granted to charitable institutions. So now, I ask you, what is the rational of granting these exemptions?
You must have a mastery of that, because you might be asked why we grant exemptions.
Q: What is the rationale of granting tax exemptions?
A: Charitable institutions provide for free goods and services to the public which would otherwise fall on
the shoulders of the government. Thus, as a matter of efficiency, the government forgoes taxes which
should have been spent to address public needs, because certain private entities already assume a part of
the burden. This is the rationale for the tax exemption of charitable institutions. The loss of taxes by the
government is compensated by its relief from doing public works which would have been funded from the
appropriations from the Treasury.
Q: So, what are the three reasons for the grant of exemptions?
A: The reasons for the grant of tax exemptions are;
1. They perform ministrant functions that would have done by the government;
2. In exchange for those taxes that have been forgone, are the services that these charitable institutions
render;
3. The loss of taxes is compensated by the relief it gives to the government to perform certain acts that
may require
Q: What are the 16 Exempt Instrumentalities of the National Government?
A: The following instrumentalities are exempt from tax;
1. Philippine Economic Zone Authority;
2. Government Service Insurance System;
3. Bangko Sentral ng Pilipinas;
4. Mactan-Cebu International Airport Authority;
5. Philippine Ports Authority;
6. San Fernando Port Authority;
7. University of the Philippines;
8. Philippine Fisheries Development Authority;
9. Philippine Rice Research Institute;
10. Cagayan De Oro Port Authority;
11. Cebu Port Authority;
12. Manila International Airport Authority;
13. Philippine Reclamation Authority;
14. Laguna Lake Development Authority;
15. Bases Conversion Development Authority;
16. Philippine National Railways;
Q: What must be the reasons why they are exempt?
A: The Supreme Court explained in the case of PEZA vs Lapu-Lapu City that they must possess the
characteristics of an instrumentality of the national government.
Q: What are the 5 characteristics of an instrumentality of the national government under Sec. 2 (10) of the
1987 Administrative Code?
A: The reasons are as follows;
1. They are not integrated within the department network;
2. They are vested with special functions or jurisdiction by law;
3. They are endowed with some if not all corporate powers;
4. They are administering special fund;
5. they are enjoying operational autonomy, usually through a charter
Q: When will the revocation of tax exemption constitute impairment of contract?
When the exemption is based on contract whereby valuable consideration has been given. (Casanova
ruling).
In the case of Tolentino et al. vs. Secretary of Finance, it was an imposition of Value Added Tax on the sale
of real property. At the time of the passage of that Act, VAT, which imposes VAT on the sale of real
property, there were contracts executed for the sale of real estate. The parties argued it is a violation of
non-impairment. Is there a violation? No. There can only be a violation when it involves revocation of tax
exemption based on contract whereby valuable consideration has been given. That’s the settled
jurisprudence.
That where contracts were executed before the passage of a law, a subsequent tax law may be filed by
Congress imposing tax on these certain contracts, that is allowed. Because it does not involve exemption.
So, your knowledge of exemption comes into play.
Q: When is tax exemption irrevocable? When is it revocable?
A: It is revocable if it is based on franchise, equity, public policy, economic policy, the state can unilaterally
revoke that. On the other hand, tax exemption is irrevocable if that revocation would result in violation of
non-impairment clause- and that is when it is based on contract whereby valuable consideration is given.

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