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Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
AT A GLANCE:
Generally speaking, taxes are for revenue, whereas fees are exactions for purposes of regulation and inspection and are for that reason limited in amount as to what is necessary to cover the cost of the services rendered in that connection. (Bases Conversion and Development Authority and John Hay Management Corporation v. City Government of Baguio City, G.R. No. 192694, February 22, 2023)
Taxes are defined as “an enforced contribution of money or other property assessed in accordance with some reasonable rule of apportionment by authority of a sovereign state, on persons or property within its jurisdiction, for the purpose of defraying the public expenses” or “a rate or sum of money assessed on the person or property of a citizen by government for the use of the nation or state; burdens or charges imposed by the legislative power upon persons or property to raise money for public purposes.” [Manila Electric Company v. El Auditor General y La Comision de Servicios Publicos, 73 Phil. 128 (1941)]
Meanwhile, fees are defined as “a reward or compensation allowed by law to an officer for specific services performed by him in the discharge of his official duties; a sum certain given for a particular service; the sum prescribed by law as charge for services rendered by public officers.” (Manila Electric Company v. El Auditor General y La Comision de Servicios Publicos, supra.)
While taxes are levied in the exercise of the State’s power of taxation, imposition of fees emanates from police power. Moreover, the purpose of taxes is primarily for revenue, while fees are collected for regulation.
Primary Purpose Test
To determine whether the imposition is a tax or a fee, the primary purpose must be identified.
Jurisprudence says:
“If the generation of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that the incidental revenue is also obtained does not make the imposition a tax” (Progressive Development Corporation v. Quezon City, G.R. No. L-36081, April 24, 1989)
Further, the Supreme Court ruled:
“To be considered a license fee, the imposition must relate to an occupation or activity that so engages the public interest in health, morals, safety, and development as to require regulation for the protection and promotion of such public interest or the imposition must bear a reasonable relation to the probable expenses of regulation, taking into account not only the costs of direct regulation but also its incidental consequences as well.” (Progressive Development Corporation v. Quezon City, supra.)
In the case of Compania General de Tabacos de Filipinas v. City of Manila [108 Phil. 380 (1963)], the Supreme Court distinguished a tax from a fee through these definitions:
The term “tax” applies — generally speaking — to all kinds of exactions which become public funds. The term is often loosely used to include levies for revenue as well as levies for regulatory purposes. Thus, license fees are commonly called taxes. Legally speaking, however, license fee is a legal concept quite distinct from tax; the former is imposed in the exercise of police power for purposes of regulation, while the latter is imposed under the taxing power for the purpose of raising revenues.
Jurisprudence dictates that the term given in the statute, whether the exaction is considered a tax or a fee, is not controlling. In the recent case of Bases Conversion and Development Authority and John Hay Management Corporation v. City Government of Baguio City (G.R. No. 192694, February 22, 2023), the Supreme Court ruled that “the nomenclature in a statute given to an exaction is not necessarily indicative whether it is a tax or fee.” Citing the case of (Felix Calalang v. Pablo Lorenzo and Primo Villar, G.R. No. L.-6961, June 17, 1955), the Bases Conversion case reiterated:
“Generally speaking, taxes are for revenue, whereas fees are exactions for purposes of regulation and inspection and are for that reason limited in amount to what is necessary to cover the cost of the services rendered in that connection.”
But why is it necessary to determine whether the imposition is a tax or a fee?
In the Bases Conversion case, the Supreme Court ruled:
“The payment of fees for the issuance of business permits is regulatory in nature under the local government unit’s police power. It is not a tax for revenue generation. Tax-exempt entities, therefore, cannot claim to be exempted from paying fees for business permits.”
Related Article/s:
Tax Deficiency vs. Tax Delinquency
When is there Double Taxation?
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding taxation and taxpayer’s remedies, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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