TAXATION:

GENERAL PRINCIPLES
INHERENT POWER OF THE STATE
1. POLICE POWER - The power of the State to enact laws in relation to
persons and property so as to promote public health, public moral, public
safety, and general welfare of the people.
2. POWER OF EMINENT DOMAIN – the power of the State or those to whom
the power has been delegated to take private property for public use
upon paying the owner a just compensation to be ascertained according to
law.
3. POWER OF TAXATION – the power of the State by which the sovereign
raises revenue to defray the necessary expenses of the government.
SIMILARITIES AMONG THE INHERENT POWERS OF
THE STATE
a. They are inherent in the State.
b. They exist independently of the Constitution.
c. They are legislative in nature and character.
d. They constitute the three methods by which the State interferes with private
rights and property.
e. Each presupposes an equivalent compensation.
DISTINCTION AMONG THE INHERENT POWERS OF
THE STATE
As to benefits received:

1. Police power – no direct and immediate benefit, only such as may arise
from the maintenance of a healthy economic standard of society.
2. Power of eminent domain – market value of the property taken from the
property owner.
3. Taxation – equivalent of tax in the form of protection and benefit.
DISTINCTION AMONG THE INHERENT POWERS OF
THE STATE
As to amount of imposition:

1. Police power – limited to the cost of the license and the necessary
expenses of police surveillance and regulation.
2. Power of eminent domain – no imposition, the owner is paid the fair market
value of his property.
3. Taxation – no limit.
DISTINCTION AMONG THE INHERENT POWERS OF
THE STATE
As to relationship to the non-impairment of obligations clause
of the Constitution:

1. Police power – superior to the clause

2. Power of eminent domain – inferior of the clause
3. Taxation – inferior of the clause
DISTINCTION AMONG THE INHERENT POWERS OF
THE STATE
As to effect:

1. Police power – no transfer of title, there is restraint on the injurious use of

property
2. Power of eminent domain – there is transfer of the right to property, either
ownership or a lesser right.
3. Taxation – taxes become part of public funds.
DISTINCTION AMONG THE INHERENT POWERS OF
THE STATE
As to purpose:

1. Police power – promote general welfare

2. Power of eminent domain – public purpose
3. Taxation – government only
DISTINCTION AMONG THE INHERENT POWERS OF
THE STATE
As to authority which exercises the power:

1. Police power – government only

2. Power of eminent domain – government, public service companies and
public utilities
3. Taxation – government only
DISTINCTION AMONG THE INHERENT POWERS OF
THE STATE
As to persons affected:

1. Police power – community or class of individuals

2. Power of eminent domain – individual, as owner of a particular property
3. Taxation – community or class of individuals
TAXATION: INTRODUCTION
TAXATION
- An act of laying a tax, i.e., the process or means by which the sovereign, through its
lawmaking body, raises revenue to defray the necessary expenses of government.

Subject/ Object of Taxation:

 Person
 Property
 Acts or rights and privileges
HOW TAXATION CAME TO LIFE?
Co-exists with the creation of government
1. It is an inherent power by which the sovereign state raises revenues for the use
and support of the government.
2. Taxation is the lifeblood of the government without it the nation will die.
3. Taxation is government and government is taxation. Neither one can exist without
the other. The success of one is the success of the other.
THEORIES AND BASIS OF TAXATION
A. The power of taxation proceeds upon the theory that the existence of the
government is a necessity, that it cannot continue without means to pay its
property within its limits to contribute (Government is necessity theory)
B. The basis is the reciprocal duties of protection and support between the
state and its inhabitants. The state collects taxes from the subjects of
taxation in order that it mar be able to perform the functions of
government. The citizens, on the other hand, pay taxes in order that they
may be secured in the enjoyment of the benefits of organized society.
(Benefit-received theory)
LIFEBLOOD THEORY
a. Taxes are the lifeblood of the Government and their prompt
and certain availability are imperious (expecting obedience)
need.
b. Upon taxation depends the government’s ability to serve the
people, for whose benefit taxes are collected.
c. Manifestation of lifeblood theory:
1. Imposition of tax even in the absence of Constitutional grant
2. Right to select objects of taxation
3. No injunction to enjoin (or stop) tax collection
PURPOSE OF TAXATION
1. Primary purpose
- to raise revenue for governmental needs (revenue or fiscal purpose)
2. Secondary purposes
a. Compensatory purposes
1. to reduce excessive inequalities of wealth
2. to maintain high level of employment.
3. to control inflation
b. Sumptuary or regulatory purpose
- to implement the police power of the State to promote the general welfare
BASIC PRINCIPLES OF A SOUND TAX SYSTEM
a. Fiscal Adequacy – this means that the sources of revenue should be
sufficient to meet the demands of public expenditures.
b. Administrative Feasibility – this means that the laws should be capable of
convenient, just and effective administration.
c. Theoretical Justice – this means that the tax burden should be
proportionate to the taxpayer’s ability to pay (ability to ay principle)
CHARACTERISTICS OR NATURE OF THE STATE’S
POWER TO TAX

1. It is inherent in sovereignty – it may be exercised although not

expressly granted by the Constitution
2. It is legislative in character – only the legislature can impose
taxes
3. It is subject to constitutional and inherent limitations – it is not
an absolute power that can be exercised by the legislature
anyway it pleases.
SCOPE OF THE POWER AND PROCESSES OF
TAXATION
SCOPE:
a. Comprehensive
b. Plenary
c. Unlimited
d. Supreme

PROCESSES:
1. Levying or imposition of tax which is a legislative act (Congress)
2. Collection of the tax levied which is essentially administrative in character (BIR)
LIMITATIONS ON POWER OF TAXATION

A. Inherent Limitations – caused by the very nature of the

power itself
B. Constitutional Limitations – expressly found in the
Constitution or implied from its provisions
INHERENT LIMITATIONS

a. Non-delegation of the power to tax

b. Exemption from taxation of government entities
c. Public purpose
d. Territorial jurisdiction (situs of taxation)
e. International comity
SITUS OF TAXATION
SUBJECT SITUS

Poll tax on persons Residence of the person

Tax on tangible personal properties State where it is physically located, although

the owner resides in another jurisdiction
Tax on intangible personal property Domicile of the owner

Income tax State where the taxpayer is a citizen or

resident or the place where the income is
derived
Business, occupation and transaction tax Place where the business is done, or the
occupation is engaged in, or the transaction
took place
Gratuitous transfer of property State where the transferor is/was a citizen or
resident, or where the property is located
CONSTITUTIONAL LIMITATIONS
A. Due Process of Law
“No person shall be deprived of life, liberty or property without due process of
law nor shall any person be denied the equal protection of law”

Due process in taxation requires:

a. Tax must be for public purpose
b. Imposed within the territorial jurisdiction
c. No arbitrariness or oppression in assessment and collection.
CONSTITUTIONAL LIMITATIONS
B. Power of the President to Veto Any Particular Item of Items in a Revenue
or Tariff Bill
C. Non-impairment of the Obligation of Contracts
“No law impairing the obligations of contracts shall be passed”

D. Non-imprisonment for non-payment of poll-tax

“No person shall be imprisoned for debt or non-payment of poll tax”

E. The congress may authorize the President to fix tariff rates, import and
export quotas, tonnage and wharfage dues and other duties and imports.
CONSTITUTIONAL LIMITATIONS
F. Rule of Uniformity and Equity in Taxation
1. Same class = Same rate
2. Same force and effect = every place the subject may be found
3. Benefits received = burden
4. Progressive system of taxation – emphasis on direct taxes
5. Like circumstances = like treatment
6. Double taxation, in general, does not violate rule of uniformity and equity, except for:
Taxing twice
By the same authority
Within same jurisdiction or taxing district
The same purpose
In the same year (or taxing period)
CONSTITUTIONAL LIMITATIONS
G. No Appropriation for Religious Purposes
“Exemption of religious, charitable or educational entities, non-profit cemeteries, and
churches from property taxations”
H. Non-impairment of the Jurisdiction of Supreme Court in tax cases
I. Concurrence by a Majority of All Members of the Congress for the
Passage of a law granting tax exemptions.
TAX AND OTHER CHARGES
TAX DEFINED:

Tax is an enforced contribution levied by the state by virtue

of the sovereignty on persons and property within its jurisdiction
for the support of the government and all public needs.
CLASSIFICATION OF TAXES
As to Determination of Amount:
a. Specific – tax of fixed amount imposed by the head or number, or some
standard of weight or measurement, it requires no assessment other than
a listing or classification of the subjects to be taxed. (e.g. excise tax on
cigar, cigarettes and liquors)
b. Ad valorem – tax of fixed proportion of the value of the property with
respect to which the tax is assessed. It requires the intervention of
assessors or appraisers to estimate the value of such property before
the amount due from each taxpayer can be determined (e.g. VAT,
Income tax, donor’s tax, and estate tax)
CLASSIFICATION OF TAXES
As to Purpose:

a. General/Fiscal/Revenue – tax imposed solely for the general purpose

of the government (e.g. income tax, donor’s tax, estate tax)
b. Special/regulatory – tax imposed for a specific purpose (e.g. tariff and
certain duties on imports)
CLASSIFICATION OF TAXES
As to rates or graduation:

a. Proportional – tax based on a fixed percentage of amount of the

property, receipts or other basis to be taxed (e.g. VAT, other percentage
taxes)
b. Progressive – the rate of which increases as the tax base or bracket
increases (e.g. income tax)
c. Regressive – the rate of which decreases as the tax base or bracket
increases
CLASSIFICATION OF TAXES
As to Subject Matter:
a. Personal/Poll/Capitation – tax of a fixed amount imposed on
individuals whether citizens or not, residing within a specified territory
without regard to their property or the occupation in which he may be
engaged. (e.g. community tax)
b. Property – tax imposed on property, whether real or personal, in
proportion either to its value, or in accordance with some other
reasonable method of apportionment (e.g. real estate tax)
c. Excise – a tax on the exercise of certain rights and privileges (e.g.
income tax, estate tax, donor’s tax, VAT, OPT)
CLASSIFICATION OF TAXES
As to Who Bears the Burdens

a. Direct - tax which is demanded from the person who also shoulders the
burden of the tax or tax which the taxpayer cannot shift to another (e.g.
income tax, estate tax, donor’s tax)
b. Indirect – tax which is demanded from one person in the expectation
and intention that he shall indemnify himself at the expense of another
or tax which the taxpayer can shift to another (e.g. VAT)
CLASSIFICATION OF TAXES
As to Scope

a. National – imposed by the National Government

b. Local or Municipal – imposed by municipal corporations
OTHER CHARGES/ RELATED TERMS
A. Subsidy – pecuniary aid directly granted by the government to an
individual or private commercial enterprise deemed beneficial to the public
B. Revenue – refers to all the funds or income derived by the government
whether from tax or any other sources
C. Internal Revenue – refers to taxes imposed by the legislature other than
duties on imports and exports
D. Customs duties – taxes imposed on goods exported or imported from a
country
E. Tariff – book of rates, duties payable on goods imported and exported
TAX AVOIDANCE VS. TAX EVASION
Tax avoidance
- is the use by the taxpayer of legally permissible methods in order to
reduce tax liability

Tax Evasion
- is the use by the taxpayer of illegal means to defeat or lessen the
payment of tax