TAXATION

TXN01

TAXATION THEORIES
INHERENT POWERS OF THE STATE
• 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.
• 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.
• TAXATION POWER - the power of the State by which the sovereign raises revenue to defray
the necessary expenses of the government.
SIMILARITIES OF THE POWERS OF THE STATE
1. They are inherent to the State.
2. They exist independently of the Constitution.
3. They are legislative in nature and character.
4. They all are ways in which the State interferes with private rights and properties.
5. They presuppose an equivalent compensation.
DIFFERENCES OF THE POWERS OF THE STATE

Particulars Taxation Power Police Power Power of Eminent Domain

only by the government only by the government maybe granted to public

Exercising
and its political and its political service companies and other
Authority
subdivisions subdivisions utilities
To promote public
Purpose For raising revenue For public use
welfare
Persons Community or class of Community or class of
Owner of the property
Affected individual individual
No amount imposed since
Amount of Limited to the cost of
Unlimited government pays just
Exaction regulations
compensation

LIMITATIONS OF TAXATION POWER

• INHERENT LIMITATION
• Territoriality or Situs of taxation
• International Comity
• Public purpose of Taxes
• Exemption of the Government to taxation
• Non-delegation of taxing power

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 • CONSTITUTIONAL LIMITATION
• Due process of law
• No imprisonment of non-payment of debt or poll tax
• Equal protection of law
• Non-impairment of obligation and contracts
• Rule of uniformity and equity in taxation
• Free worship rule
• Non-appropriation of public funds for the use, benefit and support of any church
• Exemption of religious, charitable, and educational institutions, mosques and non-profit
cemetery from property taxes
• Exemption of non-stock, non-profit educational institutions from revenues and asset taxes.
• Concurrence of all members of the Congress for the passage of law granting tax exemption.
• Non-infringement of the freedom of speech and of the press.
• Non-impairment of the Supreme Court (SC) jurisdiction.
• Revenue bills shall originate exclusively from House of representatives.
NATURE OF TAXATION POWER
1. INHERENT IN SOVEREIGNTY - The power of taxation is inherent in sovereignty as an
incident or attribute thereof, being essential to the existence of every government. It can be
exercised by the government even if the Constitution is entirely silent on the subject.
2. LEGISLATIVE IN NATURE - The power to tax is exclusively legislative and cannot be
exercised by the executive or judicial branch of the government.
SITUS OF TAXATION – Place of taxation
TAXATION – is a means by which the sovereign, through its law-making body, raises revenue to defray
the necessary expenses of the government.
THEORY AND BASIS OF TAXATION
• LIFEBLOOD DOCTRINE (NECESSITY THEORY) - It is a necessary burden to preserve the
State’s sovereignty and a means to give the citizenry an army to resist aggression, a navy to defend
its shores from invasion, a corps of civil servants to serve, public improvements designed for the
enjoyment of the citizenry and those which come with the State’s territory and facilities, and
protection which a government is supposed to provide. (Phil. Guaranty Co., Inc. vs Commissioner
of Internal Revenue, 13 SCRA 775).
• SYMBIOTIC RELATIONSHIP DOCTRINE (BENEFITS-PROTECTION THEORY) – The
basis of taxation is the reciprocal duty of protection between the state and its inhabitants. In return
for the contributions, the taxpayers receive the general advantages and protection from the state.
PURPOSE OF TAXATION
• REGULATORY - The primary purpose of taxation on the part of the government is to provide
funds or property with which to promote the general welfare and the protection of its citizens and
to enable it to finance its multifarious activities.

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 • SUMPTUARY (NON-REGULATORY PURPOSE) - while the primary purpose of taxation is
to raise revenue for the support of the government, taxation is often employed as a devise for
regulation by means of which certain effects or conditions envisioned by the government may be
achieved; Power to destroy and power to protect/promote.
BASIC PRINCIPLE OF A SOUND TAX SYSTEM
• FISCAL ADEQUACY - sources of revenue must be sufficient to meet government expenditures
and other public needs.
• ADMINSTRATIVE FEASIBILITY - tax laws and regulations must be capable of being
effectively enforced with the least inconvenience to the taxpayer.
• THEORETICAL JUSTICE - sound tax system must be based on the taxpayers’ ability to pay.
ASPECTS OF TAXATION
• LEVY – enactment of a law imposing tax
• ASSESSMENT – determination of the amount of applicable tax
• COLLECTION
TAX - is a mandatory fee or financial charge levied by any government on an individual or an organization
to collect revenue for public works providing the best facilities and infrastructure.
CLASSIFICATION OF TAX
• AS TO SUBJECT MATTER
• Personal, poll or capitation tax – taxes of fixed amount upon all persons of a certain
class within the jurisdiction of the taxing power. Example: Community tax
• Property tax – taxes on things or property of a certain class. Example: Real Property tax
• Excise Tax – taxes imposed on upon the performance of an act, enjoyment of a privilege
or an engagement in an occupation.
• AS TO BURDEN
• Direct - taxes wherein both the “incidence” as well as the “impact” or burden of the tax
faces on one person. Example: Income tax , Community tax, Donor’s tax.
• Indirect - taxes wherein the burden thereof can be shifted or passed to another person,
though the incidence of the liability remains on the person.
• AS TO AMOUNT
• Specific tax – a tax of a fixed amount imposed on a per unit basis.
• Ad Valorem tax – a tax of a fixed proportion (usually in percentage) imposed upon the
value of the tax object.
• AS TO RATE
• Proportional tax – fixed tax rate.
• Progressive or graduated tax – tax rate increases as the tax base increase.
• Regressive tax – tax rate decreases as the tax base increase. Not applicable to Philippine
taxation.
• Mixed tax
• AS TO IMPOSING AUTHORITY

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 • National Tax – tax imposed by national government.
• Example:
• Income Tax
• Estate Tax
• Donor’s Tax
• Value-added Tax
• Percentage Tax
• Excise Tax
• Documentary Stamp Tax
• Local Tax – tax imposed by the local government.
• Example:
• Real Property Tax
• Community Tax

ESCAPE OF TAXATION
• SHIFTING – Transfer of the burden of a tax by the original payer or the one on whom the tax was
assessed or imposed to another or someone else.
• CAPITALIZATION – The reduction in the price of the taxed object equal to the capitalized value
of future taxes which the purchaser expects to be called upon to pay.
• TRANSFORMATION – The method whereby the manufacturer or producer upon whom the tax
has been imposed, fearing the loss of his market if he should add the tax to the price, pays the tax
and endeavors to recoup himself by improving his process of production thereby turning out his
units of products at a lower cost.
• EVASION – is the use of the taxpayer of illegal or fraudulent means to defeat or lessen the payment
of a tax.
• AVOIDANCE – is the use by the taxpayer of legally permissible alternative tax rates or method
of assessing taxable property or income in order to avoid or reduce tax liability.
• EXEMPTION – is a grant of immunity, express or implied, to particular persons or corporations
from the obligations to pay taxes.

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