TAXATION

GENERAL PRINCIPLES
Taxation sovereignty for the support of the government
- The sovereign, through its law-making body, and all public needs.
imposes burden upon subject and object
within the jurisdiction for the purpose of THREE INHERENT POWER OF THE STATE
raising revenue to carry out the legitimate 1. Police Power
object of the government. - Promoting of public welfare by
- Act of levying tax. restraining and regulating the use of
- Even if not mentioned in the constitution, the liberty and property.
State can sill exercise the power. 2. Power of Taxation
- Any constitutional provision regarding the - State raises revenue to defray the
State’s power to tax should not be interpreted necessary expenses of the
as a “grant of power” but merely a limitation government.
on the State’ power to tax. 3. Power of Eminent Domain
Taxes - State acquire private property for
- Enforced proportional contribution or charges public purpose upon payment of just
from person and property levied by the law- compensation.
making body of the State by virtue of its

DISTINCTION AMONG THE THREE INHERENT POWERS

TAXATION POLICE POWER EMINENT DOMAIN

Take private property for
Enforce contribution to
NATURE Make and implement laws public use with just
raise government funds
compensation.
Public service/Utility
AUTHORITY Government Government
companies
Promotion of general Taking of private property
PURPOSE Support of the government
welfare for public use.
Community or class of Community or class of On an individual as the
individuals. individuals. owner of personal
property.
PERSONS AFFECTED
Applies to all person, Applies to all person,
property and excises that property and excises that Only particular property is
may be subject thereto. may be subject thereto. comprehended.
Merely a power to take
Plenary, comprehensive,
SCOPE Broader in application private property for public
and supreme
use.
Contribution becomes part There is transfer of title to
EFFECT No transfer of title
of public fund property
No direct and immediate
In form of protection and benefit but may arise from
Market value of property
BENEFIT RECEIVED benefit received from the maintenance of a
taken
government healthy economic standard
of society
Sufficient to cover cost of
license and the necessary No imposition. The owner
AMOUNT OF
No limit expenses of police is paid equivalent to fair
IMPOSITION
surveillance and value of his property.
regulations.

PURPOSE OF TAXATION envisioned by the government may be achieved

 Primary: Provide funds or property with which such as:
to promote the general welfare and protection a. Promotion of General Welfare
of its citizens and to enable it to finance b. Reduction of Social Inequality
multifarious activities. c. Economic Growth
 Secondary: Devise for regulation or control by
means of which certain effects or conditions THEORY AND BASIS OF TAXATION
 TAXATION
 Necessity Theory each other already become due,
- It is a necessary burden to preserve demandable, and fully liquidated.
the State’s sovereignty and a means 4. Right to select objects (subject) of
to give the citizenry an army to resist taxation
aggression, a navy to defend its  The right to select the object/subject of
shores from invasion, a corps of civil taxation rests with the Congress.
servant to serve, public improvement  Matter within the competence of the
for the enjoyment of the citizenry, and legislature include the determination
those which come within the State’s of:
territory and facilities and protection a. Subject or object to be taxed
which a government is supposed to b. Purpose of the tax
provide. c. Amount or rate of the tax
 Lifeblood Theory d. Kind of tax
- The government cannot continue to e. Apportionment of the tax
perform its basic function of serving f. Situs of taxation
and protecting its people without g. Manner, means, and agencies
means to pay its expenses of collection of tax
 Reciprocity Theory 5. A valid tax may result in the destruction of
- Reciprocal duties of protection and taxpayer’s property
support between the State and its  The power to tax includes the “power to
inhabitants. destroy”.
- Doctrine of Symbiotic  Taxpayer could not seek the
Relationship nullification of the valid tax solely upon
- Taxes are what we pay for the premise that the tax will impoverish
civilized society. him.
 The exercise of power to tax is “not
MANIFESTATION OF THE LIFEBLOOD THEORY destructive of taxpayer’s property”
1. Rule of “No Estoppel against the where it is an invalid tax, which violates
Government” the inherent or constitutional limitation.
 The State cannot be estopped by the  There is a sympathetic court that shall
neglect of its agent/officers. come to the succor of the taxpayer and
2. Collection of taxes cannot be enjoined by declare such tax as invalid.
injunction
 No court, except Court of Appeals ESSENTIAL ELEMENTS OF TAX
shall have the authority to grant an  Enforced contribution
injunction to restrain the collection of  Generally payable in money
any national internal revenue tax fee or  Proportionate in character
charge imposed by the tax code.  Levied on persons, property, or exercise of right
3. Taxes could not be the subject of or privileges
compensation or set-off  Levied by the law-making body of the State
 A distinguishing feature of tax is that it  Levied for public purpose
is compulsory rather than matter of
bargain. ASPECT OF TAXATION
 If it could be subject to compensation  Levying
or set-off, it can easily give rise to - Imposition of tax.
confusion and abuse, depriving the - Legislative function.
government of authority over the  Assessment
manner y which taxpayer can credit and - Determination of the correct amount
offset their tax liabilities. of applicable tax.
 The no set-off rule also states that - Executive function.
taxes are not subject to set-off or legal  Collection
compensation because government and - BIR is in-charge of collecting internal
tax payer are not mutual creditor and revenue taxes.
debtor of each other. - Executive function.
 Exception: Both the claims of the
government and the taxpayer against
 TAXATION
NATURE/CHARACTERISTICS OF THE STATE’S 2. Local
POWER TO TAX - Imposed by Local Government
1. Inherent in Sovereignty Unit.
 State can enforce contribution even in
the absence of a constitutional B. As to Subject Matter or Object
provision. 1. Personal, Poll or Capitation
2. Legislative in Character - Tax of a fixed amount imposed
 Power to tax is peculiarly and upon individual, whether
exclusively legislative in nature. citizens or not, residing within a
 It cannot be exercised by executive or specific territory without regard
judicial branch of the government. to their property or occupation
 Exceptions to non-delegation rule which he may be engaged.
1. Delegation to the President 2. Property
2. Delegation to Local - Tax imposed on property,
Government Units whether real or personal.
3. Delegation to Administrative 3. Excise
Units - Tax which does not fall within
4. Subject to Constitutional and the classification of poll tax or
Inherent Limitation property tax.
3. Exemptions of government entities, agencies - Tax exercise of certain rights
and instrumentalities. and privileges.
 Immunity is necessary in order that
governmental function will not be C. As to who Bears the Burden
impeded. 1. Direct
 The following rules shall apply in - Demanded from the person
determining whether government who also shoulders the burden
entities and agencies are subject to tax: of tax or tax which the taxpayer
o Agencies performing cannot shift to another.
governmental function are tax 2. Indirect
exempt. - Demanded from one person in
o Agencies performing the expectation and intention
proprietary function are that he shall indemnify himself
subject to tax. at the expense of another.
o GOCC’s performing proprietary
function are subject to tax. D. As to Determination of Amount
However, the following are 1. Specific
granted tax exemptions: - Tax of fixed amount imposed by
1. GSIS the head or number, or by
2. SSS some standard or weight or
3. PHIC measurement.
4. Local Water District 2. Ad Valorem
5. HDMF or Pag-ibig - Tax of fixed proportion of the
4. International Comity value of the property with
- Property of a foreign State, may not be respect to which tax is
taxed by another State. assessed.
5. Limitation on Territorial Jurisdiction
- Tax laws cannot operate beyond a E. As to Purpose
State’s territorial limits. 1. Primary, Fiscal, or Revenue
6. Strongest among the inherent power of the Purpose
State - Tax imposed solely for the
general purpose of the
government.
CLASSIFICATION OF TAXES
2. Secondary, Regulatory, Special or
A. As to Scope
Sumptuary Purpose
1. National
- Tax imposed for specific
- Imposed by the National
purpose.
Government.
 TAXATION
F. As to Graduation or Rate  It is the Congress who has the
1. Proportional power to determine whether
- Tax based on fixed percentage the purpose is public or private.
of amount of property, receipts o What cannot be delegated is the
or other basis to be taxed. legislative
2. Progressive or Graduated enactment/imposition/levying of tax
- Tax the rate of which increases measures.
as the tax base or bracket  Constitutional Limitation
increases. o Tax statute must not be arbitrary as to
3. Regressive find no support in the Constitution.
- Tax rate of which decreases as o Power to tax should not be harsh,
the tax base or bracket oppressive, and confiscatory. (Right to
increases. Notice and Hearing
o All person subject to legislation should
G. As to Taxing Authority be treated alike under similar
1. National circumstances and conditions both in
- Imposed under National the privileges conferred and liabilities
Internal Revenue Code. imposed.
2. Local o The rule of taxation shall be uniform
- Imposed by Local Government and equitable.
Unit.  It requires the uniform
application and operation,
ELEMENT OF SOUND TAX SYSTEM without discrimination, of the
 Fiscal Adequacy tax in every place where the
- The source of revenue must be subject of the tax is found.
adequate to meet the government o No person shall be imprisoned for debt
expenditures and sustain the level of or non-payment of poll tax.
public services demanded by citizens  Punishable only by surcharge.
and policymakers. o No law impairing the obligation of
 Theoretical Justice or Equity contracts shall be passed.
- Tax burden should be proportionate to  It is impaired when its terms or
the taxpayer’s ability to pay. conditions are changed by law
 Administrative Feasibility or a party without the consent
- Good tax system requires informed of the other, thereby
stakeholders who understand how tax weakening the position or right
are assessed, collected, and complied of the latter.
with. o Charitable institutions, churches, and
- Tax system should be simple as parsonages or covenant appurtenant
possible, and should minimize thereto, mosques, non-profit
gratuitous complexity. cemeteries, and all land, building and
improvement, actually, directly, and
exclusively used for religious,
LIMITATION OF THE STATE’S POWER TO TAX
charitable, or educational purposes
 Inherent Limitation
shall be exempt to tax.
o Tax must always be imposed for a
o All revenue and assets of non-stock,
public purpose, otherwise, it will be
non-profit educational institution used
declared as invalid.
actually, directly, and exclusively for
 The purpose to be
educational purposes shall be exempt
accomplished need not be
from tax and duties.
exclusively public. Although
private individuals are directly
benefited, tax would still be SITUS OF TAXATION
valid provided such benefit is Situs of Taxation
only incidental. - Place of taxation.
- State or political unit which has jurisdiction to
impose a particular tax.
 TAXATION
TAX DISTINGUISHED FROM OTHER TERM OR IMPOSTS
A. Tax vs. Toll
 Toll
- Sum of money for the use of something, generally applied to the consideration, which is paid
of the use of a road, bridge, or the like of a public nature.

Toll Tax
Demand of proprietorship Demand of sovereignty
Paid for the use of another’s property Paid for the support of the government
Amount is based on cost of construction or Amount is based on the necessities of the State
maintenance of the public improvement used
May be imposed by the government or private Imposed only by the State
individuals or entities

B. Tax vs Penalty
 Penalty
- Sanction imposed as a punishment for violation of law or acts deem injurious.

Penalty Tax
Designed to regulate conduct Primarily aimed at raising revenue
May be imposed by the government or private Imposed only by the government
individuals or entities

C. Tax vs Special Assessment

 Special Assessment
- Enforced proportional contribution from owner of lands for special benefits resulting from public
improvement.
- It is not a tax measure intended to raise revenue for the government because the proceeds
thereof may be devoted to the specific purpose for which the assessment was authorized.
 Characteristics of Special Assessment:
a. Levied only on Land
b. Not a personal liability of the person assessed
c. Based wholly on benefits (not necessary)
d. Exceptional both as to time and place

D. Tax vs Revenue
 Revenue
- All the funds and income derived by the government, whether from tax or any other source.

Revenue Tax
Amount collected Amount imposed

E. Tax vs Subsidy
 Subsidy
- Pecuniary aid directly granted by the government to an individual or private commercial
enterprise deemed beneficial to the public.

F. Tax vs Permit or License Fees

 Permit or License
- Charge imposed under the police power for purpose of regulation.

Permit or License Fees Tax

For regulations For revenue
Exercise of police power Exercise of taxing power
Amount is limited to the necessary expenses of Generally no limit
regulation
 TAXATION
Imposed on the right of reward of an officer for Imposed also on person and property
specific services
Legal compensation or reward if an officer for Enforced contribution assesses by sovereign
specific services authority to defray public expenses
Failure to pay makes the act or business illegal Enforced contribution assesses by sovereign
authority to defray public expenses

G. Tax vs Custom Duties

 Custom Duties
- Taxes imposed on goods exported from or imported into a country.

H. Tax vs Debt
Debt Tax
Based on contract Based on law
May be paid in any kind Generally payable in money
Assignable/may be subject to set-off or Cannot generally be assignable/subject of set-
compensation off or compensation
Cannot be imprisoned for non-payment Imprisonment is a sanction for non-payment
Draw interest when stipulated or when Does not draw interest except only when
prescription default delinquent

I.Tax vs Tariff
 Tariff
- Used in one of three senses:
a. Book of rates drawn usually in alphabetical order containing names of several kinds of
merchandise with the corresponding duties to be paid for the same;
b. Duties payable on goods imported or exported;
c. System or principle of imposing duties on the importation of goods.
3. Tax Evasion
DOUBLE TAXATION - Use of the taxpayer of illegal or
Double Taxation fraudulent means to defeat or lessen
- Taxing twice by: the payment of tax.
a. Same taxing authority, jurisdiction or - Also known as tax dodging.
taxing district 4. Tax Avoidance
b. Same purpose - Exploitation by taxpayer of legally
c. Same year or taxing period permissible alternative tax rates or
d. Same subject or object methods of assessing taxable property
e. Same kind/character of the tax or income in order to avoid or reduce
- Direct Double Taxation becomes legally tax liability.
objectionable for being oppressive and 5. Exemption
inequitable. It violates the concept of equal - Grant of immunity to a particular
protection, uniformity and equitableness of person or corporation or to person or
taxation in the Constitution. corporation of a particular class from a
tax.
MEANS OF AVOIDING OR MINIMIZING BURDEN - Amnesty
→ General or intentional
OF TAXATION
overlooking by the State of its
1. Shifting
authority to impose penalties
- Transfer of the burden of a tax by the
on person otherwise guilty of
original payer or the one on whom the
evasion or violation of a
tax was assessed or imposed to
revenue or tax law.
someone else.
6. Capitalization
2. Transformation
- Reduction in the selling price of income
- Producer or manufacturer pays the tax
producing property by an amount equal
and endeavor to recoup himself by
to the capitalizable value of future taxes
improving his process of production
that may be paid by the purchaser.
thereby turning out his units of
products at a lower cost.