Income Taxation notes
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Chapter 1: Introduction to Taxation
1. State power
 Inherent power of the State to enforce a
proportional contribution from its
subjects
2. A process
 Levying taxes by the legislature of the
State
3. Mode of cost distribution
 State allocates its costs or burden to its
subjects
Theory of Taxation
- government cannot exist without a system of
funding.
The Lifeblood Doctrine
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taxes are the lifeblood of the government.
Upon it depends the government’s ability
to serve the people whose benefit taxes
are collected.
Without taxes, the government can
neither exist nor endure
rule of Estoppel against the Government
collection of taxes cannot be enjoined by
injunction (only the Court of Tax Appeals
can issue the injunction
taxes could not be the subject of
compensation or set-off
right to select the objects of taxation rests
with the Congress
Power to destroy
Aspects of the Ability to pay Theory
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1. Taxation power
 enforce proportional contribution from its
subjects to sustain itself
 power to raise revenue, through the
enactment of laws that impose charges
upon persons, properties and activity
under its jurisdiction, to defray
government expenses
2. Police power
 enact laws to protect the well-being of the
people
3. Eminent domain
 take private property for public use with
just compensation
 power of expropriation
 exercised by the Congress, President,
local legislative bodies, or private
corporations providing public utilities
Primary purpose (Power of taxation)
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to raise revenue to meet the legitimate
objectives of the government
Secondary purpose
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Theories of Cost Allocation
1. Benefit received theory
 the more benefits received, the more
taxes should be paid
2. Ability to pay theory
Vertical equity
extent of one’s ability to pay is directly
proportional to the level of his tax base.
Horizontal equity
requires consideration of the particular
circumstance of the taxpayer
Inherent Powers of the State
The Basis of Taxation
- the government provides benefits to the people and
the people provide the funds that finance the
government
Taxpayers should contribute based on
their relative capacity to sacrifice
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Regulatory – devise for regulation and
control by means of which certain effects
envisioned by the government may be
achieved
Compensatory – more earnings = higher
taxes
Differences of the inherent powers
Income Taxation notes
PP
ED
TX
Authority
Govt.
Govt.
Purpose
Protection
Public use
Community
Owner
Govt./Priv.
Individual
Govt.
support
Community
Indirect
Direct
Indirect
Limited
No amount
Unlimited
Superior
Superior
Inferior
Persons
affected
Benefits
received
Amount of
imposition
Impairment
of
contracts
jurisdiction (filing of returns and payment
of taxes; withholding of taxes of expenses
Exception to the territoriality principle
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2. International comity/mutual courtesy
 all nations are deemed equal regardless of
race, religion, culture, etc.
 govts. do not tax income and properties of
other govts.
 give primacy to their treaty obligations
Aspects of Taxation
1. Levying/Imposition (Legislative)
2. Assessment (Executive)
3. Collection (Executive)
3. Public purpose
 Tax is intended for the common good,
must be exercised absolutely for public
purpose
Levying
(Legislative)
Collection
(Executive)
4. Exemption of the government
 government normally does not tax itself
 income from properties and activities
conducted for profit is subject to tax
Assessment
(Executive)
5. Non-delegation of the taxing power
 Legislative taxing power is vested
exclusively in Congress, non-delegable
 What has been delegated cannot be
further delegated
Scope of Taxation
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Supreme – can impose tax on anything
Plenary Avail remedies to endure
collection
Unlimited - without restrictions
Comprehensive – may cover persons,
businesses, activities, professions, rights ad
privileges
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Constitutional Limitations
1. Due process of law
 Tax laws should neither be harsh of
oppressive
Limitations of the Taxation Power
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Income taxation, taxable on income
derived within and outside the country
Transfer taxation, residents or citizens,
aliens are taxable on transfers of
properties located within/outside the
country.
Inherent Limitations
1. Territoriality of taxation
 Demand tax obligation only to its
subjects or resident within it territorial
Aspects of Due Process
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Substantive due process
Income Taxation notes
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imposed only for public purpose,
collected under authority of a valid law in
its jurisdiction
Procedural due process
- Observe taxpayer’s right to notice and
hearing
2. Equal protection of the law
- no person shall be denied of equal
protection of the law