GENERAL PRINCIPLES OF TAXATION THE INHERENT POWERS OF THE STATE POWER TO TAX POLICE POWER EMINENT DOMAIN POWER TO TAX • Act of levying or imposing a tax • process by which the sovereign (independent state) through its law-making body (legislative branch of the government) raises income to defray the necessary expenses of the government by apportioning the cost among those who, in some measure, are privileged to enjoy its benefits, and therefore, must bear its burdens. POLICE POWER • power of the state to promote public welfare by restraining and regulating the use of liberty and property. • exercised only by government EMINENT DOMAIN • power to take private property for public purpose upon payment of just compensation. SIMILARITIES AMONG TAXATION, EMINENT DOMAIN AND POLICE POWER inherent in the State. exist independently of the constitution although the conditions for their exercise may be prescribed by the constitution. Ways by which the state interfere with private rights and property. legislative in nature and character presuppose an equivalent compensation received, directly or indirectly, by the persons affected. PURPOSE OF TAXATION • PRIMARY PURPOSE raise revenues/funds to defray the necessary expenses of the government called Revenue or Fiscal Purpose • SECONDARY PURPOSE a. Regulatory Purpose - Taxation is employed as a device for regulation or control (to implement the police power of the State for the promotion of the general welfare) by means of which certain effects or conditions envisioned by the government may be achieved. • COMPENSATORY PURPOSE Reduction of Social Inequality Economic Growth Protect local industries against unfair competition NATURE AND CHARACTERISTICS OF TAXATION • Inherent Power - may be exercised although not expressly granted by the constitution • Essentially a legislative function - only the legislative can impose taxes • Subject to inherent and constitutional limitations - not an absolute power • For public purpose • The strongest of all the inherent powers of the State. • Subject to international treaty or comity. • Generally payable in money • Territorial in scope ABSENCE OF INHERENT AND CONSTITUTIONAL LIMITATIONS THE POWER TO TAX IS: C - Comprehensive Pl - Plenary U - Unlimited S – Supreme MARSHALL DOCTRINE It is so comprehensive that in the words of Justice Marshall (American lawyer and civil rights activist who served as Associate Justice of the Supreme Court of the United States), the power to tax includes the power to destroy. TAXES DEFINED TAXES enforced proportional contributions from persons and property, levied by the State by virtue of its sovereignty for the support of the government and for all its public needs. THEORIES AND BASIS OF TAXATION NECESSITY THEORY The power of taxation proceeds upon the theory that the existence of the government is a necessity. It is a power predicated upon necessity LIFEBLOOD DOCTRINE Taxes are the lifeblood of the government without which it can neither exist nor endure. • No Estoppel against the Government • Collection of taxes cannot be enjoined (stopped) by injunction • Taxes could not be the subject of compensation or set-off • A valid tax may result in the destruction of the taxpayer’s property • Right to select objects (subjects) of taxation THE BENEFITS - PROTECTION THEORY The basis of taxation is the reciprocal duties of “protection and support” between the State and its inhabitants. This theory spawned the Doctrine of Symbiotic Relationship which means, taxes are what we pay for a civilized society. DISTINCTIONS AMONG THE 3 INHERENT POWERS OF THE STATE SCOPE OF THE TAXING POWER OF THE LEGISLATIVE The subject or object (person, property, and excises/privileges) to be taxed The purpose of the tax as long as it is a public purpose The amount or rate of the tax Kind of tax Appointment of the tax Situs of taxation The manner or method of collection STAGES/ ASPECTS OF TAXATION LEVYING OR IMPOSITION involves the passage of tax laws or ordinances (in the case of local government units) through the legislature ASSESSMENT AND COLLECTION involves the act of administration and implementation of tax laws by the executive through its administrative agencies such as the Bureau of Internal Revenue and the Bureau of Customs. Assessment - determination by the executive branch of the correct amount of the tax. Collection of the tax levied, which is essentially administrative in character PRINCIPLES/ELEMENTS OF SOUND TAX SYSTEM • FISCAL ADEQUACY The sources of government revenue must be sufficient to meet government expenditures and other public needs. • THEORETICAL JUSTICE A good tax system must be based on the taxpayer’s ability to pay. • ADMINISTRATIVE FEASIBILITY Tax laws must be capable of convenient, just and effective administration - free from confusion and uncertainty. LIMITATIONS ON THE TAXING POWER INHERENT LIMITATIONS Public Purpose a. Support of the government b. Some of the recognized objects of government c. To promote the welfare of the community Situs of taxation or Territoriality - limited to person and property within and subject to its jurisdiction. PLACE OF TAXATION a. The state where the subject to be taxed has a situs may rightfully levy and collect the tax. b. The situs is necessarily in the State which has jurisdiction or which exercises dominion over the subject in question. Situs of taxation or Territoriality - limited to person and property within and subject to its jurisdiction. FACTORS TO CONSIDER IN DETERMINING SITUS OF TAXATION a. Subject matter (person, property, or activity) b. Nature of the tax c. Citizenship d. Residence of the taxpayer • PhilHealthIC • Local Water Districts * PCSO - tax-exempt prior to January 1, 2018 INHERENT LIMITATIONS International Comity or treaty - a State cannot tax another State based on the principle of Sovereign Equality among States. Non-delegability of the Taxing power (Enactment of Tax Laws) - Power of taxation is purely legislative, hence the power cannot be delegated either to the executive or judicial departments EXCEPTIONS: a. Delegation to the President b. Delegation to local governments c. Delegation to administrative agencies certain aspects of the taxing process that are not legislative. Tax Exemptions of the government a. Agencies performing governmental functions are tax - exempt unless expressly taxed. b. Agencies performing proprietary functions are subject to tax unless expressly exempted. c. GOCCs performing proprietary functions are subject to tax, except: • GSIS • SSS CONSTITUTIONAL LIMITATIONS Observance of due process of law Equal protection of law Uniformity in taxation Progressive scheme of taxation Non-imprisonment for non-payment of poll tax Non-impairment of the obligations of contracts Free-worship clause Exemption of charitable institutions, churches, parsonages, or convents appurtenant thereto, mosques, and non-profit cemeteries, and all lands, buildings and improvements actually, directly, and exclusively used for religious, charitable or educational purposes. Exemption from taxes or the revenues and assets of non-profit, nonstock educational institutions including grants, endowments, donations or contributions for educational purposes. Non-appropriation of public funds or property for the benefit of any church, sect or system of religion. No money shall be paid out of the Treasury except in pursuance of an appropriation made by law. Concurrrence of a majority of ALL MEMBERS OF CONGRESS for the passage of a law granting tax exemption Non-diversification of tax collections The President shall have the power to veto Non-impairment of the jurisdiction of the Supreme Court to review tax cases Appropriations, revenue or tariff bills shall originate exclusively in the House of Representatives but the Senate may propose or concur with amendments. Each local government unit shall exercise the power to create its own sources of revenue and shall have a just share in the national taxes.
