TAXATION 1
ATTY. LOPEZ NOTES
GENERAL PRINCIPLES
TAXATION DEFINITION:
It refers to the inherent power of the state to
demand enforced contributions for public purpose.
PURPOSE:
1. Revenue-raising
The primary purpose is to generate funds for the
State to finance the needs of the citizenry and to
advance the common wealth.
2. To regulate
Taxation is often employed as a device for regulation
by means of which certain effects or conditions
envisioned by governments may be achieved. Taxes
may be levied with a regulatory purpose to provide
means for the rehabilitation and stabilization of a
threatened industry which is affected with public
interest as to be within the police power of the state.
3. General Welfare –
Promote general welfare of the people as an
implement of police power.
State's sovereignty xxx [Phil. Guaranty Co., Inc. v.
Commissioner, G.R. No. L22074 (1965)]
Essentially a legislative function – The power to tax is
peculiarly and exclusively legislative and cannot be
exercised by the executive or judicial branch of the
government [1 Cooley 160-161].
Hence, only Congress, our national legislative body, can
impose taxes. The levy of a tax, however, may also be
made by a local legislative body subject to such
limitations as may be provided by law. It includes the
authority to:
a. Determine the nature, purpose, extent, coverage,
apportionment, situs, and method of collection of the
tax.
b. Grant tax exemptions or condonations; and
c. Specify or provide for the administrative as well as
judicial remedies that either the government or the
taxpayers may avail themselves in the proper
implementation of the tax measure.
EXCEPTION:
The so-called “sin taxes” on alcohol and tobacco
manufacturers help dissuade the consumers from
excessive intake of these potentially harmful
products. ([Southern Cross Cement Corporation v. Cement
Manufacturers Association of the Philippines, et al., G. R. No.
158540 (2005)])
4. Reduction of Social Inequality
Reduce inequalities in wealth and incomes, as for
instance, the estate, donor's and income taxes, their
payers being the recipients of unearned wealth or
mostly in the higher income brackets. Progressivity
is based on the principle that those who are able to
pay more should shoulder the bigger portion of the
tax burden.
5. Encourage Economic Growth
Encourage economic growth through the grant of
incentives or exemptions, which encourage
investment and thereby stimulate economic activity.
6. Protectionism –
Protect local industries against foreign competition
by imposing additional taxes on imported goods, or
encourage foreign trade by providing tax incentives
on imported goods
NATURE OF TAXING POWER
Inherent in sovereignty - The power to tax is an attribute
of sovereignty. It is a power emanating from necessity
because it imposes a necessary burden to preserve the
PRESIDENT - Power to impose taxes on tariff rates; and
LGUs
Elements of Taxation
1. Enforced proportional contribution from
persons and properties - Its imposition is in no
way dependent upon the will or assent of the
person taxed. It is not contractual, either
express or implied, but positive acts of
government;
2. Imposed by the State by virtue of its
sovereignty; and
3. It is levied for the support of government
Characteristics of Taxing Power
1. Comprehensive - Covers persons, businesses,
activities, professions, rights, and privileges.
2. Unlimited - A tax does not cease to be valid
merely because it regulates, discourages, or
even definitely deters the activities taxed. The
power to impose taxes is one so unlimited in
force and so searching in extent, that the
courts scarcely venture to declare that it is
subject to any restrictions whatever, except
such as rest in the discretion of the authority
which exercises it. [Tio v. Videogram Regulatory
Board, G.R. No. 75697 (1987)]
3. Plenary - Under NIRC, the BIR may avail of
certain remedies to ensure the collection of
taxes. Taxes, being the lifeblood of the
TAXATION 1
ATTY. LOPEZ NOTES
government, should be collected without
unnecessary hindrance, every precaution
must be taken not to unduly suppress it.
[Republic v. Caguioa G.R. No. 168584 (2007)]
4. Supreme - . It is supreme insofar as the
selection of the subject of taxation is
concerned, but it does not mean that it is
superior to the other inherent powers of the
State
THEORIES AND BASIS OF TAXATION
Lifeblood theory
The underlying basis of taxation is governmental
necessity, for without taxation, a government can
neither exist nor endure. Taxes are the lifeblood of the
government and so should be collected without
unnecessary hindrance. It is said that taxes are what
we pay for civilized society. Without taxes, the
government would be paralyzed for lack of the motive
power to activate and operate it [CIR v. Algue, G.R. No.
L-28896 (1988); See also CIR v. Pineda, G.R. No. L22734 (1967)]
Necessity theory
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 expenses;
and that for those means it has the right to compel all
citizens and property within its limits to contribute.
The power to tax is an attribute of sovereignty. It is a
power emanating from necessity. It is a necessary
burden to preserve the State's sovereignty and a
means to give the citizenry:
 an army to resist an aggression;
 a navy to defend its shores from invasion;
 a corps of civil servants to serve;
 public improvement designed for the
enjoyment of the citizenry and those which
come within the State's territory; and
 facilities and protection which a government
is supposed to provide. [Phil. Guaranty v. CIR,
G.R. No. L-22074 (1965)]
The obligation to pay taxes rests upon the necessity of
money for the support of the state. For this reason, no
one is allowed to object to or resist the payment of
taxes solely because no personal benefit to him can be
pointed out. [Lorenzo v. Posadas, G.R. No. L-43082
(1937)]
Benefits-protection Theory
(Symbiotic Relationship)
This principle serves as the basis of taxation and is
founded on the reciprocal duties of protection and
support between the State and its inhabitants.
Despite the natural reluctance to surrender part of
one's hard earned income to the taxing authorities,
every person who is able to, must contribute his share
in the running of the government. The government for
its part is expected to respond in the form of tangible
and intangible benefits intended to improve the lives
of the people and enhance their moral and material
values. This symbiotic relationship is the rationale of
taxation and should dispel the erroneous notion that
it is an arbitrary method of exaction by those in the
seat of power. [CIR v. Algue, supra]