TAXATION
AE: limited to the cost of regulation,
issuance of the license or surveillance.
Benefits: no direct benefit is received;
a healthy economic standard of
society is attained.
NIC: contracts may be impaired.
TPR: there is no transfer but only
restraint in its exercise
Scope: all persons, property, rights
and privileges
INHERENT POWERS OF THE STATE:
1. Power of Taxation
2. Eminent Domain – power of the
government to take over your private
property for public use and just
compensation.
3. Police Power – law, general welfare
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These are the ways by which the state
interferes with the private rights and
property.
They need no constitutional provision to
be exercised by the state.
Provision in the constitution is just
limitation on the exercise of the powers.
Taxation is the strongest and most
important of all inherent powers.
Police power is the most superior.
3. Eminent Domain – mode by which the
state takes private property upon
payment.
Purpose: to facilitate the state’s need
of property for public use
AE: no exaction; but private property
is taken by the state for public
purposes
Benefits: a direct benefit results in the
form of just compensation ti the
property owner.
NIC: contracts may be impaired.
TPR: transfer is affected in favor of the
state
Scope: only upon particular property
CHARACTERISTICS OF TAXATION:
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Comprehensive
Unlimited
Plenary
Supreme
DISTINCTION AMONG INHERENT POWERS
ELEMENTS OF TAXATION:
1. Taxation – mode by which government
makes exactions for revenue in order
to support their existence and carry
out their legitimate objectives
Purpose: mainly to raise revenue
Amount of Exaction: generally
unlimited
Benefits: no special or direct benefit is
received by taxpayer, merely general
benefit of protection.
Non – Impairment of Contracts:
contracts may not be impaired.
Transfer of Property Rights: taxes paid
become part of public funds
Scope: all persons, property, rights
and privileges
1. It is an enforced contribution from
persons and properties
2. It is imposed by the state by virtue of
its sovereignty
3. It is levied for the support of the
government
4. Tax is a pecuniary burden
5. Taxes are not political in nature
THEORIES AND BASES OF TAXATION
1. LIFEBLOOD THEORY (importance of
taxation)
- 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.
- Taxes are the lifeblood of the
government and their prompt and
certain availability are imperious need.
2. Police Power – mode by which the
state interferes with private right to
promote general welfare.
Purpose: to promote general welfare
through regulations
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1. Fiscal Adequacy – sufficiency to
meet government expenditures
and other public needs. Neither an
excess nor a deficiency of revenue
vis-à-vis the needs of government
would be in keeping the principle.
2. Administrative Feasibility –
capacity of being effectively
enforced.
3. Theoretical Justice – based on the
taxpayer’s ability to pay; must be
progressive.
 Based on Adam Smith’s Canons
of Taxation
 Non-observance of these canons,
which are merely intended to
make the tax system sound, will
not render the tax impositions
invalid, except to the extent that
those specific constitutional or
statutory limitations are impaired.
Because of the life blood theory,
injunction does not lie against
collection of taxes.
The state is not stopped from
collecting taxes by mistakes or errors
of its agents.
However, the no-estoppel rule is not
absolute.
2. NECESSITY THEORY (theory of
taxation)
- Power to tax is an attribute of
sovereignty emanating from necessity.
It is a necessary burden to preserve
the state’s sovereignty and a means to
raise the funds or property with which
the state promotes general welfare
and protection of its citizens.
3. BENEFITS-PROTECTION THEORY
(basis of taxation)
- Taxation is described as a symbiotic
relationship whereby in exchange of
the benefits and protection that the
citizens get from the government,
taxes are paid.
- Receipt of benefits is conclusively
presumed, thus taxpayers cannot
avoid payment of taxes under the
defense of absence of benefit
received.
LIMITATIONS OF THE TAXATION POWER
1. Inherent – not embodied in the
constitution; limitations based on
the very nature of taxation power
2. Constitutional – expressly found in
the Constitution or implied from its
provisions.
INHERENT LIMITATIONS
4. ABILITY TO PAY THEORY
- Taxpayers should contribute based on
their relative capacity to sacrifice for
support of the government
- Aspects:
 Vertical equity – gross concept;
the extent of one’s ability to pay is
directly proportional to the level of
his tax base.
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Horizontal equity – net concept;
requires consideration of the
particular circumstance of the tax
payer.
1. Public Purpose of Taxes – money is
raised by taxation can be expended
only for public purposes and not for
the advantage of private individuals.
- Test in Determining Public Purpose
 Duty Test – whether the thing to
be furthered by the appropriation
of the public revenue is something
which is the duty of the state, as a
government, to provide.
 Promotion of General Welfare Test
– whether the proceeds of the tax
will directly promote the welfare of
the community in equal measure.
2. Non-delegability of taxing Power
- GR: the power of taxation is peculiarly
and exclusively by the legislature.
- Exp: (1) Authority of the president to
fix tariff rates, import, export quotas,
tonnage and wharfage dues, and
other duties or imposes. (2) Power of
PRINCIPLES OF SOUND TAX SYSTEM
(FAT)
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Rules governing tax immunity of the
government:
 Government-Owned and
Controlled Corp (GOCC)
- GR: income is taxable at the rate
imposed upon corporations or
associations engaged in a similar
business, industry, or activity
- GSIS, SSS,PHIC and PCSO are tax
exempt; PAGCOR’s exemption was
lifted by RA 9337
 Administrative Agencies
- Government Function – tax exempt
unless when the law expressly
provides for tax
- Proprietary Function/ Commercial –
taxable unless exempted by law
 Government Educational
Institutions
- Property or Real Estate Tax – property
actually, directly, and exclusively used
for educational purposes – exempt –
but income of whatever kind and
character from any of their properties,
real or personal, regardless of the
disposition is taxable.
- Incomes received by them as such are
exempt from taxes. However, income
from any of their activities conducted
for profit regardless of the disposition
is taxable.
5. International Comity
- Mutual comity
This limits the authority of the
government to effectively impose
taxes on a sovereign state and its
instrumentalities, as well as on its
property held and activities
undertaken in that capacity.
- Done in the form of tax treaties to
minimize the harshness of
international double taxation.
- Obligation to comply with a tax treaty
must take precedence over an
administrative issuance.
local government units to levy taxes,
fees, and charges. (3) Delegation to
administrative agencies for
implementation and collection
3. Territoriality/Situs of Taxation/ Place of
Taxation
- GR: Taxes can be imposed only within
the territories of the state.
- Exp:
(Income Taxation)
Taxpayers
Resident
Citizens
Non Resident
Citizens
Non Resident
Alien
Resident Alien
Domestic
Corps
Resident
Foreign Corp
Non Resident
Foreign Corp
Within
✔
Without
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✔
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✔
✔
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✘
(Transfer Taxation)
ex. donors and estate tax
Taxpayers
Resident
Citizens
Non Resident
Citizens
Non Resident
Alien
Resident Alien
a.
b.
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c.
4.
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Within
✔
Without
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Criteria are generally observed in
fixing tax situs
Poll Taxes – residence of the tax
payer
Property Taxes – where the property is
situated
Real Property Tax – immovable,
where the property
Personal Property Tax – movable,
residence of tax payer
Excise taxes – (1) where the privileges
is exercised, (2) where the taxpayer is
a national of; (3) where he has his
residence
Non-Taxability of the Government
GR: the government is tax exempt
Exp: it may tax itself by enacting a law
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CONSTITUTIONAL LIMITATIONS
1. Due Process Clause
- Substantive due process – taxes must
be reasonable and must only be for
public purpose
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5.
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the property itself to the purposes for
which the institution is organized.
- It is NOT the use of the income from
the real property that is determinative
of whether the property is used for taxexempt purposes; it is the actual use
of the property.
- Hence, when proportions of the
institutions are leased to private
entities those portions are no longer
exempt from real property taxes as the
actual use of the property is no longer
for charitable purposes.
6. Free Worship Rule
- The revenues of religious institutions
such as tithes or offerings are not
subject to tax. This exemption,
however, does not extended to income
from properties and activities of
religious institutions that are
proprietary or commercial in nature.
Procedural due process – government
must observe the taxpayer’s right to
notice and hearing: no arbitrariness in
assessment and collection of taxes.
Equal Protection Clause
All persons subject to legislation shall
be treated alike under the
circumstances and conditions both in
the privileges conferred and liabilities
imposed.
Not Absolute/Valid Discrimination
when:
 Rest on substantial distinction
 Is germane to the purpose of the
law
 Not limited to existing conditions
only
 Applies equally to all members of
the same class
Uniformity, equitability, and
progressivity of taxation
a. Uniformity – all taxable articles of
same kind or property of the same
class are taxed at the same rate.
b. Equitability – all the burden falls to
those who are more capable to
pay
c. Progressivity – rate increases as
the tax base increases.
Non-imprisonment for non-payment of
poll tax
Poll Tax – levied on persons who are
residents within the territory of the
taxing authority without regard to their
property, business or occupation.
Exemption of religious, charitable or
educational entities, non-profit
cemeteries, churches and mosque,
lands, building and improvement from
real property taxes.
Formerly, the rule is that the properties
must be primarily not solely used for
charitable, religious and educational
purpose.
However, the present rule is that the
property must be actually, directly and
exclusively used for such purposes.
Philippines follows doctrine of use and
not the doctrine of ownership
“Actual, direct, and exclusive use of
the property” is the direct and
immediate and actual application of
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7. Non – appropriation of public funds or
property for the benefit of any church,
sect.
- Non – Establishment Rule
- Intended to highlight the separation of
religion and the state.
- Compensation to priests, imam or
religious ministers working with the
military, penal institutions, orphanages
or leprosarium is not considered
appropriation.
8. Exemption from taxes of the revenues
and assets of educational institution,
including grants, endowments,
donations, and contributions
- Requisites:
a. Non – stock, non – profit
organization
b. The revenues and assets must be
actually, directly, and exclusively
used for educational purposes.
- The provision cover’s non – stock, non
– profit educational institutions and
exempts them from income tax, real
pt, donor’s and customs duties
because the provision speaks of “all
revenues and assets”
NSNP Educ.
Proprietary Educ.
Gov. Educ.
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Exempt
10%
Exempt
and the taxpayer, it cannot be
withdrawn without violating the
non – impairment clause.
2. When it is unilaterally granted by
the law, the same should be
withdrawn by virtue of another law
3. When the exemption is granted
under a franchise or license, it
may be withdrawn anytime.
9. Voting requirement in connection with
the legislative grant of tax exemption
- Majority of all members of congress
- This provision includes the grant of
“tax amnesties”
10. Power of the president to veto any
particular item or items in an
appropriation, revenue, or tariff
bill(item veto)
11. Non – impairment of jurisdiction of the
Supreme Court to review tax cases
- Notwithstanding the existence of the
Court of Tax Appeals, which is a
special court, all cases involving taxes
can be raised to and finally decided by
SC of the Philippines.
12. Rule requiring that appropriations,
revenues and tariff bills originate
exclusively from the House of
Representatives to which the Senate
may propose or concur with
amendments.
13. All money collected on any tax levied
for special purpose shall be treated as
a special fund and paid out for such
purpose only. If the purpose for which
the special fund was created has been
fulfilled or abandoned, the balance
shall be transferred to the general
funds of the government
14. Each LGU shall have the power to
create its own sources of revenue and
shall have a just share in the national
taxes
- Note that the power of LGU is subject
to limitations as congress may
provide.
15. No law impairing the obligation of
contracts shall be passed
- This relates to the grant of contractual
tax exemptions:
a. Entered into by taxing authority
b. Lawfully entered into them under
enabling laws: and
c. Wherein the government acts in its
private capacity and sheds its
cloak of authority and immunity
ASPECTS/STAGES/PHASES OF
TAXATION (LAP)
1. Levy – act of imposition by the
legislature such as by its
enactment of the law.
2. Assessment and Collection – act
of administration and
implementation of the tax law by
executive through its
administrative agencies.
Assessment means notice and
demand for payment of a tax
liability.
3. Payment – act of compliance by
the taxpayer, including such
options, schemes or remedies as
may be legally open or available to
him.
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The following rules govern:
1. When the exemption is bilaterally
agreed upon between government
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Our tax laws are civil in nature.
Police Power as distinguished
from taxation : The amount
collected is limited to cost
regulation
Poll tax is not considered as
national tax
Transfer Taxation; John Cena, an
American residing in the PH, is
taxable for his properties situated
both in PH and abroad
Jenny Silang, a Filipino residing in
Switzerland, is taxable for her
income derived from PH only