CHAPTER 1 – INTRODUCTION TO TAXATION
Taxation (S,L,C)
 State power
o an inherent power of the State to enforce a proportional
contribution from its subjects for public purpose
 a legislative process
o process of levying taxes by the legislature of the State to
enforce proportional contributions from its subjects for public
purpose
 a mode of government cost distribution
o by which the State allocates its costs or burden to its subjects
who are benefited by its spending
Theory of Taxation
 government cannot exist without a system of funding
The Basis of Taxation
 the government provides benefits to the people in the form
of public services, and the people provide the funds that
finance the government
Note: Receipt of benefits is conclusively presumed
- every citizen and resident of the State directly or indirectly
benefits from public services rendered by the government
- i.e. daily free usage of public infrastructures, access to public
health or educational services, protection and security of person
and property, comfort of living in a civilized and peaceful society
Theories of Cost Allocation (BR, ATP)
1. Benefit Received Theory
 the more benefit one receives from the government,
the more taxes he should pay
2. Ability to Pay Theory
 taxpayer’s ability to pay should also be considered
 taxpayers should be required to contribute based on
their relative capacity to sacrifice for the support of the
government
 those who have more should be taxed more even if
they benefit less from the government and vice versa.
Aspects of the Ability to Pay Theory (V, H)
1. Vertical Equity (gross concept)
 the extent of one’s ability to pay is directly
proportional to the level of his tax base
 i.e. A has an income of P200,000 while, B has P400,000.
In taxing income, the government should tax B more
than A as B has greater income; hence, a greater
capacity to contribute
2. Horizontal Equity (net concept)
 requires consideration of the particular circumstance
of the taxpayer
 i.e. A and B both have an income of P300,000. A
incurred P200,000 expenses while B incurred only
P50,000 expenses. The government should tax B more
than A because he has lesser expenses and thus,
greater capacity to contribute taxes.
The Lifeblood Doctrine
 without taxes, the government would be paralyzed for lack
of motive power to activate or operate it
 taxes are the lifeblood of the government
Implication of the lifeblood doctrine in taxation:
1. Tax is imposed even in the absence of a Constitutional grant
2. Claims for tax exemption are construed against taxpayers
3. The government reserves the right to choose the objects of
taxation
4. The courts are not allowed to interfere with the collection of taxes
5. In income taxation:
 income received in advance is taxable upon receipt
 deduction for capital expenditures and prepayments is not
allowed effectively defers the collection of income tax
 a lower amount of deduction is preferred when a claimable
expense is subject to limit
 a higher tax base is preferred when the tax object has
multiple tax bases
Inherent Powers of the State (T,P,E)
1. Taxation Power
 to enforce proportional contribution from its subjects to
sustain itself
2. Police Power
 general power of the State to enact laws to protect the
well-being of the people
3. Eminent Domain
 to take private property for public use after paying just
compensation
Similarities of the three powers of the State:
1. necessary attributes of sovereignty
2. inherent to the State
3. legislative in nature
4. ways in which the State interferes with private rights and
propertied
5. exist independently of the Constitution and are exercisable by the
government even without a Constitutional grant (the Constitution
may impose conditions or limits for their exercise)
6. presuppose an equivalent form of compensation received by the
persons affected by the exercise of the power
7. may be limited by the national legislature
Scope of the Taxation Power
 comprehensive, plenary, unlimited, and supreme (not
absolutely unlimited)