P a g e 6
Taxation
- the inherent power of the sovereign, exercised through thelegislature, to impose burdens upon the subjects and objects within itsjurisdiction, for the purpose of raising revenues to carry out thelegitimate objects of the government.
Taxes
Enforced proportional contributions from properties andpersons levied by the State by virtue its sovereignty for thesupport of the government and for public needs.
Basis of Taxation
Government necessity
Theory of Taxation
Reciprocal Duties of Support and Protectiona)Support on the part of the taxpayersb)Protection and benefits on the part of the government
Necessity Theory
Taxes proceed upon the theory that the existence of thegovernment is a necessity; that it cannot continue withoutthe means to pay its expenses; and that for those means, ithas the right to compel all citizens and properties within itslimits to contribute.
Lifeblood Doctrine
Taxes are the lifeblood of the nation
Without revenue raised from taxation, the government willnot survive, resulting in detriment to society. Without taxes,the government would be paralyzed for lack of motive powerto activate and operate it.
Taxes are the lifeblood of the government and there promptand certain availability is an imperious need.
Taxes are the lifeblood of the nation through which theagencies of the government continue to operate and withwhich the state effects its functions for the benefit of itsconstituents
Benefits Received Principle
The basis of taxation is the reciprocal duty of protectionbetween the state and its inhabitants. In return for thecontributions, the taxpayer receives the general advantagesand protection which the government affords the taxpayerand his property
Despite the natural reluctance to surrender part of ones hardearned income to the taxing authority, every person who isable to must contribute his share in the running of thegovernment.
The government is expected to respond in the form of tangible or intangible benefits intended to improve the livesof the people and enhanced their material and moral values
In return for his contribution, the taxpayer receives thegeneral advantages and protection which the governmentaffords the taxpayer and his property. One is compensation orconsideration for the other. Protection for support andsupport for protection.
Essential Characteristic of Taxes
[ LEMPPPS ]
1.
It is levied by the
l
awmaking body of the State - thepower to tax is a legislative power which under theConstitution only Congress can exercise through theenactment of laws. Accordingly, the obligation to paytaxes is a statutory liability.
2.
It is an
e
nforced contribution - a tax is not a voluntarypayment or donation. It is not dependent on the will orcontractual assent, express or implied, of the persontaxed. Taxes are not contracts but positive acts of thegovernment.
3.
It is generally payable in
m
oney - tax is a pecuniaryburden – an exaction to be discharged alone in the formof money which must be in legal tender, unless qualifiedby law, such as RA 304 which allows backpay certificatesas payment of taxes.
4.
It is
p
roportionate in character - it is ordinarily based onthe taxpayer’s ability to pay.
5.
It is levied on
p
ersons or property - a tax may also beimposed on acts, transactions, rights or privileges.
6.
It is levied for
p
ublic purpose or purposes - taxationinvolves, and a tax constitutes, a burden to provideincome for public purposes.
7.
It is levied by the
S
tate which has jurisdiction over thepersons or property - The persons, property or service tobe taxed must be subject to the jurisdiction of the taxingstate.
Requisites of a Valid Tax
[ PUJDI ]
1) It should be for a
p
ublic purpose2) The rule of taxation should be
u
niform3) That either the person or property taxed be within the
j
urisdiction of the taxing authority4) That the assessment and collection be in consonance withthe
d
ue process clause5) The tax must not
i
nfringe on the inherent and constitutionallimitations of the power of taxation
Nature of Taxation
[ ILE ]
1)
I
nherent in sovereignty2)
L
egislative in character3) Attribute of sovereignty and
e
manates from necessity,relinquishment of which is never presumed
BQ!!!
(2003)Why is the power to tax considered inherent in a sovereign State?SUGGESTED ANSWER:It is considered inherent in a sovereign State because it is a necessaryattribute of sovereignty. Without this power no sovereign State canexist or endure. The power to tax proceeds upon the theory that theexistence of a government is a necessity and this power is an essentialand inherent attribute of sovereignty, belonging as a matter of right toevery independent state or government. No sovereign State cancontinue to exist without means to pay its expenses; and that for thosemeans, it has the right to compel all citizens and property within itslimits to contribute, hence, the emergence of the power to tax.
Scope of Taxation
1)
C
omprehensive2)
U
nlimited3)
P
lenary4)
S
upreme
Scope of Legislative Taxing Power
[ SAPASM ]
1.
s
ubjects of Taxation (the persons, property or occupationetc. to be taxed)2.
a
mount or rate of the tax3.
p
urposes for which taxes shall be levied provided they arepublic purposes4.
a
pportionment of the tax5.
s
itus of taxation6.
m
ethod of collection
Principles of a Sound Tax System
[ FTA ]
1)
F
iscal Adequacy – the sources (proceeds) of tax revenue shouldcoincide with and approximate the needs of, governmentexpenditures.
2)
T
heoretical Justice – the tax system should be fair to theaverage taxpayer and based upon his ability to pay.
3)
A
dministrative Feasibility – the tax system should be capableof being properly and efficiently administered by thegovernment and enforced with the least inconvenience to thetaxpayer.The non-observance of these canons, which are merely intended to makethe tax system sound, will not render the tax impositions by the taxingauthority invalid, except to the extent that specific constitutional orstatutory limitation are impaired.
Is the Power to Tax the Power to Destroy?
In the case of Churchill, et al. vs Concepcion (34 Phil 969) it has beenruled that: The power to impose taxes is one so unlimited in force and sosearching in extent so that the courts scarcely venture to declare that itis subject to any restriction whatever, except such as rest in thediscretion of the authority which exercise it. No attribute of sovereigntyis more pervading, and at no point does the power of government affectmore constantly and intimately all the relations of life than through theexaction made under it. And in the notable case of McCulloch vsMaryland, Chief Justice Marshall laid down the rule that the power to tax
Taxation
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P a g e 6
involves the power to destroy. According to an authority, the aboveprinciple is pertinent only when there is no power to tax a particularsubject and has no relation to a case where such right to tax exists.This opt-quoted maxim instead of being regarded as a blanketauthorization of the unrestrained use of the taxing power for any andall purposes, irrespective of revenue, is more reasonably construed asan epigrammatic statement of the political and economic axiom thatsince the financial needs of a state or nation may outrun any humancalculation, so the power to meet those needs by taxation must not belimited even though the taxes become burdensome or confiscatory. Tosay that “the power to tax is the power to destroy” is to describe notthe purposes for which the taxing power may be used but the degree of vigor with which the taxing power may be employed in order to raiserevenueWhile taxation is said to be the power to destroy, it is by no meansunlimited. It is equally correct to postulate that the “power to tax isnot the power to destroy while the Supreme Court sits,” because of theconstitutional restraints placed on a taxing power that violatedfundamental rights. In the case of Roxas, et al vs CTA (April 26, 1968),the SC reminds us that although the power of taxation is sometimescalled the power to destroy, in order to maintain the general public’strust and confidence in the Government, this power must be used justlyand not treacherously. The Supreme Court held: “The power of taxationis sometimes called also the power to destroy. Therefore it should beexercised with caution to minimize injury to the proprietary rights of ataxpayer. It must be exercised fairly, equally and uniformly, lest thetax collector kill the ‘hen that lays the golden egg’. And, in order tomaintain the general public’ trust and confidence in the Governmentthis power must be used justly and not treacherously.” The doctrineseeks to describe, in an extreme, the consequential nature of taxationand its resulting implications, to wit:a. The power to tax must be exercised with caution to minimize injuryto proprietary rights of a taxpayer;b. If the tax is lawful and not violative of any of the inherent andconstitutional limitations, the fact alone that it may destroy an activityor object of taxation will not entirely permit the courts to afford anyrelief; andc. A subject or object that may not be destroyed by the taxingauthority may not likewise be taxed. (e.g. exercise of a constitutionalright)
BQ!!!
(2000)Justice Holmes once said: The power to tax is not the power to destroywhile this Court (the Supreme Court) sits." Describe the power to taxand its limitations. (5%)SUGGESTED ANSWER:The power to tax is an inherent power of the sovereign which isexercised through the legislature, to impose burdens upon subjectsand objects within its Jurisdiction for the purpose of raisingrevenues to carry out the legitimate objects of government. Theunderlying basis for its exercise is governmental necessity forwithout it no government can exist nor endure. Accordingly, it hasthe broadest scope of all the powers of government because in theabsence of limitations, it is considered as unlimited, plenary,comprehensive and supreme. The two limitations on the power of taxation are the inherent and constitutional limitations which areintended to prevent abuse on the exercise of the otherwiseplenary and unlimited power. It is the Court's role to see to it that theexercise of the power does not transgress theselimitations.
Taxation vs Police Power vs Eminent Domain[ TPE ]TaxationPolice PowerEminent Domain
As to purpose
[ SPP ]
for the
s
upportof thegovernmentto
p
romotegeneralwelfare,public health,public morals,and publicsafetyfor
p
ublic useAs tocompensation
[ BMJ ]
Protection and
b
enefitsreceived fromthe governmentThe
m
aintenanceof a healthyeconomicstandard of society
J
ustcompensation,not to exceedthe market valuedeclared by theowner oradministrator oranyone havinglegal interest inthe property, oras determined bythe assessor,whichever islowerAs to personsaffected
[ CCI ]
Operate upon acommunity or a
c
lass of individualsOperate upona communityor a
c
lass of individualsOperates on the
i
ndividualproperty ownerAs toauthoritywhichexercises thepower
[ GGP ]
Exercised onlyby the
g
overnment orits politicalsubdivisionsExercised onlyby the
g
overnment orits politicalsubdivisionsMay be exercisedby public servicescorporation or
p
ublic utilities if granted by lawAs to amountof imposition
[ LCN ]
Generally nolimit to theamount of taxthat may beimposed;
l
imitlessLimited to the
c
ost of regulationThere is
n
oimposition;rather, it is theowner of theproperty takenwho is just paidcompensationAs to therelationshipto theConstitution
[ SFS ]S
ubject tocertainconstitutionallimitations,including theprohibitionagainstimpairment of the obligation of contractsRelatively
f
reefromconstitutionallimitations andsuperior to thenon-impairmentprovisionsthereof
S
ubject tocertainconstitutionallimitations,including theprohibitionagainstimpairment of the obligation of contractsTransfer of propertyrights
[ PNG ]
taxes paidbecome part of
p
ublic funds
n
o transfer butonly restrainton theexercise of property rightexistsproperty is takenby the
g
ov’t uponpayment of justcompensationScope
[ AAO ]
affects
a
llpersons,property andexciseaffects
a
llpersons,property,privileges, andeven rightsaffects
o
nly theparticularpropertycomprehendedBasis
[ NSN ]
(all publicnecessity)
public
n
ecessity
publicnecessity andthe right of the state andthe public to
s
elf-protectionand self-preservationpublic
n
ecessity,private propertyis taken forpublic use
Power of Judicial Review in Taxation
The courts cannot review the wisdom or advisability or expediency of atax. The court’s power is limited only to the application andinterpretation of the law. Judicial action is limited only to review whereinvolves:
[ CA ]
1. The determination of validity on the tax in relation to
c
onstitutional precepts or provisions.2. The determination, in an appropriate case, of the
a
pplication of the law.
Limitation of Taxation[ IC-DI ]
1)
I
nherent limitations
2)
C
onstitutional limitations
a.
Provisions
d
irectly affecting taxation
b.
Provisions
i
ndirectly affecting taxation
Inherent Limitations[ PITSE ]
1)
Taxation is for
p
ublic purpose
2)
Taxation is
i
nherently legislative
3)
Taxation is
t
erritorial
4)
Taxation is
s
ubject to international comity
5)
E
xemption of the Government from taxesA violation of these inherent limitations can amount to taking of property without due process of law; hence, in this sense, it can be saidthat any tax law contravening any limitation of taxation, in effect, willlikewise be unconstitutional.
Taxation is for a public purpose
Taxation
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P a g e 6
The proceeds of tax must be used:
[ SO ]
o
For the
s
upport of the State
o
For some recognized
o
bjects of government ordirectly to promote the welfare of the community
The mere fact that a particular taxpayer receives no specialor immediate benefit is of no moment for it is the generalgood that matters in taxation. The symbiotic relationshipbetween the taxing authority and the subject of taxation isenough to justify the imposition.
The public purpose of a tax may legally exist even if themotive which impelled the legislative to impose the tax wasto favor one industry over another.
It is inherent in the power to tax that a state be free to selectthe subject of taxation and it has been repeteadly held that“inequities which result from singling out of one particularclass for taxation or exemption infringes no constitutionallimitation.” Taxation has been made the implement of thestate’s police power.
Taxation is inherently legislative
Along with police power (for public good or welfare) andeminent domain (for public use), taxation (for revenue) is aninherent power of sovereignty. It follows that it is alsolegislative in character and a legislative prerogative.
The legislative taxing power includes the authority:
[ DGS ]
a)
To
d
etermine the nature (kind), object (purpose), extent(amount of rate), coverage (subjects and objects) andsitus (place) of tax imposition
b)
To
g
rant tax exemptions and condonations
c)
To
s
pecify or provide for the administrative, as well asjudicial, remedies that either the government or thetaxpayer may avail themselves of in properimplementation of tax measure.
Being thus legislative in nature, the power to tax may not bedelegated , except:
[ LCA ]
a)
To the
l
ocal governments (to be exercised by thelocal legislative bodies thereof) or political subdivisions
b)
When allowed by the
C
onstitution
c)
When the delegation relates merely to
a
dministrative implementation that may call for some degree of discretionary powers under a set of sufficient standards expressedby law
Taxation may exceptionally be delegated, subject to suchwell-settled limitations as:
[ NEL ]
a)
The delegation shall
n
ot contravene any constitutionalprovision or the inherent limitations of taxation
b)
The delegation is
e
ffected either by the constitution orby validly enacted legislative measures or statute
c)
The delegated levy power; except when the delegation isby an express provision of the constitution itself, shouldonly be in favor of the
l
ocal legislative body of the localor municipal government concerned.
The power of taxation, it has been said, may be delegated tolocal governments in respect of matters of local concern. Bynecessary implication, the legislative power to createpolitical corporations for purposes of local self-governmentcarries with it the power to confer on such localgovernmental agencies the power to tax. Local governmentsmay be permitted to tax subjects, which for the reason of public policy the State has not deemed wise to tax for generalpurposes.
Taxation is territorial
Taxation may be exercised only within the territorialjurisdiction of the taxing authority. Within the territorialjurisdiction, the taxing authority may determine the “place of taxation”
In fixing the tax situs, the following criteria are observed:a)For poll taxes, the possible tax situs is the residence of the tax payerb)For property taxes, the tax situs can only be where theproperty is situtatedc)For excise taxes, the tax situs can be the place :1)Where the privilege is exercised2)Where the taxpayer is a national of 3)Where he has his residenceIn the selection of the appropriate criteria, t eh taxingauthority is given wide latitude; among the circumstancesoften considered are the nature of the tax, the extent of thebenefit that may be derived by the taxpayer and equityprinciples.
Taxation is subject to international comity
The Philippine Constitution, indeed, has expressly adopted thegenerally accepted principles of international law as part of the law of the land.
Under international comity, a state must recognize thegenerally accepted tenets of international law, among whichare the principles of sovereign equality among states and of their freedom from suit without their consent, that limit theauthority of a government to effectively impose taxes on asovereign state and its instrumentalities, as well as on itsproperty held, and activities undertaken, in that capacity.
Exemption of the Government from Taxes
Reasons for Exemptions:1) To levy tax upon public property would render necessarynew taxes on other public property for the payment of the taxso laid and thus, the government would be taxing itself to raisemoney to pay over to itself;2) In order that the functions of the government shall not beunduly impede; and3) To reduce the amount of money that has to be handed bythe government in the course of its operations.
Unless otherwise provided by law, the exemption applies onlyto government entities through which the governmentimmediately and directly exercises its sovereign powers(Infantry Post Exchange vs Posadas, 54 Phil 866)
Notwithstanding the immunity, the government may tax itself in the absence of any constitutional limitations.
Government-owned or controlled corporations, whenperforming proprietary functions are generally subject to taxin the absence of tax exemption provisions in their charters orlaw creating them.
Constitutional Limitations
Taxation, being inherent in sovereignty, need not be clothedwith any constitutional authority for it to be exercised by asovereign state. Instead, constitutional provisions are meantand intended more to regulate and define, rather than grant,the power emanating therefrom.
Provisions Directly Affecting Taxation
1)No person shall be imprisoned for non-payment of a poll tax(Art 3, Sec 20)2)Taxation shall be uniform and equitable. The congress shallevolve a progressive system of taxation (Art 6, Sec 28 par 1)3)The congress may, by law, authorize the president to fix withinspecified limits and subject to such limitations and restrictionsas it may impose, tariff rates, imports and export quotas,tonnage and wharfage dues, and other duties or imposts withinthe framework of the national development program of thegovernment (Art 6 Sec 28 par 2)
4)
Charitable institutions, churches, parsonages or conventsappurtenant thereto, mosques, and non-profit cemeteries andall lands, buildings and improvements actually, directly andexclusively used for religious, charitable or educationalpurposes shall be exempt from taxation (Art 6 Sec 28 par 3)5)No law granting any tax exemption shall be passed without theconcurrence of a majority of all the members of congress (Art6 Sec 28 par 4)6)All money collected on any tax levied for a special purposeshall be treated as a special fund and paid out for suchpurpose only. If the purpose for which a special fund wascreated has been fulfilled or abandoned, the balance if any,shall be transferred to the general funds of the government.(Art 6 Sec 29 par 3)7)The president shall have the power to veto any particular itemor items in an appropriation, revenue, or tariff bill, but theveto shall not affect the item or items to which he does notobject. (Art 6 Sec 27 par 2)
8)
The Supreme Court shall have the power to “review, revise,reverse, modify or affirm on appeal or certiorari, as the law orthe Rules of Court may provide, final judgments and orders of the lower courts in
x x x
all cases involving the legality of any
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