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I. Definition of Taxation

Taxation is an enforced proportional contributions from persons and properties,

exacted by the State by virtue of its sovereignty for the support of government and
for all public needs.49

Based on this definition, a tax has three elements, namely:

a) it is an enforced proportional contribution from persons and properties;

b) it is imposed by the State by virtue of its sovereignty; and

c) it is levied for the support of the government.

Taxation is done not merely to raise revenues to support the government, but also
to provide means for the rehabilitation and the stabilization of a threatened
industry, which is so affected with public interest as to be within the police power
of the State.

Taxation may be made the implement of the state's police power.

It is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that "inequalities which result from a
singling out of one particular class for taxation, or exemption infringe no
constitutional limitation".

II. Nature and characteristics of Taxation and Taxes

The power of taxation is inherent to the State. It is settled that the
legislature has the inherent power to select the subjects of taxation and
to grant exemptions.

This power has aptly been described as "of wide range and flexibility." 5 Indeed, it
is said that in the field of taxation, more than in other areas, the legislature
possesses the greatest freedom in classification.6 The reason for this is that
traditionally, classification has been a device for fitting tax programs to local needs
and usages in order to achieve an equitable distribution of the tax burden.7

While the principle that there must be a reasonable relationship between

classification made by the legislation and its purpose is undoubtedly true in
some contexts, it has no application to a measure whose sole purpose is to
raise revenue ... So long as the classification imposed is based upon some
standard capable of reasonable comprehension, be that standard based upon
ability to produce revenue or some other legitimate distinction, equal
protection of the law has been afforded.

The classification is likewise based on considerations of administrative

convenience. For it is now a settled principle of law that "consideration of
practical administrative convenience and cost in the administration of tax laws
afford adequate ground for imposing a tax on a well recognized and defined

Granted the power to select the subject of taxation, the State's power to grant
exemption must likewise be conceded as a necessary corollary. Tax exemptions
are too common in the law; they have never been thought of as raising issues under
the equal protection clause.

As the United States Supreme Court has said, the legislature may withhold the
burden of the tax in order to foster what it conceives to be a beneficent enterprise.

As for the Government and its instrumentalities, their exemption rests on the
State's sovereign immunity from taxation. The State cannot be taxed without its
consent and such consent, being in derogation of its sovereignty, is to be strictly

2. Taxes are the lifeblood

It is a long and firmly settled rule of law that the Government is not bound by
the errors committed by its agents.19 In the performance of its governmental
functions, the State cannot be estopped by the neglect of its agent and officers.
Although the Government may generally be estopped through the affirmative acts
of public officers acting within their authority, their neglect or omission of public
duties as exemplified in this case will not and should not produce that effect.

Nowhere is the aforestated rule more true than in the field of taxation. 20 It is
axiomatic that the Government cannot and must not be estopped particularly in
matters involving taxes. Taxes are the lifeblood of the nation through which the
government agencies continue to operate and with which the State effects its
functions for the welfare of its constituents.21 The errors of certain
administrative officers should never be allowed to jeopardize the Government's
financial position.

The grant of a refund is founded on the assumption that the tax return is valid, that
is, the facts stated therein are true and correct. The deficiency assessment, although
not yet final, created a doubt as to and constitutes a challenge against the truth and
accuracy of the facts stated in said return which, by itself and without
unquestionable evidence, cannot be the basis for the grant of the refund.


1. G.R. No. 147062-64 December 14, 2001, REPUBLIC OF THE

2. G.R. No. L-7859 December 22, 1955, LUTZ, vs.
3. G.R. No. L-23645 October 29, 1968, GOMEZ vs.PALOMAR
4. G.R. No. 106611 July 21, 1994 COMMISSIONER OF INTERNAL