PURPOSES OF TAXATION system aims at reducing the

inequality in the distribution of

A. The primary purpose of taxation is to raise
wealth by preventing its undue
revenues.
concentration in the hands of a
"For the support of government and for all
few individuals. To illustrate: An
public needs," is according to Judge Cooley,
estate tax is imposed upon the
the purpose of taxes." And so it has been
property left by the decedent. The
widely believed that the primary purpose of
proceeds of that tax will be used to
taxation is to raise funds or property to enable
finance the projects of the
the State to promote the general welfare and
government such as building low-
protection of its citizens. (52 Am. Jur. 34)
cost houses for the less privileged.
This was emphasized anew in the
(2) Encourage the Growth of Local
renowned case of Hon. Ramon Bagatsing, et
Industries It is a settled rule that the
al. v. Hon. Pedro Ramirez,* where the tax
power to tax carries with it the
ordinance enacted by the Municipal Board
power to grant tax exemptions. Tax
of Manila was assailed as not being a "tax
exemptions and tax reliefs serve as
ordinance," because the imposition of rentals,
incentives to encourage
permit fees, tolls and other fees is not strictly a
investment in our local industry and
taxing power but a revenue raising function.
thereby promote economic
The Supreme Court observed that the
growth.
pretense bore its own marks of fallacy.
(3) Protect our Local Industry Against
Precisely, the raising of revenues is the
Unfair Competition The Tariff and
principal object of taxation.
Customs Code allows the
B. Secondary or non-revenue purposes
imposition of certain taxes
But, must an imposition, in order to be a
(countervailing and dumping
tax, be levied solely for the purposes of
duties) upon imported goods or
revenue? The answer is a resounding NO.
articles to further protect our local
Other than to answer the ever-present
industry. R.A. 8752 (Anti-Dumping
need for revenues, taxation also seeks to: (1)
Act) imposes stricter conditions.
reduce social inequality, (2) encourage the
(4) As an Implement of the Police
growth of local industries, (3) protect our local
Power of the State (Regulatory
industries against unfair competition, (4)
Measure) The power of taxation
implement the police power of the state
may be used as an implement of
(regulatory purpose).
the police rJbwer of the State
(1) Reduction of Social Inequality34
through the imposition of taxes with
Our present tax system has
the end in view of regulating a
adopted the progressive system of
particular activity.
taxation, i.e., the tax rate increases
as the tax base increases. This
1
Taxation is a mode of raising revenue for public
purposes.
Taxes, on the other hand, are enforced
proportional contributions from persons and
property, levied by the state by virtue of its
sovereignty for the support of the government
and for all its public needs.
Two Fold Nature of the Power of Taxation
1. It is an inherent attribute of sovereignty
2. It is legislative in character
THEORIES AND BASES OF TAXATION
1. Lifeblood Theory
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. Hence, 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. (CIR v. Algue, Inc.)
2. Necessity Theory
The 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
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 improvements
designed for the enjoyment of the
citizenry and those which come within
the State's territory, and facilities and
protection which a government is
2
supposed to provide. (Phil. Guaranty
Co., Inc. v. CIR)
3. Benefits-Protection / Reciprocity Theory
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. (CIR
v. Algue, Inc.)
Note: While taxes are intended for general
benefits, special benefits to taxpayers are not
required. The Government renders no special or
commensurate benefit to any particular person or
property.
BASIC PRINCIPLES OF A SOUND TAX SYSTEM (KEY:
FAT)
1. Fiscal Adequacy – sufficiency to meet
government expenditures and other public
needs.
2. Administrative Feasibility/ Convenience –
capability of being effectively enforced.
3. Theoretical Justice – based on the taxpayer’s
ability to pay; must be progressive. (Ability to
Pay Theory)
Will a violation of these principles invalidate a tax
law?
IT DEPENDS. A tax law will retain its validity even if
it is not in consonance with the principles of fiscal
adequacy and administrative feasibility because
the Constitution does not expressly require so.
These principles are only designed to make our
tax system sound. However, if a tax law runs
contrary to the principle of theoretical justice,
such violation will render the law unconstitutional
considering that under the Constitution, the rule of
taxation should be uniform and equitable.
Tax and License which can be amply discerned as
regulatory in character. From the
a. A Tax is levied in the exercise of the
said purposes, it can be gleaned
taxing power; License fees
that the assailed Universal Charge
emanate from the police power of
is not a tax, but an exaction in the
the state;
exercise of the State's police
b. The purpose of the tax is to
power.
generate revenues; License fees
are imposed for regulatory Tax and Toll
purposes.
Toll is a demand of proprietorship, an
c. The amount of the exaction or
amount charged for the cost and maintenance
charge if it is to be a license fee
of the property used; Tax is a demand of
must only be of sufficient amount
sovereignty for the purpose of raising public
to include expenses of issuing a
revenues.
license; cost of necessary
inspection or police surveillance. May the government tax itself?

(Cu Unjeng v. Patstone, 42 Phil. 818;

The Constitution is silent on whether
City oflloilo v. Villanueva, 105 Phil.
Congress is prohibited from taxing the properties
337)
of the agencies of the government. However,
d. The imposition is a tax, if its primary
Chief Justice Hilario G. Davide, Jr. has stated that
purpose is to generate revenue,
"nothing can prevent Congress from decreeing
and regulation is merely incidental;
that even instrumentalities or agencies of the
but if regulation is the primary
government performing governmental functions
purpose, the fact that incidental
may be subject to tax."'* Agencies performing
revenue is also obtained does not
governmental functions and proprietary functions
make the imposition a tax. (PDC v.
distinguished A distinction has been made
Quezon City, 172 SCRA 629)
between agencies performing governmental
e. In Gerochi v. Department of
functions and those performing proprietary
Energy [527 SCRA 696, 715-717],
functions.
the Supreme Court held that in
exacting the Universal Charge As a rule, agencies performing

through Section 34 of the Electric governmental functions are tax-exempt unless

Power Industry Reform Act of 2001 expressly taxed. On the other hand, agencies

(EPIRA), the State's police power, performing proprietary functions are subject to tax

particularly its regulatory dimension unless expressly exempted.

is invoked. Such can be deduced PROGRESSIVE TAXATION

from Section 34 which enumerates
Congress shall evolve a progressive system
the purposes for which the
of taxation. (Art. VI, Sec. 2811])
Universal Charge is imposed and
3
 Taxation is said to be equitable when its shall evolve a progressive system of taxation.
burden falls on those better able to pay; taxation Tolentino v. Secretary of Finance instructs:
is progressive when its rate goes up depending on
"[Regressive is not a negative standard for
the resources of the person affected.
courts to enforce. What Congress is required by
Is a tax law adopting a regressive system of the Constitution to do is to "evolve a progressive
taxation valid? system of taxation." This is a directive to Congress,
just like the directive to it to give priority to the
The Constitution does not really prohibit
enactment of laws for the enhancement of
the imposition of regressive taxes. What it simply
human dignity and the reduction of social,
provides is that Congress shall evolve a
economic and political inequalities [Art. XIII,
progressive system of taxation. The constitutional
Section 1] or for the promotion of the right to
provision should be construed to mean simply that
"quality education" [Art. XIV, Section 1]. These
"direct taxes are to be preferred and indirect
provisions are put in the Constitution as moral
taxes, as much as possible, should be minimized.
incentives to legislation, not as judicially
stitution of the Philippines, 221 [Second Ed., 1977])
enforceable rights." [British American Tobacco v.
Indeed, the mandate to Congress is not to
Camacho, 585 SCRA 36,51-52 (2009)]
prescribe, but to evolve progressive tax system.
This is a mere directive upon Congress, not a
justiciable right or a legally enforceable one. We
DOUBLE TAXATION – taxing the same property
cannot avoid regressive taxes but only minimize
twice when it should be taxed but once.
them. (EVAT En Banc Resolution, Tolentino, et al. v.
Secretary of Finance, October 30,1995) IS DOUBLE TAXATION PROHIBITED IN THE
PHILIPPINES?
Exercise tax on cigarettes which is a form
of indirect tax, and thus, regressive in character. No. There is no constitutional prohibition against

While there was an attempt to make the double taxation. It is not favored but permissible.

imposition of the excise tax more equitable by (Pepsi Cola Bottling Co. v. City of Butuan, 1968).

creating a four-tiered taxation system where

KINDS OF DOUBLE TAXATION
higher priced cigarettes are taxed at a higher
rate, still, every consumer, whether rich or poor, of (1) Direct Duplicate Taxation / Obnoxious –

a cigarette brand within a specific tax bracket double taxation in the objectionable or

pays the same tax rate. To this extent, the tax prohibited sense.

does not take into account the person's ability to

pay. Nevertheless, this does not mean that the
assailed law may be declared unconstitutional for
being regressive in character because the
Constitution does not prohibit the imposition of
indirect taxes but merely provides that Congress
A.- (a) There is no constitutional prohibition
against double taxation in the Philippines. It is
something not favored, but permissible, provided
some other constitutional requirement is not
thereby violated, such as the requirement that
taxes must be uniform. (Villanueva vs. City of lloilo,
G.R. No. L-262521, Dec. 28, 1968.)

4
(b) In order to constitute double taxation in the
objectionable sense, the same property must be
taxed twice when it should be taxed but once;
both taxes must be imposed on the same
property or subject-matter, for the same purpose,
by the same State, Government, or taxing
authority, within the same taxing period, and they
must be the same kind or character of
tax. (Villanueva vs. City of lloilo, G.R. No. L-262521,
Dec. 28, 1968.)

Moreover, double taxation becomes obnoxious

only where the taxpayer is taxed twice for the
benefit of the same governmental entity or by the
same jurisdiction for the same purpose, but not in
a case where one tax is imposed by the State
and the other by the City or Municipality. (Pepsi-
Cola Bottling Co. of the Phil., Inc. vs. Mun. of
Tanauan, Leyte, G.R. No. L-31156, Feb.27, 1976;
Commissioner of Internal Revenue vs. Hawaiian-
Philippine Co., G.R. No. L-16315, Oct. 10, 1967;
Punzalan vs. Mun. Board of Manila, 95 Phil. 46
[1954]).

Fundamental is the rule that the State cannot be

put in estoppel by the mistake or errors of its
officials or agents. As pointed out by respondent
courts, RMC 7-85 issued by the Acting
Commissioner is an administrative interpretation
which is not in harmony with Section 230 of the
1977 NIRC for being contrary to the express
provision of a statute. Hence, his interpretation
could not be given weight for to do so would, in
effect, amend the statute.