I DEFINITION OF TAX

1. Revenue Raising Measure

- Taxation is the power by which the sovereign, through its law-making body,
raises revenue to defray the necessary expenses of government.
2. As a Power
a. It refers to the inherent power of the state to demand enforced contributions for
public purpose or purposes.
b. Is described as a destructive power which interferes with the personal and property
rights of the people and takes from them a portion of their property for the support of
the government. [Paseo Realty & Development Corporation v. CA, G.R. No. 119286
(2004)]
SIMILARITIES OF THE FUNDAMENTAL POWERS
a. Inherent in the state and may be exercised by it without need of express
constitutional granting.
b. Not necessary by indispensable. (state cannot continue or be effective unless it is
able to exercise them.
c. Methods of interfering with private rights.
d. Presupposes an equivalent compensation.
e. Exercise primarily by the legislature.

Note:
Tax is considered strongest yet weakest inherent power of the state.
- weakest:
1. subject to multiple limitations
2. subordinate to the other inherent powers (may be used as an implement of the other
powers)

The power to tax is the power to destroy.

- is to describe not the purposes for which tax power may be used but the degree of
vigor with which the taxing power may be employed in order to raise revenue.

- the power to tax includes the power to destroy if it is used validly as an implement
of police power in discouraging and in effect, ultimately prohibiting certain things or
enterprises inimical to the public welfare. (if only purpose is to raise revenue – cannot
be allowed to confiscate or destroy.

II THEORY AND BASIS OF TAXATION

A Taxation and the Lifeblood Doctrine
- The power of taxation is essential because the government can neither exist nor
endure without taxation. Taxes are the lifeblood of the government and their
prompt and certain availability is an imperious need.
- It is said that 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, without which the government can
neither exist nor endure

B Necessity theory
- Taxation is a power predicated upon necessity
- It is a necessary burden to preserve the State's sovereignty and a means to give the
citizenry an army to resist aggression, a navy to defend its shores from invasion, a
corps of civil servants to serve, public improvements for the enjoyment of the
citizenry, and those which come within the State's territory and facilities and
protection which a government is supposed to provide.
- The obligation to pay taxes rests upon the necessity of money for the support of
the state. For this reason, no one is allowed to object to or resist the payment of
taxes solely because no personal benefit to him can be pointed out. [Lorenzo v.
Posadas, G.R. No. L-43082 (1937)]

C Benefits-protection Theory (Symbiotic Relationship)

- This principle serves as the basis of taxation and is founded on the reciprocal
duties of protection and support between the State and its inhabitants.
- It involves the power of the State to demand and receive taxes based on the
reciprocal duties of support and protection between the State and its citizens.

III Purposes of Taxation

A Primary Purpose (raise revenues)
- Primary purpose of taxation is to provide funds or property with which to promote
the general welfare and protection of its citizens.

- Fees may be properly regarded as taxes even though they also serve as an
instrument of regulation. If the purpose is primarily revenue, or if revenue is, at
least, one of the real and substantial purposes, then the exaction is properly called
a tax. [PAL v. Edu, G.R. No. L- 41383 (1988)]

B Secondary Purpose
1. Reduction of Social Inequality
- Our present tax system has adopted the progressive system of taxation, i.e., the
tax rate increases as the tax base increases. This system aims at reducing the
inequality in the distribution of wealth by preventing its undue concentration in
the hands of a few individuals.

2. Encourage the Growth of Local Industries

- It is a settled rule that the power to tax carries with it the power to grant tax
exemptions. Tax exemptions and tax reliefs serve as incentives to encourage
investment in our local industry and thereby promote economic growth.

3. Protect our Local Industry Against Unfair Competition

 - The Tariff and Customs Code allows the imposition of certain taxes
(countervailing and dumping duties) upon imported goods or articles to further
protect our local industry. R.A. 8752 (Anti-Dumping Act) imposes stricter
conditions.

4. As an Implement of the Police Power of the State (Regulatory Measure)

- The power of taxation may be used as an implement of the police Power of the
State through the imposition of taxes with the end in view of regulating a
particular activity.

The tax imposition is able to discourage and in effect, ultimately prohibit

certain things or enterprises inimical to the public welfare

May the power of taxation be used as an implement of the power of eminent

domain?

YES. The Supreme Court in the case of CIR v. Central Luzon Drug Corp. [456
SCRA 414, 445] held: Tax measures are but "enforced contributions exacted on
pain of penal sanctions" and "clearly imposed for a public purpose. In recent
years, the power to tax has indeed become a most effective tool to realize social
justice, public welfare, and the equitable distribution of wealth.

While it is declared commitment under Section 1 of R.A. No. 7432, social justice
"cannot be invoked to trample on the rights of property owners who under our
Constitution and laws are also entitled to protection. The social justice
consecrated in our [Constitution [is] not intended to take away rights from a
person and give them to another who is not entitled thereto.

For this reason, a just compensation for income that is taken away from
respondent (Central Luzon Drug Corp.) becomes necessary. It is in the tax credit
that our legislators find support to realize social justice, and no administrative
body can alter the fact."

IV NATURE OF THE TAXING POWER

A Taxation as an Inherent Attribute of Sovereignty
- The power to tax is an attribute of sovereignty. It is a power 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 improvement designed for
the enjoyment of the citizenry and those which come within the State's territory,
and facilities and protection which a government is supposed to provide [Phil.
Guaranty Co., Inc. v. Commissioner, G.R. No. L-22074 (1965)].

B Taxation as Legislative in Character

 - The power to tax is peculiarly and exclusively legislative and cannot be
exercised by the executive or judicial branch of the government [1 Cooley
160-161]. Hence, only Congress, our national legislative body, can impose taxes.
The levy of a tax, however, may also be made by a local legislative body subject
to such limitations as may be provided by law.
- It includes the authority to:
a Determine the nature, purpose, extent, coverage, apportionment, situs, and
method of collection of the tax;
b Grant tax exemptions or condonations; and
c Specify or provide for the administrative as well as judicial remedies that
either the government or the taxpayers may avail themselves in the proper
implementation of the tax measure.

C Subject to Constitutional and Inherent limitations

- The power to tax is said to be the strongest of all the powers of government. It is
unlimited, plenary, comprehensive and supreme, in the absence of constitutional
restrictions, the principal check on its abuse resting in the responsibility of
members of Congress to their constituents. However, the power of taxation is
subject to constitutional and inherent limitations [Mamalateo]. These limitations
are those provided in the fundamental law or implied therefrom, while the rest
spring from the nature of the taxing power itself although they may or may not be
provided in the Constitution.

V PRINCIPLES OF A SOUND TAX SYSTEM" [FAT]

1 Fiscal Adequacy
- Sources of revenues must be adequate to meet government expenditures (Chavez
v. Ongpin, 186 SCRA 331), and other public needs. This is in consonance with the
doctrine that taxes are the lifeblood of the government
- The revenue should be elastic or capable of expanding or contracting annually in
response to variations in public expenditures.

2 Administrative Feasibility
- Tax laws must be capable of effective and efficient enforcement. They must not
obstruct business growth and economic development. In Kapatiran Ng Mga
Naglilingkod sa Pamahalaan v. Tan, the Supreme Court, in upholding the
validity of the VAT law, held that the law "is principally aimed to rationalize the
system of taxes on goods and services; simplify tax administration, and make the
system more equitable to enable the country to attain economic recovery."
- The principle requires that each tax should be clear and plain to the taxpayers,
capable of enforcement by an adequate and well-trained staff of public officials,
convenient as to time and manner of payment, and not duly burdensome upon or
discouraging to business activity. (Report of the Tax Commission of the
Philippines, February 1939, Vol. 1, pp. 23-31)
- Q: True or False. A law that allows taxes to be paid either in cash or in kind is
valid.
 A: TRUE. There is no law which requires payment of taxes in cash only.
However, a law allowing payment of taxes in kind, although valid, may pose
problems of valuation, hence, will violate the principle of administrative
feasibility.

3 Theoretical Justice
- A sound tax system must take into consideration the taxpayers' ability to pay. Our
laws mandate that taxes must be reasonable, just, fair, conscionable. Under Art.
VI, Section 28(1) of the Constitution, the rule of taxation must be uniform and
equitable. The State must evolve a progressive system of taxation. Taxation is
said to be equitable when its burden falls on those better able to pay; taxation is
progressive when its rate goes up depending on the resources of the person
affected.4
- Tax laws should be capable of convenient, just and effective administration.
- Each tax should be:
• capable of uniform enforcement by government officials,
• convenient as to the time, place, and manner of payment, and
• not unduly burdensome upon, or discouraging to business activity.

Q. 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. (Sec. 28[1], Art. VI, 1987 Constitution)
- The non-observance of the above principles will not necessarily render the tax
imposed invalid except to the extent those specific constitutional limitations are
violated. [De Leon]

VI TAXES DEFINED
- Taxes 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.

- They are not arbitrary exactions but contributions levied by authority of law, and by
some rule of proportion which is intended to insure uniformity of contribution and a just
apportionment of the burdens of government.

Thus:
a. Taxes are enforced contributions. Taxes are obligations created by law.
(Vera v. Fernandez, L-31364, March 30, 1979) Taxes are never founded on
 contract or agreement, and are not dependent for their validity upon the
individual consent of the persons taxed. (1 Cooley 68)
b. Taxes are proportional in character, since taxes are based on one's ability to
pay
c. Taxes are levied by authority of the law.
The power to impose taxes is a legislative power; it cannot be imposed by the
executive department nor by the courts.
d. Taxes are for the support of the government and all its public needs.

VII ESSENTIAL CHARACTERISTICS OF TAXES

1. It is a forced charge, imposition or contribution. As such, it operates ad infinitum.
2. It is assessed in accordance with some reasonable rule of apportionment which
means that conformably with the constitutional mandate for Congress to evolve a
progressive tax system, taxes must be based on taxpayer’s ability to pay [Art VI, Sec
28[a], 1987 Constitution]
3. It is a pecuniary burden payable in money.
4. It is imposed by the State on persons, property, or exercise within its jurisdiction,
in accordance with the principle of territoriality.
5. It is levied by the legislative body of the State.
6. It is levied for a public purpose.
7. It is personal to the taxpayer.

VIII Requisites of a Valid Tax

1. For a public purpose;
2. Rule of taxation should be uniform;
3. The person or property taxed is within the jurisdiction of the taxing authority;
4. Assessment and collection is in consonance with the due process clause; and
5. The tax must not infringe on the inherent and constitutional limitations of the
power of taxation.

IX. DISTINCTION OF TAX AND OTHER IMPOSITIONS

Tax Special Assessment

- is in the nature of tax upon property levied
 according to benefit conferred on the property.

Distinctions:
a. levied only on land
b. cannot, as a rule, be made a personal liability of
the persons assessed.
c. based wholly on benefits; and
d. exceptional as to time and locality
Tax License:
- levied in the exercise of taxing power - emanate from police power
- purpose: generate revenue - purpose: regulatory
Note: primary purpose: generate revenue and Note: primary purpose: regulation and revenue is
regulation is merely incidental. merely incidental.
Tax Toll
- demand of sovereignty for the purpose of raising - demand of proprietorship , and amount charged
revenues for the cost and maintenance of of the property
used
Tax Penalty
- is a civil liability - is a punishment for the commission of a crime
Note: criminally liable only when he fails to satisfy
his civil liability.
Tax Debt
- based on law - depends upon the consent of the taxpayer and
there is an express or implied contract to pay.
(based on contracts)

X. CLASSIFICATIONS OF TAXATION
AS TO SUBJECT MATTER OR OBJECT

1. Personal, poll or capitation tax

- Tax of a fixed amount imposed on persons residing within a specified territory, whether
citizens or not, without regard to their property or the occupation or business in which they may
be engaged, i.e. community tax.

2. Property tax
- Tax imposed on property, real or personal, in proportion to its value or in accordance with
some other reasonable method of apportionment.

3. Excise tax
- A charge imposed upon the performance of an act, the enjoyment of a privilege, or the
engaging in an occupation.
AS TO PURPOSE

1. General/fiscal/revenue tax
- A general/fiscal/revenue tax is that imposed for the purpose of raising public funds for the
service of the government.

2. Special/regulatory tax
- A special or regulatory tax is imposed primarily for the regulation of useful or non-useful
occupation or enterprises and secondarily only for the purpose of raising public funds.

AS TO WHO BEARS THE BURDEN

1. Direct tax
- A direct tax is demanded from the person who also shoulders the burden of the tax. It is a tax
which the taxpayer is directly or primarily liable and which he or she cannot shift to another.

2. Indirect tax
- An indirect tax is demanded from a person in the expectation and intention that he or she shall
indemnify himself or herself at the expense of another, falling finally upon the ultimate
purchaser or consumer. A tax which the taxpayer can shift to another.

AS TO SCOPE OF THE TAX

1. National tax
- A national tax is imposed by the national government.

2. Local tax
- A local tax is imposed by municipal corporations or local government units (LGUs).

AS TO THE DETERMINATION OF AMOUNT

1. Specific tax
- A specific tax is a tax of a fixed amount imposed by the head or number or by some other
standard of weight or measurement. It requires no assessment other than the listing or
classification of the objects to be taxed.

2. Ad valorem tax
- An ad valorem tax is a tax of a fixed proportion of the value of the property with respect to
which the tax is assessed. It requires the intervention of assessors or appraisers to estimate the
value of such property before the amount due from each taxpayer can be determined.

AS TO GRADATION OR RATE

1. Proportional tax
- Tax based on a fixed percentage of the amount of the property receipts or other basis to be
taxed. Example: real estate tax.

2. Progressive or graduated tax

- Tax the rate of which increases as the tax base or bracket increases. Example: income tax.
- Digressive tax rate: progressive rate stops at a certain point. Progression halts at a particular
stage.

3. Regressive tax
- Tax the rate of which decreases as the tax base or bracket increases. There is no such tax in the
Philippines.

ASPECTS OF TAXATION

Processes that are included or embodied in the term “taxation”

1. Levying or imposition of the tax which is a legislative act.

2. Collection of the tax levied which is essentially administrative in character.

The first is taxation, strictly speaking, while the second may be referred to as tax administration.
The two processes together constitute the taxation system.

XI. PROGRESSIVE VS REGRESSIVE

Progressive system of taxation v. regressive system of taxation
A progressive system of taxation means that tax laws shall place emphasis on direct taxes rather
than on indirect taxes, with ability to pay as the principal criterion.

A regressive system of taxation exists when here are more indirect taxes imposed than direct
taxes.

Regressive tax rates

Tax the rate of which decreases as the tax base or bracket increases. There are no regressive
taxes in the Philippine jurisdiction.

Regressive tax rates should be differentiated from a regressive system of taxation which exists
when there are more indirect taxes imposed than direct taxes.