FUNDAMENTAL PRINCIPLES OF TAXATION

The Inherent Powers of the Government

1. Power of Taxation – the power to take property for the support of the government and for public purpose
2. Police Power – the power to enact laws to promote the general welfare of the people. It is wider in application
because it is the general power to make laws.
3. Power of Eminent Domain – the power to take private property for public use upon payment of just compensation

Point of Differences of the Inherent Powers of the State

Point of Difference Taxation Police Power Eminent Domain
Exercising Authority Government Government Government or private
entities
Necessity of Delegation Delegation is not There must be There must be due delegation
necessary since it is delegation before local before local government or
inherent governments could private party may exercise it
exercised it
Purpose Revenue and support of Protect the general Property is taken for public
the government welfare of the people use
Persons affected Community or class of Community or class of Operates on the owner of the
individuals individuals property

Effect of transfer of Money paid as taxes There is no transfer of There is transfer of right to
property rights becomes part of the title, at most there is property whether it be of
public fund restraint on the injurious ownership or lesser right
use of property
Amount of Imposition Unlimited Sufficient to cover the No imposition, the owner is
costs of regulation paid the fair market value of
his property
Importance Most important of the Most superior Important
three
Relationship with the Inferior to the “Non- Superior to the “Non- Superior and may override
Constitution Impairment Clause” of Impairment Clause” of the “Non-Impairment
the Constitution the Constitution Clause” because the welfare
of the state is superior to
private contracts
Limitation Constitutionally and Public interest and the Public purpose and just
inherently restricted requirement of due compensation
process

Similarities of the Three Powers

1. All three powers are necessary attributes of sovereignty, resting upon necessity
2. All are inherent powers of the State
3. All are legislative in nature
4. They are ways in which the State interferes with private rights and property
5. They exist independently with the Constitution although the condition for their exercise may be prescribed or limited
by the Constitution
6. They all presuppose an equivalent compensation received by the persons affected by the exercise of the power,
whether directly, indirectly or remote.
7. The exercise of these powers by the local government units may be limited by national legislature
*Police power can be used to raise revenue for the government (ex: license fee)

TAXATION is the power by which the sovereign, through its law-making body, raises revenue to defray the necessary
expenses of the government. It is merely a way of apportioning the costs of government among those who in some
measure are privileged to enjoy its benefits and must bear its burdens (51 Am. Jur. 34).

Two Concepts of Taxation

1. Power to tax
2. The act or process by which the taxing power is exercised

Purposes and Objectives

A. Revenue
B. Non-revenue/ Sumptuary/ Regulatory Purposes

Theory and Bases of Taxation

A. Life-blood theory- without taxes, the government would be paralyzed for lack of motive power to activate and
operate it.
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 B. Necessity theory- the existence of the government is a necessity. It cannot continue without a means to pay its
expenses and therefore has a right to compel all citizens and property within its power to contribute.
C. Benefits-Protection/ Reciprocity Theory (Doctrine of Symbiotic Relationship)- the State demands and receives
taxes from the subjects of taxation within its jurisdiction so that it may be enabled to carry its mandate into effect
and perform the functions of Government, and the citizen pays from his property the portion demanded in order
that he may, by means thereof, be secured in the enjoyment of the benefits of organized society.

Nature or Characteristics of the Power of Taxation

1. for public purpose
2. inherently legislative in nature
3. subject to international comity or treaty
4. not absolute being subject to constitutional and inherent limitations
5. exaction payable in money
6. territorial

Scope of the Power of Taxation

Broad spectrum of Taxation- it is supreme, plenary, all encompassing, unlimited, awesome, pierces all kinds of properties,
rights and activities, subject to the non-injunction rule and it is the power to destroy.

Limitations of Taxation
A. Inherent Limitations
a. Territoriality or situs
b. Public purpose
c. International commity
d. Non-delegability of the taxing power
e. Exemption of the Government
B. Constitutional Limitations
a. due process of law- Art. III, Sec. 1, 1987 Constitution
b. equal protection of the law- Art. III, Sec. 1, 1987 Constitution
c. uniformity in taxation- Art. III, Sec. 28 [1], 1987 Constitution
d. progressive system of taxation- Art. III, Sec. 28 [1], 1987 Constitution
e. non-imprisonment for non-payment debt or poll tax- Art. III, Sec. 20, 1987 Constitution
f. non-impairment of obligation and contract- Art. III, Sec. 10, 1987 Constitution
g. non-appropriation of public funds or property for the benefit of any church, sect or system of religion-
Art. VI, Sec. 29[2], 1987 Constitution
h. exemption of religious, charitable or educational entities, non-profit cemeteries, churches and mosque
from property taxes- (Art. VII, Sec. 28 [3], 1987 Constitution)
i. exemption from taxes of the revenues and assets of non-profit, non-stock educational institutions
including grants, endowments, donations or contributions for educational purposes- Art. XIV, Sec. 4[3],
1987 Constitution
j. concurrence of a majority of all members of Congress for the passage of a law granting tax exemption-
Art. VI, Sec. 28[4], 1987 Constitution
k. non-delegation of the power of taxation
l. jurisdiction of the Supreme Court to review tax cases- Art. VIII, Sec. 5[2], 1987 Constitution
m. appropriations, revenue or tariff bills shall originate exclusively in the House of Representatives but the
Senate may propose or concur with amendments- Art. VI, Sec. 24, 1987 Constitution
n. each local government unit shall exercise the power to create its own sources of revenue and shall have a
just share in the national taxes- Art. X, Sec. 5, 1987 Constitution

Objects of Taxation
1. businesses 5. acts
2. interests 6. persons
3. transactions 7. properties
4. rights 8. privileges

Phases of Stages of Taxation

a. Levy or Imposition Impact of taxation Aspects of
b. Assessment of tax Taxation
c. Payment of the tax Incidence of Taxation

Characteristics of a Sound Tax System

1. Fiscal Adequacy- sources of government revenue must be sufficient to meet government expenditures and other
public needs
2. Administrative Feasibility- tax laws must be capable of being effectively enforced with the least inconvenience to
the taxpayer.
3. Theoretical Justice- a sound tax system must be based on the taxpayer’s ability to pay.

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Situs of Taxation
It is the place or authority that has the right to impose and collect taxes.

Factors that determine the situs of taxation

1. nature, kind or classification of the tax
2. subject matter of the tax
3. place where income-producing activity was held or done
4. residence of the taxpayer
5. sources of income
6. place of exercise, business or occupation being taxed
7. citizenship of the taxpayer

Examples:
1. Business tax situs- businesses are subject to tax in the place where the business is conducted.
2. Income tax situs on services- serve fees are subject to tax where they are rendered.
3. Income tax situs on sale of goods- the gain on sale is subject to tax in the place of sale.
4. Property tax situs- properties are table in their location.
5. Personal tax situs- persons are taxable in their place of residence.

Double Taxation
Kinds:
a. Direct
Elements:
-same property or subject matter is taxed twice
-both taxes are levied for the same purpose
-imposed by the same taxing authority within the same jurisdiction, during the same taxing period, and
covering the same kind or character of tax
b. Indirect

Methods of Reducing the Rigors of Double Taxation:

1. Tax credits
2. Tax deductions
3. Reduction of the Philippine income tax rate
4. Tax exemption
5. Tax treaties

Forms of Escape from Taxation

1. Shifting
2. Capitalization
3. Transformation
4. Tax exemption
Kinds:
a. express
b. implied
c. contractual
5. Tax avoidance
6. Tax evasion

Tax Amnesty- is a general pardon granted by the government for erring taxpayers to give them a chance to reform and
enable them to have a fresh start to be part of a society with a clean slate.

Tax Condonation- is forgiveness of the tax obligation of a certain taxpayer under certain justifiable grounds.

Fundamental Doctrines in Taxation

1. Marshall Doctrine- “The power to tax involves the power to destroy.”
2. Holme’s Doctrine- “Taxation power is not the power to destroy while the court sits.”
3. Prospectivity of tax laws
4. Non-compensation or set-off
5. Non-assignment of taxes
6. Imprescriptibility in taxation
7. Doctrine of estoppel
8. Judicial non-interference
9. Strict construction of tax laws