BASIC CONCEPTS OF TAXATION

I. Inherent powers of the State

A. Taxation – The process or means by which the sovereign, through its law-making body,
raises revenues to defray the necessary expenses of the government.
B. Police power – the power of the state of promoting public welfare by restraining and
regulating the use of liberty and property.
C. Eminent Domain – the power of the government to take private property for public
purpose upon payment of just compensation.

The similarities among the 3 inherent powers of the government are:

1. Being inherent powers of the government, the State can exercise these powers
without constitutional grant although the conditions for their exercise may be
prescribed by the constitution.
2. These are ways by the which the State interferes with the private rights and
property.
3. They are legislative in nature and character.
4. Presuppose on equivalent compensation received, directly or indirectly, by the
persons affected.

The following are the differences among the 3 powers of the government
1. As to nature
Taxation – power to enforce contributions to raise funds.
Police Power – make and implement laws for the general welfare of the people.
Eminent Domain – power to take private property for public use with just
compensation.
2. AS TO AUTHORITY
Taxation and police power can only be exercised by the government only.
Eminent domain – exercised by the government and may be granted to public
service/utility companies.
3. AS TO PERSONS AFFECTED
Taxation and police power – community or class of individuals and applies to all
persons, property and activities that may be subject thereto.
Eminent Domain – owner of property only.
4. AS TO TYPE OF PROPERTY
Taxation and Eminent Domain – property is devoted for public use
Police Power – property is harmful or intended for unpleasant purposes and as such
taken and destroyed.
5. AS TO EFFECT
Taxation – contribution becomes public funds
Police Power – No transfer of title
Eminent domain – Transfer of title to property
 6. AS TO RIGHTS AFFECTED
Taxation and Eminent Domain – Property right
Police power – Property right and liberty
7. AS TO SCOPE
Taxation – comprehensive (includes person, property and rights or activity)
Police Power – Power to make and implement the law
Eminent Domain – Power to take private property for public use
8. AS TO BENEFITS RECEIVED
Taxation – in the form of protection and benefits received from the government
Police Power – Maintenance of economic standard of society
Eminent Domain – market value of the property taken
9. AS TO AMOUNT OF IMPOSITION
Taxation – No limit
Police Power – sufficient to cover cost of the license and the necessary expenses of
police surveillance and regulation
Eminent Domain – No imposition
II. PURPOSE OF TAXATION
Primary purpose – to raise revenues for the government
Secondary purpose – to attain social and economic ends.
III. CHARACTERISTICS OF TAXATION
1. Inherent Power
2. Essentially a legislative function
3. Subject to inherent and constitutional limitations
4. For public purpose
5. The strongest of all inherent powers of the government
6. Subject to international Comity
7. Generally payable in money
8. Territorial in scope
IV. What are taxes?
Are enforced proportional contributions from persons and property, levied by the law-
making body of the state by virtue of its sovereignty for the support of the government and
all public needs.
V. ESSENTIAL CHARACTERISTICS OF TAXES
A. Compulsory contribution
B. Generally payable in money
C. Imposed for public purpose
D. Levied by the law-making body of the State
E. Levied within the legal and territorial jurisdiction of the State.
F. Assessed in accordance with reasonable rule of apportionment.
VI. THEORY OF TAXATION
A. Necessity theory – the existence of the government is a necessity and to pay for the
expenses of governance, there must be enforced contributions from persons and
properties under the territorial jurisdiction of the taxing state.
B. Lifeblood doctrine – without taxes, no government can exist.
VII. MANIFESTATION OF THE LIFEBLOOD DOCTRINE THEORY:
A. No estoppel against the government
B. Collection of Taxes cannot be enjoined by injunction
C. Taxes could not be the subject of compensation or set-off
 D. A valid tax may result in the destruction of taxpayer’s property.
E. Right to select objects of taxation.
VIII. BASIS OF TAXATION:
The government shall render service to the people and the people shall show support to the
government by paying the right amount of taxes.

IX. STAGES/ASPECTS OF TAXATION

A. LEVYING OR IMPOSITION - this is the process of passing of tax laws or ordinances
through the legislature.
B. ASSESSMENT AND COLLECTION - this process involves the act of administration and
implementation of tax laws by the executive through its administrative agencies such as the Bureau
of Internal Revenue and Bureau of Customs.
C. PAYMENT OF TAXES - this process involves the act of compliance by the taxpayer in
contributing his share to pay the expenses of the government.

X. PRINCIPLES OF SOUND TAX SYSTEM

A. FISCAL ADEQUACY - sources of government revenues must be sufficient to meet
government expenditures and other public needs.
B. ADMINISTRATIVE FEASIBILITY - tax laws must be capable of convenient, just and effective
administration - free from confusion and uncertainty.
C. THEORETICAL JUSTICE - a good sound tax system must be based on the taxpayer’s ability
to pay the tax.

XI. LIMITATIONS ON TAXING POWER

A. INHERENT LIMITATIONS
1. Public purpose - proceeds must be use to pay for the cost of governance and shall
not benefit any private individual or entity.
2. Territoriality - a state can impose and levy a tax on property and persons under its
jurisdiction.
3. International Comity - property of a foreign state may not be taxed by another state.
4. Non-delegation of taxing power - the power to enact tax laws is vested solely to the
legislative branch of the government.
5. Exemption - government agencies performing governmental functions are exempted
from taxation while those performing proprietary functions are subject to tax unless
expressly exempted from taxation.

B. CONSTITUTIONAL LIMITATIONS
-limitations expressly stated in the constitution or implied from its provisions.

A. Due process of law

B. Equal protection of law
C. Uniformity in taxation
D. Progressive scheme of taxation
E. Non-imprisonment for non-payment of poll tax
F. Non-impairment of the obligations of contracts
G. Free worship rule
 H. Exemption of charitable institutions, churches, parsonages, or convents, mosques
and non-profit cemeteries and all lands, buildings and improvements actually, directly and
exclusively used in religious, charitable and educational purposes.
I. Non-appropriations of public funds or property for the benefit of any church, sect or
system of religion, etc.
J. No money shall be paid out of the Treasury except in pursuance of an appropriations
made by law.
K. Concurrence of majority of all members of congress for the passage of law granting
tax exemption.
L. Non-diversification of tax collections.
M. Non-impairment of the jurisdiction of the Supreme Court to review tax cases.
N. Appropriations, revenue or tariff bills shall originate exclusively in the House of
Representatives but the Senate may propose or concur with amendments.
O. 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.

XII. SITUS OF TAXATION

Means place of taxation. It determines what State can levy and collect a tax.

FACTORS AFFECTING THE SITUS OF TAXATION

1. Subject Matter - what is being taxed. It can be a person, property or

right/activity/privilege.
2. Nature of Tax to be imposed - what tax is to be imposed. It can be income tax,
community tax, value added tax and other taxes.
3. Taxpayer’s place of residence
4. Taxpayer’s citizenship
5. Place where income is earned, business or occupation being conducted and location of
the property.

XIII. DIRECT DOUBLE TAXATION

It is prohibited because it violates the constitutional provision on uniformity and equality. It
means:
1. Taxing twice
2. By the same taxing authority
3. Within the same jurisdiction or taxing district
4. For the same purpose
5. In the same year or taxing period
6. Same kind or character of tax
XIV. INTERPRETATION OF TAX LAWS
A. In case of doubt, tax statutes are construed strictly against the government and liberally
in favor of the taxpayer.
B. The tax laws are prospective in operation
C. The tax laws do not presume exemption. The person claiming the exemption shall prove
his exemption from taxation.

XV. CLASSIFICATION OF TAXES

A. As to subject matter
 1. Personal/Poll/Capitation - the subject matter is the person.
2. Property - the subject matter is the property itself
3. Excise - the subject matter is the right, activity or priviliges
B. As to who bears the burden
1. Direct - taxes which cannot be shifted to others.
2. Indirect - taxes which can be passed on to others
C. As to determination of amount
1. Specific - tax is based in a unit of measure
2. Ad Valorem - tax is based on the value of the property subject to tax
D. As to Purpose
1. Fiscal/General/Revenue - taxes imposed to generate funds for the government
2. Regulatory/Special - taxes imposed to attain social and economic ends.
E. As to Authority Imposing the tax
1. National - imposed by the National Government
2. Local - imposed by the local government

XVI. TAX DISTINGUISED FROM OTHER CHARGES AND FEES

A. TAX VS TOLL
A tax is a demand of sovereignty while a toll is a demand of proprietorship
A tax can be imposed by the government only while toll can be imposed by the
government or the owner of the property.
A tax is collected based on government needs while toll is collected for the
improvement of the property and reimbursement of the cost of the property.

B. TAX VS PENALTY
Tax is imposed to raise revenues while penalty is imposed to regulate conduct through
punishment of an act deemed injurious to others.
Tax is imposed by the government while penalty is imposed by the government or
private individual
Tax arises from law while penalty arises from violation of law or contract.
Tax is generally payable in money while penalty is payable in money or in kind.

C. TAX VS SPECIAL ASSESSMENT

Tax is levied on business, interests, transactions, rights, persons, properties or privileges
while special assessment is levied on land affected by public improvements.

D. TAX VS LICENSE FEE

Tax is levied in the exercise of taxing power while license fee emanates from the exercise
of police power
Tax is generally imposed to raise revenue while license fee is imposed for regulation and
control.
Non-payment of tax does not necessarily make the activity illegal while non-payment of
license fee makes the activity illegal.

E. TAX VS. CUSTOMS DUTIES

Tax is broader than customs duties is one of the taxes being collected by the government

F. TAX VS DEBT
 Tax is based on law while debt is based on contract
Tax is not assignable while debt can be assigned
Tax is generally payable in money while debt can be paid in kind or in money
Non-payment of taxes results to imprisonment while non-payment of debt does not
result to imprisonment except if the debt arises from a crime.

XVII. TAX EVASION VS TAX AVOIDANCE

Tax evasion is illegal means of decreasing one’s tax liabilities while tax avoidance is the
legal means of decreasing one’s tax liabilities.