I.

GENERAL PRINCIPLES OF TAXATION

Inherent Powers
1. Police Power

Cannot be arbitrary or unreasonable.

Validity of an ordinance
- must be within the bounds of reason
- must be reasonable
- provision cannot be oppressive

(1) must not contravene the constitution or any statute

(2) must not be unfair or oppressive
(3) must not be discriminatory
(4) must not prohibit, but may regulate trade
(5) must be general and consistent with public policy; and
(6) must not be unreasonable

Requisites

(a) the interest of the public generally

(b) should be reasonable, not oppressive or must have a lawful subject or objective and a
lawful method of accomplishing the goal.

Amount of exaction

Exactions, or the compulsory dedication of private property for a public use without
payment of compensation, strain at the boundaries and test the limits of the police power
concept. Their task is to find a balance between law enforcement power regulation and
compensable taking of property.
2. Power of Taxation
- inherent power
- attribute of sovereignty
- exercise through the legislature
- imposes burdens upon subjects and objects
- within its jurisdiction
- the purpose is to raise revenue
- and to carry out the legitimate objects of govt

Similarities
Distinctions
Angeles University V. City of Angeles
3. Eminent Domain
Just compensation
Reckoning point
Actual and constructive taking
Requisites
Characteristics of Taxation
1. Taxation is exercised only for public purpose
What may constitute public purpose?
Validity
Test of determining public purpose of a tax
2. Inherent attribute of sovereignty
3. Essentially legislative function
Exceptions/valid delegation
4. Subject to constitutional and inherent limitations (on part II)
5. Tax exemption of government
Rules on GOCCs
6. Strongest among the inherent powers
7. Territorial in operation
Situs of Taxation
Application
Essential elements of a tax
1. It is an enforced contribution;
2. It is generally payable in money;
3. It is proportionate in character;
4. It is levied on persons, property, or the exercise of a right or privilege;
5. It is levied by the State which has jurisdiction over the subject or object of
taxation;
6. It is levied by the law-making body of the State;
7. It is levied for public purpose or purposes.
Purpose of Taxation
1. Revenue-raising
2. Non-revenue/special or regulatory
Examples of valid non-revenue purpose
Taxation as implement of police power
Marshall Dictum and Holmes Dictum

In Marshall Dictum the power to tax is the power to destroy.

While in Holmes Dictum the power to tax is not the power to destroy when the Supreme
Court sits.

Compania General De Tabacos De Filipinas V. City of Manila

Principles of a sound tax system (Definition and application)
1. Fiscal Adequacy
this means tax revenues should correspond with the needs and expenditures of the
government.
2. Administrative Feasibility
the tax system should be capable of being effectively administered and enforced with the
least inconvenience to the taxpayer.

3. Theoretical Justice
taxation should be equitable pursuant to the constitution. Hence, it must be just and
fair to the taxpayer and should not be unduly burdensome.

Theory and Basis of Taxation (Definition and application)

1. Lifeblood Theory
taxes are the lifeblood of the nation, without which the government can neither exist
nor endure. Taxes are the nation’s blood through which government agencies continue to
operate and which the State discharges its functions for the welfare of its constituents;

Injunction
Doctrine of Estoppel

2. Necessity Theory
taxation is a power predicated upon necessity to preserve the State’s sovereignty;

3. Benefits-Protection Theory
the power of the state to demand and receive taxes is based on the reciprocal duties
of support and protection;

(Symbiotic relationship)

the government’s ability to serve and protect the people depends largely upon taxes. Taxes
are what we pay for a civilized society.

Privity relationship
Doctrines in Taxation
1. Prospectivity of tax laws, exception
The principle of prospective application of tax laws states that a tax bill must only be
applicable and operative after becoming a law. Thus, the effectivity of the tax law
commences upon its approval and its scope would only cover the present and future
transactions.
The retroactive application of tax laws shall not be applied unless there is a clear
intent of the legislature that such law shall be imposed on past transactions and if it will not
amount to denial of due process.

2. Imprescriptibility, exception (assessment and collection)

3. Double Taxation
Requisites
4. Escape from Taxation
Tax avoidance vs Tax evasion
Doctrine of Separate Legal Entity
Doctrine of piercing the veil of a corporate fiction
5. Exemption from Taxation
Revocation of exemption
6. Compensation and Set-off
Exception
7. Compromise
Who may compromise?

The law allows the following persons to do compromise in behalf of the government:
1. Only the BIR Commissioner is expressly authorized by the Tax Code to enter
into compromise for both civil and criminal liabilities subject to certain conditions;
2. The Collector of Customs is given the power to compromise with respect
to customs duties limited to cases where legitimate authority is specifically granted,
such as in the remission of duties;
 3. The Customs Commissioner, subject to approval by the Secretary of
Finance, has the power to compromise a case involving the imposition of fines,
surcharges and forfeitures.
4. The Local Government Code has no provision regarding compromise;
however, tax liability (not criminal liability) is not prohibited.

What may be compromised?

Taxes are generally allowed to be compromised when the subject matter thereof is
not prohibited from being compromised and the person entering such compromise is duly
authorized to do so.

8. Tax Amnesty
Distinguish tax amnesty vs Tax exemption
9. Construction and Interpretation
Tax laws; Tax exemptions
II. SCOPE AND LIMITATIONS OF TAXATION
SCOPE OF TAXATION
Scope of Taxation
Inherent limitations
a) Public purpose
b) International comity
c. Non-delegability
d) Exemption of government entities, agencies, and instrumentalities
e) Territorial
Constitutional limitations
1. Due process and Equal protection clause (Art. III, Section 1)
No person shall be deprived of life, liberty, or property without due process of law,
nor shall any person be denied the equal protection of the laws.

2. Non-Imprisonment (Article III. Section 20)

No person shall be imprisoned for debt or non-payment of a poll tax.

3. Jurisdiction (Article VIII. Section 5)

The Supreme Court shall have the following powers:

(1) Exercise original jurisdiction over cases affecting ambassadors, other public ministers
and consuls, and over petitions for certiorari, prohibition, mandamus, quo warranto, and
habeas corpus.
(2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules
of Court may provide, final judgments and orders of lower courts in:
(a) All cases in which the constitutionality or validity of any treaty, international or
executive agreement, law, presidential decree, proclamation, order, instruction, ordinance,
or regulation is in question.
(b) All cases involving the legality of any tax, impost, assessment, or toll, or any penalty
imposed in relation thereto.
(c) All cases in which the jurisdiction of any lower court is in issue.
(d) All criminal cases in which the penalty imposed is reclusion perpetua or higher.
(e) All cases in which only an error or question of law is involved.
(3) Assign temporarily judges of lower courts to other stations as public interest may
require. Such temporary assignment shall not exceed six months without the consent of the
judge concerned.
(4) Order a change of venue or place of trial to avoid a miscarriage of justice.
(5) Promulgate rules concerning the protection and enforcement of constitutional rights,
pleading, practice, and procedure in all courts, the admission to the practice of law, the
integrated bar, and legal assistance to the under-privileged. Such rules shall provide a
simplified and inexpensive procedure for the speedy disposition of cases, shall be uniform
for all courts of the same grade, and shall not diminish, increase, or modify substantive
rights. Rules of procedure of special courts and quasi-judicial bodies shall remain effective
unless disapproved by the Supreme Court.
(6) Appoint all officials and employees of the Judiciary in accordance with the Civil
Service Law.

4. Delegated taxing power to the President (Article VI. Section 28, Par. 2)
(2) The Congress may, by law, authorize the President to fix within specified limits, and
subject to such limitations and restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts within the framework of
the national development program of the Government.
(3) Charitable institutions, churches and personages or convents appurtenant thereto,
mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually,
directly, and exclusively used for religious, charitable, or educational purposes shall be
exempt from taxation.
(4) No law granting any tax exemption shall be passed without the concurrence of a majority
of all the Members of the Congress.

5. Non-impairment clause (Art. III, Section 10; Cassanova vs Hord)

No law impairing the obligation of contracts shall be passed

6. Special Purpose (Article VI. Section 29, Par. 2)

(1) No money shall be paid out of the Treasury except in pursuance of an appropriation made
by law.
(2) No public money or property shall be appropriated, applied, paid, or employed,
directly or indirectly, for the use, benefit, or support of any sect, church, denomination,
sectarian institution, or system of religion, or of any priest, preacher, minister, other
religious teacher, or dignitary as such, except when such priest, preacher, minister, or
dignitary is assigned to the armed forces, or to any penal institution, or government
orphanage or leprosarium.
(3) All money collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purpose only. If the purpose for which a special fund was
created has been fulfilled or abandoned, the balance, if any, shall be transferred to the
general funds of the Government.

7. Uniformity (Article VI. Section 28. 1)

(1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.

8. Delegated taxing power to the LGUs

Kinds of Taxes
1. As to object
a) Personal, capitation, or poll tax
b) Property tax
c) Privilege tax
2. As to burden or incidence
a) Direct
b) Indirect