TAXATION
State power – inherent power to enforce a
proportional contribution from its subjects for public
purpose.
Process – levying taxes by the legislature of the
state to enforce proportional contributions from its
subjects for public purpose.
Mode of cost distribution – allocates its burden to
its subjects who are benefited by its spending.
THE THEORY OF TAXATION: government’s
necessity for funding
THE BASIS OF TAXATION: mutual support
between the government and the people
Receipt of benefit – conclusively presumed.
THEORIES OF COST ALLOCATION
Benefit received theory – more benefit; more
taxes.
Ability to pay theory – those who have more
should be taxed more even if it received less from
the government.
Aspects :
1. Vertical equity (Gross concept) – directly
proportional to the level of his tax base.
2. Horizontal equity (Net concept) – requires
consideration for the particular circumstance
of the taxpayer.
THE LIFEBLOOD DOCTRINE - Taxes are the
lifeblood of the government,
Implication of the lifeblood doctrine of taxation:
1. Tax is imposed even if the absence of
Constitutional grant .
2. Claims for tax exemption are construed
against taxpayers.
3. The government reserves the right to choose
objects of taxation.
4. The courts are not allowed to interfere with
the collection of taxes.
5. In income taxation:
a. Income received in advance is
taxable upon receipt. – cash basis
b. Deduction for capital expenditures
and prepayments is not allowed as it
effectively defers the collection of
income tax.
c. A lower amount of deduction is
preferred when a claimable expense
is subject to limit.
d. A higher tax base is preferred when
the tax objects has multiple tax
bases.
INHERENT POWERS OF THE STATE
- presumed understood by the people from the time
it was established
- Exercisable even without the constitution
a. Taxation power – to enforce proportional
contribution from its subjects to sustain itself.
b. Police power - protect the well-being of the
people.
c.Eminent domain – to take private property for
public use after paying just compensation.
SIMILARITIES OF THE THREE POWERS OF THE
STATE
1. Necessary attributes of sovereignty.
2. Inherent to the State.
3. Legislative in nature.
4. Ways in which the state interferes with private
rights and properties.
5. Exist independently of the Constitution
6. Presuppose an equivalent form of compensation
to the persons affected
by the exercise of the power.
7. The exercise of these powers by the local
government units may be limited by the national
legislature.
SCOPE OF TAXATION POWER
1. Comprehensive
2. Plenary - Absolute
3. Unlimited
4. Supreme
But still has limitations…
THE LIMITATIONS OF THE TAXATION POWER
1. INHERENT LIMITATIONS
* Territoriality of taxation – cannot enforce outside
its territorial jurisdiction.
Two-fold obligations of taxpayers:
a. Filing of returns and payments of taxes
b. Withholding of taxes on expenses and its
remittance to the government
Exception :
a. Income Taxation- taxable in income
derived inside and outside
Resident + Domestic corp.
b. Transfer Taxation- taxable on transfer of
properties inside and outside
Resident + Non- Resident + Resident Alien
* International comity – mutual courtesy or
reciprocity between countries. “No country is
powerful than the other”.
- Embassies including international organization and
their non-Filipino staff are not subject to income
taxes or property taxes.
1. Governments do not tax the income and
properties of other governments.
2. Governments give primacy to their
treaty obligations over their own
domestic tax laws.
NIRC : Foreign Govt. and Foreign Govt.owned
and controlled corp. are not subject to income tax.
*Public purpose
* Exemption of the government – this will not raise
additional funds but will only impute additional costs.
NIRC : Govt. properties + Income from essential
public functions = NOT TAXABLE
Conducted for profit including income from
government owned and controlled corporations =
TAXABLE
*Non-delegation of the taxing power – legislative
taxing power is vested exclusively in Congress.
“What has been delegated cannot further be
delegated.”
- Doctrine of the branches of the separation of the
government.
EXCEPTIONS TO THE RULE OF NON-
DELEGATION
1. LGU - exercise the power to tax to enable them to
exercise their fiscal autonomy.
2.Under the Tariff and Customs Code, the President
- fix the amount of tariffs to be flexible to trade
conditions.
3.Other cases for assessment and collection of
taxes.
2. CONSTITUTIONAL LIMITATIONS
*Due process of law
ASPECTS OF DUE PROCESS
a. Substantive due process – tax for public purpose,
collected only under a valid law and only by the
taxing power having jurisdiction.
b. Procedural due process –no arbitrariness in
assessment and collection of taxes, and the
government shall observe the taxpayer’s right to
notice and hearing.
Under the NIRC:
Assessments - within three years from the due date
of filing of the return or from the date of actual filing,
whichever is later.
Collection - within five years from the date of
assessment.
*Equal protection of the law – taxpayers should be
treated equally both in terms of rights conferred and
obligations imposed (same circumstances).
* Uniformity rule in taxation – Taxpayers under
dissimilar circumstances should not be taxed the
same but tax payers falling under the same class
must be taxed the same. Uniformity is relative
equality.
*Progressive system of taxation – tax rates
increase as the tax base increases. See ability to
pay.
*Non-imprisonment for non-payment of debt or
poll tax. - debtor in good faith vs. debtor in bad faith
(estafa punishable by imprisonment)
Non Payment of Tax : Imprisonment
Poll Tax/Community Tax/ residency :
a. Basic community – non -imprisonment
b. Addtl.community- tax evasion hence
imprisonment
*Non-impairment of obligation and contract – tax
exemptions must be honored and not cancelled by a
unilateral govt. action. Should not set aside
obligations and contracts because of the exercise of
taxation power.
*Free worship rule – does not extend to income
from properties or activities of religious institutions
that are proprietary or commercial in nature.
Properties and revenues are exempt.
*Exemption of religious or charitable entities,
non-profit cemeteries, churches and mosques,
lands, buildings and improvements from
PROPERTY TAXES – actually, directly and
exclusively used for charitable, religious, and
educational purposes.
1. Doctrine of use – properties actually devoted for
religious, charitable, or educational activities.
exempt from real property tax.
Vs. Doctrine of ownership – properties of religious,
charitable, or educational entities whether or not
used in their primary operations are exempt from
real property tax.
*Non-appropriation of public funds or property
for the benefit of any church, sect or system of
religion – intended to highlight the separation of
religion and the State. Exceptions : Compensation to
priests, imams, or religious ministers working with
the military…
*Exemption from taxes of the revenues and assets
of non-profit, non-stock educational institutions
including grants, endowments, donations, or
contributions for educational purposes.
 – actually, directly and exclusively for educ.
purposes.
NIRC: a. exempts Govt. insti. = INCOME TAX
b. private educ. Insti. = MINIMAL TAX
*Concurrence of a majority of all members of
Congress for the passage of a law granting tax
exemption
- approval of an exemption law = an absolute
majority or the majority of all members of Congress
- withdrawal of tax exemption = only a relative
majority or quorum majority
* Non-diversification of tax collections –never for
private purposes.
* Non-delegation of the power of taxation -
except those that are non legislative in character.
* Non-impairment of the jurisdiction of the
Supreme Court to review tax cases.
The supreme court still held it constitutional even if
the senate change the entire version of the tax bill.
The requirement that appropriations, revenue, or
tariff bills shall originate exclusively in the House of
Representatives, but the Senate may propose or
concur with amendments
* The delegation of taxing power to local
government units shall exercise the power to
create its own sources of revenue and shall
have a just share in the national taxes
STAGES OF THE EXERCISE OF TAXATION
POWER
Levy or imposition – enactment of a tax law /
impact of taxation/ legislative act in taxation.
Congress:
The House of Representatives
The Senate
- Tax bills cannot originate exclusively from the
Senate.
Assessment and collection – incidence of
taxation/ administrative act of taxation. Determining
the tax liabilities of taxpayers and collection .
SITUS OF TAXATION – the place of the taxation.
1. Business tax situs – where the business is
conducted.
2. Income tax situs on services – where they
are rendered.
3. Income tax situs on sale of goods – place
of sale.
4. Property tax situs – location.
5. Personal tax situs – place of residence.
OTHER FUNDAMENTAL DOCTRINES IN
TAXATION
1. Marshall Doctrine – “the power to tax involves
the power to destroy”.
- excessive tax on cigarettes
2. Holme’s Doctrine – “taxation power is not the
power to destroy while the court sits”.
- tax holidays on ecozones
3. Prospectivity of tax laws
Gen. Rule : Retrospective and the
constitution prohibits prospective.
Except : Certain conditions intended by
congress.
4. Non Compensation or Set-off
Exceptions:
-Taxpayer’s claim has already become due and
demandable.
-Cases of obvious overpayment of taxes.
-Local Taxes
5. Non-assignment of taxes – tax obligations
cannot be transferred to another entity by contract.
6. Imprescriptibility in taxation - the right of the
govt. to collect does not prescribes UNLESS there
is a law itself.
NIRC : Tax collection prescribes ,
- within 5 years from the date of its assessment.
In the absence of assessment,
- by judicial action within 3 years from the date the
return is required to be filed.
-Taxes due from taxpayers who d i d not file a return
or those who filed fraudulent returns do not prescribe.
7. Doctrine of estoppel –The error of any
government employee does not bind the
government.
8. Judicial Non-interference – or else this would
unnecessarily defer tax collection (Lifeblood
Doctrine).
9.Strict Construction of Tax Laws – “taxation is
the rule; exemption is the exemption”
Vague tax laws – construed against the
government and in favor of the taxpayers.
- it means no tax law.
Vague exemption laws – construed against the
taxpayer and in favor of the government.
It means no exemption law.
Construed strictly against the taxpayer in
accordance with the lifeblood doctrine.
DOUBLE TAXATION – occurs when the same
taxpayer is taxed twice by the same tax jurisdiction
for the same thing.
ELEMENTS OF DOUBLE TAXATION
Primary elements:
- same object
Secondary elements:
- Same type of tax
- Same purpose of tax
- Same taxing jurisdiction
- Same tax period

TYPES OF DOUBLE TAXATION
Direct double taxation – all element of double
taxation exists for both impositions.
- oppressive and burdensome to taxpayers.
Indirect double taxation – at least one of the
secondary elements of double taxation is not
common for both impositions. Prevalent in practice.
- Construed against the taxpayer and in favor of the
government.
- Covers civil liabilities of the taxpayer.
Applies prospectively to any unpaid balance of the
tax;
- Requires no payment.

How can double taxation be minimized?

a. Provision of tax exemption
b. Allowing foreign tax credit
c. Allowing reciprocal tax treatment
d. Entering into treaties or bilateral

ESCAPES FROM TAXATION

A. Those that result to loss of government revenue
Tax evasion– tax dodging, illegal.
Tax avoidance –tax minimization, legal
Tax exemption –tax holiday

All forms of tax exemptions can be

revoked by Congress except those granted by the
Constitution and those granted under contracts.

Those that do not result to loss of government

revenue:
1. Shifting – transferring tax burden to other
taxpayers.
Forward – normal flow of distribution (manufacturer
to customers)
Backward – reverse of forward shifting. Common
with non-essential commodities with numerous
substitute products.
Onward – any tax shifting in the distribution channel
that exhibits forward or backward shifting.

2. Capitalization – adjustment of the value of an

asset cause by changes in tax rates/ backward
shifting
of tax.

3. Transformation – elimination of wastes or losses

to form savings to compensate for the increase in
taxes.

TAX AMNESTY – general pardon granted by the

government for erring taxpayer 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.
- Absolute forgiveness or waiver by the
government on its right to collect
- retrospective in application.
- Covers both civil and criminal liabilities.
- Conditional upon the taxpayer paying the
government of a portion of the tax.

TAX CONDONATION – forgiveness of the tax

obligation of a certain taxpayer under certain
justifiable grounds.
- tax remission.