INTRODUCTION TO TAXATION

TAXATION – is an inherent power of the State to enforce proportional contribution upon

persons, properties or rights to generate revenues which defray the expenses of the
government.

FOUR ELEMENTS OF A STATE:

1. People
2. Territory
3. Government
4. Sovereignty – ability to guarantee the best interests of its own citizens. Said ability
gave the state three inherent powers or attributes:

a. Police power – for the protection of health, welfare and morals. Constitutional
limitation would be “Due Process Clause: No person shall be deprived of life,
liberty, or property, without due process of law”

Examples:
➢ Preservation of natural resources
➢ Segregation of lepers from the public
➢ Imprisonment of convicted criminals
➢ Regulations of various profession

b. Eminent Domain – take/expropriate private property for public use.

Constitutional limitation would be “Just Compensation Clause: Property may
not be taken without just compensation”

c. TAXATION (considered the strongest among the inherent powers)

The National Internal Revenue Code (NIRC) of the Philippines defines as the
act of laying a tax, i.e., the process or means by which the sovereignty,
through its lawmaking body, raises income to defray the necessary expenses
of the government. It is merely a way of apportioning the cost of
government among those who in some measures are privilege to enjoy its
benefits and therefore, must bear its burdens.

➢ ACT/PROCESS of imposing charges (taxes) on individuals, property or

transactions to raise money for public use
➢ POWER to raise and accumulate revenue from its people to pay the
necessary expenditures of the state
➢ MEANS to apportion cost of government to support its existence and carry
out its objectives among its benefactors.

Taxation may refer to either the POWER to tax and /or the ACT/PROCESS
by which the power is exercised.
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The NIRC defines TAX as an enforced and apportioned contribution usually

monetary in form, levied by the lawmaking body on persons and property
subject to its jurisdiction for the precise purpose of supporting governmental
needs

THEORY AND BASIS OF TAXATION:

• Principle of Necessity – the power of taxation proceeds upon the theory that the
existence of government is a 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.

• 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. The
government cannot continue to perform its basic functions of serving and
protecting its people without means to pay its expenses. Consequently, the state
has the right to compel all its citizens and property within its limits to contribute.
The manifestation of the Lifeblood Doctrine are as follows:

➢ Rule of “No Estoppel against the Government” – It means that in the

performance of its governmental functions, the state cannot be estopped by
the neglect of its agents/ officers and the erroneous application and
enforcement of law by public officers do not block the subsequent correct
application of statutes.
➢ Collection of taxes cannot be enjoined (stopped) by injunction – Under
section 218 of the Tax Code, no court, except the Court of Tax Appeals
(through administrative remedies when collection could jeopardize the interest
of the government or taxpayer), shall have the authority to grant an injunction
to restrain the collection of any national internal revenue tax, fee or charged
imposed by the tax code.
➢ Taxes could not be subject to compensation or set-off – Taxes cannot be
subject to set-off or compensation since claim for taxes is not a debt or contract.
A distinguishing feature of a tax is that it is compulsory rather than a matter of
bargain. If taxes could be a subject of compensation or set off, it can easily give
rise to confusion and abuse, depriving the government of authority over the
manner by which taxpayers can credit and offset their tax liabilities.
➢ Right to select objects (subjects) of taxation – the power to tax is essentially
legislative in nature. Hence, the legislature is free to select the subjects or
objects to be taxed. They maybe persons, whether natural or juridical; property,
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whether real or personal/tangible or intangible; transactions, rights, or

privileges.
➢ A valid tax may result in the destruction of the taxpayer’s property – The
power to tax includes the “power to destroy”, where the tax is a valid tax. This
is so because a taxpayer could not seek the nullification of the valid tax solely
upon the premise that the tax will impoverish them. This is so because there
could be sympathetic court that may come to the succor of the taxpayer and
declare such tax as invalid.

• Principle of Benefits-Received or Benefits-Protection Theory – the basis is the

reciprocal duties of protection and support between the state and its inhabitants.
The state collects taxes from the subjects of taxation in order that it may be able
to perform the functions of government. The citizens, on the other hand, pay taxes
in order that they may be secured in the enjoyment of the benefits of organized
society. This theory spawned the Doctrine of Symbiotic Relationship which means,
taxes are what we pay for a civilized society. However, it does not mean that only
those who are able to pay taxes can enjoy the privileges and protection given to a
citizen by the government. A person cannot also refuse the payment of taxes on
the grounds that they do not feel its benefits to them. The government renders no
special or commensurate benefit to any particular property or person.

SCOPE OF TAXATION

The power of taxation is the most absolute of all powers of the government. It has the
broadest scope of all the powers of the government because in the absence of limitations,
it is considered as comprehensive, unlimited, plenary and supreme.

• Comprehensive - as it covers persons, businesses, activities, professions,

rights and privileges.
• Unlimited - in the absence of limitations prescribed by law or the constitution,
the power to tax is unlimited and comprehensive. Its force is so searching to
the extent that the courts scarcely venture to declare that it is subject to any
restrictions.
• Plenary - as it is complete; BIR may avail of certain remedies to ensure
collection of taxes.
• Supreme - in so far as the selection of the subject of taxation.
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NATURE OR CHARACTERISTICS OF TAXATION:

1. Inherent power of sovereignty

2. Subject to constitutional and inherent limitations

Constitutional limitations:
➢ Due process of law
➢ Equal protection of law
“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 law” – Sec
I, Art. III NC

➢ Rule of uniformity and equity – The rule of taxation shall be uniform and
equitable. The congress shall evolve a progressive system of taxation

➢ Non-impairment of contracts – No law impairing the obligations of contract shall

be passed. There is “impairment” when a law substantially invalidates,
releases, or extinguishes the obligation of a contract, or derogates substantial
contractual rights.

➢ Presidents power to veto

➢ Exemptions from property taxation of religious, charitable or educational
entities

➢ No appropriation of taxes for religious purposes

➢ Majority of all the members of Congress required in granting tax exemption
➢ Congress may not deprive the Supreme Court of its jurisdiction on tax cases
➢ No imprisonment for non-payment of poll-taxes

Inherent limitations:

➢ For public purpose

➢ Territoriality or Territorial in operation – Person or property taxed must be
subject to the jurisdiction of the taxing state

➢ Subject to international comity – Property of a foreign state may not be taxed

by another

➢ Exemption of governmental agencies

➢ Prohibition against the delegation of legislative power
 INTRODUCTION TO TAXATION

Exemption to non-delegation rule:

Delegation as provided for in the 1987 Constitution such as
“Delegation to the President” under Section 28 Article VI stating that
the Congress may authorize, by law, 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 duties; and
➢ Other duties and imposts within the framework of the national
development program of the government

Delegation to local government units as provided for in Section 5

Article X of the Constitution. The power of local government units to
impose taxes and fees is always subject to the limitations which
Congress may provide, the former having no inherent power to tax

Delegation to administrative agencies. Certain aspects of the taxing

process that are not really legislative in nature are vested in
administrative agencies such as:

➢ Power to value property

➢ Power to assess and collect taxes
➢ Power to perform details of computation, appraisement or
adjustments; among others

3. Essentially a legislative function – The power to enact laws and ordinances, and
to impose and collect taxes are given to Congress. Generally, the power to tax
cannot be delegated to other branches of government. But distinction should be
made between “TAX LEGISLATION” and “TAX ADMINISTRATION”. If what is
delegated is tax legislation, the delegation is invalid, but if what is involved is only
tax administration the non-delegation rule is not violated.

Stages of Taxation:

1. Levy or Tax Legislation – involves the passage of tax laws

2. Tax Administration
➢ Assessment – administration and implementation of the tax laws
➢ Payment of tax or tax collection
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Nature of Internal Revenue Laws:

1. They are not political in nature. They are deemed to be the laws of the
occupied territory and not of the occupying enemy.

2. Tax laws are civil and not penal in nature although there are penalties
provided for their violations

Double Taxation:

Double taxation means an act of the sovereign by taxing twice for the same
purpose in the same year upon the same property or activity of the same person,
when it should be taxed once, for the same purpose with the same kind or
character of tax.

• Indirect double taxation – double taxation in its broad sense.

• Direct double taxation – double taxation in its strict sense.

The Supreme Court held that there is no Constitutional prohibition against double
taxation in the Philippines. However, direct double taxation is something not
favored. Such taxation should, whenever possible, avoided and prevented for
being oppressive and inequitable. It violates the concept of equal protection,
uniformity and equitableness of taxation in the Constitution.

What is unjust and improper double taxation is the imposition of two taxes on the
same subject matter, for the same purpose, by the same taxing authority, within
the same jurisdiction and during the same taxing period.