GENERAL PRINCIPLES OF TAXATION

THE INHERENT POWERS OF THE STATE

Inherent – inborn or innate

 Power existing as a natural or basic part of every sovereign State, without being conferred or
granted by the people or the Constitution

Power – as long as the state exist it can never be taken away

 POWER TO TAX
 POLICE POWER
 EMINENT DOMAIN

POWER TO TAX ( power of taxation)

• Act of levying or imposing a tax

• process by which the sovereign (independent state) through its law-making body (legislative branch of
the government) raises income to defray the necessary expenses of the government by apportioning the
cost among those who, in some measure, are privileged to enjoy its benefits, and therefore, must bear
its burdens.

- To impose burden to the subjects within jurisdiction

- Purpose: Base on the life blood theory (raise fund in order for the government to continue the
operation)

1. Revenue Objective – Build a just and Humane Society

2. Sanctuary Objective – Regulatory
Sin Tax- Taxes impose to cigarettes and liquor
3. Compensatory Objective – Based on Supreme Court Decision
- Social Justice
- Southern Cross Cement vs Cement Manufacturer Association of the
Philippines
POLICE POWER
- regulatory in nature
- establish wholesome (in accordance to morals) and reasonable laws, statutes and ordinances either
with penalties or without.
- limits life, liberty and property for the general welfare (ex. death penalty)

• power of the state to promote public welfare by restraining and regulating the use of liberty and
property.
• exercised only by government

Latin word – Salus populi est suprema lex (the voice of the people is the supreme law)
Latin word – Dura lex sed lex (the law may be harsh but it is the law)

“For every right there is a corresponding duty”

- Attribute of sovereignty
- Obligation of the state is safety and good order (peace and order) society

Requisites:

1. Lawful Subject – Philippines constituents

2. Lawful means - Right to due process

EMINENT DOMAIN

• power to take private property for public purpose upon payment of just compensation.

- Base on genuine necessity of the state for public use

Requisites:

1. Private property
2. More than a momentary period
3. Under warrant or legal code
4. Public use
5. Deprive the owner
6. Just compensation
SIMILARITIES AMONG TAXATION, EMINENT DOMAIN AND POLICE POWER

 inherent in the State.

 exist independently of the constitution although the conditions for their exercise may be
prescribed by the constitution.
 Ways by which the state interfere with private rights and property.
 legislative in nature and character
 presuppose an equivalent compensation received, directly or indirectly, by the persons affected.

PURPOSE OF TAXATION

• PRIMARY PURPOSE

 raise revenues/funds to defray the necessary expenses of the government

 called Revenue or Fiscal Purpose

• SECONDARY PURPOSE

a. Regulatory Purpose - Taxation is employed as a device for regulation or control (to implement
the police power of the State for the promotion of the general welfare) by means of which
certain effects or conditions envisioned by the government may be achieved.

• COMPENSATORY PURPOSE
 Reduction of Social Inequality
 Economic Growth
 Protect local industries against unfair competition

NATURE AND CHARACTERISTICS OF TAXATION

• Inherent Power - may be exercised although not expressly granted by the constitution

• Essentially a legislative function - only the legislative can impose taxes

• Subject to inherent and constitutional limitations - not an absolute power

• For public purpose

• The strongest of all the inherent powers of the State.

• Subject to international treaty or comity.

• Generally payable in money

• Territorial in scope
- under the jurisdiction of the Philippines
ABSENCE OF INHERENT AND CONSTITUTIONAL LIMITATIONS THE POWER TO TAX IS:

C - Comprehensive

Pl - Plenary

U - Unlimited

S – Supreme

MARSHALL DOCTRINE

It is so comprehensive that in the words of Justice Marshall (American lawyer and civil rights activist who
served as Associate Justice of the Supreme Court of the United States), the power to tax includes the
power to destroy.

TAXES DEFINED

TAXES

 enforced proportional contributions from persons and property, levied by the State by
virtue of its sovereignty for the support of the government and for all its public needs.

THEORIES AND BASIS OF TAXATION

NECESSITY THEORY

 The power of taxation proceeds upon the theory that the existence of the government is
a necessity.
 It is a power predicated upon necessity
 THEORIES AND BASIS OF TAXATION

LIFEBLOOD DOCTRINE

 Taxes are the lifeblood of the government without which it can neither exist nor endure.
• No Estoppel against the Government
• Collection of taxes cannot be enjoined (stopped) by injunction
• Taxes could not be the subject of compensation or set-off
• A valid tax may result in the destruction of the taxpayer’s property
• Right to select objects (subjects) of taxation

THE BENEFITS - PROTECTION THEORY

 The basis of taxation is the reciprocal duties of “protection and support” between the
State and its inhabitants.
 This theory spawned the Doctrine of Symbiotic Relationship which means, taxes are
what we pay for a civilized society.

DISTINCTIONS AMONG THE 3 INHERENT POWERS OF THE STATE

TAXATION POLICE POWER EMINENT DOMAIN

NATURE Power to enforce Power to make and Power to take private
contributions to raise implement laws for the property for public use
government funds. general welfare. with just
compensation.
AUTHORITY Government only Government only May be granted to
public service/utility
companies
PURPOSE For the support of the Promotion of General The taking of private
Government. Welfare through property for public use.
regulation
PERSONS AFFECTED Community or a class Community or a class On an individual as the
of of owner of personal
individuals individuals property
TYPE Property is wholesome Property is noxious or Property is wholesome
and is devoted to intended for a noxious and is devoted to
public use of purpose. purpose and as such public use or purpose.
taken and destroyed.
EFFECT Contribution becomes No Transfer or title; There is a transfer of
part of public fund restraint on the title to property.
injurious use of
property
RIGHTS AFFECTED Property right Property right, liberty Property right
and life
SCOPE Plenary, Broader in application. Merely a power to take
 comprehensive,
unlimited, supreme
BENEFITS RECEIVED In form of protection
and benefits received
from government
AMOUNT OF IMPOSITION No limit
General power to make private property for
and implement law. public use.
No direct and Market value of
immediate benefit but property take (just
may arise from the compensation)
maintenance of a
healthy economic
Sufficient to cover cost No imposition. The
of the license and owner is paid
other necessary equivalent to the fair
expenses value of his property

SCOPE OF THE TAXING POWER OF THE LEGISLATIVE

 The subject or object (person, property, and excises/privileges) to be taxed

 The purpose of the tax as long as it is a public purpose
 The amount or rate of the tax
 Kind of tax
 Appointment of the tax
 Situs of taxation – place or location of taxation
 The manner or method of collection

STAGES/ ASPECTS OF TAXATION

 LEVYING OR IMPOSITION
 involves the passage of tax laws or ordinances (in the case of local government units)
through the legislature.

- Creation of tax law by legislative branch

- Done by Legislative branch

 ASSESSMENT AND COLLECTION

- Done by Executive branch (Department of Finance, like BIR & BOC)
 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 the
Bureau of Customs.
 Assessment - determination by the executive branch of the correct amount of
the tax.
- where to pass documents and compute
 Collection of the tax levied, which is essentially administrative in character
- where to pay
- payment of tax (where you can pay)
 a. Revenue Collection Officers
b. AAB (Authorized Agent Banks)
c. Digital Platforms (ex. Gcash)
= All are collected by the Bureau of Treasury (BTr)

PRINCIPLES/ELEMENTS OF SOUND TAX SYSTEM

• FISCAL ADEQUACY
- The sources of government revenue must be sufficient to meet government expenditures and other
public needs.
- Funds should be adequate where it goes to projects and half will be going to debts

• THEORETICAL JUSTICE
- A good tax system must be based on the taxpayer’s ability to pay.
- Progressive Tax System (The higher you earn, the higher your tax)

• ADMINISTRATIVE FEASIBILITY
- Tax laws must be capable of convenient, just and effective administration - free from confusion and
uncertainty.

LIMITATIONS ON THE TAXING POWER

 INHERENT LIMITATIONS
- just like the Inherent Power that exist along with the state
 Public Purpose
a. Support of the government
b. Some of the recognized objects of government
c. To promote the welfare of the community
 INHERENT LIMITATIONS
 Situs of taxation or Territoriality - limited to person and property within and subject to
its jurisdiction.

PLACE OF TAXATION

a. The state where the subject to be taxed has a situs may rightfully levy

and collect the tax.

b. The situs is necessarily in the State which has jurisdiction or which

exercises dominion over the subject

  INHERENT LIMITATIONS
 Situs of taxation or Territoriality - limited to person and property within and subject to
its jurisdiction.

FACTORS TO CONSIDER IN DETERMINING SITUS OF TAXATION

- the Philippines is divided into Revenue Regions (the Revenue Regions is divided into Revenue District
Offices or RDO)
- ex. of RDO (Laoag, Vigan, La Union, Calasiao, Alaminos, Urdaneta)
- registration fee of RDO is 500 pesos
a. Subject matter (person, property, or activity)
b. Nature of the tax
c. Citizenship
d. Residence of the taxpayer

 INHERENT LIMITATIONS
 Situs of taxation or Territoriality

APPLICATION OF SITUS OF TAXATION

SUBJECT MATTER SITUS
Persons Residence of the taxpayer
Real Property Location
Tangible Personal Property Location
Intangible Personal Property Domicile of the Owner (Residence of the Owner)
Income Residence, citizenship, source of income
Business Place of Business
Gratuitous Transfer of Property (ex. Estate & Residence or citizenship of the transferors or
Donation) location of property
- opposite of Gratuitous is Onerous Transfer of
Property

 INHERENT LIMITATIONS
 International Comity or treaty - a State cannot tax another State based on the principle
of Sovereign Equality among States.
- Respecting the agreements with other state leaders
 Non-delegability of the Taxing power (Enactment of Tax Laws) - Power of taxation is
purely legislative, hence the power cannot be delegated either to the executive or
judicial departments.
 INHERENT LIMITATIONS
 Non-delegability of the Taxing power (Enactment of Tax Laws)

EXCEPTIONS:
a. Delegation to the President (Executive Order and Presidential Decree are the laws passed
by the President)
b. Delegation to local governments
c. Delegation to administrative agencies certain aspects of the taxing process that are not
legislative.

 INHERENT LIMITATIONS
 Tax Exemptions of the government
a. Agencies performing governmental functions are tax - exempt unless expressly taxed.
b. Agencies performing proprietary functions are subject to tax unless expressly
exempted.
c. GOCCs (Government Owned and Controlled Corporations) (ex. LandBank and
Development Bank) performing proprietary functions are subject to tax, except:
• GSIS
• SSS
• PhilHealthIC
• Local Water Districts
* PCSO - tax-exempt prior to January 1, 2018
- train law – tax reform for acceleration and inclusion

 CONSTITUTIONAL LIMITATIONS
 Observance of due process of law (Warrant of Arrest and Search Warrant)
 Equal protection of law
 Uniformity in taxation
 Progressive scheme of taxation (The higher you earn, the higher your tax)
 Non-imprisonment for non-payment of poll tax (cedula or community tax certificates)
- basic tax (5 pesos)
- Additional Tax ( maximum of 5,000)
- 1 peso for every 1,000
1. Business Gross Earnings
2. Professional Salary
3. Income from Real Property
 Non-impairment of the obligations of contracts
 Free-worship clause (churches are tax exempt)
 Exemption of charitable institutions, churches, parsonages, or convents appurtenant
thereto, mosques, and non-profit cemeteries, and all lands, buildings and improvements
actually, directly, and exclusively used for religious, charitable or educational purposes.
 Exemption from taxes or the revenues and assets of non-profit, non- stock educational
institutions including grants, endowments, donations or contributions for educational
purposes.
- Doing actions which should government do out of their heart that is why they are tax
exempt (ex. churches & charities)
 Non-appropriation of public funds or property for the benefit of any church, sect or
system of religion.
- Not specifying which specified the religion should the public funds will be given unless
declared as a national heritage site like Paoay Church
 No money shall be paid out of the Treasury except in pursuance of an appropriation
made by law.
- All taxes collected will be remitted to BTr (Bureau of Treasury)
 Concurrence of a majority of ALL MEMBERS OF CONGRESS for the passage of a law
granting tax exemption (majority 50% + 1)
 Non-diversification of tax collections
 The President shall have the power to veto (decline or reject a certain law passed by the
congress)
 Non-impairment of the jurisdiction of the Supreme Court to review tax cases
 Appropriations, revenue or tariff bills shall originate exclusively in the
 House of Representatives but the Senate may propose or concur with amendments.
 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.
- IRA (International Revenue Allocation), revenue or taxes allocated to the city