GENERAL PRINCIPLES

OF TAXATION
THE INHERENT POWERS OF THE STATE
v Power existing as a natural or basic part of every sovereign
State, without being conferred or granted by the people or
the Constitution.
THE INHERENT POWERS OF THE STATE
ü POWER TO TAX

ü POLICE POWER

ü EMINENT DOMAIN
 POWER TO TAX
• 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.
 POLICE POWER
• power of the state to promote public welfare by restraining
and regulating the use of liberty and property.
• exercised only by government
 EMINENT DOMAIN
• power to take private property for public purpose upon
payment of just compensation.
 SIMILARITIES AMONG TAXATION,
EMINENT DOMAIN AND POLICE POWER
ü inherent in the State.
ü exist independently of the constitution although the
conditions for their exercise may be prescribed by the
constitution.
ü Ways by which the state interfere with private rights and
property.
 SIMILARITIES AMONG TAXATION,
EMINENT DOMAIN AND POLICE POWER
ü legislative in nature and character
ü presuppose an equivalent compensation received, directly or
indirectly, by the persons affected.
 PURPOSE OF TAXATION
• PRIMARY PURPOSE
Ø raise revenues/funds to defray the necessary expenses of the
government
Ø called Revenue or Fiscal Purpose
 PURPOSE OF TAXATION
• 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.
 PURPOSE OF TAXATION
• COMPENSATORY PURPOSE
ü Reduction of Social Inequality
ü Economic Growth
ü 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
 NATURE AND CHARACTERISTICS
OF TAXATION
• The strongest of all the inherent powers of the State.
• Subject to international treaty or comity.
• Generally payable in money
• Territorial in scope
 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
Ø 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
Ø The power of taxation proceeds upon the theory that the existence
of the government is a necessity.
Ø It is a power predicated upon necessity.
 THEORIES AND BASIS
OF TAXATION
LIFEBLOOD DOCTRINE
Ø 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
 THEORIES AND BASIS
OF TAXATION
THE BENEFITS - PROTECTION THEORY
Ø The basis of taxation is the reciprocal duties of “protection and
support” between the State and its inhabitants.
Ø 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 implement Power to take private property
contributions to raise laws for the general welfare. for public use with just
government funds. compensation.
AUTHORITY Government only Government only May be granted to public
service/utility companies
PURPOSE For the support of the Promotion of General Welfare The taking of private property
government through regulation for public use.
PERSONS Community or a class of Community or a class of On an individual as the owner
AFFECTED individuals individuals of personal property
TYPE Property is wholesome and is Property is noxious or intended Property is wholesome and is
devoted to public use of for a noxious purpose and as such devoted to public use or
purpose. taken and destroyed. purpose.
 DISTINCTIONS AMONG THE 3
INHERENT POWERS OF THE STATE
TAXATION POLICE POWER EMINENT DOMAIN
EFFECT Contribution becomes No Transfer or title; restraint on the There is a transfer of title to
part of public fund injurious use of property property.
RIGHTS Property right Property right and liberty Property right
AFFECTED
SCOPE Plenary, comprehensive, Broader in application. General power Merely a power to take private
supreme to make and implement law. property for public use.
BENEFITS In form of protection No direct and immediate benefit but Market value of property taken
RECEIVED and benefits received may arise from the maintenance of a
from government healthy economic standard of society.
AMOUNT OF No limit Sufficient to cover cost of the license No imposition. The owner is
IMPOSITION and other necessary expenses paid equivalent to the fair 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
§ The manner or method of collection
 STAGES/ ASPECTS OF TAXATION
§ LEVYING OR IMPOSITION
Ø involves the passage of tax laws or ordinances (in the case of local
government units) through the legislature.
 STAGES/ ASPECTS OF TAXATION
§ ASSESSMENT AND COLLECTION
Ø 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.
v Assessment - determination by the executive branch of the correct
amount of the tax.
v Collection of the tax levied, which is essentially administrative in
character
 PRINCIPLES/ELEMENTS
OF SOUND TAX SYSTEM
• FISCAL ADEQUACY
Ø The sources of government revenue must be sufficient to meet government
expenditures and other public needs.

• THEORETICAL JUSTICE
Ø A good tax system must be based on the taxpayer’s ability to pay.

• ADMINISTRATIVE FEASIBILITY
Ø Tax laws must be capable of convenient, just and effective administration -
free from confusion and uncertainty.
LIMITATIONS ON THE TAXING POWER
§ INHERENT LIMITATIONS
v Public Purpose
a. Support of the government
b. Some of the recognized objects of government
c. To promote the welfare of the community
LIMITATIONS ON THE TAXING POWER
§ INHERENT LIMITATIONS
v 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 in question.
LIMITATIONS ON THE TAXING POWER
§ INHERENT LIMITATIONS
v Situs of taxation or Territoriality - limited to person and
property within and subject to its jurisdiction.

FACTORS TO CONSIDER IN DETERMINING SITUS OF

TAXATION
a. Subject matter (person, property, or activity)
b. Nature of the tax
c. Citizenship
d. Residence of the taxpayer
LIMITATIONS ON THE TAXING POWER
§ INHERENT LIMITATIONS
v Situs of taxation or Territoriality
APPLICATION OF SITUS OF TAXATION
SUBJECT MATTER
Persons
Real Property
Tangible Personal Property
Intangible Personal Property
Income
Business
Gratuitous Transfer of Property
SITUS
Residence of the taxpayer
Location
Location
Domicile of the owner
Residence, citizenship, source of income
Place of business
Residence or citizenship of the transferors
or location of property
LIMITATIONS ON THE TAXING POWER
§ INHERENT LIMITATIONS
v International Comity or treaty - a State cannot tax another State
based on the principle of Sovereign Equality among States.

v 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.
LIMITATIONS ON THE TAXING POWER
§ INHERENT LIMITATIONS
v Non-delegability of the Taxing power (Enactment of Tax
Laws)
EXCEPTIONS:
a. Delegation to the President
b. Delegation to local governments
c. Delegation to administrative agencies certain aspects of the taxing
process that are not legislative.
LIMITATIONS ON THE TAXING POWER
§ INHERENT LIMITATIONS
v 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 performing proprietary functions are subject to tax, except:
• GSIS
• SSS
• PhilHealthIC
• Local Water Districts
* PCSO - tax-exempt prior to January 1, 2018
LIMITATIONS ON THE TAXING POWER
§ CONSTITUTIONAL LIMITATIONS
v Observance of due process of law
v Equal protection of law
v Uniformity in taxation
v Progressive scheme of taxation
v Non-imprisonment for non-payment of poll tax
v Non-impairment of the obligations of contracts
v Free-worship clause
v 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.
LIMITATIONS ON THE TAXING POWER
§ CONSTITUTIONAL LIMITATIONS
v Exemption from taxes or the revenues and assets of non-profit, non-
stock educational institutions including grants, endowments,
donations or contributions for educational purposes.
v Non-appropriation of public funds or property for the benefit of any
church, sect or system of religion.
v No money shall be paid out of the Treasury except in pursuance of
an appropriation made by law.
v Concurrence of a majority of ALL MEMBERS OF CONGRESS for
the passage of a law granting tax exemption
v Non-diversification of tax collections
LIMITATIONS ON THE TAXING POWER
§ CONSTITUTIONAL LIMITATIONS
v The President shall have the power to veto
v Non-impairment of the jurisdiction of the Supreme Court to review
tax cases
v Appropriations, revenue or tariff bills shall originate exclusively in the
House of Representatives but the Senate may propose or concur with
amendments.
v 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.
 SOURCE

TABAG, ENRICO D. 2021. CPA Reviewer in Taxation.

EDT Book Publishing. Tandang Sora, Quezon City.
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