STAGES OF TAXES

1. Levy/Imposition of the taxes

2. Assessment - function of the executive branch
3. Collection - function of the BIR

CASE: Compagnie Finaciere Secres et Denees vs. CIR (G.R. NO. 133834, 28 August 2006)
- Along with police power and eminent domain, taxation is one of the three basic and
necessary attributes of sovereignty. Thus, the state cannot be deprived of its most
essential power and attribute of sovereignty by vague implication of law. Rather, being
derogatory of sovereignty, the governing principle is that tax exemptions are to be
construed in strictissimi juris against the taxpayer and liberally in favor of the
taxing authority; and he who claims an exemption must be able to justify his claim
by the clearest grant of statute.

a. Taxation distinguished from police power

Police Power
i. The most essential, insistent and the least limitable of powers, extending as it does to all
the great public needs
ii. Exercised to promote public welfare via regulations

CASE: Manila Memorial Park, Inc. vs. Secretary of the Department of Social Welfare and
Development (G.R. NO. 175356, 03 December 2013)
- When the conditions so demand as determined by the legislature, property rights must
bow to the primacy of police power because property rights, though sheltered by due
process, must yield to general welfare.

b. Taxation distinguished from eminent domain

Eminent Domain
i. The right of a government to take and appropriate private property to public use,
whenever the public exigency requires it, which can be done only on condition of
providing a reasonable compensation therefor
ii. The power of the State or its instrumentalities to take private property for public use
and is inseparable from sovereignty and inherent in government

CASE: Masikap vs. City of Pasig (G.R. NO. 136349, 22 January 2006)
- The power of eminent domain is lodged in the legislative branch of the government. It
delegates the exercise thereof to local government units, other public entities and
public utility corporations, subject only to Constitutional limitations. Local
governments have no inherent power of eminent domain and may exercise it only
when expressly authorized by statute.

c. Essential characteristics of taxes

1. Enforced contribution
2. Generally payable in money
3. Proportionate in character
4. Levied/imposed on persons, property, or the exercise of a right or privilege
5. Imposed by the legislative body of the state
6. Public purpose
 d. Basic principles of a sound tax system
1. Fiscal adequacy – sources of revenue should be sufficient to meet the demands of
public expenditures
2. Theoretical justice – tax burden should be proportionate to the taxpayer’s ability to pay
3. Administrative feasibility – tax laws should be capable of convenient, just, and effective
administration

e. Tax evasion vs. tax avoidance

- Two most common ways used by taxpayers in escaping from taxation
Tax Avoidance Tax Evasion

Tax-saving device within the means sanctioned by A scheme used outside of those lawful means
law

Should be used by the taxpayer in good faith and at When availed of, it usually subjects the taxpayer to
arms length further or additional civil or criminal liabilities

Connotes the integration of three factors:

1) The end to be achieved
2) An accompanying state of mind which is
described as being “evil”, “in bad faith”,
“willful”’, “deliberate and not accidental”
3) A course of action or failure of an action
which is unlawful