1.

Power of taxation
2. Exercising Authority
3. Exemption on Taxation
4. Limitations

Specific Learning Objectives

To identify the nature and characteristics of the power to tax.

To determine the exercising authority of taxation powers and the basis thereof
To identify the limitations and conditions for the exercise of taxation powers.

Nature and Characteristics

Taxation: Exaction to Raise Revenue
While it is true that the power of taxation can be used as an implement of police power, the primary purpose of the levy is
revenue generation. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then
the exaction is properly called a tax.

(Planters Products, Inc. v. Fertiphil Corp., G.R. No. 166006, 14 March 2008)

Even though it is a tax, it does not preclude the exaction from having a regulatory purpose. In other words, it does not preclude the
exercise of the power of taxation to be an implement of power or the exercise of police power.

Police power and the power of taxation are inherent powers of the State. These powers are distinct and have different tests for
validity. Police power is the power of the State to enact legislation that may interfere with personal liberty or property in order
to promote the general welfare, while the power of taxation is the power to levy taxes to be used for public purpose. The main
purpose of police power is the regulation of a behavior or conduct, while taxation is revenue generation. The "lawful subjects"
and "lawful means" tests are used to determine the validity of a law enacted under the police power. The power of taxation, on
the other hand, is circumscribed by inherent and constitutional limitations.

(Planters Products, Inc. v. Fertiphil Corp., G.R. No. 166006, 14 March 2008)

In Summary...

1. Taxation and Police Power Overlap: Taxation and police power are distinct powers of the government, but they can overlap.
Taxation primarily focuses on generating revenue for the government, while police power is about regulating behavior to
promote public welfare.
2. Primary Purpose - Revenue Generation: When a government levy (a charge or tax) is primarily for raising money, it is
considered a tax. This is its main characteristic. (Example: Income Tax.)
3. Secondary Purpose - Regulation: Even though the main goal of a tax is to raise revenue, it can also serve a regulatory purpose.
This means a tax can be used as a tool to influence or control certain behaviors or activities, aligning with the objectives of
police power. (Example: Sin Taxes on Cigarettes and Alcoholic Beverages. While these taxes raise revenue, they also serve a
regulatory purpose.)
4. Taxation as an Implement of Police Power: The statement implies that while taxation is fundamentally for revenue generation, it
can also be used as a means of implementing police power. This means a tax can indirectly support public welfare and order, in
addition to raising revenue.

In summary, while the primary role of taxation is to generate revenue for the government, it can also serve a secondary role of
regulating behavior and activities, similar to the objectives of police power. This dual characteristic does not change the nature of
the levy as a tax, but it highlights the flexibility in how taxation can be used by the government.

Perspectives in the Power of Taxation

 Nature and Character of the Power to Tax
Nature and Character of the Payment of Tax

Power to Tax

Attribute of Sovereignty

The power to tax is "a principal attribute of sovereignty".

Why is the power of taxation inherent in a sovereignty?

Based on Social Contract

A principal attribute of sovereignty, the exercise of taxing power derives its source from the very existence of the state whose
social contract with its citizens obliges it to promote public interest and common good. The theory behind the exercise of the
power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare
and well- being of the people.

(National Power Corporation v. City of Cabanatuan, G.R. No. 149110, 9 April 2003)

By nature, the power to tax is Primarily Legislative

The power of taxation, being an essential and inherent attribute of sovereignty, belongs, as a matter of right, to every
independent government, and needs no express conferment by the people before it can be exercised. It is purely legislative and,
thus, cannot be delegated to the executive and judicial branches of government without running afoul to the theory of
separation of powers.
It, however, can be delegated to municipal corporations, consistent with the principle that legislative powers may be delegated
to local governments in respect of matters of local concern.

(Film Development Council of the Phils. v. Colon Heritage Realty Corp., G.R. No. 203754 & 204418, 16 June 2015)

Payment of Tax

It is a duty of every citizen, why?

The obligation to pay tax [...] is a duty imposed upon the individual by the mere fact of his membership in the body politic and
his enjoyment of the benefits available from such membership.

(Secretary of Finance v. Oro, G.R. No. 156946, 15 July 2009)

Lifeblood of the Government

Taxes are the lifeblood of the government. Without taxes, the government can neither exist nor endure.

(Chamber of Real Estate and Builders' Association, Inc. v. Romulo, G.R. No. 160756, 9 March 2010)

Exercising Authority
Who are authorized?
What is the basis?
What are the limitations?

Legislature LGU President

Inherent Authority Constitutionally-Delegated Authority Statutorily-Delegated Authority

Inherent Authority: Legislature
It is purely legislative and, thus, cannot be delegated to the executive and judicial branches of government without running
afoul to the theory of separation of powers. It, however, can be delegated to municipal corporations, consistent with the
principle that legislative powers may be delegated to local governments in respect of matters of local concern.

(Film Development Council of the Phils. v. Colon Heritage Realty Corp., G.R. No. 203754 & 204418, 16 June 2015)

Constitutionally-Delegated Authority: LGUs

Prefatorily, it might be well to recall that local governments do not have the inherent power to tax except to the extent that
such power might be delegated to them either by the basic law or by statute. Presently, under Article X of the 1987
Constitution, a general delegation of that power has been given in favor of local government units. The 1987 Constitution has a
counterpart provision in the 1973 * Constitution, which did come out with a similar delegation of revenue making powers to
local governments.

(Manila Electric Co. v. Province of Laguna, G.R. No. 131359, 5 May 1999)

Its delegation of the LGU's power to tax is found in the constitution - Section 5, Article X

not by law or any resolution, thus it cannot be deprived by the congress.

But they are subject to limitations, as may be provided by the congress.

Thus, the provisions on taxation under the Local Government Code (RA 7160) are not the basis of delegation. It is the Constitution
(specifically, Section 5, Article X). These provisions are merely guidelines and limitations prescribed by Congress.

Statutorily-Delegated Authority: President

Not constitution, but based on the Law.
However, the law has basis in the constitution - Section 28 (2), Article VI which states:

(2) The Congress may, by law, authorize 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 dues, and other duties or
imposts within the framework of the national development program of the Government.

Tax Exemptions
Exemption: Implied in Authority to Tax
Impliedly necessary in the authority to impose taxes is the authority to provide for exemption, which are in the nature of "waiver" on
the part of the authority to tax a particular object.

This means that exemption to tax is part of the inherent powers to tax. However, there's an exemption.

Exemption: Exception to the Rule

It should first be stressed that taxation is the rule and exemption is the exception. The burden of proof rests upon the party
claiming exemption to prove that it is, in fact, covered by the exemption so claimed.

(National Power Corporation v. Province of Isabela, - G.R. No. 165827, 16 June 2006)

The General Rule - all taxable events should be taxed.

Exception to the rule - Tax exemptions.

Constitutional Rules on Exemptions

 No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of Congress.

(Section 28[4], Article VI, 1987 Constitution)

Exemption from Realty Taxes

Charitable Institutions, churches and parsonages, or convents appurtenant thereto, mosques, non-profit cemeteries, and all
lands, buildings, and improvements, actually, directly, and exclusively used for religious charitable, or educational purposes shall
be exempt from taxation.

(Section 28[3], Article VI, 1987 Constitution)

Limitations
While the power to tax is so potent, it is not without limitations. Thus, the proper and valid exercise of the power to tax must:

1. comply with due process of law;

2. be uniform;
3. be equitable;
4. progressive; and
5. for public purpose.

For public purpose

To sustain a tax, it is necessary to show that the proceeds are devoted to a public purpose.

(Planters Products, Inc. v. Fertiphil Corporation, G.R. No. 166006, 14 March 2008)

Taxes are for the benefit of the public and not a private individual.
It should be for public purpose otherwise it is not valid.

Progressive

[...] The Congress shall evolve a progressive system of taxation.

(Section 28[1], Article VI, 1987 Constitution)

This would imply that, when a person earns more, they should pay more taxes.
If you earn less, then you pay less tax.

Does the Constitution mandate progressive tax system and prohibit a regressive tax system?

The Constitution does not really prohibit the imposition of indirect taxes which, like VAT, are regressive. What it simply provides
is that Congress shall "evolve a progressive system of taxation." The constitution provision has been interpreted to mean simply
that "direct taxes are... to be preferred [and] as much as possible, indirect taxes should be minimized. Indeed, the mandate to
Congress is not to prescribe, but to evolve, a progressive tax system.

(Tolentino v. Secretary of Finance, G.R. No. 115455, 30 October 1995)

Based on the case above, "the mandate to Congress is not to prescribe, but to evolve, a progressive tax system". Therefore, a
regressive tax system is not prohibited.

Regressivity is not a negative standard for courts to enforce. What Congress is required by the Constitution to do is to "evolve a
progressive system of taxation." This is a directive to Congress, just like the directive to it give priority to the enactment of laws
for the enhancement of human dignity and the reduction of social, economic, and political inequalities [...] These provisions are
put in the Constitution as moral incentives to legislation, not as judicially enforceable.
 (British American Tobacco v. Camacho, G.R. No. 163583, 15 April 2009)

Based on the case above, the courts do not enforce whether the tax is progressive or regressive.
The constitution does not create prohibition on regressive taxation. Thus the court cannot invalidate VAT.