FUNDAMENTAL PRINCIPLES
Definition:
Taxation – is the power by which the sovereign, through its law-making
body, raises revenue to defray the necessary expenses of government. It is
merely a way of apportioning the costs of government among those who, in
some measure, are privileged to enjoy its benefits and must bear its
burdens
Tax - enforced proportional contributions or charges.
Purpose:
1. Primary or Revenue purpose – to raise funds or property to enable the
State to promote the general welfare and protection of the people.
2. Secondary or Non-revenue purposes / Sumptuary [PR2EP]:
a. Promotion of general welfare – taxation may be used as an implement of
police power to promote the general welfare of the people.
b. Regulation of activities/industries – Taxes may also be imposed for a
regulatory purpose as, for instance, in the rehabilitation and stabilization of
a threatened industry which is affected with public interest, like the oil
industry
c. Reduction of social inequality – a progressive system of taxation prevents
the undue concentration of wealth in the hands of few individuals.
Progressivity is based on the principle that those who are able to pay more
should shoulder the bigger portion of the tax burden.
d. Encourage economic growth – the grant of incentives or exemptions
encourage investment thereby stimulating economic activity.
e. Protectionism – Protective tariffs and customs duties are imposed as
taxes in order to protect important sectors of the economy or local
industries, as in the case of foreign importations.
Nature of taxation:
I. Inherent Attribute of Sovereignty
 The power to tax is an attribute of sovereignty and is inherent in the
State. t does not need constitutional conferment. Constitutional
provisions do not give rise to the power to tax but merely impose
limitations on what would otherwise be an invincible power.
2. Legislative in Character.
 It is legislative in nature since it involves the promulgation of laws.
The legislature determines the coverage, object, nature, extent and
situs [CONES] of the tax to be imposed.
Characteristic of taxation:
1. Comprehensive - It covers persons, businesses, activities, professions,
rights and privileges.
2. Unlimited - It is so unlimited in force and searching in extent that courts
scarcely venture to declare that it is subject to any restrictions.
3. Plenary - It is complete. Under NIRC, the BIR may avail of certain remedies
to ensure the collection of taxes.
4. Supreme - It is supreme insofar as the selection of the subject of taxation
is concerned, but it does not mean that it is superior to the other inherent
powers of the State.
Inherent Power to Tax:
a. Police Power
 Power of State for promoting public welfare by restricting and
regulating the use of property and liberty.
b. Power of Taxation
 Power of state to raise revenue through taxation to meet
government needs/expenses.
c. Power of Eminent Domain
 Power of State to acquire private property for public purpose upon
payment of just compensation.
Similarities between taxation, eminent domain and police power 2. Administrative feasibility
1. They are inherent powers of the State.  The tax system should be capable of being effectively administered
2. All are necessary attributes of the sovereign. and enforced with the least inconvenience to the taxpayer.
3. They exist independently of the Constitution. 3. Theoretical justice
4. They constitute the three methods by which the State interferes with  Must take into consideration the taxpayer’s ability to pay (Ability to
private rights and property. Pay Theory).
5. They presuppose equivalent compensation. 6. The legislature can exercise  Art. VI, Sec. 28(1), 1987 Constitution mandates that the rule on
all three powers. taxation must be uniform and equitable and that the State must
evolve a progressive system of taxation.
Theory and Basis of Taxation: Scope and Limitations of Taxation
a. Lifeblood Doctrine Inherent limitations [PITIE]
 Concept means that government cannot exist without taxes. It 1. Public Purpose
cannot perform its basic functions without the means of paying its 2. Inherently Legislative
expenses. 3. Territorial
b. Necessity Theory 4. International Comity
 It is a necessary burden to preserve the State’s sovereignty. 5. Exemption of government entities, agencies and instrumentalities
c. Benefits-protection Theory (Doctrine of Symbiotic Relationship)
 It involves the power of the State to demand and receive taxes
based on the reciprocal duties of support and protection between
the State and its citizen.
 Special benefits to taxpayers are not required. A person cannot
object to or resist the payment of taxes solely because no personal
benefit to him can be pointed out arising from the tax.
d. Jurisdiction over subject and objects.
 It is the country, state or sovereign that gives protection and has the
right to demand payment of taxes with which to finance activities so
it could continue to give protection.
 Taxation is territorial because it is only within the confines of its
territory that a country, state or sovereign may give protection.

Principles of Sound Tax System [FAT]

1. Fiscal adequacy
 Revenue raised must be sufficient to meet government/public
expenditures and other public needs.