Act103 – Module 1

GENERAL PRINCIPLES OF TAXATION

01.18 & 22.2024

Objectives:
1. Define Taxation
2. Describe the nature, basis and objectives of
taxation
3. Differentiate the three inherent powers of the
state.
4. Explain the Principles of a sound tax system
5. Identify and explain constitutional and inherent
limitations.
6. Name and describe the situs of taxation and its
application.
OVERVIEW
Before entering Taxation, we need to finish this
chapter. This will serve as your general
knowledge about taxation. It’s a sort of mind
conditioning wherein you will be able to know
what taxation is all about. It’s more on answering
the why’s and what’s of taxation. All the learning
that you will get on this module will be beneficial
for you as you go along with the subject.
 Inherent Powers of the State
When a sovereign state is born, it exists with indispensable powers
necessary for its survival.

These powers are:

1. Police Power – the power to protect and provide safety and welfare
of society. It refers to the power of a sovereign state to legislate for
the protection of health, welfare and morals of the community. It is
exercised usually to guard against excesses or abuses of individual
liberty.

Examples: preservation of natural resources, segregation of lepers from

the public, imprisonment of convicted criminals, and regulation of various
professionals.
Inherent Powers of the State
2. Eminent Domain Power – the power to take
private property with just compensation for public
use. It is base on the idea that the common
necessities and interests of the community
transcend individual rights in property. The state
may expropriate private property when it is
necessary in the interest of national welfare. Since
eminent domain is inherent in sovereignty,
pertinent provisions on the Constitution are not
grants of power but rather limitations upon its
exercise.
Inherent Powers of the State
3. Taxation Power – the power to enforce
contributions to support the government, and
other inherent powers of the State. (see PART 2
for more discussion about the Power of Taxation)
 Similarities among Taxation, Eminent
Domain, and Police Power
1. They are inherent in sovereignty;
(they can be exercised even without being expressly granted in the
Constitution.)

2. They are all necessary attributes of sovereignty because there can

be no effective government without them;

3. They constitute the three ways by which the state interferes with
private rights and property;

4. They are all legislative in nature and character; and

5. They presupposes an equivalent compensation.

Power of Taxation
I. TAXATION DEFINED

Taxation is the process or means by which a sovereign state,

through its lawmaking body, imposes burdens upon subject
and objects within its jurisdiction for the purpose of raising
revenue to carry-out the legitimate objects of the government.

1. It is a POWER, it refers to the inherent power of a state, co-

extensive with sovereignty to demand contributions for public
purposes to support the government;
Power of Taxation
2. It is a PROCESS; it passes a legislative undertaking
through the enactment of tax laws by the Congress which
will be implemented by the Executive Branch of the
government through its Bureau of Internal Revenue (BIR)
to raise revenue in order to pay the necessary expenses of
the government. (Enactment or Imposition: Legislative via
Congress. Implementation: Executive via BIR)

3. It is a MEANS; it is a way of collecting and apportioning

the cost of government among those who are privileged to
its benefits.
Power of Taxation
II. PURPOSES OF TAXATION
1. Primary Purpose:

Revenue or Fiscal Purpose - The primary purpose of

taxation is to raise fund for the government to defray its
legitimate expenses. A government will be paralyzed
without funding, it will be unable to perform its duty
which is to promote general welfare and protection to its
citizens. A government can run its administrative set up
only through funding which is collected in the form of tax.
Power of Taxation
2. Secondary Purpose:

Regulatory Purpose – taxation is often use to for regulation

or control by means of which certain effects or conditions
envisioned by the government may be achieved such as:
promotion of general welfare, reduction of social inequality,
and economic growth.

Example: Cigarettes or sin products are seemed to be harmful

to individuals, the government may use taxation to minimize
sin product consumption by imposing higher taxes on these
commodities (sin tax = EXCISE tax);
Power of Taxation
III. THEORY and BASIS of TAXATION

1. Theory: Lifeblood Theory or Necessity Theory

It says that the power of taxation proceeds upon the
theory that the existence of government is a
necessity. The government cannot continue to
perform its basic functions of serving and protecting
its people without means to pay its expenses.
Consequently, the State has the right to compel all its
citizens and property within its limit to contribute.
Power of Taxation
2. Basis of Taxation: Benefits Received or
Reciprocity Theory
It says that the government provides benefits to
the people in the form of public services and the
people to provide the funds that finance the
government. The concept is illustrated below:
POWER OF TAXATION LIMITATIONS
I. CONSTITUTIONAL LIMITATIONS:

1. Due Process of Law

There must be a valid law and the measure should not be unconscionable
and unjust as to amount to confiscation of property. The power to tax should not
be harsh, oppressive or confiscatory.

2. Equal Protection of the Law

All persons subject to legislation shall be treated alike under similar
circumstances and conditions both in the privileges conferred and liabilities
imposed.

3. Rule of Uniformity and Equality in Taxation

The rule of taxation shall be uniform and equitable. It requires the uniform
application and operation, without discrimination of the tax in every place
where the subject of the tax is found.
POWER OF TAXATION LIMITATIONS
I. CONSTITUTIONAL LIMITATIONS:

4. No Imprisonment for non-payment of Poll Tax

No person shall be imprisoned for debt or non-payment of poll tax.

5. Prohibition Against Impairment of Obligations of Contracts

No law impairing the obligation of contracts shall be passed. The
obligation of contract is impaired when its terms and condition are changed
by law or by a party without the consent of the other, thereby weakening
the position or rights of the latter.

6. Prohibition Against Infringement of Religious Freedom

No law shall be made respecting an establishment of religion, or
prohibiting the free exercise thereof. The free exercise and enjoyment of
religious profession and worship, without discrimination preference, shall
forever be allowed.
POWER OF TAXATION LIMITATIONS
I. CONSTITUTIONAL LIMITATIONS:

7. No Money Shall be Appropriated for Religious or Private Purpose

No public money or property shall be appropriated, applied, paid, or
employed directly or indirectly, for the use or benefit, or support of any
church, denomination, sectarian institution or system of religion, or of any
priest, preacher, minister or other religious teacher, or dignitary as such
except when such priest, preacher, minister or dignitary is assigned to AFP, or
to any penal institution, or government orphanage or leprosarium.

8. Exemptions from Property Taxation of Charitable institutions, Churches,

Educational Entities, Convents, Non-profit Cemeteries
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.
POWER OF TAXATION LIMITATIONS
I. CONSTITUTIONAL LIMITATIONS:

9. Prohibition against Taxation of Non-Stock, non-profit

educational institutions
All revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and exclusively for
educational purposes shall be exempt from taxes and duties.

10. No Law granting tax exemption shall be passed without the

concurrence of a majority of all Members of Congress

11. Power of the President to Veto any Particular Item or items of

a revenue or tariff bill
POWER OF TAXATION LIMITATIONS
I. CONSTITUTIONAL LIMITATIONS:
12. Non-impairment of the jurisdiction of the Supreme Court In
tax cases
Congress cannot take away from the Supreme Court the
power given to it by the constitution as the final arbiter of tax
cases.
13. Revenue Bills shall originate exclusively from the House of
Representatives
All appropriation, revenue or tariff bills, bills authorizing an
increase of public debt, bills of local application, and private bills
shall originate exclusively in the House of Representatives, but the
Senate may propose or concur with amendments.
POWER OF TAXATION LIMITATIONS
II. INHERENT LIMITATIONS:
1. The tax must be for public purpose
The power of taxation flows forth from the legitimate
objective of supporting services of the government. Public taxes
are public money. It must be used to finance recognized public
needs. It has been held that tax has been utilized for public
purpose for the welfare of the nation or the greater portion of its
population has benefited with its use.
2. The levy must apply within its territorial limits for the exercise
of the effective tax jurisdiction
The tax authority must observe “tax situs” because the
country’s tax laws are effective and enforceable only within its
territorial limits.
POWER OF TAXATION LIMITATIONS
II. INHERENT LIMITATIONS:
3. Exemption from taxation of the Government Agencies
performing Governmental Functions
Exemption from taxation is a grant of tax immunity to a
particular class of persons or corporations. The State’s immunity
from taxation is inherent in its power to impose tax.

4. Non-Delegation of Power to Tax

In its strict sense, the power to make tax laws cannot be
delegated to other branches of the government. Since peculiarity
and exclusively legislative in nature, the power to make tax laws
cannot be exercised by the executive or judicial branch of the
Government.
POWER OF TAXATION LIMITATIONS
II. INHERENT LIMITATIONS:
5. International Comity
Taxing system of a sovereign state may honor International
Comity with other foreign sovereign state
PRINCIPLE OF A SOUND TAX SYSTEM
The fundamental principles of a sound taxation system
based on Adam Smith’s Canons of Taxation are:

1. FISCAL ADEQUACY
The principle of Fiscal Adequacy states that the
sources of revenue of the government should be sufficient
to meet the demand of public expenditures regardless of
business conditions. The revenue of the government
should be capable of expanding or contracting annually in
response to variations in public expenditures.
PRINCIPLE OF A SOUND TAX SYSTEM

2. EQUALITY OR THEORITICAL JUSTICE

This principle states that the tax burden
must be proportionate to the taxpayer’s ability
to pay. It is based on the philosophy that “he
who received more should give more”. The
contribution of each individual to the
government should be fair enough according to
his earnings and wealth.
PRINCIPLE OF A SOUND TAX SYSTEM

3. ADMINISTRATIVE FEASIBILTY
Tax laws must be convenient, just, uniform
and effective in their administration – free from
confusion and uncertainty. Their exercise should
be convenient as to the place, time and mode of
payment, and not burdensome or discouraging
to business. Competent public officials must
enforce them uniformly.
SITUS OR PLACE OF TAXATION
SITUS means the place of taxation. It is the state or political unit
which has jurisdiction to impose a particular tax. The state
where the subject to be taxed has a situs may rightfully levy and
collect the tax.

FACTORS TO CONSIDER in DETERMINING SITUS:

1. Subject matter
2. Nature of Tax
3. Citizenship
4. Residence of the Taxpayer
5. Source of Income
6. Place of Exercise, business or occupation to be taxed
REFERENCES:
Tabag, E. D. (2019). INCOME TAXATION. Manila:
Info Page.
Valencia, E. G. (2017). Income Taxation. Baguio
City: Valencia Educational Supply.
 That’s all for today!

Thank you for listening!

Be ready for a QUIZ next meeting!

See you!
