Taxation - The power by which the sovereign, through its law making body, raises revenue to defray the

necessary expenses of the government. It is described as an inherent sovereign power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government. Two concepts of Taxation: 1. Power to tax. 2. The act or process by which the taxing power is exercised. Purposes and Objectives: To raise revenue to support the existence of the state and to enable the state to promote the general welfare and protection of its citizens. Taxation may be used as an implement of police power in order to promote the general welfare of the people. Case: Lutz vs. Araneta : The SC upheld the validity of the sugar adjustments Act, which imposed a tax on milled sugar since the purpose of the law was to strengthen an industry that is so undeniably vital to the economic sugar industry. As in cases of taxes levied on exercises or privileges like those imposed on tobacco and alcoholic products or amusements places like night clubs, cabarets, cockpits, etc. In the realm of tax exemptions and tax reliefs, the purpose is to grant incentives or exemptions to encourage investments and promote economic growth. In case of foreign importations, protective tariff and customs are imposed for the benefit of local industries. Lifeblood theory Without taxes, government can neither exist nor endure. Upon taxation depends the governments ability to serve the people for whose benefits taxes are collected. CIR vs. ALGUE: Without revenue raised from taxation, the government will not survive, resulting in the detriment to society. Without taxes, the government would paralyzed for lack of motive power to activate and operate it. Hence, despite the natural reluctance to surrender part ones earned income to the taxing authorities, every person who is able, must contribute his share in the running of the government. Doctrine of Symbiotic Relationship: Taxes are what we pay for a civilized society. The State demands and receives taxes from the subjects of taxation within its jurisdiction so that it may be enable to carry its mandate into effect and perform the functions of government, and the citizens pays from his property the portion demanded in the order that he may, by means thereof, be secured in the enjoyment of the benefits of organized society. Spectrum of Taxation: It is supreme, plenary, all encompassing, unlimited, awesome, pierces all kinds of properties, rights and activities, subject to the no injunction rule and it is the power of destroy. Is the power to tax the power to destroy? The power to tax includes the power to destroy if it used validly as an implement of the police power in discouraging and in effect, ultimately prohibiting certain things or enterprises inimical to the public welfare. But where the power to tax is used solely for the purpose of raising revenues, the modern view is that it cannot be allowed to confiscate or destroy. The power to tax is sometimes called the power to destroy. Therefore, it should be exercised with caution to minimize injury to the proprietary rights of the taxpayer.

Power of Taxation as an implement of the power of eminent domain: CIR vs. CENTRAL LUZON DRUG CORPORATION (2005) : That tax measures are but enforced contributions exacted on pain of penal sanctions and clearly imposed for a public purpose. In this case, respondent granted 20% discount to senior citizens on their purchases of medicines. The court emphasized that this permanent reduction in their total revenues is a forced subsidy corresponding to the taking of private property for the public use or benefit. For this reason, a just compensation for income becomes necessary. Accordingly, the tax credit benefit granted to the respondent deemed as their just compensation. TAXES Enforced proportional contributions from persons and property levied by the law making body of the state by virtue of its sovereign for the support of the government and for public needs. Attributes and essential characteristics of Tax: 1. It is imposed by the state which has jurisdiction over the person, property, or exercises. 2. It is levied by the law making body of the state. 3. It is enforced contribution. 4. It is generally payable in money. 5. It is proportionate in character. 6. It is levied on persons, property and excises. 7. It is levied for public purposes. 8. It is paid at regular periods or intervals. 9. It is personal to the taxpayer. Requisites of a valid Tax: 1. That either the person or property taxed within the jurisdiction of the taxing authority. 2. That the assessment and collection of certain kinds of taxes guarantee against injustice to individuals, especially by proving notice and opportunity for hearing. 3. That is should be for a public purpose 4. The rule of taxation shall be uniform. 5. The tax must not impinge on the inherent and constitutional limitations on the power of taxation. As to who bears the burden and incidence: DIRECT tax which is exacted from the very person who are primarily liable to pay them. The taxpayer cannot shift the burden of its payment to another. ( income tax, estate tax, donors tax) INDIRECT - tax wherein the incidence or liability for the payment falls on person but the burden may be shifted or passed on another not as a tax but as part of the purchase price ( VAT, excise tax, percentage Tax). TAX vs. LICENSE FEE: Tax based on the power of taxation, license is based on police power. In tax the purpose is revenue, in license the purpose is regulation. In tax the amount is unlimited, in license the amount is limited to the cost of: 1. The issuance of license. 2. Inspection and survelience. Tax is normally paid after the start of business, License is normally paid before the commencement of business. In Taxes being the lifeblood of the state, cannot be surrendered except for lawful consideration, License fee may be with or without consideration. Non payment of tax does not make the business illegal but may be ground for criminal prosecution, Non payment license makes the business illegal.

TOLENTINO VS. SEC. OF FINANCE: A license is mainly for regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the exercise of its right. The VAT, however is different. It is not on the exercise of a privilege. It is imposed on the sale, barter, lease or exchange of goods and properties or services purely for revenue purposes. DOCTRINE OF TAXATION: Imprescriptibility of taxes Rule: Unless otherwise provided by the tax law itself, taxes are imprescriptible. Exceptions: National Internal Revenue Code The statute of limitation for assessment of a tax if a return is filed is within 3 years from the last day prescribed by law for the filling of the return or filed after the last day within 3 years from the date of actual filling. If no return is filed or the return filed is false or fraudulent, the period to assess is within 10 years from the discovery of omission, fraud or falsity. Any internal revenue tax which has been assessed within the period of limitation as prescribed Sec. 222 may be collected within 5 years following the assessment of the tax. Tariff and Custom Code TCC does not express any general statute of limitation. Sec. 1603 of the TCC provides, however, that when articles have entered and passed free of duty or final adjustment of duties made, with subsequently delivery, such entry and passage free of duty or settlement duties will, after expiration of three (3) years from the date of the final payment of duties, in the absence of fraud or protest, be final and conclusive upon all parties, unless the liquidation of the import entry was merely tentative. Local Government Code Sec. 194 and 270 of the LGC fix the prescriptive period of assessment of taxes, fees or charges within 5 years from the date they become due, except in case of fraud or intent to evade the payment of taxes, fees or charges, the same may be assessed within 10 years from the discovery of the fraud or intent to evade. They shall be also collected within 5 years from the date of assessment. DOCTRINE OF EQUITABLE EQUIPMENT: Where the refund of a tax illegally or erroneously collected or overpaid by the taxpayer is barred by prescription, a tax presently being assessed against a taxpayer may be recouped or set off against the tax whose refund is not barred by prescription. COMPENSATION as an exception in the case of DOMINGO vs. GARLITOS: SC held that the doctrine of set off may be applied because both the claim of the government for inheritance and the claim of the estate for services rendered have already become overdue and demandable and fully liquidated. COMPROMISE Compromises are allowed and enforceable when the subject matter thereof is not prohibited from being compromised and the person entering into it is duly authorized to do so. Person allowed to Compromise: 1. Commissioner of internal revenue 2. Collector of Customs 3. Customs Commissioner 4. Local Government code

Requisites of a Taxpayers suits: 1. Public funds derived from taxation are disbursed by a political subdivision or instrumentality and in doing so, a law is violated or some irregularity is committed. 2. Petitioner is directly affected by the alleged act. DOCTRINE OF TRANSCEDENTAL IMPORTANCE In cases of paramount importance where serious constitutional questions are involved, the standing requirements may be relaxed and a suit may be allowed to prosper even where there is no direct injury to the party claiming the right of judicial review. RULE OF NO ESTOPPEL AGAINST THE GOVERNMENT: The government is not estopped by the mistakes or errors of its agents; erroneous application and enforcement of law by public officers do not bar the subsequent correct application of statutes. Except in the interest of justice of justice and fair play, as where injustice will result to the taxpayer. Inherent Limitation: They proceed from the very nature of the taxing power itself. 1. Territoriality or situs 2. Public purpose 3. International comity 4. Non-delegability of the taxing power 5. Exemption of the Government. Constitutional Limitation it simple defines and delimits this power to strike a balance between the power of the government and the freedom of the governed and to safeguard the latter from possible abuse by the former. Situs of Taxation is also known as place of taxation. It is the place or authority that has the right to impose and collect taxes. As a Rule a state may not tax property lying outside its border or lay an excise or privilege tax upon the exercise or enjoyment of a right or privilege derived from the laws of another state and therein or enjoyed. Exception: 1. Where the tax operate territorial jurisdiction. 2.Where the tax laws do not operate within the territorial jurisdiction of the state. Rule on situs of business tax: 1. Sale of real Property where the property is located. 2. Sale of Personal Property where the sale is perfected and consummated. 3. VAT the place where the transaction was made. Factors that determine situs: 1. Kinds or clarification of the tax being levied. 2. Situs of the thing or property taxed. 3. Residence of the taxpayer. 4. Source of the income 5. Citizenship of the taxpayer. 6. Situs of the excise, privilege, business or occupation being taxed. International Comity If a tax law is passed imposing taxes on the income of foreign ambassadors or imposing real property tax upon foreign embassies, this is not a valid law because the imposition is in violation of the universal principles of international law.

Cases of Public Purpose: 1. Public improvement 2. Unemployment relief 3. Buildings and roads/infrastructure 4. Subsidies for local police forces. 5. Industries classified as indispensable under PD 1987 6. Construction of home sites 7. Promotion of science and invention 8. Upliftment of the underprivileged. 9. Rehabilitation of the sugar industry 10. Pensions to deserving retirees 11. Oil industrys protection 12. Socialized housing 13. Educational subsidy. Non-delegation of Taxing Power: RULE: Delegata potestas non protes delegari ( A delegated power cannot be further delegated). Since the power of taxation is a power that is exercised by congress could not re-delegated this delegated power. EXCEPTIONS: 1. Delegation to local governments the constitution grants each LGU the power to create its own sources of revenue and levy taxes, fees and charges which shall accrue exclusively to the LGU 2. Delegation to the President delegation of tariff powers of the congress under the flexible tariff clause, emergency power of the president, enter into executive agreements, and to ratify treaties which may contain tax exemption provisions subject to the concurrence by the senate in the ratification made by the president. 3. Delegation to administrative agencies. Taxability of the government agencies: 1. Agencies performing governmental functions exempt from tax unless expressly taxed. 2. Agencies performing proprietary functions are subject to tax unless expressly exempted. GOCC is generally subject to taxation, except: 1. GSIS 2. SSS 3. PHIC 4. Philippine Charity Sweepstakes Office. Instrumentality of the Government example: 1. Manila International Airport Authority (MIAA) 2. Philippine Fisheries Development Authority (PFDA) Manila International Airport Authority vs. CA, the SC that the real properties of MIAA are owned by the national government and thus exempt from real estate tax. It considered MIAA as a government instrumentality under Sec. 133 (o) of the LGC which provides that exercise of the taxing power shall not extend to levy of taxes, fees, charges of any kind on the national government, its agencies and instrumentalities and local government unit. Rule for the Exemption: 1. So that the functions of the government shall not be unduly impeded. 2. To reduce the amount of money that has to be handled by the government in the course of its operations.