Topic: power of taxation, importance of taxation, nature of taxation & meaning of taxes.

Power of taxation Meaning of tax

Power of taxation is power of the state to impose
tax on individuals and properties to support the government.
Tax is the lifeblood of the government. The revenue of the
state are principally raised through taxation. Taxes are what
we pay for civilized society. Without taxes, the government
would be paralyzed for lack of the motive power to activate
and operate it. Hence, despite the natural reluctance to
surrender part of ones hard-earned income to the taxing
authorities, every person must contribute his share in the
operation of the government. The government for its part is
expected to respond in the form of tangible and intangible
benefits intended to improve the lives of the people. This
symbiotic relationship is the rationale of taxation and should
dispel the erroneous notion that is an arbitrary method of
exaction by those in the seat of power.
- Politics, Governance and Government with
Philippine Constitution (Roman R. Dannug)
Meaning of taxation
Taxation does not confine itself on government
expenditures. It also regulates the flow of income in our
economic system. When there is too much money in the
system, the government withdraws some of this money to
check inflation.
As a power, taxation is the power of the state to
impose charge or burden upon persons, property or property
rights, for the use and support of the government and to
enable it to discharge its appropriate functions.
Taxes are enforced proportional contributions from
persons and property levied by the lawmaking body of the
state by virtue of its sovereignty for the support of the
government and all public needs.
They are financial burdens or charges imposed by
the government upon persons or property to raise revenue
for public purpose or purposes.
- Naguit
The basis and theory of taxation
1. The power of taxation proceeds upon the
theory that the existence of government is a
necessity that it cannot continue without
means to pay its expenses, and that for these
means it has a right to compel all its citizen
and property within its limits to contribute.
2. The basis of taxation is found in the reciprocal
duties of protection and support between the
state and its inhabitants. In return for the
citizens contribution for the support of the
government, the state is supposed make
adequate and full compensation in the form of
benefits and protection which it gives to his
life, liberty and property.
- Hector De Leon

- Hector De Leon

Nature of power of taxation

1. Legislative- this power can only be exercised by

the law making body (Congress) not the executive
or the judicial branch of the government, except
when delegated by the national legislative body to
a local legislative body or to the executive branch,
subject to limitations as may be provided by law
2. Inherent in sovereignty- the power exists as an
incident or attribute of sovereignty, as it is essential
to the existence of every government. The power
can therefore be exercised even without the
constitution or any law expressly conferring such
power

Politics and Governance with Philippine Constitution

 Topic: power of taxation, importance of taxation, nature of taxation & meaning of taxes.

Importance of taxation laws particularly the tariff and custom codes;

and
The people, as good citizen, have the responsibility 2. Local taxes these are taxes by the local
to contribute a fair-share to the cost of government in order government to meet particular needs under the
for the state to: local government code (RA 7160), such as
real-property tax and the community tax.
1. Raise revenue. No government can exist
without it. It cannot promote the welfare of the Form of taxes
people.
2. Protect locally produced goods against These taxes are compulsory contribution made by
competition from import by imposing higher individuals and corporations. These are:
custom duties.
3. Protect new industries by granting tax 1. Direct taxes this is a form of tax paid by the
exemptions. individuals or corporations directly to the
4. Regular property. government.
5. Distribute equality the welfare of the nation. 2. Indirect Taxes - imposed on a particular article
or transactions which are paid by others than
Purpose of Taxation those from within the collector receive
payment.
1. To provide funds with which to promote the
general welfare of its citizens and to enable it to Direct Taxes
finance its multifarious activities.
2. To strengthen weak enterprises by giving tax 1. Income tax
exemption. 2. Inheritance tax
3. To protect local industries against foreign 3. Estate tax
competition through imposition of high customs 4. Donors tax
duties on imported goods. 5. Capital Gains tax
4. To reduce inequalities in wealth and income by 6. Documentary stamp
imposing progressively higher taxes.
5. To prevent inflation by increasing taxes or ward off Indirect Taxes
depression by decreasing taxes.
1. Value added tax
2. Sales tax
Essential Characteristics of Taxation
3. Percentage tax
4. Excise tax
1. It is an enforced contribution
2. It is generally payable in money
Other fees, charges and burdens collected by the bureau
3. It is proportionate in character
4. It is levied on persons, property or property rights of customs
5. It is levied by the state, which has jurisdiction over
1. Harbor fee
the person or property
2. Wharfage due
6. It is levied by the legislative branch of state
3. Berthing charge
7. It is levied for public purpose
4. Storage charge
- Naguit
5. Arrastre charge
6. Tonnage due
Classification of taxes

Taxes are classified as to the scope or authority

imposing the tax. They are as follows:

1. National taxes These are taxes imposed by

the national government under the national
internal revenue code (RA 8424) and other

Politics and Governance with Philippine Constitution

 Topic: power of taxation, importance of taxation, nature of taxation & meaning of taxes.

Classification of income d. Non-resident corporation

3. General professional partnerships
Gross income it means all income derived from whatever 4. Estates and trusts
source, including but not limited to the following items:
Constitutional Limitations
1. Compensation for service in whatever form paid,
including, but not limited to fees, salaries, wages, 1. Observance of due process of law and equal
protection of the law. (Section 1, Article III)
commissions, and similar items;
2. Gross income derived from the conduct of trade or
business or the exercise of a profession; Section 1. No person shall be deprived of life,
3. Gains derived from dealings in property; liberty, or property without due process of law,
4. Rents; nor shall any person be denied the equal
5. Royalties; protection of the laws.
6. Dividends;
7. Annuities; 2. Rule of uniformity and equity in taxation. (Section
8. Prizes and winnings; 28 (1), Article VI)
9. Pensions; and
10. Partners distributive share from net income of the Section 28.
general professional partnership.
1. The rule of taxation shall be uniform and
Ordinary income any gain from the sale or exchange. equitable. The Congress shall evolve a
progressive system of taxation.
Taxable income Gross income less the deductions
3. No imprisonment for non-payment of poll tax.
Passive income income interest from the bank; (Section 20, Article III)

prizes/winnings
Section 20. No person shall be imprisoned for
debt or non-payment of a poll tax.
Net income is the net income minus allowable deductions

Exclusions from gross income 4. Non-impairment of obligations and contracts.

(Section 10, Article III)
1. Life insurance
2. Amount received by insured as return of premium Section 10. No law impairing the obligation of
3. Gifts, and devices contracts shall be passed.
4. Compensation for injuries or sickness
5. Income exempt under treaty 5. Prohibition against infringement of religious
6. Retirement benefits, pension and gratuities freedom. (Section 5, Article III)
7. Miscellaneous items.
Section 5. No law shall be made respecting an
Taxpayer it means any person subject to tax imposed as establishment of religion, or prohibiting the free
imposed by the national internal revenue code. exercise thereof. The free exercise and
enjoyment of religious profession and worship,
Taxpayer classifications without discrimination or preference, shall
forever be allowed. No religious test shall be
1. Individual taxpayer required for the exercise of civil or political
a. Resident citizen rights.
b. Non-resident citizen
c. Resident aliens
d. Non-resident aliens

2. Corporate taxpayer
a. Domestic corporation
b. Foreign corporation
c. Resident corporation

Politics and Governance with Philippine Constitution

 Topic: power of taxation, importance of taxation, nature of taxation & meaning of taxes.
6. Prohibition against appropriation for religious
purposes. (Section 29 (2), Article VI)
Section 29.
2. No public money or property shall be
appropriated, applied, paid, or employed,
directly or indirectly, for the use, benefit, or
support of any sect, church, denomination,
sectarian institution, or system of religion, or of
any priest, preacher, minister, other religious
teacher, or dignitary as such, except when such
priest, preacher, minister, or dignitary is
assigned to the armed forces, or to any penal
institution, or government orphanage or
leprosarium.
7. Exemption of all revenues and assets of non-stock.
(Section 4 (3 & 4), Article XIV)
Section 4.
3.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.
Upon the dissolution or cessation of the
corporate existence of such institutions, their
assets shall be disposed of in the manner
provided by law.
Proprietary educational institutions, including
those cooperatively owned, may likewise be
entitled to such exemptions, subject to the
limitations provided by law, including
restrictions on dividends and provisions for
reinvestment.
4.Subject to conditions prescribed by law, all
grants, endowments, donations, or contributions
used actually, directly, and exclusively for
educational purposes shall be exempt from tax.
8. Concurrence by a majority of all members of
Congress in the passage of a law granting tax
exemption. (Section 28 (4), Article VI)
Section 28.
4.No law granting any tax exemption shall be
passed without the concurrence of a majority of
all the Members of the Congress.
Politics and Governance with Philippine Constitution
9. Congress may not deprive the Supreme Court of its
jurisdiction to review, revise, reverse, modify or
affirm on appeal, final judgments and orders of
lower courts in all cases.
INHERENT LIMITATIONS:
Levy for public purpose. To levy a tax means to impose or to
charge or to collect a tax from those to whom it is addressed.
Technically however, to levy is to pass on laws or ordinances
imposing a tax or duty upon specific group of taxpayers. Under
this concept, the impelling reason for the imposition of the tax
must be the welfare of the public, in general. This follows that the
proceeds from such imposition shall inure to the benefit of the
public.
In one case, a certain imposition was successfully passed for the
purpose of upholding the welfare of the sugar industry. It was
questioned on the ground that there is no PUBLIC purpose since
the sugar industry does not allegedly represent the public. The
issue was resolved in favor of the validity of the imposition. While
sugar industry does not represent the entire public as the proceeds
would not add to the general budget of the national government,
nevertheless, the industry itself admits of a public nature whose
circumstances and effects directly affect the public. The
requirement of direct purpose does not admit of a direct public
benefit from the imposition.
Non-delegation of legislative power to tax. To delegate is to
pass on or to entrust to another a certain duty or obligation. Power
to tax is lodged with the legislative department. To my mind, this is
because the legislative branch is theoretically the representative of
the people and they are directly aware and in common contact with
the instances and situations of their districts making them the ones
knowledgeable of how best their district could be affected by the
new taxes imposed. Likewise, this is premised on the legal maxim
delegate potestas, non delegari potest which means, what has
been delegated cannot be re-delegated so as not to hamper the
objective of the delegation. However, there are at least two (2)
instances where delegation is possible (a) delegation to the
President of some tariff powers, and (b) Local government units
fiscal autonomy for their self serving needs.
Exemption of government entities. Government is the people,
by (not BUY) the people, for (not POOR) the people. Government
exists for the people and whatever amount it makes, came from the
people and such amount it use to finance its various activities to
address the general welfare of its inhabitants. It is not constituted
to engage in any trade or business but to deliver basic services and
serve everyone within. Analytically, taxing the government itself
will not generate more revenue. The money will only rotate and so
no effect, at all, would be made. Suffice it to say however, there
exist no express prohibition
 Topic: power of taxation, importance of taxation, nature of taxation & meaning of taxes.

International comity has something to do with the friendly

interaction and participation of different estates. This adheres to
some amount of submission and compliance of certain
international rules and covenants for mutual benefits and
enjoyment of the states and its inhabitants. Bilateral agreements,
conventions and international treaties fall under this category.

Territorial jurisdiction relates to the area of jurisdiction and

responsibility of a particular estate. Independent states power of
taxation is generally confined only within its jurisdiction to give
due respect and as courtesy to other states. A state, as a rule, can
only impose and implement tax laws and rules within its
jurisdiction in accordance with its wishes. Outside its jurisdiction,
it is without power to do so. But then, it can tax on citizens or
entities of other states doing a trade or business or deriving income
within the jurisdiction of its state. See the case of Spratley
islandsfor better picture. Issue on who owns spratley had long
been outstanding for each party claims jurisdiction in accordance
with its of the parties belief that it rightfully belongs to it.

Politics and Governance with Philippine Constitution

Topic: power of taxation, importance of taxation, nature of taxation & meaning of taxes.

Politics and Governance with Philippine Constitution