Principles of

Taxation
Inherent Powers of the
STATE
The Inherent Powers
TAXATION POLICE POWER EMINENT DOMAIN

Sovereign Enact laws Appropriate

raises to promote private
revenue to public property for
defray the health, public use
necessary public upon
expenses of moral, payment of
the public just
government safety, and compensati
general on
welfare
 Similarities:
Inherent in the State
Necessary and indispensable
Exist independent of the Constitution
Presupposes equivalent
compensation
Methods wherein the State interfere
with private rights and private
property
 Differences:
TAXATION POLICE POWER EMINENT
DOMAIN
Authority Government only Government only Includes public
service/utilities
co.
Purpose Support of General welfare Public purpose
government
Persons Community/class Community/class Owner of
affected of individuals of individuals property

Benefits protection No direct and Just

received immediate compensation
benefit;
maintenance of
a healthy and
orderly society
Relation to inferior superior inferior
non-
impairment
clause
 Inherent Powers Distinguished:
TAXATION POLICE POWER EMINENT
DOMAIN
Basis Public necessity Public necessity Public necessity
and right of for private
state/public to property
self
preservation/prot
ection

Purpose Raise revenue Promote public Facilitate states

welfare thru need of property
regulations for public use
Scope Affects all Affects all Affects only
persons, persons, particular
property, and property, property
excises privileges and
even rights
Exaction Not limited limited No exaction; just
compensation is
paid by
 TAXATION POLICE POWER EMINENT
DOMAIN
Benefits No special/direct No direct Direct benefits
benefit benefits; result in form of
damnum absque just
injuria is compensation
attained

Non- Contracts may Contracts may Contracts may

impairment of not be impaired be impaired be impaired
contracts
What is
Taxation?
AS STATE POWER:
Power by which the sovereign raises
revenue to defray the necessary expenses of
the government from among those who in
some measure are privileged to enjoy its
benefits and must bear its burden.
Power inherent in every sovereign State to
impose a charge or burden upon persons,
properties, or rights to raise revenues for the
use and support of the government to enable
it to discharge its appropriate functions.
What is
Taxation?
AS A PROCESS:

The act of imposing a tax by the sovereign

state, thru its lawmaking body, to raise
revenue for the use and support of
government.
Nature:
A. INHERENT
The state has the power to tax, even if not
mentioned in the Constitution.

B. LEGISLATIVE FUNCTION
Even in the absence of a constitutional
provision, the legislature has the power to
tax as part of its powers.

C. SUBJECT TO INHERENT AND

CONSTITUTIONAL LIMITATIONS
 Concepts of Taxation:
Imposition of Tax
System by which Taxes are
imposed
Revenue gathered by
imposing Taxes
Means of raising revenue for
Public Purpose
Scope:
SCOPE OF LEGISLATIVE TAXING
POWERS:
Method of collection;
Situs of taxation
Subject to be taxed, provided it is within its
jurisdiction;
Amount or rate of the tax;
Purposes for its levy, provided it be for public
purpose;
Apportionment of the tax; and
Kind of tax to be collected.
Purpose:
REVENUE

NON-REVENUE
Promotion of general welfare;
Regulation;
Reduction of social inequity;
Encouragement of economic growth;
and
Protectionism.
 Sources of TAX Laws
The Constitution
Statutes Acts, Commonwealth Acts, Republic Acts, B.P.s
Presidential Decrees and Executive Orders
Revenue Regulations issuances that specify, prescribe or define
rules and regulations for effective enforcement of NIRC and
related statutes, signed by Secretary of Finance, upon
recommendation of the BIR Commissioner.
Revenue Memo. Orders issuances that provide
directives/instructions; prescribe guidelines; and outline
processes necessary for implementation of BIR policies, goals,
programs, objectives, and plans.
Revenue Memo Circulars issuances that publish pertinent and
applicable portions of laws, rules and regulations, and
precedents issued by the BIR and other agencies.
Local Government Ordinances
 Sources of TAX Laws
Jurisprudence/Stare Decisis
Judicial Decisions
Revenue Memo. Rulings rulings, opinions and
interpretations of the BIR commissioner
BIR Rulings official position of the BIR in
interpretation of tax laws
Revenue Bulletins periodic issuances, notices and
official announcements of the BIR Commissioner
that consolidates the BIRs position on specific tax
issues.
 TAX LAWS IN THE
PHILIPPINES
National Internal Revenue Code of 1997
(R.A. No. 8424, as amended)
Tariff and Customs Code of 1979 (P.D. No.
1464, as amended)
Local Government Code of 1991 (R.A. No.
7160)
Special Laws
 Distinctions:
NIRC TCC LGC Special
Laws
Administered BIR Bureau of LGUs Corresponding
by- Customs Agency

Income Tax, Tarriff and Professional Travel tax

Regulates- VAT, duties tax, Real regulated by
Percentage Property tax, Travel Tax Law
tax, Excise Community (P.D. 1183, as
tax, tax, Business amended)
Documentar taxes and Motor Vehicle
y Stamp and other local fee by Motor
other taxes Vehicle Law
national (R.A. 4136)
taxes Taxes on
Narcotic
Drugs by
R.A. 953
Special
Education
Fund taxes
S T A G E S:
How did Taxation came to
life?
Theories/bases of taxation:
1. Lifeblood Theory
Taxes are the lifeblood of the nation. Without revenue
raised from taxation, the government will not survive,
resulting in detriment to society. Without taxes, the
government would be paralyzed for lack of motive power
to activate and operate it. (CIR vs Algue, Inc., et. al.)
Illustrations of Lifeblood Theory:
a. Collection of taxes may not be enjoined by
injunction.
b. Taxes could not be the subject of compensation and
set-off.
c. A valid tax may result in destruction of the
taxpayer's property.
How did Taxation came to
life?
Theories/bases of taxation:
2. Necessity Theory
Existence of a government is a necessity and cannot
continue without any means to pay for expenses.
a. Marshall Dictum
Power to tax is the power to destroy describes the
unlimitedness of the power and the degree of vigor with
which the taxing power may be employed in order to
raise revenue.
b. Oliver Wendell Holmes Dictum
Power to tax is not the power to destroy while this
court (US Supreme Court) sits power to tax knows no
limits except those expressly stated in the Constitution.
How did Taxation came to
life?
Theories/bases of taxation:

Marshall and Holmes Dictums Reconciled:

Although the power to tax is almost unlimited, it
must not be exercised in an arbitrary manner. We
have courts to which people may seek redress in case
of irregularities.

3. Benefits-Protection Theory
There exist reciprocal duties of protection and support
between State and its inhabitants. Inhabitants pay
taxes and in return receive benefits and protection
from the State.
Subject:
Usual Reaction to Taxation:

Self preservation
Avoidance
Minimization
Evasion
Basic Principles Of a Sound Tax
System:
FISCAL ADEQUACY
Revenue should be sufficient to meet the
demands of public expenditure.

THEORETICAL JUSTICE
Imposed with equity and certainty, and consider
the taxpayers ability to pay, and benefits received.

ADMINISTRATIVE FEASIBILITY
capable of convenient, just and effective administration
consistent with compatibility with economic objectives.
 LIMITATIONS OF TAXATION
INHERENT LIMITATIONS (SPINE)
SITUS
PUBLIC PURPOSE
INTERNATIONAL COMITY
NON-DELEGABILITY of taxing power
EXEMPTION of Government agencies
and instrumentalities
 SITUS
Situs/territoriality of Taxation is an inherent
mandate that taxation shall only be
exercised on persons, properties and excises
within the territory of the taxing power.

Factors that determine the situs of taxation:

Nature of the tax;
Subject matter of the tax;
Citizenship of the taxpayer;
Residence of the taxpayer; and
Source of income
Application of SITUS of Taxation:
Tax on persons/ Community tax residence/domicile;
Business/ Privilege or occupation tax where
business/occupation is conducted;
Sales tax where transaction takes place;
Real property tax where property is located;
Personal property tax tangible; where physically located;
intangible: subject to Sec. 104 of CTRP and principle of mobilia
sequuntur personam;
Income where earned/residence/citizenship of taxpayer;
Transfer tax residence or citizenship of the taxpayer or
location of the property;
Franchise tax State which granted the franchise;
Tax on corporations and other judicial entities law of
incorporation.
Intangible properties deemed with a SITUS in the
Philippines:
franchise which must be exercised in the Philippines;
shares, obligations or bonds issued by a corporation
organized and constituted by Philippine law;
shares, obligations or bonds issued by a foreign
corporation 85% of its business is located in the
Philippines/acquired a business situs in the
Philippines; and
shares or rights in any partnership, business or
industry established in the Philippines. (Sec. 104, R.A.
8424 or the CTRP)
PUBLIC PURPOSE
Test in Determining Public Purpose
1. whether the thing to be furthered by the
appropriation of public revenue is something which is
the duty of the state, as a government, to provide
2. whether the proceeds of the tax will directly
promote the welfare of the community in equal
measure.

INTERNATIONAL COMITY
Property of a Foreign State may not be taxed
by another.
 NON-DELEGABILITY OF TAXING POWER
Exclusively Legislative
Non-delegable Exemption:
Selection of property to be
Authority of the President to
taxed fix tariff rates, import and
Determination of purpose of
export quotas
the tax Power of local government
Fixing the tax rate units to tax subject to
General rules of taxation
limitations as may be provided
EXEMPTION OF THE GOVERNMENT FROM TAXES
by Local Government Code
As a matter of public policy, property of the State or
any of its political subdivisions devoted to government
uses and purposes are generally exempt from
taxation.
Applies only to entities exercising government
functions (acta jure imperii)
 LIMITATIONS OF TAXATION
CONSTITUTIONAL LIMITATIONS
DUE PROCESS
EQUAL PROTECTION of Laws
UNIFORMITY, EQUITABILITY, and PROGRESSIVITY of Taxation
NON-IMPAIRMENT OF CONTRACTS
NON-IMPRISONMENT FOR NON-PAYMENT OF POLL TAX
Origin of APPROPRIATION, REVENUE, AND TARIFF BILLS
DELEGATION OF LEGISLATIVE AUTHORITY TO PRESIDENT to
Fix Tariff Rates, Imports and export Quotas
Non-Infringement of RELIGIOUS FREEDOM AND WORSHIP
TAX EXEMPTION of Revenues and Assets of, including
GRANTS, ENDOWMENTS, DONATIONS, OR CONTRIBUTIONS
to, EDUCATIONAL INSTITUTIONS
Other provisions
 DUE PROCESS of Law (Sec.1, Art. III of the
Constitution)
Substantive Procedural
Should not be harsh, No arbitrariness in
oppressive, or assessment and
confiscatory collection
By authority of valid law Right to notice and
Must be for public hearing
purpose
Imposed within
EQUAL PROTECTION of the Law (Sec. 1, Art. III of the
territorial jurisdiction
Constitution)
All persons subject to legislation shall be treated alike, und
circumstance and condition both in privilege conferred and
Imposed. Power to tax includes the power to classify provi
Based on substantial distinction
Apply to present and future conditions
Germane to the purpose of law
Apply equally to the members of the same class
Uniformity, Equitability, and Progressivity of
Taxation (Art. VI, Sec. 28 (1) of the Constitution)
Definitions:
Uniformity: All taxable articles or kinds of property of the
same class shall be taxed at the same rate. A tax is
uniform when it operates with the same force and effect in
every place where the subject of it is found.
Equitability: Taxation is said to be equitable when its
burden falls to those better able to pay.
Progressivity: Rate increases as the tax base increases.
Non-impairment of Contracts (Art. III, Sec. 10 of the
Constitution) Party Granting Effect
Rules: Exemption
Government Violation
Law No violation
Franchise May be revoked
Non-imprisonment for Non-payment of Poll Tax
(Art. III, Sec. 20 of the Constitution)
Taxpayer may be imprisoned for non-payment of other kinds of
taxes where the law expressly provides.
Origin of Appropriation, Revenue, and Tariff Bills
(Art. VI, Sec. 24 of the Constitution)
Exclusively from the House because they are more sensitive to
local needs.
Delegation of Legislative Authority to the
President to Fix Tariff Rates, Import and Export
Quotas (Art. VIII, Sec. 28(2) of the Constitution)
Delegated authority of the President to impose tariff rates, import
and export quotas, tonnage and wharfage dues:
Delegated by the Congress
Thru law
Subject to limits and restrictions
Within the framework of national development program
Non-infringement of Religious Freedom and Worship
(Art. III, Sec. 24 of the Constitution)
Activities simply and purely for propagation of faith are exempt.
Tax is unconstitutional if it operates as prior restraint is
unconstitutional.
Income of religious organizations conducted for profit is taxable.
Tax Exemption of Properties Actually, Directly, and
Exclusively Used for Religious, Charitable and
Educational Purposes ( Art. VI, Sec. 28(3) of the
Constitution)
Tax Exemption of Revenues and Assets of, including
Grants, Endowments, Donations, or Contributions
to, Educational Institutions (Art. XIV, Secs. 4(3) and (4)
of the Constitution)
Majority Vote of all Members of Congress Required
in Case of a Legislative Grant of Tax
Exemptions (Art. VI, Sec. 28 (4) of the Constitution)
Other Provisions :
Power of the President to veto item or items in an
Appropriation, Revenue, or Tariff Bill (Art. VI, Sec. 27
(2))
Pocket veto disapproves in totality; Item veto
objects to certain items
Necessity of an a Appropriation before Money may
be paid out of the Public Treasury (Art. VI, Sec. 29 (1))
Non-appropriation of Public Money or Property for
the benefit of any Church, Sect, or System of
religion. (Art. VI, Sec. 29(2)
Treatment of Taxes Levied for a Special Purpose.
(Art.VI, Sec. 29 (3))
Internal Revenue Allotments to Local Government
Units. (Art. X, Sec.6)
 Consequence for violation of
limitations
inherent constitutional
Popular discontent Law is null and void
Civil disobedience
Passive reaction
Pay damages
Loss of credibility
Armed revolution
National embarrassment
war
-end-