PART 1: DEFINITION, ASPECTS AND PURPOSES

OF TAXATION
 DEFINITION
 ASPECTS
 PURPOSES
DEFINITION OF TAXATION
TAXATION is the process or means by which the sovereign
(independent state), through its law-making body (the
legislature), imposes burdens upon subjects and objects within
its jurisdiction for the purpose of raising revenues to carry out the
legitimate objects of government.
 In simple terms, it is the act of levying a tax to apportion the cost
of government among those who, in some measure, are
privileged to enjoy its benefits and must therefore share its
burden.
ASPECTS OF TAXATION

3. Collection 1. Levying
(Executive function) (Legislative function)

2. Assessment
(Executive function)
 PURPOSES OF TAXATION
PRIMARY: Revenue/Fiscal
 The primary purpose of taxation on the part o the government is to provide funds
or property with which to promote the general welfare and the protection of its
citizens and to enable it to finance its multifarious activities.

SECONDARY: Regulatory (Sumptuary/Compensatory)

 While the primary purpose of taxation is to raise revenue for the support of the
government, taxation is often employed as a devise for regulation or control
(implementation of State’s police power) by means of which certain effects or
conditions envisioned by the government may be achieved such as:
a) Promotion of General Welfare
b) Reduction of Social Inequality
c) Economic Growth
PART 2: INHERENT POWERS OF THE STATE

 THE POWER TO TAX

 POLICE POWER
 EMINENT DOMAIN
INHERENT POWERS OF THE STATE

1. Power of Taxation. It is the power by which the State raises

revenue to defray the necessary expenses of the government.
2. Police Power. It is the power of the state for promoting public
welfare by restraining and regulating the use of liberty and
property.
3. Power of Eminent Domain. It is the power of the State to acquire
private property for public purpose upon payment of just
compensation.
SIMILARITIES AMONG THE THREE INHERENT POWERS
OF THE STATE

1. They are inherent in the state.

2. They exist independently of the constitution although the conditions for
their exercise may be prescribed by the constitution.
3. Ways by which the State interfere with private rights and property.
4. Legislative in nature.
5. Presuppose an equivalent compensation received, directly or indirectly,
by the persons affected.
 DISTINCTIONS AMONG THE THREE INHERENT POWERS

Taxation Police Power Eminent Domain

1. Nature Power to enforce Power to make Power to take private

contributions to raise and implement property for public
government funds. laws for the use with just
general welfare. compensation.
2. Authority Government only. Government only. May be granted to
public service/utility
companies.
3. Purpose For the support of the Promotion of The taking of private
government. general welfare property for public
through regulation. use.
 DISTINCTIONS AMONG THE THREE INHERENT POWERS

4. Subjects Community or a class Community or a Individual as the

affected of individuals. class of individuals. owner of personal
Applies to all persons, Applies to all property.
property and excises persons, property Only particular
that may be subject and excises that may property is
thereto. be subject thereto. comprehended.

5. Scope Plenary Broader in Merely a power to

Comprehensive application. take private
Supreme General power to property for public
make and implement use.
law.
6. Effect Contribution becomes No transfer of title. There is a transfer
part of public fund. There may be a of title to property.
restraint on the
injurious use of
property.
 DISTINCTIONS AMONG THE THREE INHERENT POWERS

7. Benefits In form of protection No direct and Market value of

received and benefits received immediate but only property taken.
from the government. such as may arise
from the
maintenance of a
healthy economic
standard of society.
8. Amount No limit. Sufficient to cover No imposition. The
of cost of the license owner is paid
imposition and the necessary equivalent to the
expenses of police fair value of the
surveillance and property.
regulation.
PART 3: THEORY AND BASIS OF TAXATION

 LIFEBLOOD DOCTRINE
 NECESSITY THEORY
 BASIS OF TAXATION
 BENEFITS RECEIVED OR RECIPROCITY THEORY
 LIFEBLOOD DOCTRINE

 Without taxes, the government will be paralyzed for lack of the

motive power to activate and operate it.

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 and enhance their moral and
material value. (Commissioner vs. Algue)
LIFEBLOOD DOCTRINE

The power of taxation is essential because the government can

neither exist nor endure without taxation. “Taxes are the lifeblood
of the government and their prompt and certain availability is an
imperious need” (Lifeblood Doctrine). 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 limits to contribute.
NECESSITY THEORY
 It is a power emanating from necessity. It is a necessary burden
to preserve the state’s sovereignty and a means to give the
citizenry an army to resist an aggression, a navy to defend its
shores from invasion, a corps of civil servants to serve, public
improvements designed for the enjoyment of the citizenry and
those which come within the state’s territory, and facilities and
protection which a government is supposed to provide. (Phil.
Guarantee Co., Inc. vs. CIR, 13 SCRA 775)
CIR- Commissioner of Internal Revenue
BASIS OF TAXATION
 BENEFITS RECEIVED OR RECIPROCITY THEORY
 The basis is the reciprocal duties of protection and support
between the state and its inhabitants. The state collects taxes
from the subjects of taxation in order that it may be able to
perform the functions of government. The citizens, on the other
hand, pay taxes in order that they may be secured in the
enjoyment of the benefits of organized society. This theory
spawned the Doctrine of Symbiotic Relationships which means,
taxes are what we pay for a civilized society (Commissioner vs.
Algue).
 PART 4: CHARACTERISTICS OF TAX AND THE
NATURE OF THE STATE’S POWER TO TAX

 CHARACTERISTICS OF TAX
 NATURE OF THE STATE’S POWER TO TAX
ELEMENTS/CHARACTERISTICS OF TAX
1. It is an enforced contribution.
2. It is generally payable in money.
3. It is proportionate in character.
4. It is levied on persons, property or exercise of a right or privilege
(including transactions).
5. It is levied by law making body of the State.
6. It is levied for public purpose.
NATURE OF THE STATE’S POWER TO TAX
1. It is inherent in sovereignty.
2. It is legislative in character.
3. Exemption of government entities, agencies and instrumentalities.
(proprietary/essential governmental function)
4. International comity.
5. Limitation on territorial jurisdiction.
6. Strongest among the inherent powers of the State.
PART 5: INHERENT LIMITATIONS ON THE
STATE’S POWER TO TAX
INHERENT LIMITATIONS
 These are restrictions arising from the very nature of the power to tax itself.
Inherent limitations which exist despite the absence of an express constitutional
provision.

 Purpose must be public

 Prohibition against delegation of the taxing power
 Territorial limitations
INHERENT LIMITATIONS
 Purpose must be public

 In the case of Gomez vs. Palomar (25 SCRA 827) and Philippine
Guarantee Company vs. CIR (13 SCRA 775), it has been held that
tax has been utilized for public purpose if the welfare of the
nation or the greater portion of its population has benefited for
use.
INHERENT LIMITATIONS
 Purpose must be public

 Tio vs. Videogram. “It is not the immediate result but the ultimate result
determines, whether the purpose is public or not. It is not the number of
persons benefited but it is the character of the purpose that determines
the public character of such law. What is not allowed is that if it has no
link to public welfare. Public purpose is determined by the use to which
the tax money is devoted. If it benefits the community in general, then it
is for public purpose no matter who collects it”.
 Public benefits often give incidental benefits to individuals.
 The purposes to be accomplished by taxation need not to be exclusively
public. Although private individuals are directly benefited, the tax would
still be valid provided such benefit is only incidental.
INHERENT LIMITATIONS
 Prohibition against delegation of the taxing power

 What cannot be delegated is the legislative

“enactment/imposition/levying” of tax measure.

However, as regards to administrative implementation of a tax law (i.e.,

assessment, collection, valuation of property for tax purposes), that can
be delegated.
INHERENT LIMITATIONS
 Territorial limitations

 Tax laws cannot operate beyond a state’s territorial limits.

Property outside one’s jurisdiction does not receive any protection
from the State.
PART 6: CONSTITUTIONAL LIMITATIONS ON THE
STATE’S POWER TO TAX
1. DUE PROCESS OF LAW
2. EQUAL PROTECTION OF LAW
3. UNIFORMITY AND EQUITY IN TAXATION
4. PROHIBITION FOR NON-PAYMENT OF POLL TAX
5. PROHIBITION AGAINST IMPAIRMENT OF OBLIGATION OF CONTRACTS
6. REVENUE BILL SHALL ORIGINATE EXCLUSIVELY FROM THE HOUSE OF
REPRESENTATIVES
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. Tax statute must not be arbitrary as to find no support
in the Constitution. The power to tax should not be harsh,
oppressive or confiscatory. This limitation is also known as the
right to notice and hearing.
EQUAL PROTECTION OF LAW
 All persons subject to legislation shall be treated alike under similar
circumstances and conditions both in the privileges conferred and liabilities
imposed. The doctrine does not require that persons or properties different in fact
be treated in law as though they were the same. What it prohibits is class
legislation which discriminates against some and favors others. As long as there
are rational or reasonable grounds for so doing, Congress, may, therefore, group
the persons or properties to be taxed and it is sufficient “if all of the same class
are subject to the same rate and the tax is administered impartially upon them."
UNIFORMITY AND EQUITY 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. It does not, however,
require absolute identity or equality under all circumstances, but subject
to reasonable classification.

 For taxation to be valid, the following must concur:

• It must be based on substantial distinction.
• It must apply both to present and future conditions.
• It must be germane to the purposes of the law.
• It must apply equally to all members of the same class.
PROHIBITION FOR NON-PAYMENT OF POLL TAX
 Poll tax (Personal Tax/Community Tax)
 No person shall be imprisoned for debt or non-payment of poll tax. The
non-imprisonment rule applies to non-payment of poll tax which is
punishable only by a surcharge, but not to other violations like
falsification of community tax certificate and non-payment of other
taxes. Poll tax is a tax of fixed amount imposed on residents within a
specific territory regardless of citizenship, business or profession.
PROHIBITION AGAINST IMPAIRMENT OF
OBLIGATION OF CONTRACTS
 The power of taxation cannot be exercised in a manner that would impair the
obligation of contracts. What is prohibited is that a taxing statute be passed
that would alter the relative rights of the parties with each other.
 No law impairing the obligation of contracts shall be passed. The obligation
of a contract is impaired when its terms or conditions are changed by law or
by a party without the consent of the other, thereby weakening the position
or rights of the latter. An example of impairment by law is when a later taxing
statute revokes a tax exemption based on a contract. But this only applies
when the tax exemption has been granted for a valid consideration. If the tax
exemption, for instance, to a franchise tax, a later statute may revoke such
exemption because the constitution provides that a franchise tax is subject
to amendment, alteration or repeal.
 PROHIBITION AGAINST IMPAIRMENT OF
OBLIGATION OF CONTRACTS
 EXAMPLES
1. If the exemption was granted for valuable consideration and it is granted on the basis
of a contract.
>cannot be revoked
2. If the exemption is granted by virtue of a contract, wherein the government enters into
a contract with a private corporation
>cannot be revoked unilaterally by the government
3. If the basis of the tax exemption is a franchise granted by Congress and other
franchise or the tax exemption is given to a particular holder or person.
>can be unilaterally revoked by the government (Congress)
>>the non-impairment clause applies only to contracts and not to a franchise
>>the non-impairment clause applies to taxation but not to police power and
eminent domain.
REVENUE BILL SHALL ORIGINATE EXCLUSIVELY
FROM THE HOUSE OF REPRESENTATIVES
 All appropriation, revenue or tariff bills, bills authorizing an increase of the 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. The Constitution simply means that the initiative for the filing of
bills must come from the House of representatives, on the theory that, elected as
they are from the districts, the members of the House can be expected to be
more sensitive to the local needs and problems. Given the power of the Senate to
propose amendments, it can propose its own version even with respect to bills
which are required by the Constitution to originate in the House nor does the
Constitution prohibit the filing in the Senate of a substitute bill in anticipation of
its receipt of the bill from the House, so long as action by the Senate as a body is
withheld pending receipt of the House bill. (Tolentino vs. Secretary of Finance,
235 SCRA 630)
OTHER CONSTITUTIONAL LIMITATIONS
 Prohibition against infringement of religious freedom
 Prohibition against appropriation of proceeds of taxation for the use,
benefit, or support of any church
 Prohibition against taxation against religious, charitable and educational
entities (actually, directly and exclusively used)
 Prohibition against taxation of non-stock non-profit educational
institutions