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Lecture 1: GENERAL PRINCIPLES

I. Inherent Powers of the State


1. Police Power power to make and implement laws for the general welfare
2. Taxation Power power to enforce contribution to raise government funds; it is an inherent power by
which the sovereign through its law-making body raises revenue to defray the necessary expenses of the
government.
3. Eminent Domain Power power to take private property for public use with just compensation

II. Similarities and Differences


POLICE TAXATION EMINENT DOMAIN

Power to MAKE and Power to ENFORCE Power to TAKE private


IMPLEMENT laws for the contribution to raise property for public use with
general welfare government funds just compensation

Plenary, comprehensive, and


Broader in application supreme BUT NOT Merely to take private property
ABSOLUTE

Property is taken or destroyed Money is taken to support the Property is taken for public
to promote general welfare government use

Cannot be delegated, if
delegated, it should be to the
Can be expressly delegated Can be expressly delegated
legislative department of the
LGU (e.g. to make ordinances)

No imposition as to amount,
Limited to the cost of
Generally, NO limit on instead, it is the Government
regulation, license and other
amount which is to compensate the
necessary expense
property taken.

Superior to and may override


Relatively FREE from Subject to Constitutional and
Constitutional impairment
Constitutional limitations Inherent limitations
provision

Superior to Non-Impairment Inferior to Non-Impairment


Clause Clause

III. Concept of Taxation


1. Principles or Canons of a Sound Taxation System (FEA)
a. Fiscal Adequacy sufficiency to meet government expenditures and other public needs (Government
Budget Balance). This is in consonance of the Lifeblood Theory.
a.1. Budget Deficit = Government Revenues < Government Expenditures
a.2. Budget Surplus = Government Revenues > Government Expenditures

b. Equality or Theoretical Justice based on the taxpayers ability to pay; must be progressive
c. Administrative Feasibility capability of being effectively enforced. Tax laws should not obstruct
business growth and economic development.

2. Purpose
a. Primarily, to raise revenue
b. To regulate (inflation, economic and social stability, social control, etc.)
c. To compensate the benefits provided by the government to the people

3. Characteristics (ILS)
a. Inherent power of the state.
b. Exclusively lodged with the legislative body
c. Subject to inherent and constitutional limitations

4. Nature
a. Plenary full and complete in all respect
b. Comprehensive it covers persons, businesses, activities, professions, rights and privileges.
c. Supreme it is supreme ONLY insofar as the selection of the subject of taxation is concerned
d. Not Absolute it is subject to limitations
Lecture 1: GENERAL PRINCIPLES

5. Limitations in Taxation Power


a. Inherent Limitations (PENTI)
a.1. Public purpose
a.2. Exemption of the Government
a.3. Non-delegability of the power to tax
a.4. Territoriality
a.5. International Comity

b. Constitutional Limitations
b.1. Due process clause
b.2. Equal protection clause
b.3. Freedom of speech and of the press
b.4. Non-impairment of contracts
b.5. Rule requiring that appropriations, revenue and tariff bills shall originate exclusively from the House
of Represenatatives (Congress)
b.6. Uniformity, equality, and progressivity of taxation
b.7. Tax exemption of the properties actually, directly and exclusively used for religious, charitable and
educational purposes.
b.8. Voting requirement (2/3) in connection with the legislative grant of tax exemption
b.9. Non-impairment of the jurisdiction of the Supreme Court in tax cases
b.10. Exemption from taxes of the revenues and assets of educational institutions, including grants,
endowments, donations and contributions
b.11. Power of the Presidentto veto any particular item (item veto) or items in an appropriation, revenue
or tariff bill (pocket veto).
b.12. Necessity of an appropriation before money may be paid out of the public treasury
b.13. Non-appropriation of public money or property for the use, benefit or support of any sect, church
or system of religion

IV. Double Taxation


- It is taxing the same property twice when it should be taxed once.

1. Direct Duplicate Taxation double taxation in the objectionable or prohibited sense; not allowed in the
Philippines. This constitutes a violation of substantive due process.
Elements:
i. Same property or subject matter is taxed twice
ii. Same purpose
iii. Same taxing authority
iv. Same jurisdiction
v. Same taxing period
vi. Same kind or character of tax
2. Indirect Duplicate Taxation legal/permissible. The absence of one or more of the above-mentioned
elements.

V. Theories of Taxation
1. Necessity Theory (Theory of Taxation) the power to tax is an attribute of sovereignty emanating from
necessity (national defense, health, education, public facilities, etc.).
2. Lifeblood Theory (Importance of Taxation) without taxes, the government would be paralyzed for lack
of the motive power to activate and operate it.
3. Benefits Protection Theory/ Reciprocal Duties (Basis of Taxation) there is a symbiotic relationship
between the State and the citizens whereby in exchange of the protection and benefits that the citizens
received from the State, taxes are paid.

VI. Aspects of Taxation (shared by both executive and legislative body)


1. Levy the imposition or making of tax laws
2. Assessment similar to audit
3. Collection enforcement of tax
Note:
a. Levy is often called as tax legislation.
b. Assessment and collection are collectively termed as tax administration.
c. Levy and assessment comprise the impact of taxation, while tax collection comprises the incidence
of taxation.
d. An impact of taxation is a point on which tax is originally imposed.
e. An incident of taxation is a point on which the tax burden finally rests or settles down.
Lecture 1: GENERAL PRINCIPLES

VII. Doctrines of Taxation


1. May the court interfere with tax legislation?
Answer: As long as the legislature, in imposing a tax, does not violate applicable constitutional limitations
or restrictions, it is not within the province of the courts to inquire into the wisdom or policy of the exaction,
the motives behind it, the amount to be raised or the persons, property or other privileges to be taxed. The
courts power is limited only to the application and interpretation of the law.

2. Is the doctrine of equitable recoupment followed in the Philippines?


Answer: No. A tax presently being assessed against a taxpayer may not be recouped or set-off against an
overpaid tax, the refund of which is already barred by prescription.

3. May a tax be subject of compensation or set-off?


Answer: Generally, no. Taxes cannot be the subject of compensation or set-off. Taxes are not contractual
obligations but one arising out of duty to the government.

4. What is a taxpayer suit?


Answer: It is a case fied by a bona fide taxpayer impugning the validity, legality or constitutionality of a tax
law or its implementation.

5. What is the nature of our tax laws?


Answer: Internal revenue laws are not political in nature. In times of war, they are deemed to be the laws of
the occupied territory and not of the occupying enemy. Tax laws are civil and not penal in nature, although
there are penalties provided for their violation.
6. A tax statute is construed against the government, liberally in favor of the taxpayer; while tax exemptions
are construed against the taxpayer and liberally in favor of the government.

7. Tax laws are special laws which prevail over a general law.

8. Tax laws operate prospectively unless the purpose of the legislature is to give a retrospective effect.

VIII. Concept of a Tax


1. It is an enforced proportional contribution from the persons and property levied by the law-making body
of the State.

2. Taxation vs. Tax


a. Taxation is the process or means of imposing and enforcing contributions.
b. Tax is the enforced contribution, itself, which generally payable in money.

3. Characteristics of Taxes
a. Forced charge
b. Generally payable in money
c. Exclusively levied by the legislative body
d. Assessed in accordance with some reasonable rule of apportionment (ability-to-pay principle)
e. Imposed by the State within its jurisdiction
f. Levied for public purpose

4. Classification of Taxes
a. As to subject matter:
i. Personal tax imposed upon persons of certain class with fixed amount (e.g. Community tax or poll
tax)
ii. Property tax assessed on property of certain class (e.g. Real Property tax)
iii. Excise tax imposed on the exercise of privilege (e.g. income tax, donors tax, estate tax, etc.)
iv. Custom duties charged upon the commodities being imprted into or exported from a country (e.g.
tariffs)

b. As to burden:
i. Direct tax both incidence or liability for the payment of tax as well as the impact or burden of the
tax falls on the same person (e.g. income tax)
ii. Indirect tax the incidence or liability for the payment of tax falls on one person but the impact or
burden of the tax falls on another person (e.g. VAT)

c. As to purpose
i. General tax levied for the general or ordinary purposes of the government
ii. Special tax levied for special purpose
Lecture 1: GENERAL PRINCIPLES

d. As to measure of application
i. Specific tax imposes a specific sum by the head or number or by some standard of weight or
measurement (e.g. excise tax on cigarettes)
ii. Ad Valorem tax tax upon the value of the article or thing subject to taxation (e.g. VAT of 12%
regardless of the value of sales)

e. As to taxing authority
i. National tax levied by the National Government (e.g. income tax, business taxes, transfer taxes)
ii. Local tax imposed by the Local Government (e.g. Poll tax, real property taxes)

f. As to rate
i. Progressive tax rate or amount of tax increases as the amount of income increases (e.g.
normal/tabular/schedular tax of 5% - 32%, tabular tax for donors tax and estate tax)
ii. Regressive tax rate dcreases as the amount of income to be taxed increases (not applicable in
the Philippines)
iii. Proportionate tax based on fixed proportion or rate of the value of the property assessed (e.g. VAT
of 12%)

5. Impositions Other Than Tax


a. Toll charged for the cost and maintenance of the property used
b. Penalty punishment for the commission of a crime
c. Compromise Penalty amount collected in lieu of criminal prosecution in cases of tax violation
d. Special Assessment levied on land based entirely on the benefit accruing thereon as a result of the
improvements or public works undertaken by the government within the vicinity
e. License or Fee regulatory imposition in the exercise of the police power
f. Margin Fee exaction designed to stabilize the currency
g. Debt a sum of money due upon contract or one which is evidenced by judgment
h. Subsidy a legislative grant of money in aid of a private enterprise deemed to promote the public
welfare
i. Custom Duties and fees duties charged upon commodities on their being transported into or exported
from the country.
j. Impost in general sense, it signifies any tax, tribute or duty; in limited sense, it means a duty on
imported goods and merchandise
k. Tithe contributions given to a church or sect
l. Tribute imposed by a monarch.

IX. Escape from Taxation


1. Tax Avoidance (Tax Planning) legal and permissible means
a. Shifting the process by which the tax burden is transferred from the statutory taxpayer to another
without violating the law.
b. Transformation the manufacturer or producer pays the tax imposed upon him and endeavors to
recoup himself by improving his process of production, thereby turning out his units of production at a
lower cost.
c. Capitalization a mere increase in the value of the property is not an incoem but merely an unrealized
increase in capital.
d. Tax-exemption a grant of immunity to a particular persons or corporations from the obligation to pay
taxes
2. Tax Evasion (Tax Dodging) the use of illegal or fraudulent means to defeat or lessen the payment of tax

X. Tax Laws, BIR Rulings and Revenue Regulations


1. Tax laws
- A tax law is a set of rules that provide means for the State to raise revenues.
- All revenue bills must originatefrom the House of Representatives (Congress). After passing 3 readings
by a majority vote in technical committee, it shall be elevated to the Senate which needs to pass the
same 3 readings. The Presidents signature is necessary so that the bill becomes a law.
- In case of doubt, tax statutes are construed against the Government in favor of the taxpayer.
- In case of doubt, tax exemptions are construed against the taxpayer in favor of the Government.

2. Revenue Regulations
- These are interpretations of an administrative body (BIR) intended to clarify or explain the tax laws and
carry into effect its general provisions by providing details of administration and procedure.
- It is promulgated (made) by the Secretary of Finance, upon the recommendation of the Commissioner
of Internal Revenue (quasi-legislative function).
- It must be reasonable, within the authority conferred, not contrary to laws, must be published and
prospective in application.
Lecture 1: GENERAL PRINCIPLES

3. BIR Rulings
- The BIR issues a general interpretation of tax laws usually upon a requrest of a taxpayer to clarify a
provision of law.