Taxation – defined as a State Power, legislative
Claims for tax exemption are construed
process and a mode of government cost
distribution
1. As a State Power – inherent power of the
State to enforce proportional contribution from
its subjects for public purpose
2. As a legislative process – process of laying
taxes by the legislature of the State to enforce
proportional contributions from its subjects for
public purpose
3. As a mode of cost distribution – State
allocates its costs or burden to its subjects who
are benefited by its spending
Theory of Taxation – the governments
necessity for funding; government cannot exist
without a system of funding
Basis of Taxation- mutuality of support
between the people and the government
Theories of Cost Allocation
1. Benefit Received Theory – more benefits one
receives the more taxes he should pay
2. Ability to Pay Theory – should consider the
taxpayer’s ability to pay
Aspects of the Ability to Pay Theory
1. Vertical Equity – ability to pay is directly
proportional to the level of his tax base; gross
concept
2. Horizontal Equity – requires consideration of
the particular circumstance of the taxpayer; net
concept
Lifeblood Doctrine – taxes are the lifeblood of
the government
Implications of the lifeblood doctrine in
taxation:
1. Tax is imposed even in the absence of a
constitutional grant
2.
against taxpayers
3. Government reserves the right to choose the
objects of taxation
4. Courts are not allowed to interfere with the
collection of taxes
5. Income Taxation
a. incomed received in advance is
taxable upon receipt
b. deduction for capital expenditures
and prepayments is not allowed as it affectively
defers the
collection of income tax
c. lower amount of deduction is
preferred when a claimable expense is subject
to limit
d. a higher tax base is preferred when
the tax objects has multiple tax base
Inherent Powers of the State
1. Taxation Power – the power of the State to
enforce proportional contribution from its
subjects to sustain itself
2. Police Power – the general power of the
state to enact laws to protect the well-being of
the people
3. Eminent Domain – the power of the state to
take private property for public use after paying
just compensation
Scope of the Taxation Power – regarded as
comprehensive, plenary, unlimited and
supreme
The Limitations of the Taxation Power
A. Inherent Limitations
1. Territoriality of Taxation – tax is imposed only
within the territories of the state; no basis in
taxing foreign subjects abroad
a. resident citizens and domestic
corporations are taxable on income derived
within and outside
the Philippines
b. resident citizen, non-resident citizen
and resident alien are taxable on transfers of
properties
located within or outside the
Philippines
2. International Comity – mutual courtesy or
reciprocity between states; equally sovereign
3. Public purpose – cannot be exercised to
further any private interest
4. Exemption of the government – government
does not tax itself
5. Non-delegation of the taxing power – vested
exclusively in Congress
*LGU are allowed to exercise the power to tax
*President is empowered to fix the amount of
tariffs
B. Constitutional Limitations
1. Due process of law – tax law should neither
be harsh nor oppressive
a. Substantive Due Process
b. Procedural Due Process
2. Equal protection of the law
3. Uniformity rule in taxation
4. Progressive system of taxation – tax rates
increase as the tax base increase
5. Non-imprisonment for non-payment of debt
or poll tax – no one shall be imprisoned by
virtue of his poverty and no one shall be
imprisoned for mere inability to pay debt
6. Non-impairment of obligation and contract
7. Free worship rule – free exercise of religion
and do not subject its exercise to taxation
8. Exemption of Religious, charitable entities –
exemption from real property tax; Doctrine of
Use
9. Non-appropriation of public funds for the
benefit if any church
10. Exemption from taxes of the revenues and
assets of non-profit, non-stock educational
institutions – minimal 10% income tax
11. Concurrence of a majority of all members of
Congress for the passage of a law granting tax
exemption – absolute majority or 51%
12. Non-diversification of tax collections
13. Non-delegation of the power of taxation
14. Non-impairment of the jurisdiction of the
Supreme Court to review tax cases - Court of
Tax Appeals
15. Appropriations, revenue or tariff bills shall
originate exclusively in the House of
Representatives
16. Each LGU shall exercise the power to create
its own sources of revenue
Stages of the Exercise of Taxation Power
1. Levy or Imposition – enactment of a tax law
by congress; Impact of Taxation; Legislative Act
in taxation; House of Representatives and the
Senate
2. Assessment and Collection – implemented
by the administrative branch; Incidence of
Taxation or Administrative Act of Taxation
Situs of Taxation – place of taxation; serve as
frames of reference