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Chapter I - The power of taxation is essential

because the government can neither


GENERAL PRINCIPLES
exist nor endure without taxation.
Taxation - Taxes are the lifeblood of the
government and their prompt and
- is a mode of raising revenue for certain availability is an imperious
public purposes need.
Taxes - The collection of taxes must be
made without hindrance if the state
- are enforced proportional is to maintain its orderly existence
contributions from persons and - Taxes are what we pay for a civilized
property, levied by the state by society
virtue of its sovereignty for the
support of the government and for CIR v. BPI 521 SCRA 373,387-388
all its public needs. - xxx (T)he public will suffer if
- are not arbitrary exactions but taxpayers will not be held liable for
contributions levied by authority of the proper taxes assessed against
law, and by some rule of proportion them: "Taxes are the lifeblood of the
which is intended to insure government, for without taxes, the
uniformity of contribution and a just government can neither exist nor
apportionment of the burdens of endure." A principal attribute of
government sovereignty, the exercise of taxing
THUS: power derives its source from the
very existence of the state whose
1. Taxes are enforced contributions. social contract with its citizens
- Taxes are obligations created by law obliges it to promote public interest
- Taxes are never founded on contract and common good. The theory
or agreement, and are not behind the exercise of the power to
dependent for their validity upon tax emanates from necessity;
the individual consent of the without taxes, government cannot
persons taxed fulfill its mandate of promoting the
2. Taxes are proportional in character, general welfare and wellbeing of the
since taxes are based on one's ability to people.
pay.
3. Taxes are levied by authority of the law CIR v. PINEDA 21 SCRA 105*
- The power to impose taxes is a - The Government resorted to the
legislative power; it cannot be administrative remedy of
imposed by the executive enforcement of tax lien in trying to
department nor by the courts. collect deficiency income tax of the
4. Taxes are for the support of the estate of Atanasio Pineda. Manuel B.
government and all its public needs Pineda, the eldest son of the
deceased, who was made to pay the
BASIS OF TAXATION full amount of the taxes assessed
questioned the assessment on the
A. Taxation and the Lifeblood Doctrine ground that as an heir he is liable for
- Taxation has been defined as the unpaid income tax due the estate
power by which the sovereign raises only up to the extent of and in
revenue to defray the necessary proportion to any share he received.
expenses of government. HELD:
- It is a way of apportioning the cost of The Government can require
government among those who in Manuel B. Pineda to pay the full
some measure are privileged to amount of the taxes assessed.
enjoy the benefits and must Pineda is liable for the assessment as
therefore bear its burdens. an heir and as a holder-transferee of
property belonging to the government for unpaid taxes,
estate/taxpayer. though it was filed within the
As an heir, he is individually period of limitation prescribed in
answerable for the part of the tax Sections 331 and 332 of the NIRC.
proportionate to the share he
HELD:
received from the inheritance. His
liability, however, cannot exceed the The Supreme Court ruled in the
amount of his share. negative, citing the case of
As a holder of property belonging to Pineda v. CFI of Tayabas which
the estate, Pineda is liable for the tax gave exception to the claim for
up to the amount of the property in taxes from being filed as other
his possession. The reason is that the claims. The reason for the more
Government has a lien on the P2,500 liberal treatment of claims for
received by him from the estate as taxes against a decedent's
his share in the inheritance for estate is because (T)axes are
unpaid taxes for which the estate is the lifeblood of the
liable, pursuant to the last Government and their prompt
paragraph of Section 315 of the Tax and certain availability are an
Code (now Section 219, NIRC). By imperious need." Upon
virtue of such lien, the Government taxation depends the
has the right to subject the property Government's ability to serve
in Pineda's possession, i.e., the the people for whose benefit
P2,500 to satisfy the income tax taxes are collected."
assessment in the amount of
P760.28. Furthermore, as held in CIR v.
The second remedy (tax lien) is the Pineda, supra, payment of
very avenue the Government took in income tax shall be a lien in
this case to collect the tax. The favor of the Government of the
Bureau of Internal Revenue should Philippines from the time the
be given, in instances like the case at assessment was made by the
bar, the necessary discretion to avail Commissioner of Internal
itself of the most expeditious way to Revenue until paid with
collect the tax as may be envisioned interests, penalties, etc. By
in the particular provision of the Tax virtue of such lien, the SC held
Code above-quoted, because TAXES that the property of the estate
ARE THE LIFEBLOOD OF THE already in the hands of an heir
GOVERNMENT AND THEIR PROMPT or transferee may be subject to
AND CERTAIN AVAILABILITY IS AN the payment of the tax due the
IMPERIOUS NEED. estate.

MISAEL P. VERA, et al. v. HON. JOSE F. CIR v. CTA" 234 SCRA 348
FERNANDEZ, et al. 89 SCRA 199
A petition for review of the
The Government of the Republic of decision of the BIR denying the
the Philippines claimed deficiency tax refund of Citytrust was filed
income taxes against the Estate of with the CTA. It was submitted
the late Luis D. Tongoy. The for decision based solely on the
Administrator argued that the pleadings and evidence
claim was barred under Section 5, submitted by Citytrust. CIR
Rule 86 of the Rules of Court. could not present any evidence
Hence, the issue as to whether or by reason of the repeated
not the Statute of Non-Claims — failure of the Tax Credit/Refund
Sec. 5, Rule 86 of the New Rules of Division of the BIR to transmit
Court — barred the claim of the
the records of the case, as well the CTA for further proceedings
as the investigation report and appropriate action.
thereon, to the Solicitor
COMMISSIONER v. ALGUE, INC. 158 SCRA 9
General. The CTA rendered its
decision ordering BIR to grant a The Commissioner of Internal
refund to Citytrust in the Revenue contends that the
amount of PI3,314,506.14. The claimed deduction was
CA affirmed the judgment of properly disallowed because it
the CTA. was not an ordinary,
HELD: reasonable or necessary
It is a long and firmly settled business expense. The Court of
rule of law that the Tax Appeals, however, agreed
Government is not bound by with Algue, Inc. in holding that
the errors committed by its the said amount had been
agents. In the performance of legitimately paid by Algue, Inc.
its government functions, the as promotional fees for their
State cannot be estopped by work in the formation of
the neglect of its agents and Vegetable Oil Investment
officers. Although the Corporation of the Philippines
Government may generally be and its subsequent purchase of
estopped through the the properties of the Philippine
affirmative acts of public Sugar Estate Development
officers acting within their Corporation.
authority, their neglect or
omission of public duties as HELD:
exemplified in this case will not Ruling in favor of Algue, Inc.,
and should not produce that the Supreme Court held that
effect. Algue, Inc. has proved that the
Nowhere is the aforestated rule payment of fees was necessary
more true than in the field of and reasonable in the light of
taxation. It is axiomatic that the efforts exerted by the payees in
Government cannot and must inducing investors and
not be estopped particularly in prominent businessmen to
matters involving taxes. Taxes venture in an experimental
are the lifeblood of the nation enterprise and involve
through which the government themselves in a new business
agencies continue to operate requiring millions of pesos. This
and with which the State was no mean feat and should
effects its functions for the be, as it was, sufficiently
welfare of its constituents. The recompensed.
errors of certain administrative Taxes are the lifeblood of the
officers should never be government and so should be
allowed to jeopardize the collected without unnecessary
Government's financial hindrance. On the other hand,
position, especially in the case such collection should be made
at bar where the amount in accordance with law as any
involves millions of pesos the arbitrariness will negate the
collection whereof, if justified, very reason for government
stands to be prejudiced just itself. It is, therefore, necessary
because of bureaucratic to reconcile the apparently
lethargy. conflicting interests of the
Judgment of CA is SET ASIDE authorities and the taxpayers
and the case is REMANDED to so that the real purpose of
taxation, which is the
promotion of the common very reason for government
good, may be achieved. (See itself. It is, therefore, necessary
also 'The Doctrine of Symbiotic to reconcile the apparently
Relationship') conflicting interests of the
authorities and the taxpayers
DAVAO GULF LUMBER CORP. v. CIR 293 SCRA 77
so that the real purpose of
Because taxes are the lifeblood taxation, which is the
of the nation, statutes that promotion of common good,
allow exemptions are may be achieved.
construed strictly against the
JOSE REYES v. PEDRO ALMANZOR 196 SCRA 322
grantee and liberally in favor of
the government. Otherwise Verily, taxes are the lifeblood of
stated, any exemption from the the government and so should
payment of a tax must be be collected without
clearly stated in the language of unnecessary hindrance.
the law; it cannot be merely However, such collection
implied therefrom. should be made in accordance
with law as any arbitrariness
FERDINAND R. MARCOS II v. CA, et al 273 SCRA
will negate the very reason for
47"
government itself. It is
Ferdinand R. Marcos II assailed therefore necessary to
the decision of the Court of reconcile the apparently
Appeals declaring the conflicting interests of the
deficiency income tax authorities and the taxpayers
assessments and estate tax so that the real purpose of
assessments upon the estate taxation, which is the
and properties of his late father promotion of the common
final despite the pendency of good, may be achieved. (CIR v.
the probate proceedings of the Algue, Inc., 158 SCRA 9 [1988])
will of the late President. On
Consequently, it stands to
the other hand, the BIR argued
reason that petitioners who are
that the State's authority to
burdened by the government
collect internal revenue taxes is
by its Rental Freezing Laws (R.A.
paramount.
No. 6359 and P.D. No. 20) under
HELD: the same principle of social
justice should not now be
The approval of the court, penalized by the same
sitting in probate or as a government by the imposition
settlement tribunal over the of excessive taxes petitioners
deceased's estate, is not a can ill afford and eventually
mandatory requirement in the result in the forfeiture of their
collection of estate taxes. properties.
The enforcement of tax laws PHILIPPINE BANK OF COMMUNICATIONS v. CIR
and the collection of taxes are 302 SCRA 250
of paramount importance for
the sustenance of government. Basic is the principle that "taxes
Taxes are the lifeblood of the are the lifeblood of the nation."
government and should be The primary purpose is to
collected without unnecessary generate funds for the State to
hindrance. However, such finance the needs of the
collection should be made in citizenry and to advance the
accordance with law as any common weal. Due process of
arbitrariness will negate the law under the Constitution
does not require judicial are the lifeblood of the
proceedings in tax cases. This government and so should be
must necessarily be so because collected without unnecessary
it is upon taxation that the hindrance. Evidently, to
government chiefly relies to countenance Philex's whimsical
obtain the means to carry on its reason would render
operations and it is of utmost ineffective our tax collection
importance that the modes system. Too simplistic, it finds
adopted to enforce the no support in law or in
collection of taxes levied should jurisprudence.
be summary and interfered
NORTH CAMARINES LUMBER CO. v. CIR 109
with as little as possible.
Phil. 511
From the same perspective,
As the petitioner had consumed
claims for refund or tax credit
thirty-three days, its appeal
should be exercised within the
was clearly filed out of time. It
time fixed by law because the
is argued, however, that in
BIR being an administrative
computing the 30-day period
body enforced to collect taxes,
fixed in Section 11 of Republic
its functions should not be
Act No. 1125, the letter of the
unduly delayed or hampered by
respondent Collector dated
incidental matters.
January 30, 1956, denying the
PHILIPPINE GUARANTY CO., INC. v. CIR 13 SCRA second request for
775 reconsideration, should be
considered as the final decision
The defense of reliance in good
contemplated in Section 7, and
faith on rulings of the CIR
not the letter of demand dated
requiring no withholding of the
August 30,1955.
tax due on reinsurance
premiums may free the This contention is untenable.
taxpayer from the payment of We cannot countenance the
surcharge or penalties imposed theory that would make the
for failure to pay the commencement of the
corresponding withholding tax, statutory 30-day period solely
but it certainly would not dependent on the will of the
exculpate it from liability to pay taxpayer and place the latter in
such withholding tax. The a position to put off indefinitely
Government is not estopped and at his convenience the
from collecting taxes by the finality of the tax assessment.
mistakes or errors of its agents. Such an absurd procedure
would be detrimental to the
PHILEX MINING CORPORATION v. CIR 294 SCRA
interest of the Government, for
687
'taxes are the lifeblood of the
Philex posits the theory that it government, and their prompt
had no obligation to pay the and certain availability is an
excise tax liabilities within the imperious need.'
prescribed period since, after
B. Theories on Taxation
all, it still has pending claims for
VAT input credit/refund with Taxation, as stated in the case of
BIR. Phil. Guaranty Co., Inc. v.
Commissioner, is a power
We fail to see the logic of
predicated upon necessity
Philex's claim for this is an
(Necessity Theory). It is a
outright disregard of the basic
necessary burden to preserve
principle in tax law that taxes
the State's sovereignty and a burden of running the
means to give the citizenry an government. The government,
army to resist aggression, a navy for its part, is expected to
to defend its shores from respond in the form of tangible
invasion, a corps of civil servants and intangible benefits intended
to serve, public improvements to improve the lives of the
for the enjoyment of the people and enhance their
citizenry, and those which come material and moral values."
within the State's territory and
C. Liabilities Involved
facilities and protection which a
government is supposed to TAXES ARE PERSONAL TO THE
provide. TAXPAYER. A corporation's tax
delinquency cannot, for
The Benefits-Protection Theory,
instance, be enforced against its
on the other hand, bases the
stockholders because not only
power of the State to demand
would this run counter to the
and receive taxes on the
principle that taxes are
reciprocal duties of support and
personal, but it would also not
protection. The citizen supports
be in accord with the rule that a
the State by paying the portion
corporation is vested by law
from his property that is
with a personality that is
demanded in order that he may,
separate and distinct from those
by means thereof, be secured in
of the persons composing it as
the enjoyment of the benefits of
well as from that of any other
an organized society. Thus, the
legal entity to which it may be
taxpayer cannot question the
related.
validity of the tax law on the
ground that payment of such tax Nevertheless, stockholders may
will render him impoverished, or be held liable for the unpaid
lessen his financial or social taxes of a dissolved corporation
standing, because the obligation if it appears that the corporate
to pay taxes is involuntary and assets have passed into their
compulsory, in exchange for the hands. (Doctrine of Piercing the
protection and benefits one Corporate Veil)'*
receives from the government.
A tax creates CIVIL LIABILITY on
This theory spawned the the part of the delinquent
DOCTRINE OF SYMBIOTIC taxpayer although the non-
RELATIONSHIP, a term culled payment thereof (due to failure
from the ruling of the Supreme or refusal to pay) creates a
Court in the celebrated case of CRIMINAL LIABILITY which could
Commissioner of Internal be the subject of criminal
Revenue v. Algue, Inc., supra," prosecution under existing laws.
which stressed that: To sum, in taxation, it is one's
failure to comply with the civil
'Taxes are what we pay for
liability to pay taxes which gives
civilized society. Without taxes,
rise to the criminal liability.
the government would be
paralyzed for lack of the motive III. NATURE OF THE TAXING POWER
power to activate and operate it.
Hence, despite the natural A. Taxation as an Inherent
reluctance to surrender part of Attribute of Sovereignty
one's hard-earned income to The power of taxation is an
the taxing authorities, every incident of sovereignty as it is
person who is able to must inherent in the State, belonging
contribute his share in the
as a matter of right to every made by the immediate
independent government. It representatives of the people.
does not need of constitutional And where the people have laid
conferment. Constitutional the power, there it must remain
provisions do not give rise to the and be exercised."
power to tax but merely impose
ASPECTS, PROCESSES, PHASES OF TAXATION"
limitations on what would
otherwise be an invincible A. Levy/Imposition
power. No attribute of
sovereignty is more pervading The term "levy" or "imposition"
and at no point does the power refers to the enactment of tax
of government affect more laws or statutes.
constantly and intimately all the In the case of Tolentino, et al. v.
relations of life than through the Secretary of Finance, the
exactions made under it. Supreme Court emphasized
Taxation being an attribute of that:
sovereignty, its relinquishment Courts have no power to inquire
is never presumed.1 into or interfere in the wisdom,
It is considered inherent in a objective, motive or expediency
sovereign State because it is a in the passage of a tax law, as
necessary attribute of this is purely legislative in
sovereignty. Without this character. To do so would be
power, no sovereign State can tantamount to a violation of
exist nor endure. The power to both the letter and the spirit of
tax proceeds upon the theory the organic laws by which the
that the existence of a Philippine Government was
government is a necessity and brought into existence to invade
this power is an essential and a coordinate and independent
inherent attribute of department of the Government,
sovereignty belonging as a and to interfere with the
matter of right to every legitimate powers and functions
independent State or of the Legislature.
government. No sovereign State Scope of the legislative power to tax
can continue to exist without
the means to pay its expenses; (1) Discretion as to purposes for which taxes shall
and that for those means, it has be levied
the right to compel all citizens The sole arbiter of the purposes
and property within its limits to for which taxes shall be levied is
contribute, hence, the the legislature, provided the
emergence of the power to tax." purposes are public. The courts
B. Taxation as Legislative in Character may review the levy of the tax to
determine whether the purpose
The power to tax is inherent in is a public one but once that is
the State, and the State is free to determined, the courts can
select the object of taxation, make no other inquiry as to the
such power being exclusively purpose of the tax, as it affects
vested in the legislature, EXCEPT the power to impose it.
where the Constitution provides
otherwise. (Art. VI, Sec. 28[2]; (2) Discretion as to subjects of taxation
Art. X, Sec. 5) This is based upon The legislature has unlimited
the principle that "taxes are a scope as to the persons,
grant of the people who are property or occupation to be
taxed, and the grant must be taxed, where there are no
constitutional restrictions, Justice Malcolm believed that
provided the property is within the power to tax "is an attribute
the territorial jurisdiction of the of sovereignty. It is the strongest
taxing state. of all the powers of
government." This led Chief
In the case of Walter Lutz v. J.
Justice Marshall of the U.S.
Antonio Araneta, supra,1'
Supreme Court, in the
plaintiff Lutz assailed the
celebrated case of McCulloch v.
constitutionality of Sections 2
Maryland,27 to declare: "The
and 3, C.A. No. 567 which
power to tax involves the power
provided for an increase of the
to destroy." This might well be
existing tax on the manufacture
construed to mean that the
of sugar. The Supreme Court
power to tax includes the power
ruled that: "It is inherent in the
to regulate even to the extent of
power to tax that a state be free
prohibition or destruction, since
to select the subjects of
the inherent power to tax vested
taxation, and it has been
in the legislature includes the
repeatedly held that
power to determine who to tax,
'inequalities which result from a
what to tax and how much tax is
singling out of one particular
to be imposed.
class for taxation or exemption
infringe no constitutional
limitation.'"

(3) Discretion as to amount or rate of tax

The legislature has the right to


finally determine the amount or
rate of a tax, in the absence of
constitutional prohibitions. It
may levy a tax of any amount it
sees fit. Not only is the power to
tax unlimited in its reach as to
subjects, but in its very nature, it
acknowledges no limits and may
be carried even to the extent of
exhaustion and destruction,
thus becoming in its exercise a
power to destroy.

(4) Discretion as to the manner, means and


agencies of collection of taxes

The discretion of the legislature


in imposing taxes extends to the
mode, method or kind of tax. As
to the kind of taxes which may
be imposed, the legislature has
power to levy one or more of the
following: Property tax, excise,
license or occupation tax, a poll
or capitation tax, franchise tax,
income tax, inheritance tax,
stock transfer tax, etc.

Is the Power to Tax the Power to Destroy?1