TAXATION

DEFINITION & CONCEPT 3. Subject to constitutional and inherent

Limitations – the power to tax is said to be
1. Revenue Raising Measure - raises income the strongest of all the powers of
to defray the necessary expenses of the government. It is:
government
1
a. Comprehensive – it covers persons,
2. As a power: businesses, activities, professions, rights
- Inherent power of the state (Along with and privileges
police power, eminent domain) b. Unlimited – it is so unlimited in force and
- Destructive power (because the searching in extent that courts scarcely
government collect portion of the venture to declare that it is subject to any
income/property; the state can exercise its restrictions, except those that such rests in
ability to demand the discretion of the authority which
exercises it
c. Plenary – it is complete; unqualified;
PURPOSE absolute which exercises it
1. Revenue-Raising – the primary purpose is d. Supreme – insofar as the selection of the
to generate funds for the State to finance subject of taxation is concerned
the needs of the citizenry and to advance
the common weal. [Napocor v. Province of
Albay G.R. No. 87479, 4 June 1990.]
ELEMENTS OF TAXATION
2. Non-Revenue / Special or Regulatory –
 Enforced proportional contribution
taxation is often employed as a device for
regulation by means of which certain effects  Imposed by the State by virtue of its
or conditions envisioned by governments sovereignty
may be achieved.  Levied for the support of the
government

NATURE
CHARACTERISTICS OF TAX
1. Inherent in sovereignty – the power to
tax is an attribute of sovereignty a. Enforced contribution
2. Essentially a legislative function – the b. Proportionate in character – if there’s a
power to tax is peculiarly and exclusively or problem with liquidity, you can still not be
juridical branch of the government excused in paying taxes
3 branches of the government:
c. Levied for public purpose – para
a. Juridicial – composed of the magkaroon ng pondo ang government; if
Supreme Court; Interprets hindi nakabayad, you can’t limit use of
b. Executive – From the President; This public infrastructure kasi you’re still part of
branch also approves; Sila nagre- the public, but you still need to pay taxes
review & veto (if this happens,
babalik sa congress); administration d. Generally payable in the form of money –
of provisions; BIR, BOC not all types of money are acceptable; only
c. Legislative – law-making body; 1
Comprehensive, Unlimited, Plenary, and Supreme
creation of deliberation are the Characteristics of Taxing Power
TAXATION

exclusive on Philippine currency (legal or entities

tender); You can get refund from
overpayment of taxes (TCC “Carry-Over” vs.
3. Taxes vs. License and Regulatory Fees
Tax Refund)
Taxes License and
e. Personal to the taxpayer
Regulatory Fees
f. Levied on persons, property, rights, acts, Imposed under the Levied under the
privileges, or transactions taxing power of the police power of the
state for purposes state
g. Levied by the State which has jurisdiction of revenue
or control over the subject to be taxed – Forced Exacted primarily to
jurisdiction of the state contributions for regulate certain
the purpose of businesses
h. Levied by the law-making body – nagi- maintaining occupations
impose sa general public government
functions
Generally unlimited Should not
TAX AS DISTINGUISHED FROM OTHER as to amount unreasonably
FORMS OF EXACTIONS exceed the
expenses of issuing
1. Tax vs. Tarriff the license and of
supervision
Tax Tarriff
Imposed on Imposed only on
All embracing term A kind of tax
persons, property the right to
to include various imposed on articles
and the right to exercise a privilege
kinds of enforced which are taxed
exercise a privilege
contributions upon internationally
Failure to pay does Failure to pay
persons for the
not necessarily makes the act or
attainment of
make the act or business illegal
public purposes
business illegal.

2. Tax vs. Toll Penalty for non-

payment:
Tax Toll Surcharges; or
Paid for support of Paid for the use Imprisonment
the government another’s property (except poll tax)
Demand of Demand of
sovereignty proprietorship
Generally, no limit Amount paid
on the amount depends upon the
collected as long as cost of construction
it’s not excessive, or maintenance of
unreasonable, or the public
confiscatory improvement used 4. Taxes vs. Special Assessment
Imposed only by Imposed by the Taxes Special
the government government or by Assessment
private individuals
Levied not only on Levied only on land
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land Taxes Penalty

Imposed regardless Imposed because Violation of tax Any sanction
of public of an increase in laws may give rise imposed as a
improvements value of land to imposition of punishment for
benefited by public penalty violation of law or
improvement acts deemed
Contribution of a Contribution of a injurious
taxpayer for the person for the Primarily intended Designed to
support of the construction of a to raise revenue regulate conduct
government public improvement May be imposed May be imposed by
It has general Exceptional both as only by the the government or
application both as to time and locality government private individuals
to time and place or entities
Cannot be a subject Can be a subject of
of set-off or set-off or
5. Taxes vs. Debt compensation compensation (Art.
Taxes Debt 1279, Civil Code)
Based on laws Generally based on
contract, express or
implied
Generally cannot be Assignable
assigned
Generally paid in May be paid in kind
money
Cannot be a subject Can be a subject or
of set-off or set off or
compensation compensation (Art.
1279, Civil Code)
Imprisonment is a A person cannot be
sanction for non- imprisoned for non-
payment of tax, payment of debt
except poll tax (except when it
comes from a
crime)
Governed by the Governed by the
special prescriptive ordinary periods of
periods provided prescription
for in the NIRC
Does not draw Draws interest
interest except only when it is so
when delinquent stipulated or where
there is default
Imposed only by Can be imposed by
public authority a private individual

6. Taxes vs. Penalty

TAXATION

COMPARISON OF INHERENT POWERS Benefits Received: Market value of the

OF THE STATE2 property. He receives the market value of
the property taken from him.
1. Taxation
Amount of Imposition: No amount imposed
Authority: Government; or its political
but rather the owner is paid the market
subdivisions
value of property taken.
Purpose: The property (generally in the
Relationship to Constitution: Inferior to the
form of money) is taken for the support of
impairment prohibition; government cannot
the government
expropriate private property, which under a
Persons Affected: A community; or class of contract had previously bound itself to
individuals purchase from the other contracting party.

Effect: The money contributed becomes 3. Police Power

part of the public funds
Authority: Government; or its political
Benefits Received: Protection and subdivisions
benefits he receives. The enjoyment of
Purpose: The use of the property is
the privileges of living in an organized
“regulated” for the purpose of promoting
society, established and safeguarded by the
the general welfare; it is not
devotion of taxes to public purpose
compensable
Amount of Imposition: Generally, there is
Persons Affected: A community; or a class
no limit on the amount of tax that may be
of individuals
imposed
Effect: There is no transfer of title. At most,
Relationship to Constitution: Subject to
there is restraint on the injurious use of
constitutional limitations, including the
property
prohibition against impairment of the
obligation of contracts Benefits Received: Indirect benefits. The
person affected receives indirect benefits as
2. Eminent Domain
may arise from the maintenance of a
Authority: Government; its political healthy economic standard of society
subdivisions; or may be granted to public
Amount of Imposition: Amount imposed
service companies or public utilities
should just be commensurate to cover the
Purpose: To facilitate the taking of private cost of regulation, issuance of a
property for public use license or surveillance

Persons Affected: An individual as the Relationship to Constitution: Relatively free

owner of a particular property from constitutional limitations and is
superior to the impairment of contract
Effect: There is a transfer of the right to provision.
property

2
Inherent powers of the State are: Taxation,
Eminent Domain, and Police Power
TAXATION

THEORY AND BASIS OF TAXATION ꞏ The obligation to pay taxes rests upon the
necessity of money for the support of the
1. Life Blood Theory
state. For this reason, no one is allowed to
ꞏ The underlying basis of taxation is object to or resist the payment of taxes
governmental necessity, for without solely because no personal benefit to him
taxation, a government can neither can be pointed out. [Lorenzo v. Posadas,
exist nor endure G.R. No. L-43082 (1937)]

ꞏ Taxes are the lifeblood of the government 3. Benefits-Protection Theory (Symbiotic

and so should be collected without Relationship)
unnecessary hindrance. It is said that taxes
ꞏ This principle serves as the basis of
are what we pay for civilized society.
taxation and is founded on the reciprocal
Without taxes, the government would be
duties of protection and support
paralyzed for lack of the motive power to
between the State and its inhabitants
activate and operate it. [CIR v. Algue, G.R.
No. L-28896 (1988); See also CIR v. ꞏ It is said that taxes are what we pay for a
Pineda, G.R. No. L-22734 (1967)]. civilized society. Without taxes, the
government would be paralyzed for lack of
2. Necessity Theory
the motive power to activate and operate it.
ꞏ Existence of the government is a Hence, despite the natural reluctance to
necessity; that it cannot continue without surrender part of one’s hard earned income
means to pay its expenses; and that for to the taxing authorities, every person who
those means it has the right to compel all is able to must contribute his share in the
citizens and property within its limits to running of the government. The
contribute government for its part, is expected to
respond in the form of tangible and
ꞏ The power to tax is an attribute of intangible benefits intended to improve the
sovereignty. It is a power emanating from lives of the people and enhance their moral
necessity. It is a necessary burden to and material values. This symbiotic
preserve the State’s sovereignty and a relationship is the rationale of taxation and
means to give the citizenry: should dispel the erroneous notion that it is
a. an army to resist an aggression; an arbitrary method of exaction by those in
the seat of power. (Commissioner of
b. a navy to defend its shores from Internal Revenue vs. Algue, supra)
invasion;
JURISDICTION OVER SUBJECT AND
c. a corps of civil servants to serve; OBJECTS
d. public improvement designed for the The limited powers of sovereignty are
enjoyment of the citizenry and those which confined to objects within the respective
come within the State’s territory; and spheres of governmental control. These
e. facilities and protection which a objects are the proper subjects or objects of
government is supposed to provide. [Phil. taxation and none else.
Guaranty v. CIR, G.R. No. L-22074 (1965)] 1. Tax laws cannot operate beyond a
State’s territorial limits;
TAXATION

2. The government cannot tax a particular d. Not unduly burdensome upon or

object of taxation which is not within its discouraging to business activity
territorial jurisdiction;
ꞏ The VAT Law cannot be considered as
3. Property outside the State’s violative if the Administrative Feasibility
jurisdiction does not receive any principle because it is principally aimed to
protection of the State; and rationalize the system on taxes of goods
and services. Thus, simplifying tax
4. If a law is passed by Congress, it must
administration and making the system more
see to it that the object or subject of
equitable to enable the country to attain
taxation is within the territorial
economic recovery. (Kapatiran ng Mga
jurisdiction of the taxing authority
Naglilingkod sa Pamahalaan v. Tan; June
PRINCIPLES OF A SOUND TAX 30, 1988)
SYSTEM3
3. Theoretical Justice or Equality
1. Fiscal Adequacy
ꞏ Must take into consideration the taxpayer’s
ꞏ The sources of tax revenue should ability to pay (Ability to Pay Theory).
coincide with, and approximate the needs Taxation should be uniform as well as
of, government expenditures. The revenue equitable [Section 28(1), Art. VI, 1987
should be elastic or capable of expanding or Constitution] The state must evolve a
contracting annually in response to progressive system of taxation
variations in public expenditures
ꞏ Taxation is said to be equitable when its
ꞏ In other words, revenue raised must be burden falls on those better able to pay;
sufficient to meet government/public Taxation is progressive when its rate goes
expenditures and other public needs. up depending on the resources of the
(Chavez vs. Ongpin; GR No. 76778; June 6, person affected
1990)
ꞏ Note: The non-observance of the above
2. Administrative Feasibility principles will not necessarily render the tax
imposed invalid except to the extent those
ꞏ Tax laws should be capable of convenient, specific constitutional limitations are
just and effective administration. Each tax violated. [De Leon]
should be:
ꞏ A tax law will retain its validity even if it is
a. Capable of uniform enforcement by not in consonance with the principles of
government officials, fiscal adequacy and administrative feasibility
b. Convenient as to the time, place, and because the Constitution does not expressly
manner of payment, require so. These principles are only
designed to make our tax system sound.
c. Enforced with the least inconvenience to However, if a tax law runs contrary to
the taxpayer; and the principle of theoretical justice,
such violation will render the law
unconstitutional considering that under
3
Mnemonic device for Principles of a Sound Tax the Constitution, the rule of taxation should
System: FAT- Fiscal Adequacy, Administrative
Feasibility, and Theoretical Justice
TAXATION

be uniform and equitable. [Dimaampao, government. Payment of tax also includes

Tax Principles and Remedies (2015)] the options, schemes or remedies as may
be legally open or available to the taxpayer

4. Taxpayer’s and Executive Act: Refund

STAGES OR ASPECTS OF TAXATION
ꞏ A claim for refund must first be filed with
1. Legislative Act: Levy or Imposition
the Commissioner of Internal Revenue. A
ꞏ This process involves the passage of tax suit or proceeding may be filed within two
laws or ordinances through the legislature. years from the date of payment of the tax
The tax laws to be passed shall determine: or penalty regardless of any supervening
cause that may arise after payment. The
a. Those to be taxed (Person, Property or Commissioner may, even without a written
Rights) claim therefor, refund or credit any tax,
b. How much is to be collected (the rate where on the face of the return, such
and the base of tax); and payment appears clearly to have been
erroneously paid. [Sec. 229, NIRC]
c. How taxes are to be implemented (the
manner of imposing and collecting tax) REQUISITES OF A VALID TAX

ꞏ It also involves the granting of tax 1. It must be for a public purpose;

exemptions, tax amnesties, or tax 2. Rule of taxation should be uniform;
condonation
3. The person or property taxed is within
ꞏ Scope of legislative power to tax: the jurisdiction of the taxing authority;
a. Discretion as to purpose for which taxes 4. Assessment and Collection is in
shall be levied consonance with the due process clause;
b. Discretion as to subjects of taxation and

c. Taxation as to amount or rate of tax 5. The tax must not infringe in the
inherent and constitutional limitations
of the power of taxation
2. Executive Act: Assessment and Collection KINDS OF TAXES
ꞏ This process involves the act of 1. As to object
administration and implementation of tax
laws by the executive through its > Personal, Poll or Capitation Tax – tax of a
administrative agencies such as the Bureau fixed amount imposed on persons
of Internal Revenue (BIR) or Bureau of residing within a specified territory, whether
Customs (BoC) citizens or not, without regard to their
property or the occupation or business in
which they may be engaged (e.g.
3. Taxpayer’s Act: Payment community (formerly residence) tax)

ꞏ This process involves the act of > Property Tax – tax imposed on
compliance by the taxpayer in contributing property, real or personal, in proportion
his share to pay the expenses of the to its value or in accordance with some
TAXATION

other reasonable method of appointment

(e.g. real estate tax). The obligation to pay
the tax is absolute and unavoidable and is
not based upon the voluntary action of the
person assessed.

> Privilege/Excise Tax – the obligation to

pay excise tax is based on the voluntary
action of the person taxes in performing it is
said that an excise tax is a charge imposed
upon:

i. the performance of an act

ii. the enjoyment of a privilege, or

iii. the engagement in an occupation,

profession, or business