TAXATION

DEFINITION OF TAXATION

TAXATION o Ex: Equal protection of law, due process,

rule of uniformity, public purpose
- Government or taxing authority obtains the right - Limitations from the nature of the taxing
amount of money from its citizens based on their power itself
earnings & properties as a payment for public services. o Ex: territoriality, international comity,
- The government tax people the to raise revenue to fund and exemption of government entities
its operation and finance its development projects
- Monetary charge imposed by government on persons,
transactions, or property to yield public revenue
- Means of government in increasing its revenue under EXTENT OF TAXING POWER
the authority of law used to promote welfare and - Subject to constitutional and inherent restrictions, the
protection of its citizens legislature, has unlimited discretion to determine:
o The subjects to be taxed
o The purpose of the tax (So long as it is a
LIFEBLOOD DOCTRINE public purpose)
o The manner, means, & agencies of
LIFEBLOOD DOCTRINE collection of the tax
- Taxation is indispensable to the existence of o All other incidents of the exercise of the
government such that the government needs the power
contribution of its citizens in orders to function and - Inherent Limitations restrictions to the power to tax
operate attached to its nature.
o Taxation must be for a public purpose.
- Taxation is the health of the state
o Taxation is a power legislative in nature.
- Every person who is able to must contribute his share
o Taxation is limited to the territory of the
in the running of the government. The government, for State.
its part, is expected to respond in the form of tangible o Taxation respects international comity
and intangible benefits intended to improve the lives - Laws Governing Taxation in the Philippines:
of its constituents o The 1987 Constitution - Article VI, Section 28
- For the government to exist (not just to exist, but also (rule on taxation, president’s power, exemptions,
to thrive and endure) it needs taxes to promote public requirements)
interest & the common good o National-International Revenue Code (RA
- Government cannot continue without means to pay its 8424) - Organization and function of the BIR.
expenses. For these means, it has the right to compel o Tax Reform for Acceleration and Inclusion
its citizens and property within its limit to contribute act (RA 10963): TRAIN Law - raising the
government revenues to fund the projects of the
administration.
o Tariff and Customs Code of 1978 (PD 1464, as
NATURE OF TAXING POWER amended) – Covers import and export of
cargoes of international freight.
1. Inherent in sovereignty o Local Government Code of 1991 (RA 7160) -
- Essential to the existence of the government Taxes administered by the local government
- It exists independent of any legislation units. Community taxes
- It is inherent because it is based on necessity
- The power springs at the moment of the
existence of the state. PURPOSE OF TAXATION
- Taxation is the lifeblood of the state 1. Primary purpose
2. Essentially a legislative function o Revenue - collection of funds to spend on
- Even in the absence of any constitutional services
provision, the power falls to the legislature as 2. Secondary purpose
o Redistribution - transferring wealth from rich to
a part of the more general power of the law
the poor
making body
o Repricing - encourages/ discourages
- It is assigned to the Congress, law-making consumption
body o Representation - rulers tax citizens, who then
3. Subject to constitutional and inherent limitations demand accountability–where the taxes go.
- Limitations in the fundamental law o Strengthen anemic enterprises by giving tax
exemptions
 o To protect local industries against against foreign
competitions through imposition of high customs Tax Treaties
duties on imported goods - The time-honored international principle of pacta sunt
o Prevent inflation by increasing taxes on ward off servanda demands the performance in good faith of
depression by decreasing taxes treaty obligations on the part of the states that enter
3. Non-revenue raising – sumptuary purpose into the agreement.
o Regulation - Every treaty in force is binding upon the parties, and
- taxation also has a regulatory purpose as in obligations under the treaty must be performed by
the case of taxes levied on exercises or them in good faith. More importantly, treaties have the
privileges like those imposed on tobacco force and effect of law in this jurisdiction.
and alcoholic products, or amusement
places (night clubs, cabarets, cockpits, etc.)
- regulatory purpose in the rehabilitation and
stabilization of a threatened industry which is
affected with public interest (like oil
industry).
o Promotion of General Welfare
- as an implement of police power for the
purpose of promoting general welfare.
- The power to tax can be used to destroy
(MARSHALL DICTUM) only if it is used as
an implement of police power.
- In all other instances, it is not because the
court will always be there to see whether the
inherent and constitutional limitations are
violated. (HOLMES DICTUM) – power to
build
o Reduction of Social Inequalities
- progressive system based on one’s ability to
pay.
- Progressivity is key stoned on the principle
that those who are able to pay should
shoulder the bigger portion of the tax burden
o Encourage Economic Growth
- to grant incentives or exemptions in order to
encourage investments and thereby promote
the country’s economic growth.

PRINCIPLE OF SOUND TAX SYSTEM

o fiscal adequacy
- sources of revenue should be sufficient to
meet the demands of public expenditures
- sufficient to provide government
expenditures and other public needs
o Equality or theoretical justice
- Tax imposed should be proportionate to the
taxpayer’s ability to pay (ability to pay
principle)
- power of taxation should be based on one’s
ability to pay
o Administrative feasibility
- Tax should be capable of convenient, just,
and effective administration
- tax laws and regulations must be capable of
being effectively enforced with the least
inconvenience to the taxpayer.
- Demands that the tax system must be clear to
the tax payers, rules reasonable enforceable,
is convenient and not burdensome or
discouraging to a business activity.