Taxation refers to the sovereign power of the state, exercised through its law-making body, to raise income to

fund government expenditures. Beyond this primary purpose, taxation can also serve social and economic
objectives.

Definition of Taxes
Taxes are mandatory, proportional financial contributions imposed by the state on individuals, properties, or
transactions. These contributions are levied to support public needs, such as government functions, law
administration, and public services.

Characteristics of Taxes
1. Enforced Contribution:
Taxes are compulsory; individuals cannot opt out based on preference or consent.
2. Proportionate in Character:
Taxes are based on a rule of apportionment, often aligned with the taxpayer's ability to pay.
3. Payable in Money:
Generally, taxes are monetary obligations, paid in legal tender unless specified otherwise.
4. Levied on Persons or Property:
Although taxes may target property or transactions, individuals are ultimately responsible for payment.
5. Jurisdiction-Based Levying:
Taxes are enforceable only within the jurisdiction of the taxing state.
6. Exercised by Legislative Power:
Under constitutional provisions, only Congress can enact tax laws.
7. Levied for Public Purposes:
Revenues generated from taxation must serve public interests, ensuring that taxes are not used for
purely private or exclusive benefits.

THEORY AND BASIS OF TAX

1. Existence of Government
The power of taxation is rooted in the theory that the existence of government is a necessity. Government
cannot function without the means to fund its expenses, and for this reason, it has the inherent right to compel all
citizens and properties within its jurisdiction to contribute financially.

2. Reciprocal Duties of State and Inhabitants

The basis of taxation lies in the mutual relationship of protection and support between the state and its
citizens. This is referred to as the benefits-received principle:
· Protection for Support:
The government provides its inhabitants with protection and services that allow them to enjoy their
rights and properties.
· Support for Protection:
Citizens contribute taxes to enable the government to maintain these protections and services.
Taxes, therefore, serve as a form of compensation or consideration between the state and its taxpayers.

3. Public Purpose Requirement for Lawful Taxation

For taxation to be lawful, it must serve a public purpose:
· Taxes must be allocated to general welfare projects and public needs.
Revenues derived from taxes cannot be used for private or exclusive benefits
1. Inherent in Sovereignty
The power of taxation is inherent in sovereignty as an essential attribute of any functioning government.
· This means that the government can exercise the power to tax even if the Constitution is entirely silent
on the subject.

2. Legislative in Character
The power to tax is exclusively legislative in nature.
· Only Congress, the national legislative body, has the authority to impose taxes.
· Local Legislative Bodies:
Local governments may also impose taxes but only within the limitations provided by law or the
Constitution.

3. Subject to Constitutional and Inherent Limitations

The power of taxation is not absolute and must operate within specific restrictions, which include:
· Constitutional Limitations:
These are explicitly or implicitly provided within the Constitution to ensure fairness and prevent abuse of
taxing power.
· Inherent Limitations:
These are natural restrictions arising from the very nature of taxation, whether or not specified in the
Constitution. Examples include:
Taxes must serve a public purpose.
The taxing authority must have jurisdiction over the subject of taxation.

Aspects of Taxation
1. Levying or Imposition of the Tax
Nature:
This is a legislative act that refers to the process of determining:
Who will be taxed,
What will be taxed,
The amount of the tax, and
The method and timing of payment.
Key Characteristics:
The power to levy taxes is exclusive to the legislative branch of government (e.g., Congress or
local legislative bodies).
This aspect represents taxation in its strictest sense.

2. Collection of the Tax Levied

Nature:
This is an administrative function, which involves:
Assessing and calculating the tax due,
Enforcing payment, and Handling tax disputes, if any.
 Extent of the Legislative Power to Tax
The power of taxation is inherently legislative, and the legislature has broad authority to determine its various
aspects. However, this authority is subject to constitutional and inherent restrictions.

1. The Subjects or Objects to Be Taxed

Definition:
This refers to the scope and nature of taxation, which includes:
Who: Persons (natural or juridical) who may be subject to taxation.
What: Property, whether real or personal, and other taxable items such as acts, transactions,
rights, or privileges.
Legislative Authority:
The legislature has discretion in determining the coverage of taxation, provided it complies with
constitutional and equitable principles.

2. The Purpose or Objective of the Tax

Public Purpose Requirement:
Taxes can only be levied for public purposes. This ensures that the revenue generated is used for the
general welfare, including public infrastructure, services, and other legitimate governmental functions.
Judicial Oversight:
While the legislature has initial discretion to declare a purpose as "public," this determination is
not absolute or final.
Courts have the authority to review whether the declared purpose is genuinely public or is
merely a private benefit.

3. The Amount or Rate of the Tax

Legislative Discretion:
The legislature has the authority to determine the amount or rate of taxes it considers appropriate. This
power is broad and subject only to constitutional limitations.
Remedies for Oppressive or Unjust Taxes:
If taxpayers find the taxes oppressive or unjust, their remedy is political in nature:
Election: The people can address their grievances by voting for new representatives who may
revise or repeal the tax laws.

4. The Manner, Means, and Agencies of Collection

Definition:
This aspect pertains to the administration and implementation of tax laws, including:
The methods for collecting taxes.
The designation of officers responsible for tax enforcement.
Remedies available to both the State and the taxpayer.
Legislative Authority:
The legislature has the exclusive power to prescribe:
The procedures for tax collection.
The agencies or officials tasked with enforcing tax laws.
(Example Case: Meriwether v. Garret, 102 U.S. 472)
Limitations on Executive Officials:
While executive officials are responsible for enforcing tax laws, their role does not extend to:
Deciding who or what will be taxed.
Defining the purpose of the tax.
Determining the amount of the tax.
They are required to strictly follow the procedural requirements laid out by the legislature for
the administration of tax laws.
Non-Revenue Objectives of Taxation
While the primary purpose of taxation is to raise revenue for the government, it also serves as a regulatory tool
to achieve various social, economic, and political objectives.

----------------------

1. Strengthening Enterprises
Taxation can be used to support struggling industries or incentivize increased production by
granting tax exemptions or creating conditions favorable to their growth.

----------------------

2. Protecting Local Industries

Taxes on imports can be increased to shield domestic industries from foreign competition.
Conversely, they can be decreased to promote foreign trade.

----------------------

3. Enhancing Bargaining Power in Trade Negotiations

Setting high tariff rates on imported goods before engaging in trade talks can provide a
country with leverage in negotiations with other nations.

----------------------

4. Economic Stabilization
Taxes can serve as a tool to regulate the economy:
In periods of prosperity: Taxes can be raised to curb spending power and prevent
inflation.
In periods of economic slowdown or depression: Taxes can be lowered to
encourage business activity and stimulate the economy.

----------------------

5. Reducing Wealth and Income Inequalities

Taxes like estate, donor’s, and income taxes can redistribute wealth by targeting individuals
in higher income brackets or those who have acquired unearned wealth.

----------------------

6. Promoting Science, Education, and Public Welfare

Tax revenues may be allocated to finance scientific research, educational initiatives, or
public safety improvements, such as:
Research grants (e.g., R.A. No. 5448)
Educational subsidies (e.g., R.A. No. 5447)
Police force efficiency and peace and order maintenance (e.g., R.A. No. 6141).

----------------------

7. Implementing Police Power

Taxation can act as an extension of the government’s police power to promote the general
welfare.
Example: The Sugar Adjustment Act was enacted to stabilize the sugar industry,
benefiting the economy and a large portion of the population.
(Relevant Cases: Lutz vs. Araneta, 78 Phil. 148; Republic vs. Bacolod-Murcia Milling Co.,
17 SCRA 632 [1966])
----------------------

8. Supporting Low-Income Individuals

Tax policies may include exclusions, exemptions, deductions, or tax credits to reduce or
eliminate the tax burden on low-income individuals.

----------------------

9. Encouraging Desirable Activities and Discouraging Undesirable Ones

Tax incentives can encourage investments in productive assets or facilities, which in turn create
employment opportunities for low- and middle-income workers.
Conversely, taxes can discourage socially harmful practices (e.g., sin taxes on smoking and alcohol).

Basic Principles of a Sound Tax System

An effective tax system must possess the following characteristics to achieve its objectives and maintain fairness,
efficiency, and feasibility:

----------------------

10. Fiscal Adequacy

The tax system should ensure that revenues are sufficient to meet the government’s public
expenditure requirements.
Tax revenues should be elastic, meaning they can adjust to economic fluctuations and changes
in public spending needs.
For example, adjusting tax rates rather than creating new taxes can achieve elasticity
without the need for complex new tax machinery.
In cases of imbalance, governments may face:
Deficits if revenue is insufficient.
Surpluses if revenue exceeds expenditure.
Balancing expenditures by reducing certain public services to match the revenue
inflow may also be required.

----------------------

11. Equality or Theoretical Justice

This principle emphasizes that the tax burden should be distributed fairly, based on the
taxpayer’s ability to pay.
Taxpayers with greater financial capacity should contribute more, while those with less
should pay less.
It supports uniformity and equity in taxation, meaning similarly situated taxpayers should pay
equal taxes, while those in different financial conditions should pay proportional amounts.
Example: A progressive tax system where wealthier individuals or entities pay a higher
tax rate compared to lower-income groups.
The principle ensures that all taxpayers contribute in a way that minimizes disparities in
inconvenience or sacrifice.

----------------------
 12. Administrative Feasibility
Tax laws must be:
Clear and understandable to taxpayers.
Convenient in terms of time, place, and method of payment.
Capable of being enforced uniformly and effectively at a reasonable cost.
The system should discourage tax evasion and fraud by closing loopholes and implementing
safeguards.
A poorly designed tax system, even if theoretically fair, can fail if it is costly or cumbersome to
administer, or if it creates opportunities for abuse by taxpayers or officials.

Classifications of Taxes
Taxes can be classified based on various criteria. These classifications help in understanding the nature and
application of different types of taxes:

----------------------

1. As to Subject Matter or Object

(a) Personal, Poll, or Capitation Tax
· A fixed amount imposed on individuals residing within a specific area, regardless of their property,
occupation, or business activities.
· Example: Community tax (formerly residence tax).
(b) Property Tax
· Imposed on property (real or personal), either in proportion to its value or based on other reasonable
apportionment methods.
· The obligation to pay is absolute and not voluntary.
· Example: Real estate tax.
(c) Excise Tax
· A tax on specific activities, privileges, or the performance of an act.
· Often synonymous with "privilege tax."
· Examples: Income tax, value-added tax, estate tax, donor's tax.
· Note: Excise taxes on specific goods (e.g., cigarettes, alcohol) are distinct from excise taxes on privileges
or activities.

----------------------

2. As to Who Bears the Burden

(a) Direct Tax
· Imposed directly on individuals or entities, who also bear the burden of the tax.
· Examples: Income tax, estate tax, donor's tax.
(b) Indirect Tax
· Imposed on one party, but the burden is passed on to another (e.g., consumers).
· Examples: Value-added tax (VAT), customs duties, excise taxes on specific goods.
Note: Withholding taxes differ from indirect taxes as the burden remains with the taxpayer, while the withholding
agent merely collects and remits the tax.

----------------------

3. As to Determination of Amount
(a) Specific Tax
· A fixed amount based on a standard measurement, such as weight, volume, or number.
· No valuation is required other than classifying the objects to be taxed.
· Examples: Taxes on distilled spirits, wines, and cigarettes.
(b) Ad Valorem Tax
 · Based on a fixed percentage of the value of the property or goods.
· Requires valuation by assessors or appraisers.
· Examples: Real estate tax, customs duties on goods like jewelry and perfumes.

----------------------

4. As to Purpose
(a) General (Fiscal or Revenue) Tax
· Imposed primarily to generate revenue for general governmental purposes.
· Examples: Income tax, value-added tax.
(b) Special (Regulatory) Tax
· Imposed for specific social or economic purposes, regardless of revenue generation.
· Example: Protective tariffs to support local industries.

----------------------

5. As to Scope (Authority Imposing the Tax)

(a) National Tax
· Imposed by the national government.
· Examples: National internal revenue taxes, customs duties.
(b) Municipal or Local Tax
· Imposed by local government units.
· Examples: Real estate tax, professional tax.

----------------------

6. As to Graduation or Rate
(a) Proportional Tax
· A fixed percentage applied uniformly to the tax base, regardless of the amount.
· Examples: Value-added tax, real estate tax.
(b) Progressive or Graduated Tax
· The tax rate increases as the tax base or bracket increases.
· Examples: Income tax, estate tax, donor's tax.
(c) Regressive Tax
· The tax rate decreases as the tax base increases (not practiced in most systems).

Tax vs. Toll

1. Toll is a charge for using property (e.g., roads, bridges); Tax is for government support.
2. Toll = Proprietorship demand; Tax = Sovereignty demand.
3. Toll depends on construction/maintenance costs; Tax has no set limit.
4. Toll can be imposed by private entities or the government; Tax only by the government.

----------------------

Tax vs. Penalty

1. Penalty punishes violations of law; Tax raises revenue.
2. Penalties regulate conduct; taxes support the government.
3. Penalties may be imposed by private entities; taxes only by the government.

----------------------
Tax vs. Special Assessment
1. Special Assessment is levied only on lands benefiting from public improvements.
2. Differences:
Special Assessment applies only to land.
It’s not a personal liability (limited to land).
Based on benefits, not necessity.
Exceptional in time and place.
3. A charge on property owners benefiting from improvements is not a tax but a special assessment.

----------------------

Tax vs. License/Permit Fee

4. License Fee regulates (police power); Tax raises revenue (taxing power).
5. Differences:
License fees cover regulatory costs; taxes have no limit.
License = special privilege; Tax = general obligation.
Non-payment of license fees = illegal business; non-payment of taxes ≠ business illegality.

----------------------

Tax vs. Debt

6. Debt is based on a contract; Tax is based on law.
7. Taxes:
Cannot generally be assigned or paid in kind.
Not subject to set-off (exceptions: mutual due/liquidated obligations).
May result in imprisonment for non-payment (e.g., poll tax).

----------------------

Taxes and Set-Off Rules

8. Taxes cannot offset debts because:
Taxes = sovereign obligation.
Debts = corporate obligation.
9. Exception: Mutual, due, and liquidated obligations (e.g., final judgment in favor of both taxpayer and
government).

----------------------

Other Related Terms

10. Subsidy: Government aid to private individuals/entities; not a tax.
11. Revenue: All government income (from taxes or other sources).
12. Internal Revenue: Taxes other than customs duties.
13. Customs Duties: Taxes on imports/exports.
14. Tariff:
Book of rates for merchandise duties.
Duties on goods imported/exported.
System of imposing import/export duties.
Concept of Eminent Domain
Definition: Power of the state (or authorized entities) to take private property for public use with just
compensation and in compliance with due process.
Constitutional Requirements:
1. Public use or benefit.
2. Payment of just compensation.
3. Observance of due process.

----------------------

Concept of Police Power

Definition: The state’s power to enact laws promoting public health, morals, safety, and welfare.
Examples of police power laws:
Licensing (e.g., practice of medicine, driving vehicles).
Regulating traffic, zoning, and commodity prices.
Punishing vagrancy and prostitution.
Removing offensive billboards.

----------------------

Similarities Between Taxation, Eminent Domain, and

Police Power
1. All rest on necessity for effective governance.
2. Exist independently of the Constitution (though regulated by it).
3. Involve state interference with private property or rights.
4. Are legislative in nature, though delegated to the executive for implementation.
5. Presuppose compensation, either direct or indirect.

----------------------

Distinctions Among the Three Powers

2. Authority Exercising the Power:
Taxation and Police Power: Only the government and political subdivisions.
Eminent Domain: Can be delegated to public service companies (e.g., utilities).
3. Purpose:
Taxation: Takes property (money) for government support.
Eminent Domain: Takes property for public use (requires compensation).
Police Power: Regulates property to promote general welfare (non-compensable).
4. Persons Affected:
Taxation and Police Power: Affect the community or a class of individuals.
Eminent Domain: Targets specific property owners.
5. Effect:
Taxation: Property (money) becomes public funds.
Eminent Domain: Property ownership or use is transferred.
Police Power: Restrains use of property but doesn’t transfer ownership.
6. Benefits Received:
Taxation: Citizens benefit indirectly (e.g., public services).
Eminent Domain: Owners receive market value compensation.
Police Power: Citizens benefit indirectly from improved social welfare (e.g., healthier
environment).
7. Amount or Imposition:
Taxation: Generally, no limit on tax amounts.
Eminent Domain: No tax; owners are compensated based on market value.
 Police Power: Charges should cover only regulatory costs.
8. Relationship to the Constitution:
Taxation: Subject to constitutional limitations (e.g., prohibition on impairing contracts).
Eminent Domain: Subject to similar limitations (e.g., cannot expropriate properties the
government bound itself to purchase via contract).
Police Power: Relatively free from constitutional restraints and superior to contract impairment
provisions.

----------------------

Public Finance and Taxation

· Public Finance: Covers the government’s financial operations, including budgeting, taxing, spending,
borrowing, and regulating currency.
· Taxation: A vital part of public finance, supporting government programs and services.

Limitations on the Power of Taxation

Constitutional Limitations
Covers restrictions explicitly stated or implied in the Constitution to protect individuals and entities from
unjust taxation practices.
Due Process of Law: Prohibits deprivation of life, liberty, or property without fair legal
procedures.
Equal Protection of the Laws: Requires that taxes apply equally to those under similar
circumstances.
Rule of Uniformity and Equity: Mandates that taxes must be consistent across similar classes.
No Imprisonment for Non-Payment of Poll Tax: Safeguards individuals from incarceration
due to non-payment of this specific tax.
Exemption of Religious, Charitable, and Educational Entities: Protects these institutions
from certain types of taxation.

----------------------

Inherent Limitations
Refers to restrictions on the power to tax that naturally exist, even if not expressly stated in the
Constitution.
Taxes Must Be for a Public Purpose: Ensures that tax revenues are used for the benefit of the
general public.
Non-Delegation of Legislative Power: Only the legislative body can impose taxes, not other
branches or entities.
Exemption of Government Entities: Government agencies are not taxed to prevent funds
from cycling inefficiently.
International Comity: Avoids taxing foreign sovereigns or diplomats to maintain harmonious
international relations.
Territorial Jurisdiction: Limits taxation to activities, properties, or individuals within the
government’s territorial boundaries.

Requirement of Uniformity and Equity in Taxation

Basis
· Derived from the constitutional provision:
"The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of
taxation." (Sec. 28[1], Art. VI, 1987 Constitution).
· This principle complements the guarantee of equal protection under the law, ensuring fairness and
justice in taxation.
----------------------

Meaning of Uniformity in Taxation

1. Uniformity Defined
All taxable articles or properties within the same class must be taxed at the same rate.
Different classes (e.g., properties, businesses, transactions) may be taxed at varying rates,
provided the rate is uniform within each class.
2. Uniformity of Operation Across the Tax Unit
A tax for a national purpose must be uniform and equal across the country. Similarly, taxes for
local government units (e.g., provinces, cities, municipalities) must apply uniformly within those
jurisdictions.
Uniformity does not mean individuals in one locality must pay the same rate as those in
another locality.
3. Equality in Burden
Uniformity ensures equality in the burden of taxation, not necessarily equality in the amount
paid.
A uniform tax does not mean the same payment by everyone but rather equal treatment of
taxpayers within the same class.
Taxes may be progressive, taxing higher incomes or wealth at higher rates, as long as the rules
are consistent for all individuals in similar situations.

----------------------

Application
Uniformity Requirement Not Violated in These Examples:
1. A tax imposing P2.50 per square meter on all billboards or signs nationwide. (Churchill vs.
Concepcion, 10 Phil. 381 [1908]).
2. License taxes on hotels graduated by the number of rooms available to accommodate guests.
(St. Louis vs. Bircher, 7 Mo. App. 169; U.S. vs. Sumulong, 30 Phil. 381 [1915]).
3. Different tax rates for individuals with varying income levels, as they belong to different income
classes.
4. Residential properties taxed at the same rate (e.g., 2% of assessed value) regardless of their
assessed value, as they are classified uniformly as residential properties.

Additional Details on Uniformity, Equity, and

Progressiveness in Taxation
----------------------

Uniformity of Taxation
Uniformity means that taxes must apply equally to all persons, properties, or transactions within the same
classification, with these key considerations:
1. Classification by Value
Taxable properties or individuals within the same class may pay different amounts of tax based
on their value (e.g., assessed value for real property or income levels for income taxes).
However, further classification within these groups may result in different rates being applied
based on valid criteria.
2. Special Tax Situations
Uniformity is maintained even if:
 A local ordinance taxes only one occupation or profession (e.g., "installation manager") if it
applies equally to anyone else entering that occupation in the same locality (Shell Co. vs.
Municipality of Cordova).
Different cities impose occupation taxes at varying rates because authority is granted by law to
some cities but not to others (Punzalan vs. Municipal Board of Manila).

----------------------

Equity in Taxation
Equity refers to fairness in distributing the tax burden among taxpayers, reflecting their ability to pay and, where
relevant, the benefits received from public services.
3. Ability to Pay Principle
Taxes must be proportionate to taxpayers' capacity to contribute, commonly measured by
income, wealth, or property.
Excessive tax rates undermine equity, leading to tax avoidance or evasion.
4. Reasonable Classification
For equity to align with uniformity, classifications must be based on substantial and material
differences.
If tax differentiation lacks a reasonable basis, it violates both equity and the equal protection
guarantee.

----------------------

Progressive System of Taxation

The Constitution mandates Congress to evolve a progressive system of taxation, emphasizing:
5. Direct Taxation
Direct taxes, such as income tax, focus on the taxpayer’s ability to pay.
Example: Section 24(A) of the Tax Code applies a progressive rate structure, where lower-
income earners pay a smaller percentage, while higher-income earners pay progressively higher
rates.
6. Distinction Between Progressive Tax and Progressive Tax System
A progressive tax increases rates as the taxable base (e.g., income) rises.
A progressive tax system focuses on balancing direct and indirect taxes to achieve equity and
fairness, ensuring those with greater capacity contribute more.

----------------------

Equal Protection Guarantee in Taxation

· Equal protection ensures that similarly situated taxpayers are treated alike, while uniformity and
equity address fair treatment of taxpayers in dissimilar situations.
· Absolute equality or uniformity is practically unattainable due to differing circumstances, but
approximating fairness is the goal.
1. Prohibition Against Imprisonment for Non-Payment of
Poll Tax
Basis: Constitution prohibits imprisonment for debt or non-payment of poll tax. (Sec. 20, Art. II)
Application:
Community Tax: Delinquency penalized by surcharge (24% per annum) but not
imprisonment.
Exceptions: Imprisonment is possible for violations unrelated to non-payment (e.g., falsifying
community tax certificates).

----------------------

2. Prohibition Against Impairment of Obligation of

Contracts
Basis: No law shall impair the obligation of contracts. (Sec. 10, Art. III)
Meaning: Changing terms of a contract by law or by one party without consent is prohibited.
Application:
Tax exemptions in contracts cannot be revoked unless expressly allowed (e.g., franchises
subject to amendment or repeal by Congress).

----------------------

3. Prohibition Against Infringement of Religious Freedom

Basis: Constitution guarantees freedom of religion. (Sec. 5, Art. III)
Application:
Imposing license fees on religious materials (e.g., Bibles) violates freedom of religion.
General taxes on sales of religious materials are allowed (e.g., VAT on religious books).

----------------------

4. Prohibition Against Appropriation for Religious Purposes

Basis: Public money or property cannot support any sect, church, or religious leader (Sec. 29[2], Art. VI),
except in specific cases (e.g., armed forces chaplains).
Application:
Government funds must only be used for public purposes.
Leases of public property to religious entities must follow the same terms as for private
individuals.

----------------------

5. Tax Exemptions for Religious, Charitable, and

Educational Entities
Basis: Constitution exempts property actually, directly, and exclusively used for religious, charitable,
or educational purposes. (Sec. 28[3], Art. VI)
Application:
Covers property taxes but not other taxes.
Test: Exemption depends on the property’s use, not ownership.

----------------------
6. Tax Exemptions for Non-Stock, Non-Profit Educational
Institutions
Basis: Revenues, assets, and property used exclusively for educational purposes are tax-exempt. (Sec.
4[3], Art. XIV)
Application:
Includes exemptions from income tax, property tax, and donor’s taxes.
Proprietary schools may also be granted exemptions under specific conditions.

----------------------

7. Other Limitations on Taxation

1. Granting Tax Exemptions:
Requires majority approval of all Congress members. (Sec. 28[4], Art. VI)
Prevents indiscriminate granting of exemptions.
2. Presidential Veto:
President may veto specific items in appropriation, revenue, or tariff bills. (Sec. 27[2], Art. VI)
3. Supreme Court Jurisdiction:
Congress cannot remove the Supreme Court’s jurisdiction over tax cases. (Sec. 5[2, b], Art. VIII)

----------------------

8. Requirement of Public Purpose

Definition: Taxes must be for a governmental or community purpose, not private benefit.
Examples of Public Purpose:
Financing education, roads, disaster aid, relief for the poor, unemployment benefits, pensions,
etc.

Prohibition Against Delegation of Taxing Power

1. General Rule: Taxation is a legislative power and cannot be delegated.
2. Exceptions:
Delegation to the President:
Constitutionally authorized (e.g., flexible tariff rates).
Must have specified limits and restrictions.
Delegation to Local Governments:
Recognized under the principle of local self-government.
Local governments now have express power to create revenue sources (Sec. 5, Art. X
of the Constitution).
Delegation to Administrative Agencies:
Non-legislative aspects like property valuation, tax collection, and computation can be
delegated.

Exemptions from Taxation

3. Government Agencies and Instrumentalities:
Generally exempt to avoid taxing public property.
Exemptions ensure government functions are not hindered.
4. Government-Owned or Controlled Corporations (GOCCs):
Subject to taxation unless their charters explicitly grant exemptions.
GOCCs performing proprietary functions are typically taxable.

Situs of Taxation
1. Persons: Tax applies to residents or citizens of the taxing state.
2. Real Property: Taxed where located (lex rei sitae).
3. Tangible Personal Property: Taxed where physically located.
 4. Intangible Personal Property: Taxed at the domicile of the owner but can vary based on laws or justice
considerations.
5. Income: Taxed in the jurisdiction of residence/citizenship or where income is derived.
6. Business, Occupation, or Transactions: Taxed where conducted or transacted.
7. Gratuitous Transfers: Taxed based on the domicile of the transferor or location of the property.

Double Taxation
5. Strict Sense (Direct Double Taxation):
Imposed by the same authority on the same subject matter within the same jurisdiction for the
same purpose.
Generally considered unconstitutional.
6. Broad Sense (Indirect Double Taxation):
Taxation by different authorities or on different aspects of the same property or transaction.
Not inherently unconstitutional.
7. Examples:
Taxes imposed by national and local governments on the same activity.
Real estate taxes combined with business taxes for leasing activities.

Avoidance of Double Taxation

1. Allowing exemptions or tax credits for foreign taxes.
2. Entering into tax treaties with other states.