Taxation is a fundamental concept in economics and governance, essentially the

process by which a government levies compulsory contributions from individuals

and businesses to fund public services and expenditures. 1
Here's a breakdown of what taxation entails:
1. What is Taxation?
At its core, taxation is:
 Compulsory: It's not voluntary; individuals and entities are legally required
to pay.
 Imposed by the Government: It's a power exercised by the state or its
authorized bodies (e.g., national government, local government units). 2
 For Public Purposes: The funds collected are intended to finance public
goods and services, not for the private gain of the collectors. 3
 Without Direct Quid Pro Quo: Unlike buying a product or service, you
don't receive a specific, direct service in exchange for each tax payment
(e.g., paying income tax doesn't guarantee you a specific road will be built for
you immediately, but it contributes to the overall road network).
2. Purpose of Taxation (Why Governments Tax):
 Revenue Generation (Primary Purpose): This is the most obvious
reason.4 Taxes are the primary source of funding for government operations
and public services such as:
o Infrastructure (roads, bridges, public transport) 5

o Education (public schools, universities) 6

o Healthcare (public hospitals, health programs)

o Defense and Public Safety (military, police, fire department)

o Social Welfare Programs (pensions, unemployment benefits, poverty

alleviation)7
o Environmental protection8

o Scientific research

 Redistribution of Wealth and Income: Through progressive tax systems

(where higher earners pay a larger percentage of their income in taxes),
governments can collect more from the wealthy and use those funds to
support social programs that benefit lower-income individuals. 9 This aims to
reduce income inequality.
 Economic Management and Stabilization (Fiscal Policy):
 o Stimulating or Cooling the Economy: Governments can increase
taxes to curb inflation (by reducing disposable income) or decrease
taxes to stimulate economic activity (by increasing disposable income
and encouraging spending/investment).10
o Discouraging Harmful Activities: "Sin taxes" (e.g., on tobacco,
alcohol, sugary drinks) aim to reduce consumption of these goods due
to their negative health or social impacts. 11
o Encouraging Desired Activities: Tax incentives (e.g., for research
and development, green energy investments, charitable donations)
can encourage specific behaviors beneficial to society. 12
 Regulation: Taxes can be used to regulate specific industries or activities,
ensuring compliance with certain standards or limiting environmental impact
(e.g., carbon taxes).13
3. Types of Taxes:
Taxes are broadly categorized into:
 Direct Taxes: Taxes levied directly on the income, wealth, or profit of
individuals or organizations.14 The burden of these taxes cannot easily be
shifted to another party.
o Income Tax: On earnings from employment, business, investments. 15

o Corporate Income Tax: On the profits of companies.16

o Property Tax: On the value of real estate.17

o Estate Tax (Inheritance Tax): On the net value of a deceased

person's property.18
o Donor's Tax: On gifts made during one's lifetime.19

 Indirect Taxes: Taxes levied on goods and services, which are typically
passed on (shifted) to the consumer in the form of higher prices. 20
o Value Added Tax (VAT) / Sales Tax: A tax on consumption, added at
each stage of production and distribution. 21
o Excise Tax: A tax on the manufacture, sale, or consumption of specific
goods (e.g., fuel, cigarettes, alcohol, automobiles). 22
o Customs Duties / Tariffs: Taxes on imported or exported goods. 23

4. Principles (Canons) of Taxation:

Ideal tax systems often adhere to certain principles, originally articulated by Adam
Smith:24
  Equality/Equity: Taxes should be distributed fairly, usually based on the
ability to pay (horizontal equity: those with similar incomes pay similar taxes;
vertical equity: those with higher incomes pay more). 25
 Certainty: The time, manner, and quantity of payment should be clear and
not arbitrary.26 Taxpayers should know what they owe.
 Convenience: The tax should be collected at a time and in a manner most
convenient for the taxpayer.
 Economy: The cost of collecting the tax should be low relative to the
revenue it generates.
Other modern principles include simplicity, efficiency, and flexibility. 27
5. Taxation in the Philippines (as you are in Silang, Calabarzon):
In the Philippines, the primary body for collecting national taxes is the Bureau of
Internal Revenue (BIR), operating under the Department of Finance. 28 Local taxes
(like real property tax, local business taxes) are collected by Local Government
Units (LGUs).29
Recent significant tax reforms in the Philippines include:
 TRAIN Law (Tax Reform for Acceleration and Inclusion): Implemented
in 2018, it lowered personal income tax rates for most Filipinos while
increasing excise taxes on certain goods and services. 30
 CREATE Law (Corporate Recovery and Tax Incentives for
Enterprises):31 Enacted in 2021, it reduced corporate income tax rates and
rationalized fiscal incentives.32
In essence, taxation is the lifeblood of government, enabling it to function, provide
essential services, manage the economy, and influence societal welfare. 33
Understanding its mechanisms and purposes is key to comprehending how modern
societies operate.
In the context of taxation, "rules" refer to the fundamental principles, constitutional
limitations, and statutory provisions that govern how taxes are imposed, collected,
and administered by a government. These rules ensure that the power to tax, which
is inherent in sovereignty, is exercised fairly, justly, and within legal bounds.
Here are the key "rules" or principles of taxation, particularly relevant in the
Philippine context:
I. Fundamental Principles / Characteristics of Taxation (Power of the
State):
1. It is an Inherent Power of the State: The power to tax is not granted by
the Constitution; rather, it is inherent in the very existence of the State. It is
essential for the government's self-preservation and to provide for its citizens.
 2. It is Legislative in Character: The power to enact tax laws exclusively
belongs to the legislative branch of the government (the Congress in the
Philippines). This is embodied in the principle of "No taxation without
representation."
3. It is Territorial: Generally, a government can only impose taxes within its
territorial jurisdiction.
4. It is Subject to Constitutional and Inherent Limitations: While broad,
the power to tax is not absolute. It must be exercised within the bounds of
constitutional provisions and certain inherent limitations. 1
II. Constitutional Limitations (Specific "Rules" from the Philippine
Constitution):
These rules are explicitly stated in the 1987 Philippine Constitution:
1. Due Process of Law (Art. III, Sec. 1):
o Substantive Due Process: The tax must be for a public purpose, and
the imposition must be just and not arbitrary or oppressive.
o Procedural Due Process: The taxpayer must be given proper notice
and an opportunity to be heard regarding tax assessments and
collections.
2. Equal Protection of the Laws (Art. III, Sec. 1):
o All persons subject to taxation shall be treated alike under similar
circumstances and conditions. There must be a valid classification
(e.g., income levels, types of goods) that is based on substantial
distinctions, germane to the purpose of the law, not limited to existing
conditions only, and applies equally to all members of the same class. 2
3. Uniformity and Equitability of Taxation (Art. VI, Sec. 28(1)):
o Uniformity: All articles or properties of the same class shall be taxed
at the same rate.3 This means taxes must operate with the same force
and effect in every place where the subject of it is found. 4
o Equitability: The tax burden must be fair, just, and proportionate to
the taxpayer's ability to pay (vertical equity) and resources (horizontal
equity).
4. Progressive System of Taxation (Art. VI, Sec. 28(1)):
o The State shall evolve a progressive system of taxation. This generally
means that tax rates should increase as the tax base (e.g., income,
wealth) increases.
5. Non-Impairment of Contracts (Art. III, Sec. 10):
 o Tax laws generally cannot violate existing valid contracts, unless the
tax is a valid exercise of police power.
6. Freedom of Religion (Art. III, Sec. 5):
o No law respecting an establishment of religion shall be made. 5 This
includes limitations on taxing properties exclusively used for religious
purposes.
7. Exemption of Certain Entities/Properties (Art. VI, Sec. 28(3) & Art.
XIV, Sec. 4(3)):
o Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, and non-profit cemeteries, and all lands, buildings,
and improvements actually, directly, and exclusively used for religious,
6
charitable, or educational purposes shall be exempt from property
taxation.7 Non-stock, non-profit educational institutions are generally
tax-exempt from income and property taxes, subject to certain
conditions.
8. Non-Imprisonment for Debt or Poll Tax (Art. III, Sec. 20):
o No person shall be imprisoned for non-payment of a poll tax
(community tax).8 However, imprisonment for tax evasion or other tax
violations is allowed.9
9. Granting of Tax Exemptions (Art. VI, Sec. 28(4)):
o Any law granting tax exemptions requires the concurrence of a
majority of all the members of Congress.10 This makes it harder to
grant exemptions, reflecting the principle that tax exemptions are
generally construed strictly against the taxpayer and liberally in favor
of the taxing authority.
10.Local Government Taxation (Art. X, Sec. 5):
o Local government units (LGUs) are empowered to create their own
sources of revenues and to levy taxes, fees, and charges, subject to
limitations provided by Congress.11
III. Inherent Limitations (Implied "Rules"):
These limitations are not explicitly stated but are fundamental to the nature of the
power to tax:
1. Public Purpose: Taxes must always be levied for a public purpose, for the
support of the government or any of its recognized objects. 12
2. Territoriality: The taxing power does not extend beyond the territorial limits
of the taxing authority.13
 3. Exemption of Government Entities: Government agencies and
instrumentalities performing purely governmental functions are generally
exempt from taxation by their own government.
4. Non-Delegation of the Power to Tax: The power to tax, being purely
legislative, cannot be delegated to other branches of government or private
entities. Exceptions exist, such as delegation to LGUs (power to tax), or to the
President (power to fix tariff rates).
5. Situs of Taxation: This refers to the place or authority where the tax is
properly imposed. It guides which jurisdiction has the right to tax a person,
property, income, or transaction.
IV. Principles of a Sound Tax System (Adam Smith's Canons):
While not strictly "rules" in the legal sense, these are guiding principles for
designing an effective and just tax system:
1. Fiscal Adequacy: The tax system should be capable of generating sufficient
revenue to meet the financial needs of the government.
2. Theoretical Justice (Equity): The tax burden should be fairly distributed
among taxpayers based on their ability to pay.
3. Administrative Feasibility/Practicality: The tax laws should be clear,
simple, easy to understand, and capable of efficient and effective
enforcement, with minimal inconvenience to taxpayers.
Understanding these rules is crucial for both governments (in enacting laws) and
citizens/businesses (in complying with tax obligations and asserting their rights).