CHAPTER 1: GENERAL PRINCIPLES OF TAXATION

TAXATION DEFINED  Lifeblood Theory

- without taxes, government cannot exist
Taxation is the process in which citizens (taxpayers) - blood of government is taxes
pay taxes to the sovereign (state) to defray - taxes are the lifeblood of the gov’t and their
government expenses. prompt and certain availability is an imperious
need
Book definitions: - american jurisprudence: without this power no
- Process of imposing burdens within its sovereign state can exist or endure.
jurisdiction for the purpose of raising revenue
for the government.  Symbiotic Theory
- Act of levying a tax to apportion the cost of - also known as the benefits protection theory;
the government among those who are reciprocal theory
privileged too enjoy its benefits. - citizens pay taxes in exchange for government
- Power inherent to every sovereign state. protection
- the reciprocal duties of protection and support
Any constitutional provision in regards to the State’s between the state and its inhabitants
power to tax should not be interpreted as a “grant of - both gov’t and citizens benefit
power”, but a limitation on the State’s power to tax.
Doctrince of Symbiotic Relationship
Government expenses include, but not limited to, the - Taxes are what we pay for a civilized society
following:
 education; Manifestation Of The Lifeblood Theory
 healthcare; a) Rule of “No Estoppel against the Government”
 infrastructure; and - neglect of gov’t officers do not block the
 national defense subsequent correct application of statutes
of the state
Taxes refer to the proportional contribution by - the fault of a gov’t officer is not the fault of
persons and property, as levied by Congress, for the gov’t in whole
support of government.
b) Collection of taxes cannot be enjoined (stopped)
By American Jurisprudence: by injunction
“Power to tax is inherent because it is a necessary - injunction means “court order”
attribute of sovereignty.” - Sec. 218 of the Tax Code: “no court,
except the Court of Appeals (through
administrative remedies when collection
PURPOSE AND THEORIES OF TAXATION could jeopardize the interest of the
government or taxpayer – Sec. 11, RA
Primary Purpose: 1125), shall have the authority to grant an
 To raise revenues injunction to restrain the collection of any
- provide funds or property to the national internal revenue tax, fee or
government charge imposed by the tax code.”
- taxes should be collected without delay
Secondary Purpose: - applied to:
 Regulatory  All collection activities (imposition and
- devise for regulation or control; collection of taxes)
implementation of State’s Police Power  Issuance of warrants of distraint and
 Compensatory garnishment
- to make social equality  Levy on final decisions of the BIR on
disputed assessments, cases filed
*Read Pg. 5 for examples before the CTA, and the sale of
property distrained or garnished
Theories of Taxation:
c) Taxes could not be the subject of compensation
 Necessity Theory or set-off
- existence of government is necessary to have - claim for taxes is not a debt
civilized society - tax is compulsory rather than a matter of
bargain
American Jurisprudence: - government and the taxpayer are not
“The existence of a government is a necessity and mutual creditor and debtor
this power is an essential and inherent attribute of - exception: due, demandable, and fully
sovereignty, belonging as matter of right to every liquidated; compensation takes place by
independent State or government.” operation of law and both obligations are
extinguished
 d) Right to select objects (subjects) of taxation Exceptions to non-delegation rule:
- rests with the Congress a) Delegation to the President
- to be determined by legislature: - authorized by Congress to fix, within
 subject or object to be taxed specified limits and subject such
 purpose of the tax as long as it is a limitations and restrictions as it may
public purpose impose:
 amount or rate of the tax  Tariff rates
 kind of tax  Import and export quotas
 apportionment of the tax  Tonnage and wharfage dues;
 situs of taxation and
 manner, means, and agencies of  Other duties or imposts within
collection of the tax the framework of the national
development program of the
e) A valid tax may result in the destruction of the government.
taxpayer’s property
- the power of tax includes the power to b) Delegation to local government
destroy - LGUs imposing taxes and fess is always
- taxpayer could not seek the nullification of subject to the limitations which
the valid tax solely upon the premise that Congress may provide
the tax will impoverish him - it is not an inherent power
- exception: tax is not destructive of
taxpayer’s property; it is an invalid tax c) Delegation to Administrative Agencies
- certain powers are not really legislative
Invalid tax – violates the inherent or constitutional in nature
limitations; sympathetic court is one to declare - administrative powers:
 value property
 assess and collect taxes
STAGES OR ASPECTS OF TAXATION  perform details of computation,
appraisement
Stages of Taxation:
1) Levy – imposition; legislative d) Subject to Constitutional and inherent
2) Assessment – determination; executive limitations
3) Collection – by BIR; administrative
Paying taxes is mandatory and non-compliance is
Characteristic (Essential Elements) of Tax: met with consequences.
1) Forced Contribution
- State has the right to compel all Tax evasion - intentional dodging of paying taxes;
citizens and property within its limits to therefore, illegal
contribute
- not voluntary payment or donation Tax avoidance - minimizing payment of taxes
- pursuant to legislative authority through means allowed by law; therefore, legal

2) Pecuniary in Nature
- generally payable in money NATURE OF TAXATION AND TAXING POWER
- legal tender
1) Inherent in sovereignty
3) Levied for Public Purpose - can enforce contribution even in the
absence of a constitutional provision
4) Exclusively Levied by Legislature
- by the law-making body of the State 2) Legislative in character
only - peculiarly and exclusively legislative in
- cannot be delegated by the Congress; nature only
doctrine of separation of powers
among the branches of the government

5) Levied within the Territorial and Legal

Jurisdiction of the State
- on persons, property, or the excise of a
right or privilege within the State
(subjects and objects of taxation)

6) Proportionate in Character
- based on the ability to pay theory
- use of graduated tax rates
3) Exemption of government entities, agencies, and Required compensation? No; state imposes
instrumentalities cost of regulation
- immunity for gov’t functions will not be 2) Eminent Domain
impeded (gov will tax itself for itself) Definition: The power to take private property
- rules whether they are subject to tax: for public use with just compensation.
 Agencies performing governmental Authority: may be granted to public
functions are tax exempt unless service/utility companies
expressly taxed. Who bears the burden: Property owner
 Agencies performing propriety Scope: Power to take private property for
functions are subject to tax unless public use
expressly exempted. Effect: Transfer of title
 Governmental owned and controlled Requires compensation? Yes; state towards
corporations (GOCCs) performing the owner
propriety functions are subject,
however, the following were granted 3) Taxation
tax exemptions: Definition: The power to impose and collect
a) Government Service taxes to raise revenue for government
Insurance System functions.
b) Social Security System Authority: Government only.
c) Philippine Health Insurance Who bears the burden: All taxpayers
Corporation Scope: Plenary, comprehensive, supreme
d) Local Water Districts Effect: becomes part of public funds
e) Home Development Mutual Requires compensation? No; state imposes
Fund (Pag-ibig) for its support.

*Pag-ibig = taxable upon CREATE law (Apr. 11, Similarities among the powers:
2021) 1) Inherent
*PCSO = not taxable upon TRAIN law (Jan. 1, 2018) 2) Exist independently of the Constitution
3) State interferes with private rights and
4) International Comity property
- polite and friendly agreement between 4) Legislative
nations 5) Equivalent compensation received, directly or
- property of foreign State may not be taxed indirectly, by persons affected
by another country
- reasonings behind: *Read Pg.3 for further differentiation of powers
 Sovereign equality of States
 State entering another implies they
do not intend to denigrate its dignity NATURE (SCOPE) OF THE POWER TO TAX
by being under the jurisdiction of the
other. Comprehensive
 Immunity from suit of a state. - covers all (persons, businesses, activities,
professions, rights and privileges)
5) Limitation on territorial jurisdiction
- tax laws cannot operate beyond a State’s Unlimited
territorial limits. - in the absence of limitations prescribed by
law
6) Strongest among the inherent powers - courts scarcely venture to declare that it is
subject to restrictions

INHERENT POWERS OF THE STATE Plenary

- it is complete
1) Police Power - fully constituted
Definition:
- the power to enact laws to promote Supreme
public health, safety, morals, and welfare. - in so far as the selection of the subject of
- Restraining and regulating the use of taxation
liberty and property.
- Exercised only by the government
- Property taken in this power is destroyed BRANCHES OF GOVERNMENT
Authority: Government only.  Legislative – creates the law
Who bears the burden: Individuals affected  Executive – implements the law
by the regulation  Judicial – interprets the law
Scope: General power to make and
implement laws
Effects: No transfer of title; restraint
 - not from income from trade, business or
other activity other than education
i) Non-Appropriation of Public Funds or
LIMITATIONS OF TAXATION Property for the Benefit of Any Church, Sect,
Religion
1) INHERENT LIMITATIONS j) No Money Shall Be Paid Out of Treasury
a) Public Purpose (governmental purpose) Except in Pursuance of an Appropriation
- tax must always be imposed for a public k) Concurrence of Majority of All the Members
purpose, otherwise, it is declared as of the Congress for the Passage of Law
invalid. Granting Tax Exemption
- tax must be used for the following: l) Non-Diversification of Tax Collections
 support of the government m) Non-Impairment of the Jurisdiction of the
 recognized objects of the gov’t Supreme Court to Review Tax Cases
 promote the welfare of the n) Appropriation, Revenue, Tariff Bills must
community Originate from House of Representatives, but
b) Exemption of Government the Senate may Propose or Concur with
- gov't should not tax itself for itself Amendments
c) Non-Delegability o) The President shall have the Power to Veto
- The legislative enactment, imposition, or Any Particular Item in an Appropriation,
levying of tax measure Revenue or Tariff
d) International Comity p) LGUs can Create Its Own Sources of
e) State Territory Revenues (Delegation of Taxing Power to
LGUs)
2) CONSTITUTIONAL LIMITATIONS q) Infringement of press freedom
a) Due Process of Law r) Revocation of Tax Exemptions
- valid law and the measure should not be - franchise as such expressed in the law of
unconscionable and unjust, harsh, its exemption may be revoked
oppressive and confiscatory s) Progressive System
- tax statute must not be arbitrary as to - placing emphasis on direct taxes rather
find no support in the Constitution than on indirect taxes, with the ability to
- “right to notice and hearing” pay as the principal criterion
b) Equal Protection of Law
- Persons subject to legislation shall be Regressive System – there is more indirect tax rather
treated with similar circumstances and than direct tax
conditions both in the privileges and
liabilities imposed Poll tax – fixed amount imposed on residents within a
- Prohibits class legislation; members of specific territory
same class are subject to same rate
- not necessarily those who are different Nonprofit non-stock Educational Institutions
in fact be treated in laws as the same exemptions: income, property, donor’s tax and
c) Uniformity and Equity in Taxation custom duties
- rule of tax shall be uniform and
equitable *Proprietary educational institutions – cooperatively,
- uniform application and application entitled to the same exemptions subject to the
without discrimination limitations provided by the law
d) Non-imprisonment for Non-payment of Poll
Tax
- punishable only by a “surcharge” SOUND TAX SYSTEM
e) Non-impairment of Obligations and Contracts 1) Fiscal Adequacy
f) Free Worship Clause - raise the revenue necessary to fund
- prohibition against infringement of public services
religious freedom - sources of revenue must be adequate
- non-payment of license fees for the 2) Administrative Feasibility
distribution and sale of Bibles - tax laws must be capable of effective and
g) Exemption Of Religious, Charitable, Non- efficient enforcement
Profit Cemeteries and Churches and Mosque - clear who and what is being taxed and
from Real Property Taxes how tax burdens them
- basis of exemption is on the use, not on - simple as possible and minimize
the ownership gratuitous complexity
- not exempted from income taxation - complex tax system = harder to monitor
h) Exemption From Taxes of the Revenues and 3) Theoretical Justice (or Equity)
Assets of Non-Profit, Non-Stock Educational - ability to pay principle
Institutions - taxpayer’s ability must be taken into
- revenues and assets used actually, consideration; proportionate to their
directly, and exclusively for educational ability
purposes are exempted
CLASSFICATION OF TAXES DOUBLE TAXATION

As to scope: 1) Direct
1) National – imposed by national government - strict sense; direct duplicate taxation
2) Local – imposed by local units; local power to - taxing twice; legally objectionable for
tax is based on constitutional grant; Local being oppressive and inequitable
Government Code of the Philippines
2) Indirect
As to subject matter: - broad sense; indirect double taxation
1) Personal – poll or capitation; tax of a fixed - not prohibited by the Constitution
amount on individual residing within a - any of the elements is not present
specified territory without regard to property
(community tax) Elements of Double Taxation
2) Property − tax imposed on property, whether 1) Same object
real or personal in proportion to value or 2) Same type of tax
some other reasonable apportionment (real 3) Same purpose
estate tax) 4) Same taxing jurisdiction
3) Privilege/Excise – not a poll tax or property 5) Same tax period
tax; tax on the exercise of a certain rights
and privileges (income tax, estate tax,
donor’s tax, sintax); specific or ad valorem SITUS OF TAXATION
- means “place of taxation”
As to burden: - State or political unit which has
1) Direct – demanded from the person who also jurisdiction to impose particular tax
shoulders the burden; tax cannot be shift to
another Subject Matter Situs
2) Indirect – demanded from one person in Persons Residence of taxpayer
expectation and intention that he shall Real Property Location
indemnify himself at the expense of another; Tangible Personal Location
the liability of the payment falls on one Property
person, but the burden is shifted to another Intangible Personal Domicile (residence) of
(VAT, percentage tax, excise tax) Property owner
Business Place of business
As to amount: Service Place of performance
1) Specific – tax of fixed amount imposed Shares of stock Nationality of issuing
2) Ad Valorem – tax of fixed proportion of the corporation
value of the property Income  Occupation – where
it is engaged in
As to graduation:  Transaction – where
1) Proportional – based on fixed percentages it took place
2) Progressive – graduated; increases as the
Gratuitous transfer Residence or
base increase (directly proportionate)
citizenship of the
3) Regressive – decreases as the base
taxpayer; location of
increases (inversely proportionate)
the property
As to taxing authority:
When Intangible Personal Property has a situs
1) National – under National Internal Revenue
elsewhere:
Code (commonly the Tax Code) collected by
 Franchise, patent, copyrights, trademarks
the Bureau of Internal Revenue
– place or country it is exercised
2) Local – by local government units
 Receivables – domicile/resident of debtor
 Bank deposits – location of depository bank
Other national taxes aside those collected by BIR:
 Customs duties
SOURCE OF TAX LAWS
 Taxes on narcotic drugs
 Special education fund taxes
1) Constitution
 Energy taxes on aircraft, motorized
2) National Internal Revenue Code
watercraft, and electric power consumption
3) Presidential Decree/Executive Order
 Sugar adjustment taxes
4) Tax Treaties
 Travel tax
5) Court Decisions
 Private motor vehicle tax
6) Rulings of the Bureau of Internal Revenue
7) Revenue Issuances
ESCAPE FROM TAXATION TAX VS OTHER CHARGES

1) Tax Evasion/Dodging Tax Debt

- defeat/lessen payment of tax through Definition
illegal or fraudulent means A mandatory charge Money borrowed with a
- punishable by law imposed by the promise to repay
2) Tax Avoidance/Minimization government on
- legally permissible alternatives in order to taxpayers
avoid or reduce tax liability How paid?
- taxing saving device within the means Generally in money May be paid in kind
sanctioned by law Basis
- not punishable by law Law and the state’s By agreement or
3) Shifting inherent power contract
- transfer of the burden of the tax Penalty
- only indirect taxes Imprisonment (except No imprisonment; civil
4) Capitalization poll tax) liability
- reduction of product cost
- reduction in the selling price of income
Tax Permit/License Fee
producing property equal to capitalized
Definition
future value of tax
A mandatory charge Charge imposed under
5) Transformation
imposed by the the police power of the
- taxpayer, usually manufacturer or
government on State for purposes of
producer, pays/absorbs tax, and then later
taxpayers regulation
improving his process of units (efficiency)
to “recoup” what he has paid Purpose
6) Exemption To raise revenue for For regulation
- grant of immunity or privilege government support purposes
- freedom from a financial charge or burden Limit
to which others are subjected Generally no limit Amount limited to
(except inherent and necessary expenses
NATURE OF POWER TO GRANT TAX EXEMPTION constitutional for regulation
1) National Government – attribute to the power limitations)
on who or what persons or property to be Impact of failure to pay
taxed; inherent May result in additional Renders act or
2) Local Governments – not inherent; once charges (e.g. business illegal
power to impose tax is granted, power to surcharge, interest,
exempt is also granted unless forbidden in a etc.)
Constitutional provision
Special assessment is an enforced proportional
Kinds of Tax Exemptions: contribution from owners of lands for special benefits
resulting from public improvements; it is a levy on
As to basis: property which derives some special benefit from the
 Constitutional – immunities from constitution improvement.
 Statutory – immunities from legislation
The purpose of special assessment is to finance such
As to form: improvements accruing to the owners thereof.
 Express – expressly granted by statute
 Implied – particulars fall outside the scope To be clear, a special assessment is not a tax
measure.
As to extent:
 Total – absolute immunity
 Partial – collection of a part of the tax is
dispensed with