Chapter 1 General Principles of

Taxation
A. Taxation
Definition
Taxation is the process or means by
which
the
sovereign,
through
its
lawmaking body raises income to defray
the
necessary
expenses
of
the
government.
Purpose of Taxation
1. Primary Purpose
To provide funds or property with
which to promote the general
welfare and protection of its
citizens and to enable it to finance
its multifarious activities.
2. Secondary Purposes
a. To
strengthen
anemic
enterprises
by
giving
tax
exemptions.
b. To
protect
local
industries
against
foreign
competition
through impositions of high
customs duties on imported
goods.
c. To reduce inequalities in wealth
and
income
by
imposing
progressively higher tax rates.
d. To
prevent
inflation
by
increasing taxes or ward of
depression by decreasing them.
Scope of Taxation
In the absence of constitutional
restrictions and subject to the will of the
legislative bodies with whom it is
entrusted and the discretion of the
authorities which exercise it, the power
of taxation is unlimited comprehensive,
plenary and supreme, the principal check
upon
its
abuse
resting
in
the
responsibility of the members of the
legislature to their constituents.

Since the power of taxation is the

strongest of all the powers of the
government, the legislature is free to
select the subjects or objects to be taxed.
They may be persons, whether natural or
juridical; property; whether real or
personal,
tangible
or
intangibles;
business,
transactions,
rights,
or
privileges.
It is of course to be admitted for all
its plentitude, the power to tax is not
without restrictions. Despite all tenacity,
taxation is nonetheless subject to
established limitations, such as those
inherent in the power itself or mandated
by the constitutional precepts.
Theory and Basis of Taxation
1. Theory- The power of taxation proceeds
upon the theory that the existence of the
government is a necessity; that it cannot
continue without means to pay its
expenses; and that it has a right to
compel all its citizens and property within
its limits to contribute.
2. Basis- The basis of taxation is found on
the reciprocal duties of protection and
support between the state and its
inhabitants. The state receives taxes that
it may be enabled to carry out its
mandates into efect, and perform
functions of government and the citizen
pays the portion of taxes demanded in
order that he may, by means thereof, be
secured in the enjoyment of benefits of
an organized society. This is otherwise
known as benefit-received principle.
Basic Principles of a Sound Tax
System
1. Fiscal adequacy. The sources of revenue
should be sufficient to meet the demands
of public expenditures. This can be
obtained by creating news taxes or new
tax machinery, or by merely changing

the rates applicable to existing taxes so

that the revenue would substantially
respond to the expanding needs of public
expenditures.
2. Equality or Theoretical Justice. The tax
burden should be proportionate to the
taxpayers ability to pay (Ability-to-Pay
Principle).
3. Administrative Feasibility. The tax laws
should be capable of convenient, just and
efective administration. Each tax should
be clear and plan to the tax payer,
capable of uniform enforcement by
government officials, convenient as to
time, place, and manner of payment, and
not unduly burdensome upon, or
discouraging to business activity.
Nature or Characteristic of the
States Power to Tax
1. It is inherent in sovereignty. The power of
taxation may be exercised by the State
although not expressly granted by the
constitution.
2. Legislative in character. It is only the
legislature that can enact tax laws.
3. Subject to constitutional and inherent
limitations. Taxation is not an absolute
power that can be exercised by the
legislature anyway it pleases.
Limitations on the Power of Taxation
1. Constitutional
limitations.
Those
restrictions found in the constitution or
implied from its provisions.
2. Inherent limitations. Those which restrict
the power although they are not
embodied in the constitution.
Constitutional Limitations
1. Due process. No person shall be deprived
of life, liberty, or property without due
process of law, nor shall any person be
denied the equal protection of the law.
2. Equal
protections
of
laws.
The
constitutional
provision
on
equal

3.

4.

5.

6.

7.

provision on equal protection of laws

means that no person or class of
persons shall be deprived of the same
protection of laws enjoyed by other
persons or other classes in the same
place in like circumstances.
Rule of uniformity and equity in taxation.
The rule of taxation shall be uniform and
equitable. The Congress shall evolve a
progressive
system
of
taxation.
Uniformity of taxation means that all the
taxable persons or property of the same
class shall be taxed at the uniform or
same rate. There is uniformity of taxation
when the tax operates with the same
force and efect on this subject wherever
found.
Non-imprisonment for non-payment of
poll tax. No person shall be imprisoned
for debt or non-payment of a poll tax.
Non-impairment of the obligations of
contracts.
No law impairing the
obligations of contracts shall be passed.
There is impairment when a law
substantially invalidates releases or
extinguishes the obligations of a
contract, or that derogates substantial
contractual rights.
Non-infringement of religious freedom.
No law shall be made respecting the
establishment of religion, or prohibiting
the free exercise thereof. The free
exercise of religious profession and
worship,
without
discrimination
or
preference shall forever be allowed. No
religious test shall be required for the
exercise of civil or political rights.
No appropriation for religious purposes.
No public money or property shall be
appropriated, applied, paid or employed,
directly or indirectly, for the same use,
benefit, or support of any sect, church,
denomination, sectarian, institution, or
system of religion, or of any priest,
preacher, minister, or other religious

teacher, or dignitary as such, except

when such priest, preacher, minister, or
dignitary is assigned to the armed forces,
or
to
any
penal
institutions
or
government orphanage or leprosarium.
8. Exemption of religious, charitable or
educational
entities,
non-profit
cemeteries, and churches from taxation.
Such are shall be exempt from taxation.
The word exclusive means primarily
rather than solely. Thus, the admission of
pay patients does not detract from the
charitable character of a hospital if all its
funds are devoted exclusively to the
maintenance of the institution as a public
charity.
9. Exemption of revenues and assets of
non-stock,
non-profit
educational
institutions and donations for educational
purposes from taxation. All revenues and
assets
of
non-stock,
non-profit
educational institutions used actually,
directly, and exclusively for educational
purposes shall be exempt from taxes and
duties. Upon the dissolution or cessation
of the corporate existence of such
institutions,
their
assets
shall
be
disposed of in the manner provided by
law.
10.
Concurrence by a majority of all
the members of the congress for the
passage of a law granting tax exemption.
No law granting any tax exemption shall
be passed without the concurrence of a
majority of all the members of the
congress.
11.
Power of the President to veto any
particular item or items in a revenue or
tariff bill. The President shall have the
power veto any particular item or items
in an appropriation, revenue or tarif bill,
but the veto shall not afect the item or
items to which he does not object.
12.
Non-impairment of the jurisdiction
of the Supreme Court in tax cases. The

Supreme Court shall have the power to

review, revise, reverse modify or affirm
on appeal or certiorari as the law or the
Rules of Court may provide, final
judgments and orders of lower courts in
all cases involving the legality of any tax
impost, assessment, or toll, or any
penalty imposed in relation thereto.
Inherent Limitations on the Power of
Tax
1. Requirement that levy must be for public
purpose.
2. Non-delegation of the legislative power
to tax.
The rule is potestas delegate non
delegare potest- what has been
delegated cannot be delegated.
The people created a legislative
department for the exercise of
legislative power. Thus, this power
should not be delegated to any
other person or body. However,
delegation of
this
power is
permitted in the following cases:
a. Delegation to the President. The
congress may be law authorize
the President to fix within
specified limits, and subject to
such limitations and restrictions
as it may impose tarif rates,
import and export quotas,
tonnage and wharfage dues.
And other duties or imposts,
within the framework of the
national development program
of the government.
b. Delegation
to
local
governments. The reason for
this is that local legislatures are
in a better position to enact
necessary
and
appropriate
legislation considering that they
are more knowledgeable that

the national lawmaking body on

matters of purely local concern.
c. Delegation to administrative
bodies. This is otherwise known
as the power of subordinate
legislation. To be valid:
(1)The delegations must be
complete in itself, setting
forth therein the policy to be
executed, carried out, or
implemented
by
the
delegate.
(2)The law must fix a standard
limits of which are sufficiently
determinate
and
determinable to which the
delegate must conform in the
performance of his functions.
3. Exemption from taxation of government
entities.
4. International comity.

The term comity means recognition

or respect accorded by one
jurisdiction within its territory over
the law of another because they
are
sovereign
equals.
As
a
consequence
of
international
comity, no
state can claim
jurisdiction over another.
5. Territorial jurisdiction.
Aspects of Taxation
1. Levy. Deals with the provisions of law
which determines the person or property
to be taxed, the sum or sums to be
raised, the rate thereof, and the time and
manner levying, receiving and collecting
the taxes.
2. Collection. Constituted of the provisions
of law which prescribe the manner of
enforcing the obligation on the part of
those taxed to pay the demand this
created.