Taxation

1. A power by which an Independent State,

through its law-making body, raises and
accumulates revenue from its inhabitants
to pay the necessary expenses of the
government
As a power, it refers to the inherent
power of a state, coextensive with
sovereignty to demand
contributions for public purposes
to support the government
2. A process or act of imposing a charge by
governmental authority on property,
individuals or transactions to raise money
for public purposes

Examples of taxation power that cannot

be delegated are the following:

NATURE OF TAXATION POWER

The power to tax is an attribute of sovereignty
that is exercised by the government for the
betterment of the people within its jurisdiction
whose interest should be served, enhanced and
protected.
The nature of tax power includes the following:
1. Inherent power of sovereignty
- It automatically possesses the power
to collect taxes from its inhabitants
- It can enforce contributions from its
citizens even without a specific
provision in the constitution
authorizing it. It is because the state
has the supreme power to command
and enforce obedience to its will from
the people within its jurisdiction
- Only the national government
exercises the inherent power of
taxation of the state.
Local government units do not possess the
inherent power, however:
In order to have the power to tax, there
must be :

units or political subdivisions to

exercise such power (i.e. , Local
Government Code of the Philippines),
in the absence of a Constitutional
Provision.
2. Essentially a legislative function
- The law-making body of the
government and its political
subdivisions exercise the power of
taxation. The powers to enact laws and
ordinances, and to impose and collect
taxes are given to the Congress.
- Cannot be exercised by the executive
or judicial branch of the government
- If delegated to the President, it is
limited to administrative discretion
subject to valid standards

An expressed constitutional provision

granting them the power to tax
Valid delegation of tax power through
the statute from the national
legislature granting local government

a. Power to select the coverage, object or

property to be taxed
b. Determining the nature and purposes
for which taxes shall be collected
c. Determining the place or situs of tax
imposition
d. Fixing the amount to be imposed and
tax rates
e. Granting tax exemptions or
condonations
f. Setting down the rules of taxation in
general
What may not be delegated is the power
to make tax laws to a non-legislative
body.
If the powers delegated are MINISTERIAL
and ADVISORY (such as power to value
property, assess and collect taxes), they shall
be allowed since they are not legislative but
only administrative in nature.
Tax Delegation vs. Tax Administration
If what is delegated is tax legislation, the
delegation is invalid, but if what is involved
is only tax administration, the nondelegability rule is not violated.
3. For public purposes
- Taxes are used to finance
constructions, and maintenance of
roads, health care, education, security,
promotion of science, commerce,

industry, and others for the welfare of

the general public
The legislature has no power to
appropriate public revenues for
anything but for public purpose --general welfare of the nation
In order to consider appropriation of
taxes valid, it must be for the common
good of the people

without money, the government can neither

survive nor dispense any of its other powers
and functions effectively.
Importance of Taxation
Taxation the primary source of government
revenue that is used to effectively and
permanently perform government functions.
Without taxation, the other inherent powers
(police and eminent domain powers) would be
paralyzed.

4. Territorial in operation
The taxing authority must observe tax
situs because the countrys laws are
effective and enforceable only within
the territorial limits
- As a rule, the power to tax can only be
exercised within the territorial
jurisdiction of the taxing authority,
except when there exists a privity of
relationship between the taxing
State and the object of tax based on
the tax principle of reciprocal duties
International Comity the courteous
recognition, friendly agreement, interaction
and respect accorded by one nation to the
laws and institutions of another

5. Tax exemption of government

Exemption from taxation is a grant of tax
immunity to a particular class of persons or
corporations. The States immunity from
taxation is inherent in its power to impose tax.
Tax exemption applies only to government
entities through which the government
immediately and directly exercises its
governmental functions.e.g. AFP
If the government entities are performing
proprietary functions such as NPR and
NPC, they are generally subject to tax in the
absence of tax exemption provisions in their
charters or the law creating them.
6. The strongest among the inherent
powers of the government
Taxation power is the strongest of all
inherent powers of the government because,

Without revenue, there can be no continuing

government. Without government, there can be
no civilization.

BASIS OF TAXATION
1. Based on the Principle of Necessity
The government has a right to compel all its
citizens, residents and property within its territory
to contribute money. It is because the
government cannot exist without any means to
pay its expenses --- a necessary burden to
preserve the States sovereignty.
Taxation is the lifeblood or the bread and
butter of the government and every citizen must
pay his taxes
Their prompt and certain availability is of
the essence.
2. Based on the Principle on Reciprocal
Duties /
Benefits-received
principle (symbiotic relationship and
partnership)
The government collects taxes from the subjects
of taxation in order that it may be able to perform
its functions and provide services to them.
The governments right to tax income emanates
from its being a silent partner in the production of
income through means of providing protection,
proper business climate, and peace and order to
the taxpayers in the making of earnings.
The citizen pays taxes to support the government
in order that he may continuously be sustained
with security and benefits of an organized society.

PURPOSES OF TAXATION
a. Revenue Purpose
The primary purpose is to raise revenue by
collecting funds or property for the support of
the government in promoting the general
welfare and protecting its inhabitants
The fiscal policy of the government is based
on the rule that receipts or revenue should
be equal to annual government expenditures.
The significant portion of the required receipts
is raised from taxation
b. Regulatory purpose (sumptuary)
-the secondary objective of imposing tax
-this objective is accomplished to
regulate inflation
achieve economic and social
stability
serve as key instrument for social
control
The amount of taxes may be increased to curve
spending power and minimize inflation in times of
prosperity.
It may be reduced to expand business and ward
off depression in times of declining economic
condition
Taxes may be imposed to encourage economic
growth by granting tax exemptions, tax relief and
incentives to attract investments that will create
employment
It may be implemented to serve the general
welfare of the people in promoting science and
invention or in financing educational activities or
in improving the efficiency of local police forces
to maintain peace and order through grant of
subsidy.
Taxes may also be used as a tool and weapon
in international relations.
It is an instrument to encourage foreign trade by
providing tax incentives or protect local industries
against foreign competition by imposing
additional taxes on imported goods.

As a tool to protect trade relation, special duties

may be created to protect new conditions, such
as:

1. Discriminatory Duty this special duty

is designed to offset any foreign
discrimination against local our commerce
2. Countervailing Duty it may be
imposed to offset any foreign subsidy
granted to imported goods to the
prejudice of our local industries
3. Marking Duty it is generally imposed as
additional duty tax on imported articles
and/or containers with improper
classifications
4. Dumping Duties it refers to the
additional duty taxes imposed on imported
goods with lower prices compared to their
fair market values to protect local
industries
c. Compensatory Purpose
A tax may be used to make up for the benefit
received.
Taxes may be imposed for the equitable
distribution of wealth and income in the society.
In income taxation, higher taxes are collected
from those who earn more and use the funds
collected for the welfare of the people in general.
In estate taxation, the estate tax reduces the
property received by the successor through the
portion of the property collected by the
government, which is to be used for the benefit of
the public or to defray the expenses of the
government.
Objects of Taxation
1. Persons
a. Natural person individual taxpayers
b. Juridical person includes
corporations, partnerships, and any
association
2. Properties
a. Real properties - immovable
properties such as land and buildings
b. Personal properties movable
properties such as car and other
personal belongings
c. Tangible properties that which
may be felt or touched and are
necessarily corporeal, either real or
personal properties
d. Intangible properties properties
that are rights rather than physical
objects --- patents, stocks, bonds,

goodwill, trademarks, franchises and

copyrights.
3. Excise objects
a. Transaction the act of conducting
activities related to any business or
profession. It may involve selling,
servicing, leasing, borrowing,
mortgaging or lending
b. Privilege a benefit derived through
gratuitous transfer by fact of death or
donation
c. Right a power, faculty or demand
inherent in one person and incidental
to another
d. Interest an advantage accruing
from anything

7. Subject to Constitutional and

Inherent limitations
As an inherent power, its very purpose and
nature restrict taxation. Tax power should be
exercised for its very nature, purpose and
jurisdiction.
Our constitution assumes the existence of
taxation and it also provides some provisions to
limit the exercise of tax power. Its main purpose
is to protect the objects of taxation against its
abusive implementation.

Constitutional Limitations are provisions of

the fundamental law of the land that restrict the
supreme plenary, unlimited and comprehensive
power to tax by the State.
As a rule, the Constitution does not create the
power to tax on the State. Instead, it simply
defines and regulates the exercise of tax
power in order to safeguard the interest of
affected taxpayers.

Constitutional provisions that limit the

exercise of the power to tax:
1. Due Process of Law
No person shall be deprived of life, liberty, or
property without due process of law, not shall
any person be denied the equal protection of
the laws.
It mandates that a fundamental right of
protection that life, liberty or property shall
only be taken away from any person if its
exercise is not contrary to the fundamental
law of the land and it is done after compliance
with the established procedure prescribed by
law.
Due process requires giving notice to the
taxpayer, providing him hearing, so as to
be given fair opportunity to assert his
substantial rights before a competent court
before he shall be denied or deprived of his
property for non-payment of tax.
Substantive due process requires that the
law should be reasonable and not oppressive

Inherent Limitations natural restrictions to

safeguard and ensure that the power of taxation
shall be exercised by the government only for the
betterment of the people whose interest should
be served, enhanced and protected
1. Taxes may be levied only for public
purposes
2. Being inherently legislative, taxation may
not be delegated
3. Tax power is limited to territorial
jurisdiction of the State
4. Taxation is subject to international comity
5. Government entities are generally taxexempt

Procedural requires opportunity to be

heard in proper court of litigation before
judgement is rendered affecting ones person
or property

2. Equal Protection of Law

Equal protection of law means that all
persons subject to legislation shall be treated
alike under similar circumstances and
conditions both in the privileges conferred
and liabilities imposed.

The purpose of this Constitutional mandate is

to protect persons belonging to the same
class against intentional and arbitrary
discrimination.

3. Rule of Uniformity and Equity in

Taxation
The rule of taxations shall be uniform and
equitable. Congress shall evolve a
progressive system of taxation.
A tax is said to be uniform in application if it
operates with the same force and effect in
every place where the subject may be found,
not when it singles out one particular class for
taxation or exemption.
Equality in taxation is similar to
progressive system of taxation. The tax
laws and their implementation must be fair,
just, reasonable and proportionate to ones
ability to pay. (Equity principle --- progressive
tax rate)
The Progressive system of taxation
means that the tax laws shall give emphasis
on the ability-to-pay principle of taxation
whereby more direct rather than indirect
taxes are imposed. E.g. the current individual
income tax system that imposes rates
progressing upwards as the tax base
(taxpayers taxable income) increases.

4. Non-impairment of the Contracts

No law impairing the obligation of contracts
shall be passed.
No law impairing the obligations of valid
contracts shall be passed, is limited in
application to laws that derogate from prior
acts or contracts by enlarging, abridging or in
any manner changing the intention of the
parties.
e.g. when a tax exemption based on a
contract entered into by the government is
revoked by a later taxing statute.
In entering into contracts, the State acts in
the same manner as a private individual or
corporation and may not use its sovereignty

as justification in impairing a valid contractual

obligation which it has assumed.
5. Presidents Veto Power
Every bill passed by the Congress shall,
before it becomes a law be presented to the
President. If he approves the same, he shall
sign it; otherwise, he shall veto it and return
the same with his objections at large in its
journal and proceed to reconsider it.
VETO POWER refers to the Executives
power to refuse to sign into law a bill that has
been passed by a legislature.
2 CLASSIFICATIONS:
a. Item Veto Power the power to veto
items in appropriation bills without
affecting any other provisions of such bills,
and
b. Pocket Veto Power the disapproval of
a bill by inaction of the President which
results that the bill shall fail to become law
If the President vetoed the bill, two-thirds of
the members of the House are required to
make such bill a law.
Under the Constitution, the President does
NOT have the so-called pocket veto power
because his failure to communicate his veto
of any bill presented to him within 30 days
after the date of receipt thereof automatically
causes the bill to become a law.

6. Exemption from Property Taxation

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, charitable
or educational purposes shall exempt from
taxation.
This exemption is granted to them in return
for the benefits they have afforded to the
public welfare.
Tax exemption shall be applicable only to real
property taxes and not to transfer taxes.
Hence, if the land owned by religious order is
sold, it is subject to a final tax of 6% based on

the selling price or fair market value

whichever is higher.
Special assessments are not covered by
the exemption because by nature they are
not classified as taxes.
To be exempted from taxation, the real
property must be exclusively used for
religious, educational and charitable
purposes.
Idle lands or property used by others for
other purposes although owned by religious,
educational and charitable institutions could
be subjected to real estate tax.
The income of such organizations derived
from profit activities or sale of properties,
regardless of the disposition made of such
income, is subject to tax.
Proprietary educational institutions, including
those cooperatively owned, may likewise be
entitled to such exemptions subject to the
limitations provided by law including
restrictions on dividends and provisions for
reinvestment.
7. Public Money Not for Religious
Purposes
No public money or property shall ever be
appropriated, applied, paid or used directly or
indirectly for the use, benefit, or support of
any sect, church, denomination, sectarian,
institution, or system of religion or for the use,
benefit or support 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 institution, or
government orphanage or leprosarium
This limitation is fundamentally supported by
the principle that taxes can only be levied for
public purposes.
Separation of church and state
8. Congress 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.

It shall be observed that the above

Constitutional provision requires the
concurrence of a majority not of the attendees
constituting a quorum but of all the members
of the Congress as a safeguard against the
indiscriminate grant of tax exemptions.
All appropriation, revenue or tariff bills
authorizing increase of the public debt, bills of
local application and private bills shall
originate exclusively in the House of
Representatives, but the senate may propose
or concur with amendments.
9. Supreme Courts Final Judgement in
All Tax Cases
The Supreme Court shall have the power to
review, revise, reverse, modify or affirm on
appeal or certiorari, as the laws or the Rules
of Court may provide, final judgements 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.
No law shall be passed increasing the
appellate jurisdiction of the Supreme
Court as provided in this Constitution without
its advice and concurrence
The POWER OF JUDICIAL REVIEW in
taxation is limited only to the interpretation
and application of tax laws. The judicial
tribunals have no concern on the wisdom of
taxing act. Its power does not include inquiry
on the policy of legislation
Neither can it legitimately question or refuse
to sanction the provisions of any law
consistent with the Constitution

10.No Imprisonment for Non-payment of

Poll Tax
No person shall be imprisoned for debt or
non-payment of a poll tax.
Poll Tax a tax imposed on a person as a
resident within a territory of the taxing
authority without regard to his property,
business or occupation. E.g. community tax

11.Taxes as General Funds of the

Government
All money collected on any tax levied for a
special purpose shall be treated as a
special fund and paid out for such purpose
only. If the purpose for which a special fund
was created has been fulfilled or abandoned,
the balance, if any, shall be transferred to
the general funds of the Government.

Stages, Aspects or Processes of Taxation

1. Levy or Imposition of Taxes involves
the passage of tax laws or ordinances
through the legislature.
the tax laws to be passed shall
determine:

the nature of taxes (kind)

Those to be taxed (subjects
person, property or rights)
The purpose of tax (objective)
How much is to be collected (the
rate and the base of the tax)
How taxes are to be implemented
(the manner of imposing and
collecting tax)
It also involves the granting of tax
exemptions, tax amnesties and tax
remedies that the government and
taxpayers may avail for the proper
implementation of tax measure
This gives the legislature the freedom
to choose the objects of taxation
provided that the law-making body
does not violate any inherent and
constitutional limitations
Examples of tax legislative functions:
a. Prescribing general rules of taxation
b. Selection of the object or subject to be
taxed
c. Determination of the purpose for which
taxes shall be imposed
d. Fixing the amount of the tax and/or tax
rates to be imposed
The power of the President to remit fines and
forfeitures does NOT include CIVIL
PENALTIES regarding non-payment of tax and
other violation of tax laws. Such power embraces
only fines and forfeitures involving criminal
liabilities upon conviction by final judgement

2. Assessment involves the act of

administration and implementation of the
tax laws by the executive through its
administrative agencies such as the BIR or
Bureau of Customs
Generally, taxes are self-assessing. It
means that the taxpayer can compute his
taxes by himself.
Technically, the word assessment, as
used here, means the appraisal and
valuation of the subject of taxation. This
process is important in the determination
of tax prescription, surcharges and
interests to arrive at the specific sum of
tax charged on a person or property in
accordance to prevailing tax law.
3. Payment of Tax is a process involving
the act of compliance by the taxpayer in
contributing his share to defray the
expenses of the government.
- also called tax collection the
process of obtaining payment of tax
- also includes the options schemes or
remedies as may be legally open or
available to the taxpayer
Impact of taxation ---- levy and assessment
Incidence of taxation ---- payment of tax
Assessment and collection aspects that can
be delegated since they are administrative in
nature
Tax administrative functions
a. valuation of property for taxation
b. equalization of assessment
c. collection of taxes
PRINCIPLES OF A SOUND TAX SYSTEM
The fundamental principles of a sound taxation
system based on Adam Smiths Canons of
Taxation are:
A. Fiscal Adequacy --- Govt Revenue =
Govt Expenses
The sources of revenue of the government should
be sufficient to meet the demand of public
expenditures regardless of business condition
Budget Surplus if revenue is greater than
government expenses

Budget Deficit if government expenses are

more than govt revenue
Balanced Budget achieved when revenue
equals the expenditures
B. Equality or Theoretical Justice
This principle states that the tax burden must
be proportionate to the taxpayers ability to
pay
It is based on the philosophy that he who
received more should give more. The
contribution of each individual to the government
should be fair enough according to his earnings
and wealth
Since the Constitution provides that taxation
must be equitable, a tax measure that violates
equality or theoretical justice would make such
tax measure null and void
C. Administrative Feasibility
Tax laws must be convenient, just, uniform and
effective in their administration free from
confusion and uncertainty. Their exercise should
be convenient as to the place, time and mode of
payment, and not burdensome or discouraging to
business. Competent public officials must enforce
them uniformly.
Applications of administrative feasibility are:
a. Collection of taxes at source (withholding
tax)
b. Assigning of duly authorized banks to
collect taxes
c. Quarterly filing and payment of income
taxes
Nature of the governments tax policy fiscal
adequacy and theoretical justice
Tax administration administrative feasibility

CERTAIN DOCTRINES IN TAXATION

1. Prospective application of tax laws
states that a tax bill must only be
applicable and operative after becoming a
law. Thus, the effectivity of the tax law
commences upon its approval and its
scope would only cover the present and
future transactions.

The retroactive application of tax laws

shall not be applied unless there is a clear
intent of the legislature that such law shall
also be imposed on past transactions
Ex-post facto
if the law provides for the infliction of
punishment upon a person for an act
done which, when such act was
committed, is not subject to any
punishment
not applicable for tax purposes. When
it comes to civil penalties like fines and
forfeiture (not including interest), tax
laws may be applied retroactively
unless they produce harsh and
oppressive consequences that violate
the taxpayers constitutional rights
regarding equity and due process.
2. Imprescriptibility of Taxes states that
taxes are not cancellable
- Although the Tax Code provides for the
limitation in the assessment and
collection of taxes imposed such
prescriptive period will only be
applicable to those taxes that were
returnable
- The prescriptive period shall start from
the time the taxpayer files the tax
return and declares his tax liability
- No time limit on the right of the BIR
commissioner to assess taxes on
unreasonable accumulated earnings of
the corporation
3. Double Taxation means an act of the
sovereign by taxing twice for the same
purpose in the same year upon the same
property or activity of the same person,
when it should be taxed once, for the
same purpose and with the same kind of
character of tax.
No constitutional prohibition against
double taxation, hence, it is not a
valid defense against the validity of a
tax measue.
Doubts as to whether double taxation
has been imposed should be resolved
in favour of the taxpayer
Indirect Duplicate Taxation

 double taxation in its broad sense

extends to all cases in which there is a
burden of two or more pecuniary
impositions
usually allowed as long as there is no
violation of the equal protection and
uniformity clauses of the Constitution
It can be counteracted through the
application of:
a.
b.
c.
d.

tax exemptions
reciprocity clause/tax treaty
tax credit
allowance for deductions such as vanishing
deduction in Estate tax

Direct Duplicate Taxation

double taxation in its strict sense

prohibited because it comprises
imposition of the same tax on the
same property for the same purpose
by the same state during the same
taxing period
must be avoided to prevent injustice or
unfairness as it violates constitutional
provisions
There is NO DOUBLE TAXATION in the
following cases:
a. by taxing corporate income and
stockholders dividends from the same
corporation
b. a tax imposed by the state and the local
government upon the same occupation,
calling or activity
c. real estate tax and income tax collected
on the same real estate property leased
for earning purposes
d. taxes are imposed on the taxpayers final
product and the storage of raw materials
used in the production of the final product
4. Escape from Taxation permits the
taxpayer to minimize (if not to escape)
payment of tax by lawful means
a. Tax Evasion taxpayer uses unlawful
means to evade or lessen the payment of
tax. This form of tax dodging is prohibited
and therefore subject to civil and/or
criminal penalties
e.g. non-inclusion of sales, deliberate
fabrication of expenses, and forming an

artificial person to evade taxation or to

deliberately reduce taxable income
b. Tax avoidance/ Tax minimization
reducing or totally escaping payment of
taxes through legally permissible means.
Examples of tax avoidance

Selling shares of stock through a stock

exchange in order to avail of the lower
tax rates
Estate planning within the means
sanctioned by the Tax Code has been
held to be one of permissible tax
minimization

Tax avoidance is valid if used by the

taxpayer in good faith. The law does not
forbid it and it does not constitute tax
fraud.

FORMS OF TAX AVOIDANCE

A. Tax Option taxpayers may choose to
pay lower tax rate in some transactions as
permitted by Tax Laws.
For instance, a taxpayer who sells
investments in stocks directly to the buyer
may opt to pay 5% to 10% tax based on
capital gains, but if he opted to sell the
investments in stocks through stock market,
he is required to pay a tax of of 1% based
on the selling price

B. Shifting the transfer of tax burden to

another; the imposition of tax is
transferred from the statutory taxpayer to
another without violating the law. This is
best exemplified by indirect taxes like
value-added tax (VAT)
C. Transformation the producer absorbs
payment of tax to reduce prices and to
maintain market share. He recovers his
additional tax expense by improving the
process of production. The tax is
transformed into a gain through the
medium of production
D. Exemption

5. Exemption from taxation denotes a

grant of immunity, expressed or implied to
a particular person, corporation or to
persons or corporations of a particular
class, from a tax upon property or on
excise which persons and corporation
generally within the same taxing district
are obliged to pay
Tax exemptions are generally granted in the
basis of:
a. Reciprocity
b. Public Policy
c. Contracts
Tax exemptions and equivalent provisions
deductions, tax amnesty and tax condonations
are governed by the following principles:

They are not presumed

When granted, they are strictly
construed against the taxpayer
They are highly disfavoured and may
almost be said to be directly contrary
to the intention of tax laws

The state, through its law-making body has full

power to exempt any person, corporation or class
of property from taxation
Classification of Tax Exemption
1. Expressed exemption statutory laws
in nature as provided by constitution,
statute, treaties, ordinances, franchises or
similar legislative acts
2. Implied exemption or by omission
either intentional or accidental. This occur
when tax is imposed on a certain class of
persons, properties or transactions without
mentioning other classes
3. Contractual exemption those lawfully
entered into by the government in
contracts under existing laws. Tax
exemptions on franchises are not covered
by such exemption.
6. Equitable Recoupment tax claim for
refund, which is prevented by prescription,
may be allowed to be used as payment for
unsettled tax liabilities if both taxes arise
from the same transaction in which
overpayment is made and underpayment

is due. This does not apply if taxes are not

related.
7. Set-off taxes taxes are not subject to
set-off or legal compensation because the
government and the taxpayer are not
mutual creditor and debtor of each other.
Exceptions:
a. Where both the claims of the govt
and the taxpayer against each other
have already become due,
demandable and fully liquidated
b. When there is an actual compromise
between the taxpayer and the tax
officer
8. Taxpayer suit effected through court
proceedings could only be allowed of the
act involves a direct and illegal
disbursement of public funds derived from
taxation.
The following legal questions would be
improper to be classified as taxpayer suit:
a. Where the disbursement does not involve
funds raised by taxation
b. To stop the Commission on Election from
holding an exercise of suffrage or question
its inaction to call a special election
9. Compromise
The following may compromise in
behalf of the government:
a. BIR commissioner
b. Collector of Customs
c. Customs Commissioner
d. Local Government Code
10.Power to Destroy based on the
Marshall Dictum which states that the
power to tax includes the power to destroy
because the taxpayer has no option but to
pay the tax imposed to him.
Power to build under the Holmes
Doctrine, the tax power should not be
viewed as a power to destroy. The burden to
pay tax is only a means to nation building and
a consequence of taxation.

Sustains the upliftment of social

condition of the people in general
Continuously supports the other
inherent powers of the State that

preserves the fundamental rights of

the people
Situs of taxation refers to the place of
taxation, or the state or political unit which has
jurisdiction to impose tax over its inhabitants
The following factors are determinants to
the situs of taxation:
1. NATURE, KIND, OR CLASSIFICATION
OF THE TAX BEING IMPOSED
2. SUBJECT MATTER OF THE TAX
3. SOURCE OF THE INCOME BEING
TAXED
4. PLACE OF THE EXCISE, PRIVILEGE,
BUSINESS OR OCCUPATION BEING
TAXED
5. CITIZENSHIP
6. RESIDENCE

Essential Characteristics of Taxes

1. Enforced Contribution the imposition
shall not be dependent upon the will of the
taxpayer
2. Imposed by the legislative body the
Congress makes the laws
3. Proportionate in Character the
ability to pay principle is the basic rule
in collecting taxes. Those who earn more
contribute to the governments coffer
more than those with lesser earnings
4. Payable in the form of money money
is the preferred payment of taxes. If
property is taken to satisfy tax liability, the
property is sold through public auction to
satisfy the tax obligation
5. Imposed for the purpose of raising
revenue taxes are the primary source of
government funds to finance its
expenditures and projects
6. Used for a public purpose money is
taken from the public so it can be returned
to them in the form of public benefits.
7. Enforced on some persons, properties
or rights objects of taxation are either
tangible or intangible properties, including
business transactions
8. Commonly required to be paid at
regular intervals the dates for paying
of taxes are fixed by the law to comply
with the principle of administrative
feasibility

9. Imposed by the sovereign state

within its jurisdiction the enforcement
of tax is subject to territorial jurisdiction
and international comity

Classification of Taxes
1. As to purpose
a. Revenue or Fiscal these taxes are
imposed solely for the purpose of
raising revenue for the government.
E.g. income tax, transfer tax, VAT
b. Regulatory, Special or Sumptuary
these taxes are imposed for the
purpose of achieving some social or
economic goals having no relation to
the raising of revenue. E.g. customs
duties, protective tariff on imports to
control foreign trade and excise tax
c. Compensatory taxes may be
imposed for the equitable distribution
of wealth and income in the society.
2. As to Object or Subject Matter
a. Personal, Poll, or Capitation
these taxes are fixed in the amount
and imposed on persons residing
within a specified territory regardless
of the amount of their property or their
occupation or business. E.g.
Community tax
b. Property these taxes are imposed
on personal or real property based on
its proportionate value or in
accordance with some other
reasonable method of apportionment.
E.g. Real Estate Tax
c. Excise these taxes are imposed
upon the performance of a right or act,
the enjoyment of a privilege or the
engagement in an occupation. E.g.
professional tax, income tax, estate
tax, donors tax and VAT
3. As to Determination of Amount
a. Ad Valorem these taxes are fixed
amounts in proportion to the
value of the property with respect
to which the tax is assessed. It
requires the intervention of assessors
to estimate the value of such property
before the amount due from each

b.

4. As
a.

b.

taxpayer can be determined. E.g. Real

Estate tax, Custom Duties and Excise
tax on fermented liquors, cigars,
cigarette, gasoline and automobiles.
Specific these taxes are fixed
amounts imposed and based on
some standard of weight or
measurement, head or number, length
or volume. It requires independent
assessment other than a listing or
classification of the subject to be taxed
like excise taxes on distilled spirits,
wines, fireworks, and cinematographic
films
to who Bears the Burden
Direct these are non-transferable.
They are demanded from persons who
are bound by law to pay the tax. The
liability for the payment of tax as well
as the burden of the tax falls on the
same person. E.g. community tax,
income tax, transfer taxes, travellers
tax, and corporate income tax
Indirect these taxes are
transferable. The liability for the
payment of tax falls on one person but
the burden thereof can be shifted or
passed to another

5. As to Scope or Authority Collecting

the Tax
a. National those taxes collected by
the National Government
i.
Estate and Donors taxes
ii.
Income tax
iii.
Value-added tax
iv.
Excise tax
v.
Customs duties
vi.
Documentary Stamp Taxes
b. Local or Municipal those taxes
collected by the municipal
governments
i.
Community taxes
ii.
Municipal license taxes
iii.
Professional tax
iv.
Real estate tax
6. As to Rate or Graduation
a. Proportional or Flat Rate the rate
of the tax is based on a fixed
percentage of the amount of the
property, receipt or other basis to be
taxed. E.g. Real estate tax and VAT
b. Progressive or Graduated Rate
the rate of the tax increases as the tax

base or bracket increases. E.g. income

taxes, estate taxes and Donors Taxes
c. Regressive Rate the rate of tax
decreases as the tax base or bracket
increases. There is no regressive tax in
the Philippines
d. Digressive Rate a fixed rate is
imposed on a certain amount but
diminishes gradually on sums below it.
In digressive rate, the tax rate is
arbitrary because the increase in tax
rate is not proportionate to the
increase of tax base
e. Mix Tax it is a tax system that uses
a combination of the different tax rates

Other Charges/Fees
1. Penalty is any sanction imposed, as a
punishment for violations of law or
acts deemed injurious. It arises from law
and/or contracts. It is imposed to regulate
conduct through punishment and
suppression of injurious acts or unlawful
behaviours. The government or a private
person may impose it.
2. Revenue refers to all funds or income
derived by the government whether
from tax or from other sources. For
example, all national internal revenue
taxes, financial assistance from another
government, donations from private
individuals, commercial revenues like tolls,
postage, price paid for goods and services
produced by government-owned
enterprises and administrative revenues
like penalties and forfeitures
3. Debt is an obligation to pay or
render service for a definite future
period of time based on contract. It is
payable in money or in kind, subject to
legal compensation, and may be assigned
4. Toll is a compensation for the use of
somebody elses property determined
by the cost of the improvement. It is a
demand of proprietorship as compensation
for the use of property, which may be
imposed by a private individual or entity
or the government

5. License fee a contribution enforced by

the government primarily to restrain and
regulate business or occupation. It is
required for the commencement of a
business or profession rendering the
business illegal in case of non-payment. It
is always subject to revocation
6. Custom duties - are imposition on
imported goods brought into the country
to protect local industry. Taxes are broader
than customs duties because all customs
duties are taxes but not all taxes are
customs duties
7. Subsidy a monetary aid directly granted
or given by the government to an

individual or private commercial

enterprises deemed beneficial to the
public. A subsidy is not a tax although a
tax may have to be imposed to pay it.
8. Tariff a schedule or list of rates, duties
or taxes imposed on imported goods.
9. Margin fee a tax on foreign exchange
designed to curb the excessive demands
upon our international reserves

10. Special Assessment is an amount

collected by the government for the
purpose of reimbursing itself for certain
extended benefits regarding construction
of public works. It is levied only on land
and not a personal liability of the person
assessed.