MINDANAO STATE UNIVERSITY 1.

They are inherent in sovereignty; (they can be

General Santos City exercised even without being expressly granted in
College of Business the Constitution.)
Administration and Accountancy 2. They are all necessary attributes of sovereignty
Department of Accountancy because there can be no effective government
without them;
3. They constitute the three ways by which the
state interferes with private rights and property;
ACT103: FUNDAMENTALS OF INCOME 4. They are all legislative in nature and character;
TAXATION and
GENERAL PRINCIPLES OF TAXATION 5. They presupposes an equivalent
First Part compensation.
.
OVERVIEW Power of Taxation
Before entering Taxation, you need to finish this I. TAXATION DEFINED
chapter. This will serve as your general Taxation is the process or means by which a
knowledge about taxation. It’s a sort of mind sovereign state, through its lawmaking body,
conditioning wherein you will be able to know imposes burdens upon subject and objects within
what taxation is all about. It’s more on answering its jurisdiction for the purpose of raising revenue
the why’s and what’s of taxation. All learnings to carry-out the legitimate objects of the
you’ll get with this module will be beneficial for government.
you as you go along with the subject
1. It is a POWER, it refers to the inherent power
ABSTRACTION of a state, co-extensive with sovereignty to
Inherent Powers of the State demand contributions for public purposes to
When a sovereign state is born, it exists with support the government;
indispensable powers necessary for its survival.
The powers are: 2. It is a PROCESS; it passes a legislative
1. Police Power – the power to protect and undertaking through the enactment of tax laws by
provide safety and welfare of society. It refers to the Congress which will be implemented by the
the power of a sovereign state to legislate for the Executive Branch of the government through its
protection of health, welfare and morals of the Bureau of Internal Revenue (BIR) to raise
community. It is exercised usually to guard revenue in order to pay the necessary expenses
against excesses or abuses of individual liberty. of the government. (Enactment or Imposition:
Examples of police power are preservation of Legislative via Congress. Implementation:
natural resources, segregation of lepers from the Executive via BIR)
public, imprisonment of convicted criminals, and
regulation pf various professionals. 3. It is a MEANS; it is a way of collecting and
apportioning the cost of government among those
2. Eminent Domain Power – the power to take who are privileged to its benefits.
private property with just compensation for public
use. It is base on the idea that the common II. PURPOSES OF TAXATION
necessities and interests of the community 1. Primary Purpose: Revenue or Fiscal Purpose -
transcend individual rights in property. The state The primary purpose of taxation is to raise fund
may expropriate private property when it is for the government to defray its legitimate
necessary in the interest of national welfare. expenses. A government will be paralyzed
Since eminent domain is inherent in sovereignty, without funding, it will be unable to perform its
pertinent provisions om the Constitution are not duty which is to promote general welfare and
grants of power but rather limitations upon its protection to its citizens. A government can run its
exercise. administrative set up only through funding which
is collected in the form of tax.
3. Taxation Power – the power to enforce
contributions to support the government, and 2. Secondary Purpose: Regulatory Purpose –
other inherent powers of the State. (see PART 2 taxation is often use to for regulation or control by
for more discussion about the Power of Taxation) means of which certain effects or conditions
envisioned by the government may be achieved
such as: promotion of general welfare, reduction
of social inequality, and economic growth.
Similarities among Taxation, Eminent Domain, Example: Cigarettes or sin products are seemed
and Police Power to be harmful to individuals, the government may
use taxation to minimize sin product consumption
by imposing higher taxes on these commodities 5. Prohibition Against Impairment of
(sin tax); Obligations of Contracts
No law impairing the obligation of
III. THEORY and BASIS of TAXATION contracts shall be passed. The obligation of
1. Theory: Lifeblood Theory or Necessity Theory contract is impaired when its terms and condition
It says that the power of taxation proceeds upon are changed by law or by a party without the
the theory that the existence of government is a consent of the other, thereby weakening the
necessity. The government cannot continue to position or rights of the latter.
perform its basic functions of serving and
protecting its people without means to pay its 6. Prohibition Against Infringement of
expenses. Consequently, the State has the right Religious Freedom
to compel all its citizens and property within its No law shall be made respecting an
limit to contribute. establishment of religion, or prohibiting the free
exercise thereof. The free exercise and
2. Basis of Taxation: Benefits Received or enjoyment of religious profession and worship,
Reciprocity Theory without discrimination preference, shall forever be
It says that the government provides benefits to allowed.
the people in the form of public services and the
people to provide the funds that finance the
government. The concept is illustrated below:

TAXES
GOVERNMENT PEOPLE

PUBLIC SERVICES
7. No Money Shall be Appropriated for
Religious or Private Purpose
No public money or property shall be
appropriated, applied, paid, or employed directly
POWER OF TAXATION LIMITATIONS or indirectly, for the use or benefit, or support of
any church, denomination, sectarian institution or
I. CONSTITUTIONAL LIMITATIONS: system of religion, or of any priest, preacher,
1. Due Process of Law minister or other religious teacher, or dignitary as
There must be a valid law and the such except when such priest, preacher, minister
measure should not be unconscionable and or dignitary is assigned to AFP, or to any penal
unjust as to amount to confiscation of property. institution, or government orphanage or
The power to tax should not be harsh, oppressive leprosarium.
or confiscatory.
8. Exemptions form Property Taxation of
2. Equal Protection of the Law Charitable institutions, Churches, Educational
All persons subject to legislation shall be Entities, Convents, Non-profit Cemeteries
treated alike under similar circumstances and Charitable institutions, churches and
conditions both in the privileges conferred and parsonages or convents appurtenant thereto,
liabilities imposed. mosques, non-profit cemeteries, and all lands,
buildings and improvements, actually, directly,
3. Rule of Uniformity and Equality in Taxation and exclusively used for religious, charitable, or
The rule of taxation shall be uniform and educational purposes shall be exempt from
equitable. It requires the uniform application and taxation.
operation, without discrimination of the tax in
every place where the subject of the tax is found. 9. Prohibition against Taxation of Non-Stock,
non-profit educational institutions
4. No Imprisonment for non-payment of Poll All revenues and assets of non-stock, non-
Tax profit educational institutions used actually,
No person shall be imprisoned for debt or directly, and exclusively for educational purposes
non-payment of poll tax. shall be exempt from taxes and duties.
 Taxing system of a sovereign state may
10. No Law granting tax exemption shall be honor International Comity with other foreign
passed without the concurrence of a majority sovereign state.
of all Members of Congress
PRINCIPLE OF A SOUND TAX SYSTEM
11. Power of the President to Veto any The fundamental principles of a sound taxation
Particular Item or items om a revenue or tariff system based on Adam Smith’s Canons of
bill Taxation are:
1. FISCAL ADEQUACY
12. Non-impairment of the jurisdiction of the The principle of Fiscal Adequacy states
Supreme Court In tax cases that the sources of revenue of the government
Congress cannot take away from the should be sufficient to meet the demand of public
Supreme Court the power given to it by the expenditures regardless of business conditions.
constitution as the final arbiter of tax cases. The revenue of the government should be
capable of expanding or contracting annually in
13. Revenue Bills shall originate exclusively response to variations in public expenditures.
from the House of Representatives
All appropriation, revenue or tariff bills, 2. EQUALITY OR THEORITICAL JUSTICE
bills authorizing an increase of public debt, bills of The principle states that the tax burden
local application, and private bills shall originate must be proportionate to the taxpayer’s ability to
exclusively in the House of Representatives, but pay. It is based on the philosophy that “he who
the Senate may propose or concur with received more should give more”. The
amendments. contribution of each individual to the government
should be fair enough according to his earnings
II. INHERENT LIMITATIONS: and wealth.
1. The tax must be for public purpose
The power of taxation flows forth from the 3. ADMINISTRATIVE FEASIBILTY
legitimate objective of supporting services of the Tax laws must be convenient, just, uniform
government. Public taxes are public money. They and effective in their administration – free from
must be used to finance recognized public needs. confusion and uncertainty. Their exercise should
It has been held that tax has been utilized for be convenient as to the place, time and mode of
public purpose of the welfare of the nation or the payment, and not burdensome or discouraging to
greater portion of its population has benefited with business. Competent public officials must enforce
its use. them uniformly.

2. The levy must apply within its territorial SITUS OR PLACE OF TAXATION
limits for the exercise of the effective tax It means place of taxation. It is the state or
jurisdiction political unit which has jurisdiction to impose a
The taxis authority must observe “tax situs” particular tax. The state where the subject to be
because the country’s tax laws are effective and taxed has a situs may rightfully levy and collect
enforceable only within its territorial limits. the tax.

3. Exemption from taxation of the Government FACTORS TO CONSIDER in DETERMINING

Agencies performing Governmental Functions SITUS:
Exemption from taxation is a grant of tax 1. Subject matter
immunity to a particular class of persons or 2. Nature of Tax
corporations. The State’s immunity from taxation 3. Citizenship
is inherent in its power to impose tax. 4. Residence of the Taxpayer
5. Source of Income
4. Non-Delegation of Power to Tax 6. Place of Exercise, business or occupation to be
In its strict sense, the power to make tax taxed
laws cannot be delegated to other branches of
REFERENCES
the government. Since peculiarity and exclusively
legislative in nature, the power to make tax laws BIBLIOGRAPHY Tabag, E. D. (2019). INCOME
cannot be exercised by the executive or judicial TAXATION. Manila: Info Page.
Valencia, E. G. (2017). Income Taxation. Baguio City: Valencia Educational
branch of the Government. Supply.

5. International Comity

JIBRAN A. TOMINDUG, CPA

Instructor II