Receipt of benefits is conclusively

(unquestionably) presumed
Thus:

• Taxpayers cannot avoid payment of tax

under the defense of absence of benefit
Taxation may be defined as a state power, a
received.
legislative process, and a mode of government cost
distribution. • The direct receipt of actual availability of
government services is not a
❖ AS A STATE POWER precondition.
Taxation is an inherent power of the state to enforce
a proportional contribution from its subjects for THEORIES OF COST
public purposes.
ALLOCATION
Inherent power – the power of a branch of a
government not specifically listed in the constitution 1. Benefit received theory
❖ AS A LEGISLATIVE PROCESS - Presupposes that the more benefit
one receives from the government,
Taxation is a process of levying (imposing) taxes by the more taxes he should pay
the legislature of the State to enforce proportional
contributions from its subjects for public purposes. 2. Ability to pay theory
- Presupposes that taxation should
Legislature – an organized body having the
authority to make laws for a political unit also consider the taxpayer’s ability to
pay.
❖ AS A MODE OF COST DISTRIBUTION - Taxpayers should be required to
Taxation is a mode by which the State allocates its contribute based on their relative
costs or burden to its subjects who are benefited by capacity to sacrifice for the support
its spending. of the government.

The theory of taxation ASPECTS OF THE ABILITY TO PAY THEORY

“A government cannot exist without a system of ❖ VERTICAL EQUITY (Gross concept)
funding. The government’s necessity for funding is - Proposes that the extent of
the theory of taxation. “
one’s ability to pay is directly
proportional to the level of
The basis of taxation
“The government provides benefits to the people
in the form of public services, and the people his tax base.
provide the funds that finance the government. ❖ HORIZONTAL EQUITY (Net concept)
This mutuality support between the people and the
government is referred to as the basis taxation.”
 - Requires consideration of the - Power of the State to enforce
particular circumstance of the proportional contribution from its
taxpayer subjects to sustain itself
❖ POLICE POWER
- The general power of the State to
enact laws to protect the well-being
The lifeblood doctrine of the people

Taxes are essential and indispensable to the

❖ EMINENT DOMAIN
continued subsistence of the government. Without - Power of the State to take private
it, the government would be paralyzed for lack of property for public use after paying
motive power to activate or operate it. just compensation

IMPLICATION OF THE LIFEBLOOD DOCTRINE IN

TAXATION:

1. Tax is imposed even in the absence of

a Constitutional grant
2. Claims for tax exemption are
construed against taxpayers.
3. The government reserves the right to
choose the objects of taxation
4. The courts are not allowed to
interfere with the collection of taxes
5. In income taxation:
a. Income received in advance is
taxable upon receipt
b. Deduction for capital
expenditures and prepayments
is not allowed as it effectively Non-impairment clause
defers the collection of income
The non-impairment clause is contained in
tax
Section 10, Article III of the Constitution, which
c. A lower amount of deduction is
provides that no law impairing the obligation of
preferred when a claimable
contracts shall be passed.
expense is subject to limit
d. A higher tax base is preferred - The non-impairment clause is limited
when the tax objects have in application to laws that derogate
multiple tax bases from prior acts or contracts by
enlarging, abridging (shorten), or in
INHERENT POWERS OF THE any manner changing the intention of
the parties.
STATE - There is impairment if a subsequent
❖ TAXATION POWER law changes the terms of a contract
 between the parties, imposes new
conditions, dispenses with those Two-fold obligations of taxpayers:
agreed upon, or withdraws remedies a. Filing of returns and payment
for the enforcement of the rights of of taxes
the parties. b. Withholding of taxes on
expenses and its remittance
SIMILARITIES OF THE THREE (3) to the government
POWERS OF THE STATE
These can only be demanded and
1. All necessary attributes of sovereignty enforced by the Philippine
2. All inherent (existing as permanent or government upon its citizens and
essential) to the State residents.
3. All legislative in nature Exception to the territoriality principle:
4. All ways in which the State interferes with
a. in income taxation, resident citizens and
private rights and properties
domestic corporations are taxable on income
5. All exist independently of the Constitution derived both within and outside the
and are exercisable by the government even Philippines.
without a Constitutional grant.
b. In transfer taxation, resident citizens, non-
- However, the Constitution may
residents, and resident aliens are taxable on
impose conditions or limits for their transfers of properties located within or
exercise outside the Philippines.
6. All presuppose an equivalent form of
compensation received by the persons 2. International comity
affected by the exercise of the power - Means mutual courtesy or
7. The exercise of these powers by the local reciprocity between them
government units may be limited by the - In the United Nations
national legislature Convention, countries of the
world to co-equal sovereignty
THE LIMITATIONS OF THE wherein all nations are
deemed equal with one
TAXATION POWER another regardless of race,
religion, culture, economic
A. Inherent Limitations
condition or military power
1. Territoriality of taxation - No country is powerful than
Public services are normally the other. Hence:
provided within the boundaries of ✓ Governments do not
the State. Thus, the government can tax the income and
only demand tax obligations upon its properties of other
subjects or residents within its governments
territorial jurisdiction. Extraterritorial ✓ Governments give
taxation will amount to primacy to their treaty
encroachment of foreign sovereignty.
 obligations over their - The legislative taxing power is
own domestic tax laws vested exclusively in Congress
Embassies or consular offices of and is non-delegable, to
foreign governments in the Philippines ensure a system of checks and
including international organizations and balances
their non-Filipino staff are not subject to - The power of lawmaking,
income taxes or property taxes. including taxation, is
delegated by the people to
3. Public Purpose the legislature.
- Tax is intended for the ➢ It is held that what has
common good been delegated
cannot be further
- Taxation must be exercised
delegated.
absolutely for public
purposes. Exceptions to the rule of non-delegation:
- It cannot be exercised to
1. Under the Constitution, local
further any private interest.
government units are allowed
4. Exemption of the to exercise the power to tax to
government enable them to exercise their
- The government normally fiscal autonomy.
does not tax itself as this will 2. Under the Tariff and Customs
not raise additional funds but Code, the President is
will only impute additional empowered to fix the amount
costs. of tariffs to be flexible to trade
- Under the NIRC, government conditions.
properties and income from 3. Other cases that require
essential public functions are expedient and effective
not subject to taxation. administrations and
➢ However, the income implementation of assessment
of the government and collection of taxes.
from its properties B. Constitutional Limitations
and activities
conducted for profit, 1. Due process of law
including income from No one should be deprived of
government-owned his life, liberty or property
and controlled without due process of law,
corporations is Tax laws should neither be
subject to tax. harsh nor oppressive.

5. Non-delegation of the taxing Aspects of Due Process

power a. Substantive due process
 • Tax must be imposed 2. Equal protection of the law
only for public
• Taxpayers should be
purpose, collected
treated equally both
only under authority
in terms of rights
of a valid law and only
conferred and
by taxing power
obligations imposed.
having jurisdiction.
➢ This rule
➢ An assessment
applies where
without a legal
taxpayers are
basis violates
under the
the
same
requirement
circumstances
of due
and
process.
conditions.
b. Procedural due process
• There should be no 3. Uniformity rule in taxation
arbitrariness in - The rule of taxation shall be uniform
assessment and and equitable. Taxpayers under
collection of taxes, dissimilar circumstances should not
and the government be taxed the same.
shall observe the - Taxpayers should be classified
taxpayer’s right to according to commonality in
notice and hearing. attributes, and the tax classification
• Under the NIRC, to be adopted should be based on
➢ Assessments substantial distinction.
shall be made
4. Progressive system of taxation
within three
years from the - Under the progressive system, tax
due date of rates increase as the tax base
filing of the increases.
return or from This system aids in an equitable
the date of distribution of wealth to society by taxing
actual filing, the rich more than the poor.
whichever is
later 5. Non-imprisonment for non-
➢ Collection shall be payment of debt or poll tax
made within five (5) - As a policy (Constitutional
years from the date of guarantee), no one shall be
assessment. imprisoned because of his poverty,
and no one shall be imprisoned for
Failure to observe these rules mere inability to pay debt.
violates the requirement of due process.
 However, it applies only when the This exemption does not extent to income
debt is acquired by the debtor in from religious institutions that are proprietary or
good faith. commercial in nature.
Is non-payment of tax equivalent to non- 8. Exemption of religious or
payment of debt?
charitable entities, non-profit
Non-payment of tax compromises cemeteries, churches and
public interest and is similar to a crime.
While non-payment of debt compromises mosque from property taxes
private interest and arises from private - The Constitutional exemption from
contracts, property tax applies for properties
actually, directly, and exclusively (i.e.
The Constitutional guarantee on non- primarily) used for charitable,
imprisonment for non-payment of debt does religious, and educational purpose.
not extend to non-payment of tax except poll
tax. Doctrine of Use
Poll, personal, community, or residency tax - Wherein only properties actually
Money every adult citizen pays, no devoted for religious, charitable, or
matter their income or specific situation. educational activities are exempt
from real property tax.
Poll tax has two components:
Doctrine of Ownership
a. Basic community tax (non-imprisonment
applied) - The properties of religious,
b. Additional community tax (not applied; charitable, or educational entities
an act of tax evasion punishable by whether or not used in their primary
imprisonment) operations are exempt from real
property tax.
6. Non-impairment of obligation - However, not applied in the
and contract Philippines.

- The State should not set aside its 9. Non-appropriation of public

obligations from contracts by the funds or property for the benefit
exercise of its taxation power. of any church, sect, or system of
Tax exemptions granted
under contract should be honored
religion
and should not be cancelled by a - Intended to highlight the separation
unilateral government action. of religion and the State.

7. FREE WORSHIP RULE - To support freedom of religion, the

government should not favor any
- The Philippine government adopts
particular system of religion by
free exercise of religion and does not
appropriating public funds or
subject its exercise to taxation.
property in support thereof.
- Properties and revenues of religious
institutions are not subject to tax. Not considered religious appropriation:
 Compensation to priests, imams, or religious - However, in the withdrawal of
ministers working with the military, penal tax exemption, only a relative
institutions, orphanages, or leprosarium. majority is required.
10. Exemption from taxes of the 12. Non-diversification of tax
revenues and assets of non- collections
profit, non-stock educational - Tax collections should be used only
for public purpose.
institutions including grants,
- It should never be diversified or used
endowments, donations, or
for private purpose.
contributions for educational
13. Non-delegation of the power
purposes.
taxation
- The Constitution recognized the
necessity of education in state - The principle of checks and balances
building. in a republican state requires that
taxation power as part of lawmaking
- This exemption only applies on
be vested exclusively in Congress.
revenues and assets that are actually,
directly, and exclusively devoted for - However, delegation may be
made on matters involving
educational purposes.
the expedient and effective
The NIRC (National Internal Revenue Code) administration and
also exempts: implementation of
assessment and collection of
❖ Government educational institutions from
taxes.
income tax; but
❖ Subjects private educational institutions to - Also, certain aspects of the
a minimal income tax. taxing process that are non-
legislative in character are
11. Concurrence of a majority of all delegated.
members of Congress for the
14. Non-impairment of the
passage of a law granting tax
jurisdiction of the Supreme
exemption
Court to review tax cases
- The grant of tax exemption must
- Notwithstanding the existence of the
proceed only upon a valid basis.
Court of Tax Appeals, which is a
- As a safety net, the Constitution special court, all cases involving taxes
requires the vote of the majority of can be raised to and be finally
all members of Congress in the grant decided by the Supreme Court of the
of tax exemption, Philippines.
- In the approval of an exemption law, - Republic Act No. 1125 (June
an absolute majority or the majority 16, 1954) created the Court of
of all members of Congress, not Tax Appeals, a special Court
Relative majority / quorum majority mandated to address the
is required. adjudication of appeals
involving internal revenue tax
 and customs cases of the
Commissioner of Internal STAGES OF THE EXERCISE OF
Revenue and the
Commissioner of Customs,
TAXATION POWER
respectively. LEVY OR IMPOSITION
15. Appropriations, revenue, or tariff
- This process involves the enactment
bills shall originate exclusively in of a tax law by Congress and is called
the House of Representatives, impact of taxation.
but the Senate may propose or - Also referred to as the legislative act
concur with amendments. in taxation
- Laws that add income to the national Congress is composed of two bodies:
treasury and those that allows
spending therein must originate from ❖ The House of Representatives; and
the House of Representatives while ❖ The Senate
Senate may concur with As mandated by the Constitutions, TAX BILLS
amendments. must originate from the HOUSE OF
- The origination of a bill by REPRESENTATIVES. Each may, however, have
Congress does not necessarily their own versions of a proposed law which is
mean that the House bill must approved by both bodies, but tax bills cannot
become the final law. originate exclusively from the Senate
- It was held constitutional by
Matters of legislative discretion in the exercise of
the Supreme Court when
taxation
Senate changed the entire
house version of a tax bill. ❖ Determining the object of taxation
16. Each local government unit shall ❖ Setting the tax rate or amount to be
exercise the power to create its collected
own sources of revenue and shall ❖ Determining the purpose for the levy
have a just share in the national which must be public use

taxes. ❖ Kind of tax to be imposed

- This is a constitutional recognition of ❖ Apportionment of the tax between the

the local autonomy of local national and local government
governments and an express ❖ Situs of taxation
delegation of the taxing power. ❖ Method of collection

ASSESSMENT AND COLLECTION

The tax law is implemented by the administrative
branch of the government.

INCIDENCE OF TAXATION OR THE ADMINISTRATIVE

ACT OF TAXATION
- implementation involves assessment or the HOLME’S DOCTRINE
determination of the tax liabilities of taxpayers and
collection. − “taxation power is not the power to destroy
while the court sits”
− taxation power may be used to build or
SITUS OF TAXATION encourage beneficial activities or industries
Situs by the grant of tax incentives (example on
page 15)
− is the place of taxation
− the location of property or an item for legal PROSPECTIVITY OF TAX LAWS
purposes (According to Law Cornell)
− tax laws are generally prospective in
− the tax jurisdiction that has the power to levy
operation
taxes upon the tax object
− serves as reference in gauging whether the − an ex post facto law or a law that retroacts is
tax object is within or outside the tax prohibited by the Constitution
jurisdictions of the taxing authority − exceptionally, income tax laws may operate
retrospectively if so, intended by Congress
EXAMPLES OF SITUS RULES: (Illustrations on pages
under certain justifiable conditions
13-14)
NON-COMPENSATION OR SET-OFF
❖ BUSINESS TAX SITUS – businesses are subject
to tax in the place where the business is − taxes are not subject to automatic set-off
conducted. (offsetting) or compensation
❖ INCOME TAX SITUS ON SERVICES – service fees − taxpayer cannot delay payment of tax to wait
are subject to tax where they are rendered. for the resolution of a lawsuit involving his
❖ INCOME TAX SITUS ON SALE OF GOODS – the gain pending claim against the government
on sale is subject to tax in the place of sale. Exceptions:
a. Where the taxpayer’s claim has already
❖ PROPERTY TAX SITUS – properties are taxable in
become due and demandable such as
their location.
when the government already
❖ PERSONAL TAX SITUS – persons are taxable in
recognized the same and an
their place of residence. appropriation for refund was made
b. Cases of obvious overpayment of taxes
OTHER FUNDAMENTAL c. Local taxes

DOCTRINES IN TAXATION NON-ASSIGNMENT OF TAXES

MARSHALL DOCTRINE − tax obligations cannot be assigned or
transferred to another entity by contract
− “the power to tax involves the power to − contracts executed by the taxpayer to such
destroy” (instrument of police power) effect shall not prejudice the right of the
− it can be used to discourage or prohibit government to collect
undesirable activities or occupation
− However, if it is used solely for the purpose IMPRESCRIPTIBILITY IN TAXATION
of raising revenue, it does not include the
− Prescription is the lapsing of a right due to
power to destroy
the passage of time.
 − The government’s right to collect taxes does − When the language of the law is clear and
not prescribe unless the law itself provides categorical, there is no room for
for such prescription. interpretation.
− However, when taxation laws are vague, the
Under the NIRC (National Internal Revenue doctrine of strict legal construction is
Code), tax prescribes if not collected within 5 observed.
years from the date of assessment.
Vague Tax Laws (No Tax Law)
o In the absence of an assessment, tax
prescribes if not collected by judicial − Construed against the government and in
action within 3 years from the date of favor of the taxpayers.
return is required to be filed. − The Constitutional requirement of due
o However, taxes due from taxpayers process requires laws to be sufficiently
who did not file a return or those who clear and expressed in their provisions
filed fraudulent returns do not
prescribe. Vague Exemption Laws (No Exemption Law)

− Construed against the taxpayers and in

DOCTRINE OF ESTOPPEL
favor of the government.
− Under this, any misrepresentation made by − The claim for exemption is construed
one party toward another who relied therein strictly against the taxpayer in
in good faith will be held true and binding accordance with the lifeblood doctrine.
against the person who made the − He who claims exemption from the
misrepresentation. common burden must justify his claim by
− The government is not subject to estoppel. the clearest grant of organic or statute
− Neglect or omission of government officials law.
entrusted with the collection of taxes should − When exemption is claimed, it must be
not be allowed to bring harm or detriment to shown indubitably (could not be
the interest of the people. doubted) to exist.
− Erroneous applications of the law by public o A well-founded doubt is fatal to
officers do not block the subsequent correct the claim, it is only when the
application of the same. terms of the concession are too
explicit to admit fairly of any
JUDICIAL NON-INTERFERENCE other construction that the
proposition can be supported.
− Generally, courts are not allowed to issue
injunction against the government’s pursuit − Tax exemption must be clear and
to collect taxes as this would unnecessarily unequivocal.
defer tax collection. o A taxpayer claiming a tax
exemption must point to a
− This rule is anchored on the Lifeblood
specific provision of law
Doctrine.
conferring on the taxpayers, in
STRICT CONSTRUCTION OF TAX LAWS clear and plain terms, exemption
from a common burden.
− “Taxation is the rule, exemption is the o Any doubt whether a tax
exception.” exemption exists is resolved
against the taxpayer.
 a. Provision of tax exemption – only one tax is
DOUBLE TAXATION allowed to apply to the tax object while the
− This occurs when the same taxpayer is taxed other tax law exempts the same tax object
twice by the same tax jurisdiction for the b. Allowing foreign tax credit – both the tax
same thing. laws of the domestic country and a foreign
country tax the tax object, but the tax
Elements of Double Taxation payments made in the foreign tax law are
deductible against the tax due of the
1. Primary Element: Same Object
domestic tax law.
2. Secondary Elements:
c. Allowing reciprocal tax treatment –
a. Same type of tax
imposing a reduced tax rates or even
b. Same purpose of tax
exemption if the country of the foreign
c. Same taxing jurisdiction
taxpayer also gives the same treatment to
d. Same tax period
Filipino non-residents therein
Types of Double Taxation d. Entering into treaties or bilateral
agreements – countries may stipulate for a
Direct Double Taxation lower tax rate for their residents if they
− Occurs when all the element of double engage in transactions that are taxable by
taxation exists for both impositions both of them.
− Discouraged because it oppressive and
burdensome to taxpayers. ESCAPES FROM TAXATION
o Believed to counter the rule of equal
− The means available to the taxpayers to limit
protection and uniformity in the
or even avoid the impact of taxation.
Constitution.
Categories of Escapes from Taxation
A. Those that result to loss of government
revenue
❖ Tax Evasion (Tax dodging) refers to
Indirect Double Taxation
any act or trick that tends to illegally
− Occurs when at least one of the secondary reduce or avoid the payment of tax
elements of double taxation is not common
for both imposition
− Prevalent in practice

❖ Tax Avoidance (Tax minimization)

refers to any act or trick that reduces
or totally escaped taxes by any legally
permissible means.

How can double taxation be minimized?

Can be minimized by any one or a combination of
the following:
 ❖ Tax Exemption (Tax holiday) refers to form savings to compensate for the
the immunity, privilege or freedom tax imposition or increase in taxes.
from being subject to tax which
others are subject to. Tax Amnesty
o May be granted by the − general pardon granted by the government
Constitution, law, or contract. for erring taxpayers to give them a chance to
o All forms of tax exemptions reform and enable them to have a fresh start
can be revoked by Congress to be part of a society with a clean state.
except those granted by the
Constitution and those Tax Condonation (tax remission)
granted under contracts.
− forgiveness of the tax obligation of a certain
B. Those that do not result to loss of
taxpayer under certain justifiable grounds.
government revenue
o Because they deprive the
❖ Shifting – process of transferring tax
government of revenues, tax
burden to other taxpayers.
exemption, tax refund, tax amnesty,
Forms of Shifting and tax condonation are construed
against the taxpayer and in favor of
a. Forward Shifting – shifting of tax
the government.
which follows the normal flow of
distribution (from manufacturers to
TAX AMNESTY vs. TAX CONDONATION
wholesalers, retailers to consumers).
o Common with essential AMNESTY CONDONATION
commodities and services Covers both civil and Covers only civil
such as food and fuel. criminal liabilities liabilities of the
b. Backward Shifting – reverse of taxpayer
forward shifting. Operates Applies prospectively
o Common with non-essential retrospectively by to any unpaid
forgiving past balance of the tax;
commodities where buyers
violations hence, the portion
have considerable market
already paid by the
power and commodities with taxpayer will not be
numerous substitute refunded
products. Conditional upon the Requires no payment
c. Onward Shifting - any tax shifting in taxpayer paying the
the distribution channel that exhibits government a portion
forward shifting or backward shifting. of the tax

❖ Capitalization – adjustment of the

value of an asset caused by changes
in tax rates.

❖ Transformation – the elimination of

wastes or losses by the taxpayer to