General Principles of Taxation

Taxation

is the inherent power of the state by which the sovereign, through its law-making body, raises revenue to defray the necessary expenses of the government

Taxation

is defined as the process or means by which the sovereign (independent state), through its law making body (the legislature), imposes burdens upon subjects (natural and juridical) and objects (properties, privileges, rights, transactions and interests) within its jurisdiction for the purpose of raising revenues to carry out the legitimate objects of the government.

strictissimi juris

strictest interpretation of the law

Section 5, Article X

provision in the Constitution which delegates the power to tax to the LGUs

Local Government Code of 1991

was enacted in conformity with Sec. 3, Art. X of the 1987 Constitution

handog, varies, security and protection

refers to the tax, amount, and purpose during Pre-Colonial Period

tributo, 8-10 reales, revenue making for administration, defense and evangelization

refers to the tax, amount, and purpose during Spanish period

sanctorum (church tax), polo y servicio, bandala

other exactions during Spanish Colonial Period

1884, Cedula Personal

when the Tributo was abolished and its replacement

community tax (residence tax)

refers to the tax during American Colonial Period

land tax, inheritance tax, income tax

other exactions during the American Colonial Period

1904

when was the Bureau of Internal Revenue created

John S. Hord

First American Commissioner

Wenceslao Trinidad

First Filipino Commissioner

Marcos Sr. administrtion

reliance on indirect taxes and issued several tax laws and decrees

Cory Aquino through EO 273

president who introduced the 10% VAT

Fidel V. Ramos

administration where the NIRC of 1997 was established and took effect on Jan. 1, 1998

RA 8424

law which enacted the NIRC of 1997

Gloria Macapagal-Arroyo

president who increased the VAT to 12% which too effect on Feb. 1, 2006

Duterte

administration who enacted the TRAIN Law and Create Law which took effect on January 1, 2018 & April 11, 2021 respectively

RA 10963

Train Law

RA 11534

Create Law

Marcos Jr.

administration who enacted the Ease of Paying Taxes (EOPT) Act (took effect on Jan. 22, 2024) and Create More (took effect on April 11, 2021)

RA 11976

Ease of Paying Taxes Act

RA 12066

Create More

non-revenue raising

purpose of taxation:

1. To provide means for the rehabilitation and thestabilization of a threatened industry, which is so affectedwith public interest as to be within the police power ofthe State (PCGG v. Cojuangco, G.R. No. 147062-64,December 14, 2001);​

2. May be used as an implement of police power;​

3. To reduce social inequality;​

4. To encourage economic growth by granting incentivesand exemptions;​

5. To protect local industries from foreign competition.(Mamalateo, 2023)​

Marshall Doctrine

That the power to tax involves the power to destroy; that the power to destroy may defeat and render useless the power to create; that there is a plain repugnance in conferring on one Government a power to control the constitutional measures of another, which other, with respect to those very measures, is declared to be supreme over that which exerts the control, are propositions not to be denied. (McCulloch v. Maryland, 17 U.S. 316, 1819)​

Holmes Doctrine

It seems to me that the state court was right. I should say plainly right but for the effect of certain dicta of Chief Justice Marshall which culminated in, or, rather, were founded upon, his often-quoted proposition that the power to tax is the power to destroy. In those days, it was not recognized, as it is today, that most of the distinctions of the law are distinctions of degree. If the states had any power, it was assumed that they had all power, and that the necessary alternative was to deny it altogether. But this Court, which so often has defeated the attempt to tax in certain ways, can defeat an attempt to discriminate or otherwise go too far without wholly abolishing the power to tax. The power to tax is not the power to destroy while this Court sits. The power to fix rates is the power to destroy if unlimited, but this Court, while it endeavors to prevent confiscation, does not prevent the fixing of rates. A tax is not an unconstitutional regulation in every case where an absolute prohibition of sales would be one. (Panhandle Oil Co. v. Mississippi ex Rel. Knox, 277 U.S. 218 1928)​

levy or imposition of tax, assessment and collection, payment

stages or aspects of taxation

Levy or imposition of tax (Tax Legislation)

the act of imposition by the legislature of tax on person or property or excises.​

Assessment and Collection (Tax Administration)

the act of administration and implementation of the tax law by the Executive through its administrative agencies.​

Payment

act of compliance by the taxpayer, including such options, schemes or legal remedies available to him.​

FIscal Adequacy, Equality or Theoretical Justice & Administrative Feasibility

Principles of Sound Tax System

Fiscal Adequacy

the sources of revenue should be sufficient to meet the demands of public expenditures

Equality or Theoretical Justice

the tax burden should be proportionate to the taxpayer’s ability to pay

Administrative Feasibility

the tax law should be capable of convenience, just, and effective administration.

Tax

the enforced proportional contributions from persons and property levied by the law-making body of the State by virtue of its sovereignty for the support of the government and all public needs

enforced contribution, proportionate in character, generally payable in money, levied on persons and property, levied by the state, levied by the law-making body of the state, for public purpose

Characteristics of Tax

license or permit fee, toll, penalty, special assessment, debt

other forms of exactions

special assessment

an enforced proportional contribution from owners of lands specially or peculiarly benefited by public improvements, while taxis a demand of sovereignty for the purpose of raising revenue.​

personal, capitation or poll tax, property tax, or privilege tax

kinds of taxes as to object

direct or indirect tax

kinds of taxes as to burden or incidence

specific, ad valorem, mixed

kinds of taxes as to tax rates

general or fiscal, special, regulatory or sumptuary

kinds of taxes as to purpose

national or local

kinds of taxes as to scope or authority to impose

progressive, regressive, or proportionate

kinds of taxes as to graduation

lifeblood theory

Taxes are the lifeblood of the government and should be collected without unnecessary hindrance. They are what we pay for a civilized society. Without taxes, the government would be paralyzed for lack of motive power to activate and operate it. The government, for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values.​

necessity theory

The power of taxation proceeds upon the theory that the existence of government is a necessity; that it cannot continue without means to pay its expenses; and that for these means, it has a right to compel all its citizens and property within its limits to contribute.​

benefits-protection theory (symbiotic relationship)

This principle serves as the basis of taxation and is founded on the reciprocal duties of protection and support between the State and its inhabitants. Also called “symbiotic relation” between the State and its citizens. In return for his contribution, the taxpayer receives the general advantages and protection which the government affords the taxpayer and his property.​

public purpose, international comity, territoriality, non-delegation of the power to tax, government exempt from taxation

inherent limitations on taxing power

the power to tax exists for the general welfare

rationale of “public purpose” as an inherent limitation on the taxing power

congress

who determines public purpose

courts

who can question the propriety of tax statute on the ground that the law enacted is not for a public purpose

wisdom, expediency, or necessity

once it is settled that the law is for a public purpose, the court may no longer inquire into the ____, ____, or _____ of such tax measure

Sec. 2, Art. II, 1987 Constitution

basis for the limitation of international comity

doctrine of sovereign equals, immunity from suit

rationale of “international comity” as an inherent limitation on the taxing power

Doctrine of Sovereign Equals

This principle ensures that all states, regardless of size orpower, possess equal rights and obligations under international law.

Immunity from Suits

A principle of public international law that holds that a sovereign state cannot be sued in the courts of another state without its consent.​

invalid and unconstitutional

effects when a tax law violates international comity

general rule on territoriality

Taxation is limited to persons and property within the jurisdiction of a state (known as Geographical Jurisdiction).

taxation is a sovereign act; those that are within the territory of another state receives no protection and services from the state

rationale of “territoriality” as an inherent limitation on the taxing power

when there exist a privity of relationship

exception to the limitation or rule on territoriality

the capacity of the state to provide and extend benefits and protection to the object of the tax

rationale of the “exception to territoriality” as an inherent limitation of taxing power

power to tax cannot be delegated

delegata potestas non potest delegari (general rule on the non-delegation of the power to tax)

selection of subject to be taxed; determination of purposes; fixing of the rate/amount; kinds of tax to be impose; situs of tax

non-delegable legislative powers

situs of tax

location or place of taxation

separation of powers

rationale of “non-delegation” as an inherent limitation on the taxing power

local government, president, administrative agencies

exceptions on the non-delegation of the power to tax

Sec. 5, Art. X, of the 1987 Constitution

basis for the delegation of taxing power to the Local Government

Delegation to Local Government

the LGUs have the power to create their own sources of revenue and to levy taxes, fees, and charges

Sec. 28(2), Art. VI, 1987 Constitution

basis for the delegation of taxing power to the president

Delegation to the President

the authority of the President to fix tariff rates, import or export quotas, tonnage and wharfage dues or other duties and imposts

Lagman vs. Ochoa, 2020

jurisprudence on the delegation of the taxing power to Administrative Agencies

Delegation to Administrative Agencies; Power of subordinate legislation

With the proliferation of specialized activities and their attendant peculiar problems, the national legislature has found it more and more necessary to entrust to administrative agencies the authority to issue rules to carry out the general provisions of the statute. This is called the ______

A tax on property of the Government, whether national or local, would merely have the effect of taking money from one pocket to put it in another pocket

rationale of “government exempt from tax” as an inherent limitation on the taxing power

performing proprietary functions; the law or agency creating them provides otherwise

Exceptions to the exemption of government from taxation

general rule

Government-owned or controlled corporations (GOCCs) performing proprietary functions are subject to tax

GSIS, SSS, HDMF, PHIC, Local Water Districts

GOCCs exempted from tax

due process, equal protection, uniformity in taxation, progressive taxation, non-imprisonment for non-payment of poll tax, non-impairment of contracts, bills originating from the HoR, veto power of president, president’s power to tax

constitutional limitations on the taxing power

Sec. 1, Art. III, 1987 Constitution

basis for the due process limitation

Sec. 1, Art. III, 1987 Constitution

basis for the equal protection limitation

equality

​​when the burden of the tax falls equally and impartially upon all the persons and property subject to it.

uniformity

those belonging to the same class shall be taxed alike

equity

the apportionment of the tax burden among the taxpayers must be based on the ability to pay.​

Sec. 28 (1), Art. VI, 1987 Constitution

basis for the uniformity in taxation limitation

Sec. 28 (1), Art. VI, 1987 Constitution

basis for the progressive taxation limitation

Sec. 20, Art. III, 1987 Constitution

basis for the non-imprisonment for non payment of poll tax limitation

Sec. 10, Art. III, 1987 Constitution

basis for the non-impairment of contract limitation

unilateral act of government and bilateral act of parties

rules with respect to grant of (contractual) tax exemptions (on the non-impairment of contract)

Unilateral Act of Government

If the grant of the exemption is merely a spontaneous concession or unilateral act by the legislature, such exemption may be revoked.​

Bilateral Act of Parties

however, if the tax exemption constitutes a binding contract and for valuable consideration, the government cannot unilaterally revoke the tax exemption.​

Franchise

although a contract, is not covered by the non-impairment clause