7.1: Scope and Limitation of Taxation

Inherent Limitations

• built into the very nature of taxation itself

• exists even if not written in the law—automatic, because taxation wouldn't make sense without them

Public Purpose

• The proceeds of the tax must be used

• for the support of the State or

• for some recognized objects of government or directly to promote the welfare of the community

Duty Test

Whether the thing to be furthered by the appropriation of public revenue is something which is the duty of the State as a government to provide.

Promotion of General Welfare Test

Whether the proceeds of the tax will directly promote the welfare of the community in equal measure.

Character of the Direct Object of the Expenditure

direct object of the expenditure which must determine its validity as justifying a tax and not the magnitude of the interests to be affected nor the degree to which the general advantage of the community

Inherently Legislative

Stated in another way, taxation may exceptionally be delegated, subject to such well-settled limitations

Delegata potestas non potest delegari

The power to tax is exclusively vested in the legislative body and it may not be re-delegated.

Delegation to local governments

This exception is in line with the general principle that the power to create municipal corporations for purposes of local self-government carries with it, by necessary implication, the power to confer the power to tax on such local governments.

Delegation to the President

• to enter into Executive agreements, and

• to ratify treaties which grant tax exemption subject to Senate concurrence.

Delegation to administrative agencies

Limited to the administrative implementation that calls for some degree of discretionary powers under sufficient standards expressed by law or implied from the policy and purposes of the Act.

Territorial

A state may not tax property lying outside its borders or lay an excise or privilege tax upon the exercise or enjoyment of a right or privilege derived from the laws of another state and therein exercise and enjoyed.

Situs of taxation

literally means the place of taxation

International Comity

respect accorded by nations to each other because they are sovereign equals. Thus, the property or income of a foreign state or government may not be the subject of taxation by another state.

Exemption of Government Entities, Agencies, and Instrumentalities

If the taxing authority is the National Government

General Rule: Agencies and instrumentalities of the government are exempt from tax.

Avoiding Circular Taxation

If the government taxed its own property, it would need to raise more money from other taxes just to cover that tax.

Ensuring Government Efficiency

Exempting government property from taxes ensures that the government can operate smoothly without being slowed down by additional financial burdens.

Reducing Administrative Burden

By not taxing itself, the government reduces the amount of money it needs to manage.