Lecture 1: GENERAL PRINCIPLES

I. Inherent Powers of the State

Superior to Non- Inferior to Non-
1. Police Power power to make and implement laws for the Impairment Clause Impairment Clause
general welfare
2. Taxation Power power to enforce contribution to raise
government funds; it is an inherent power by which the sovereign III. Concept of Taxation
through its law-making body raises revenue to defray the necessary 1. Principles or Canons of a Sound Taxation System (FEA)
expenses of the government. a. Fiscal Adequacy sufficiency to meet government
3. Eminent Domain Power power to take private property for
expenditures and other public needs (Government Budget
public use with just compensation
Balance). This is in consonance of the Lifeblood Theory.
a.1. Budget Deficit = Government Revenues < Government
II. Similarities and Differences
Expenditures
POLICE TAXATION EMINENT DOMAIN a.2. Budget Surplus = Government Revenues >
Government Expenditures
Power to MAKE and Power to TAKE
Power to ENFORCE
IMPLEMENT laws private property for
contribution to raise b. Equality or Theoretical Justice based on the taxpayers ability
for the general public use with just
government funds
welfare compensation to pay; must be progressive
c. Administrative Feasibility capability of being effectively
Plenary,
comprehensive, and Merely to take private enforced. Tax laws should not obstruct business growth and
Broader in application
supreme BUT NOT property economic development.
ABSOLUTE

Property is taken or Money is taken to

2. Purpose
Property is taken for a. Primarily, to raise revenue
destroyed to promote support the
public use
general welfare government b. To regulate (inflation, economic and social stability, social
control, etc.)
Cannot be
delegated, if c. To compensate the benefits provided by the government to the
delegated, it should people
Can be expressly Can be expressly
be to the legislative
delegated delegated
department of the 3. Characteristics (ILS)
LGU (e.g. to make
ordinances)
a. Inherent power of the state.
b. Exclusively lodged with the legislative body
No imposition as to c. Subject to inherent and constitutional limitations
Limited to the cost of amount, instead, it is
regulation, license Generally, NO limit the Government
and other necessary on amount which is to 4. Nature
expense compensate the a. Plenary full and complete in all respect
property taken. b. Comprehensive it covers persons, businesses, activities,
Superior to and may
professions, rights and privileges.
Relatively FREE from Subject to
override c. Supreme it is supreme ONLY insofar as the selection of the
Constitutional Constitutional and
limitations Inherent limitations
Constitutional subject of taxation is concerned
impairment provision d. Not Absolute it is subject to limitations
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5. Limitations in Taxation Power IV. Double Taxation

a. Inherent Limitations (PENTI)
a.1. Public purpose
a.2. Exemption of the Government
a.3. Non-delegability of the power to tax
a.4. Territoriality
a.5. International Comity
b. Constitutional Limitations
b.1. Due process clause
b.2. Equal protection clause
b.3. Freedom of speech and of the press
b.4. Non-impairment of contracts
b.5. Rule requiring that appropriations, revenue and tariff bills
shall originate exclusively from the House
of Represenatatives (Congress)
b.6. Uniformity, equality, and progressivity of taxation
b.7. Tax exemption of the properties actually, directly and
exclusively used for religious, charitable and
educational purposes.
b.8. Voting requirement (2/3) in connection with the legislative
grant of tax exemption
b.9. Non-impairment of the jurisdiction of the Supreme Court in
tax cases
b.10. Exemption from taxes of the revenues and assets of
educational institutions, including grants,
endowments, donations and contributions
b.11. Power of the Presidentto veto any particular item (item
veto) or items in an appropriation, revenue
or tariff bill (pocket veto).
b.12. Necessity of an appropriation before money may be paid
out of the public treasury
b.13. Non-appropriation of public money or property for the use,
benefit or support of any sect, church
or system of religion
- It is taxing the same property twice when it should be taxed
once.
1. Direct Duplicate Taxation double taxation in the objectionable
or prohibited sense; not allowed in the Philippines. This constitutes
a violation of substantive due process.
Elements:
i. Same property or subject matter is taxed twice
ii. Same purpose
iii. Same taxing authority
iv. Same jurisdiction
v. Same taxing period
vi. Same kind or character of tax
2. Indirect Duplicate Taxation legal/permissible. The absence of
one or more of the above-mentioned elements.
V. Theories of Taxation
1. Necessity Theory (Theory of Taxation) the power to tax is an
attribute of sovereignty emanating from necessity (national
defense, health, education, public facilities, etc.).
2. Lifeblood Theory (Importance of Taxation) without taxes, the
government would be paralyzed for lack of the motive power to
activate and operate it.
3. Benefits Protection Theory/ Reciprocal Duties (Basis of
Taxation) there is a symbiotic relationship between the State and
the citizens whereby in exchange of the protection and benefits that
the citizens received from the State, taxes are paid.
VI. Aspects of Taxation (shared by both executive and legislative
body)
1. Levy the imposition or making of tax laws
2. Assessment similar to audit
3. Collection enforcement of tax
Note:
a. Levy is often called as tax legislation.
b. Assessment and collection are collectively termed as tax
administration.
c. Levy and assessment comprise the impact of taxation, while
tax collection comprises the incidence of taxation.
Lecture 1: GENERAL PRINCIPLES
d. An impact of taxation is a point on which tax is originally
imposed.
e. An incident of taxation is a point on which the tax burden finally
rests or settles down.
VII. Doctrines of Taxation
1. May the court interfere with tax legislation?
Answer: As long as the legislature, in imposing a tax, does not
violate applicable constitutional limitations or restrictions, it is not
within the province of the courts to inquire into the wisdom or policy
of the exaction, the motives behind it, the amount to be raised or
the persons, property or other privileges to be taxed. The courts
power is limited only to the application and interpretation of the law.
2. Is the doctrine of equitable recoupment followed in the Philippines?
Answer: No. A tax presently being assessed against a taxpayer
may not be recouped or set-off against an overpaid tax, the refund
of which is already barred by prescription.
3. May a tax be subject of compensation or set-off?
Answer: Generally, no. Taxes cannot be the subject of
compensation or set-off. Taxes are not contractual obligations but
one arising out of duty to the government.
4. What is a taxpayer suit?
Answer: It is a case fied by a bona fide taxpayer impugning the
validity, legality or constitutionality of a tax law or its implementation.
5. What is the nature of our tax laws?
Answer: Internal revenue laws are not political in nature. In times
of war, they are deemed to be the laws of the occupied territory and
not of the occupying enemy. Tax laws are civil and not penal in
nature, although there are penalties provided for their violation.
6. A tax statute is construed against the government, liberally in favor
of the taxpayer; while tax exemptions are construed against the
taxpayer and liberally in favor of the government.
7. Tax laws are special laws which prevail over a general law.
8. Tax laws operate prospectively unless the purpose of the legislature
is to give a retrospective effect.
VIII. Concept of a Tax
1. It is an enforced proportional contribution from the persons and
property levied by the law-making body of the State.
2. Taxation vs. Tax
a. Taxation is the process or means of imposing and enforcing
contributions.
b. Tax is the enforced contribution, itself, which generally
payable in money.
3. Characteristics of Taxes
a. Forced charge
b. Generally payable in money
c. Exclusively levied by the legislative body
d. Assessed in accordance with some reasonable rule of
apportionment (ability-to-pay principle)
e. Imposed by the State within its jurisdiction
f. Levied for public purpose
4. Classification of Taxes
a. As to subject matter:
i. Personal tax imposed upon persons of certain class with
fixed amount (e.g. Community tax or poll tax)
ii. Property tax assessed on property of certain class (e.g.
Real Property tax)
iii. Excise tax imposed on the exercise of privilege (e.g.
income tax, donors tax, estate tax, etc.)
iv. Custom duties charged upon the commodities being
imprted into or exported from a country (e.g. tariffs)
b. As to burden:
i. Direct tax both incidence or liability for the payment of tax
as well as the impact or burden of the tax falls on the same
person (e.g. income tax)
ii. Indirect tax the incidence or liability for the payment of tax
falls on one person but the impact or burden of the tax falls
on another person (e.g. VAT)
Lecture 1: GENERAL PRINCIPLES
c. As to purpose
i. General tax levied for the general or ordinary purposes of
the government
ii. Special tax levied for special purpose
d. As to measure of application
i. Specific tax imposes a specific sum by the head or
number or by some standard of weight or measurement
(e.g. excise tax on cigarettes)
ii. Ad Valorem tax tax upon the value of the article or thing
subject to taxation (e.g. VAT of 12% regardless of the value
of sales)
IX. Escape from Taxation
e. As to taxing authority
i. National tax levied by the National Government (e.g.
income tax, business taxes, transfer taxes)
ii. Local tax imposed by the Local Government (e.g. Poll tax,
real property taxes)
f. As to rate
i. Progressive tax rate or amount of tax increases as the
amount of income increases (e.g. normal/tabular/schedular
tax of 5% - 32%, tabular tax for donors tax and estate tax)
ii. Regressive tax rate dcreases as the amount of income to
be taxed increases (not applicable in the Philippines)
iii. Proportionate tax based on fixed proportion or rate of the
value of the property assessed (e.g. VAT of 12%)
X.
5. Impositions Other Than Tax
a. Toll charged for the cost and maintenance of the property
used
b. Penalty punishment for the commission of a crime
c. Compromise Penalty amount collected in lieu of criminal
prosecution in cases of tax violation
d. Special Assessment levied on land based entirely on the
benefit accruing thereon as a result of the improvements or
public works undertaken by the government within the vicinity
e. License or Fee regulatory imposition in the exercise of the
police power
f. Margin Fee exaction designed to stabilize the currency
g. Debt a sum of money due upon contract or one which is
evidenced by judgment
h. Subsidy a legislative grant of money in aid of a private
enterprise deemed to promote the public welfare
i. Custom Duties and fees duties charged upon commodities
on their being transported into or exported from the country.
j. Impost in general sense, it signifies any tax, tribute or duty;
in limited sense, it means a duty on imported goods and
merchandise
k. Tithe contributions given to a church or sect
l. Tribute imposed by a monarch.
1. Tax Avoidance (Tax Planning) legal and permissible means
a. Shifting the process by which the tax burden is transferred
from the statutory taxpayer to another without violating the law.
b. Transformation the manufacturer or producer pays the tax
imposed upon him and endeavors to recoup himself by
improving his process of production, thereby turning out his
units of production at a lower cost.
c. Capitalization a mere increase in the value of the property is
not an incoem but merely an unrealized increase in capital.
d. Tax-exemption a grant of immunity to a particular persons or
corporations from the obligation to pay taxes
2. Tax Evasion (Tax Dodging) the use of illegal or fraudulent means
to defeat or lessen the payment of tax
Tax Laws, BIR Rulings and Revenue Regulations
1. Tax laws
- A tax law is a set of rules that provide means for the State to
raise revenues.
- All revenue bills must originatefrom the House of
Representatives (Congress). After passing 3 readings by a
majority vote in technical committee, it shall be elevated to the
Senate which needs to pass the same 3 readings. The
Presidents signature is necessary so that the bill becomes a
law.
- In case of doubt, tax statutes are construed against the
Government in favor of the taxpayer.
- In case of doubt, tax exemptions are construed against the
taxpayer in favor of the Government.
Lecture 1: GENERAL PRINCIPLES

2. Revenue Regulations
- These are interpretations of an administrative body (BIR)
intended to clarify or explain the tax laws and carry into effect
its general provisions by providing details of administration and
procedure.
- It is promulgated (made) by the Secretary of Finance, upon the
recommendation of the Commissioner of Internal Revenue
(quasi-legislative function).
- It must be reasonable, within the authority conferred, not
contrary to laws, must be published and prospective in
application.

3. BIR Rulings
- The BIR issues a general interpretation of tax laws usually upon
a requrest of a taxpayer to clarify a provision of law.