Taxation in the Philippines vis-a -vis to Rawls’ principle of justice as fairness and the progressive system of taxation

Tax law in the Philippines covers national and local taxes. National taxes refer to national internal revenue taxes imposed
and collected by the national government through the Bureau of Internal Revenue (BIR) and local taxes refer to those
imposed and collected by the local government. The Tax Code of 1997, Revenue Issuances and BIR Rulings pertaining to
national taxes ( vat, income tax, donor’s tax, capital gains tax, excise tax, estate tax, etc) are posted at the BIR website
(bir.gov.ph). Local taxation (like the payment of cedula, amusement tax, real property tax, etc) is governed by the Local
Government Code.

Three (3) inherent powers of the sovereign state:

•police power
the power to protect citizens and
provide safety and welfare of society.
• eminent domain power
the power to take private property
(with just compensation) for public use.
• taxation power
the power to enforce contributions to support the government, and other inherent
powers of the state.

The 1987 Philippine Constitution sets limitations on the exercise of the power to tax.

The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. (Article VI,
Section 28, paragraph 1)

“Equality in taxation”
 similar to progressive system of taxation.
 tax laws and their implementation must be fair, just, reasonable and proportionate to one’s ability to pay.

Primary requisite of equity principle:

 a progressive tax rate shall be applied equally to all persons, firms, and corporation, and transactions placed in
similar classification and situation.

Progressive system of taxation

 tax laws shall give emphasis on direct rather than indirect taxes or on the ability-to-pay principle of taxation.

All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose
only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any, shall be
transferred to the general funds of the Government. (Article VI, Section 29, paragraph 3)

The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and
restriction as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development program of the Government (Article VI, Section 28, paragraph
2) The President shall have the power to veto any particular item or items in an appropriation, revenue or tariff bill, but
the veto shall not affect the item or items to which he does not object. (Article VI, Section 27, second paragraph)

The Supreme Court shall have the power to review, revise, reverse, modify or affirm on appeal or certiorari, as the law or
the Rules of Court may provide, final judgments and orders of lower courts in x x x all cases involving the legality of any
tax, impost, assessment, or toll or any penalty imposed in relation thereto. (Article VIII, Section 5, paragraph)

Tax exemptions are limited to those granted by law. However, no law granting any tax exemption shall be passed without
the concurrence of a majority of all the members of the Congress. (Article VI, Section 28, par. 4). The Constitution
expressly grants tax exemption on certain entities/institutions such as (1) charitable institutions, churches, parsonages or
convents appurtenant thereto, mosques, and nonprofit cemeteries and all lands, buildings and improvements actually,
directly and exclusively used for religious, charitable or educational purposes (Article VI, Section 28, paragraph 3); (2) non-
stock non-profit educational institutions used actually, directly and exclusively for educational purposes. (Article XVI,
Section 4(3))

In addition to national taxes, the Constitution provides for local government taxation. (Article X, Section 5) (Article X,
Section 6) Parenthetically, the Local Government Code provides that all local government units are granted general tax
powers, as well as other revenue-raising powers like the imposition of service fees and charges, in addition to those
specifically granted to each of the local government units. But no such taxes, fees and charges shall be imposed without a
public hearing having been held prior to the enactment of the ordinance. The levy must not be unjust excessive,
oppressive, confiscatory or contrary to a declared national economic policy (Section 186 and 187) Further, there are
common limitations to the grant of the power to tax to the local government, such that taxes like income tax,
documentary stamp tax, etc. cannot be imposed by the local government.

THEORY AND BASIS OF TAXATION

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 property within its
limits to contribute.

The basis of taxation is found in the reciprocal duties of protection and support between the State and its inhabitants. In
return for his contribution, the taxpayer received benefits and protection from the government. This is the so called
“Benefits received principle”.

LIFEBLOOD DOCTRINE

The lifeblood theory constitutes the theory of taxation, which provides that the existence of government is a necessity;
that government cannot continue without means to pay its expenses; and that for these means it has a right to compel its
citizens and property within its limits to contribute.

BENEFITS RECEIVED PRINCIPLE

This theory bases the power of the State to demand and receive taxes on the reciprocal duties of support and protection.
The citizen supports the State by paying the portion from his property that is demanded in order that he may, by means
thereof, be secured in the enjoyment of the benefits of an organized society. Thus, the taxpayer cannot question the
validity of the tax law on the ground that payment of such tax will render him impoverished, or lessen his financial or
social standing, because the obligation to pay taxes is involuntary and compulsory, in exchange for the protection and
benefits one receives from the government.

DOCTRINE OF SYMBIOTIC RELATIONSHIP

This doctrine is enunciated in CIR v. Algue, Inc. [158 SCRA 9], which states that “Taxes are what we pay for civilized
society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it.
Hence, despite the natural reluctance to surrender part of one’s hard-earned income to the taxing authorities, every
person who is able must contribute his share in the burden of running the government. 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 material and moral values.”