Prof.

Joseph Samuel Zapata

Inherent Powers of the State:

1. Taxation is a mode of raising revenue for public purposes. It has been defined as the power by
which the sovereign raises revenue to defray the necessary expenses of government.

2. Police Power is the power of the state to promote public welfare by restraining and regulating the
use of liberty and property.

In the exercise of police power, "property rights of private individuals are subjected to restraints
and burdens in order to secure the general comfort, health, and prosperity of the State.

3. Eminent Domain is the right or power of a sovereign state to appropriate private property to
particular uses to promote public welfare.

Basis of Taxation

1. Lifeblood Theory

Taxes are the lifeblood of the government. Without taxes, the government can neither exist nor
endure. The exercise of taxing power derives its source from the very existence of the State whose
social contract with its citizens obliges it to promote public interest and the common good.

2. Necessity Theory

Taxation is a power predicated upon necessity. It is a necessary burden to preserve the State’s
sovereignty and a means to give the citizenry an army to resist aggression, a navy to defend its
shores from invasion, a corps of civil servants to serve, public improvements for the enjoyment of
the citizenry, and those which come within the State’s territory and facilities and protection which
a government is supposed to provide.

3. Benefits-Protection 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. (This theory spawned the Doctrine of Symbiotic Relationship)

Inherent Limitations on the Power of Taxation

1. It must be for public purpose

Taxes are exacted only for public purpose

Jurisprudence states that public purpose should be given a broad interpretation. It does not only
pertain to those purposes which are traditionally viewed as essentially government functions, such
as building road and delivery of basic services, but also includes those purposes designed to
promote social justice. (p. 40-41, dimaampao)

Where an assailed tax measure is not for a public purpose, such an act is tantamount to confiscation
of property, though done in the guise of law, and the taxpayer may rightly invoke the law for his
protection. (p. 41)
2. Inherently Legislative

The power to tax is exclusively vested in the legislature, except where the Constitution provides
otherwise, such as:

Delegation to local government

Delegation to the President (Article VI, Section 28) (Section 1608, CMTA)

For a valid delegation of power, it is essential that the law delegating the power must be (1)
complete in itself, that is, it must set forth the policy to be executed by the delegate and, (2) it
must fix a standard – limits of which are sufficiently determinate or determinable – to which the
delegate must conform.

Article VI, Section 28 (2)

The Congress may, by law, authorize the President to fix within specified limits, and subject to
such limitations and restrictions 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.

Section 1608. Flexible Clause. –

a) In the interest of the general welfare and national security, and subject to the limitations
prescribed under this Act, the President, upon the recommendation of NEDA, is hereby
empowered to:

(1) Increase, reduce, or remove existing rates of import duty including any necessary change
in classification. The existing rates may be increased or decreased to any level, in one or
several stages, but in no case shall the increased rate of import duty be higher than a
maximum of one hundred percent (100%) ad valorem;

(2) Establish import quotas or ban imports of any commodity, as may be necessary; and

(3) Impose an additional duty on all imports not exceeding ten percent (10%) ad valorem
whenever necessary: Provided, That upon periodic investigations by the Commission and
recommendation of the NEDA, the President may cause a gradual reduction of rates of
import duty granted in Section 1611 of this Act, including those subsequently granted
pursuant to this section.

b) Before any recommendation is submitted to the President by the NEDA pursuant to the
provisions of this section, except in the imposition of an additional duty not exceeding ten
percent (10%) ad valorem, the Commission shall conduct an investigation and shall hold public
hearings wherein interested parties shall be afforded reasonable opportunity to be present, to
produce evidence and to be heard. The Commission shall also hear the views and
recommendations of any government office, agency, or instrumentality. The Commission shall
submit its findings and recommendations to the NEDA within thirty (30) days after the
termination of the public hearings.

c) The power of the President to increase or decrease rates of import duty within the limits fixed
in subsection (a) shall include the authority to modify the form of duty. In modifying the form
of duty, the corresponding ad valorem or specific equivalents of the duty with respect to imports
 from the principal competing foreign country for the most recent representative period shall be
used as basis.

d) Any order issued by the President pursuant to the provisions of this section shall take effect
thirty (30) days after promulgation, except in the imposition of additional duty not exceeding
ten percent (10%) ad valorem which shall take effect at the discretion of the President.

e) The power delegated to the President as provided for in this section shall be exercised only
when Congress is not in session.

f) The power herein delegated may be withdrawn or terminated by Congress through a joint
resolution.

The NEDA shall promulgate rules and regulations necessary to carry out the provisions of this
section.

3. Situs of Taxation / Territoriality

Since laws cease to operate beyond a country’s jurisdictional limits, the taxing power of a country
is likewise limited to a person and property within and subject to its jurisdiction. This same rule
applies to the taxing power of a territory.

4. International Comity

Article II, Section 2 (1987 Constitution)

The Philippines xxx adopts the generally accepted principles of international law as part of the law
of the land and adheres to the policy of peace, equality, justice, freedom, cooperation, and amity
with all nations.

One principle of international law which has attained wide recognition is the Principle of Sovereign
Equality Among States. According to this principle, “states are juridically equal, enjoy the same
rights, and have equal capacity in their exercise.

All states are sovereign equals and cannot assert jurisdiction over one another.

Comity emphasizes the rules of politeness.

5. Tax Exemptions of Government

Properties of the national government as well as those of the local government units are not subject
to tax, otherwise it will result in the absurd situation of the government “taking money from one
pocket and putting it in another.” (p. 58, dimaampao)
Constitutional Limitations on the Power of Taxation

1. Due process of law (Art. III, Sec. 1)

“No person shall be deprived of life, liberty or property without due process of law . . .”

The implication is that one may be deprived of property as long as the requirement of due process
– notice and hearing – have been complied with.

2. Equal protection of the law (Art. III, Sec. 1)

“. . . nor shall any person be denied the equal protection of the law.”

It merely requires that all persons subjected to such legislation shall be treated alike, under like
circumstances and conditions, both in privileges conferred and in the liabilities imposed.

What the clause requires is equality among equals as determined according to a valid classification.
By classification is meant the grouping of persons or things similar to each other in certain
particulars and different from all others in these same particulars.

3. Uniformity of taxation

The rule of taxation shall be uniform and equitable. (Art, VI, Sec 28)

Uniformity in taxation – means that all taxable articles or kinds of property of the same class shall
be taxed at the same rate. It does not mean that lands, chattels, securities, occupations, franchise,
privileges, necessities and luxuries shall all be taxed or assessed at the same rate. Different articles
may be taxed at different amounts provided that the rate is uniform on the same class everywhere,
with all people and at all times. (p. 93. Dimaampao)

A tax is uniform when it operates with the same form and effect in every place where the subject
of it is found.

4. Progressive taxation

Congress shall evolve a progressive system of taxation (Art. VI, Sec. 28)

Taxation is said to be equitable when its burden falls on those better able to pay; taxation is
progressive when its rate goes up depending on the resources of the person affected. (p.95)

Doctrines in Taxation

1. Tax evasion and Tax avoidance

Tax evasion connotes fraud through the use of pretenses and forbidden devices to lessen or defeat
taxes. On the other hand, tax avoidance is a legal means used by the taxpayer to reduce taxes.

Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment
of less than that known by taxpayer to be legally due, or the non-payment of tax when it is shown
that a tax is due; (2) an accompanying state of mind which is described as being evil, in bad faith,
willful, or deliberate and not accidental; and (3) a course of action or failure of action which is
unlawful. (p. 149)
 2. Prospectivity of Tax laws

Tax laws are prospective in application.

3. Strict construction of tax laws

Statutes levying taxes or duties are to be construed strongly against the Government and in favor
of the subject or citizens, because burdens are not to be imposed or presumed to be imposed beyond
what the statutes expressly and clearly declare. No person or property is subject to taxation unless
they fall within the terms of plain import of a taxing statute. (p. 156)

4. Tax exemption and exclusions

Must be construed strictly against the grantee and liberally in favor of the taxing authority.

Purpose of Taxation

1. Primary purpose of taxation is to raise revenues

2. Other purpose

Protection of local or domestic industries against unfair competition

These kinds of taxes are also known as special tax, which is imposed and collected to achieve a
particular legitimate object of the government.

Section 711. Dumping Duty.- The provisions of Republic Act No. 8752, otherwise known as the
“Anti-Dumping Act of 1999”, are hereby adopted.

State policy on anti-dumping

“It is hereby declared the policy of the State to protect domestic enterprises against unfair
foreign competition and trade practices. Towards this end, substantive and procedural remedies
available to domestic enterprises shall be strengthened and made responsive to recent developments
in world trade.”

Anti-dumping Duty

Refers to a special duty imposed on the importation of a product, commodity or article of

commerce into the Philippines at less than its normal value when destined for domestic
consumption in the exporting country, which is the difference between the export price and the
normal value of such product, commodity or article.

Section 712. Safeguard Duty.- The provisions of Republic Act No. 8800, otherwise known as the
“Safeguard Measures Act”, are hereby adopted.

Safeguard Duty

Safeguard measures is the temporary return of certain barriers to trade that were removed
in compliance with the obligations of the Republic of the Philippines under the General Agreement
on Tariff and Trade (GATT) and the World Trade Organization (WTO)
Section 713. Countervailing Duty.- The provisions of Republic Act No. 8751, otherwise known
as “An Act Strengthening the Mechanisms for the Imposition of Countervailing Duties on Imported
Subsidized Products, Commodities or Articles of Commerce in Order to Protect Domestic
Industries from Unfair Competition, Amending for the Purpose Section 302, Part 2, Title II, Book
I of Presidential Decree No. 1464”, otherwise known as the “Tariff and Customs Code of the
Philippines, as Amended”, are hereby adopted.

Countervailing Duty

Whenever any product, commodity or article of commerce is granted directly or indirectly

by the government in the country of origin or exportation, any kind or form of specific subsidy
upon the production, manufacture or exportation of such product, commodity or article, and the
importation of such subsidized product, commodity or article has caused or threatens to cause
material injury to a domestic industry or has materially retarded the growth or prevents the
establishment of a domestic industry as determined by the Tariff Commission, the Secretary of
Trade and Industry, in the case of non-agricultural product, commodity or article, or the Secretary
of Agriculture, in the case of agricultural product, commodity or article, shall issue a department
order imposing a countervailing duty equal to the ascertained amount of subsidy.

The same levy shall be imposed on the like product, commodity or article thereafter
imported to the Philippines under similar circumstances. The countervailing duty shall be in
addition to any ordinary duties, taxes and charges imposed by law on such imported product,
commodity or article.