TAXATION

AS A POWER – refers to the inherent power of a state, so-extensive with sovereignty to

demand contribution for public purposes to support the government.

AS A PROCESS – it passes a legislative undertaking thru the enactment of tax laws by the
Congress which will be implemented by the Executive branch.

AS A MEANS – it is a way of collecting and apportioning the cost of the government among
those who are privileged to enjoy its benefits

THEORY AND BASES OF TAXATION

- 1. LIFE-BLOOD THEORY – TAXATION IS THE INDISPENSABLE AND INEVITABLE

PRICE FOR A CIVILIZED SOCIETY; WITHOUT TAXES, THE GOVERNMENT WOULD BE
PARALYZED FOR THE LACKOF MOTIVE POWER TO ACTIVATE AND OPERATE IT.
o MANIFESTATIONS OF THE LIFE BLOOD DOCTRINE:
 Injunction generally does not lie against the collection of taxes. (CIR v.
Cebu Portland Cement Company GR NO L-29059)
 taxes are not subject to set-off, as a rule. (Republic v. mambulaao)
 The State is not estopped from collecting taxes by the mistake or errors
of its agents. (Phil Guaranty Co., v CIR GR NO L-22074)
 Tax exemptions are never presumed and are strictly construed against
the government. (Smart Communictions v City of Davao)
 Taxation is plenary and unlimited in its range. (Chamber of Real Estate
and Builders Asssociation Inc v Romulo)
 A valid tax may result in the destruction of the taxpayer’s property.
- 2. NECESSITY THEORY – the existence of the government is a necessity. It cannot
continue without a means to pay its expenses and therefore has a right to compel all
citizens and property within its power to contribute.
- 3. BENEFITS PROTECTIION/ RECIPROCITY THEORY (DOCTRINE OF
SYMBIOTIC RELATIOSHIP) – taxes are paid for the enjoyment of the benefits of an
organized society.
- It basis the power of the state to demand and receive taxes on the reciprocal
duties of support and protection between the taxpayer and the government.
o A person cannot object to ot resist the payment of taxes solely because no
personal benefit to him can be pointed out arising from the tax. (Lorenzo v
Posadas et al)
o It is said 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 to must
contribute his share in the running of 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 moral and material
values. (CIR v ALGUE INC., 158 SCRA 17) read landmark case
 Taxation is based on the capacity to pay (progressive)
 - 4. JURISDICTION OVER SUBJECTS AND OBJECTS –
o Territorial in character – the power to tax can only be exercised within the
territorial jurisdiction of a taxing authority.
 XPN: when there is privity of relationship between the taxing authority
and the person to give tax. Example: Reciprocity clause

NATURE OF TAXING POWER

INHERENT POWER

- ATTRIBUTE OF SOVEREIGNTY
o BASIS:
 The Lifeblood Doctrine

LEGISLATIVE POWER

- Exercise of high prerogative of sovereignty

o MANIFESTATIONS
 Power to promulgate rules:
 Basis:
o The power to tax is inherent in the State, and the State is
free to select the object of taxation, such power being
exclusively vested in the legislature.
 XPN: CONSTITUTIONAL LIMITATIONS

ASPECTS OF TAXATION

LEVYING (LEGISLATIVE FUNCTION) – enactment of tax laws

COPE OF LEGISLATIVE POWER TO TAX:

 Discretion as to :

a. Amount or rate of tax

b. Subjects of Taxation

c. Purposes for which taxes should be levied

d. Apportionment of the tax

e. Situs of Taxation

f. Manner, means and agencies of collection

 Grant tax exemption or condonation

 Specify or provide for the administrative as well as judicial
remedies of the government or taxpayers
 ASSESSMENT (EXECUTIVE FUNCTION)

COLLECTION (EXECUTIVE FUNCTION)

IS THE POWER TO TAX THE POWER TO DESTROY?

- FIRST VIEW:
o The power to tax involves the power to destroy – Marshall
 Why? - in a sense that it can be used as an implement of police
power. E.g: regulating/discouraging certain industries example:
sin tax
- SECOND VIEW:
o The power to tax is not the power to destroy while this court sits. –
Justice Holmes
RECONCILIATION OF THE TWO VIEWS:
Marshall’s view refers to a valid tax while Holmes’ view refers to an invalid tax.

JUDICIAL REVIEW OF TAXATION

If so great the abuse is manifested as to destroy natural and fundamental rights, it is

the judiciary to hold such acts as unconstitutional – Dimaampao

 The power to tax is sometimes called the power to destroy. Therefore it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must
be exercised fairly, equally amd umiformly, lest the tax collector “kill the hen that lays
the golden egg”. – Roxas v CTA Gr No. L-25043, April 26, 1968)

PRINCIPLES OF A SOUND TAX SYSTEM

- FISCAL ADEQUACY – sources of government revenue must be sufficient to meet

government expenditure and other public needs
- ADMINISTRATIVE FEASIBILITY – Tax laws must be capable of being effectively
enforced with the least inconvenience to the taxpayer.
- THEORETICAL JUSTICE – a sound tax system must be based on the taxpayer’s ability
to pay.
o Progressive mode of taxation – the higher the income the higher is your tax.

TAXATION DISTINGUISHED FROM OTHER INHERENT POWERS

PURPOSE:

o Taxation – to raise revenue

o Police Power – to promote public welfare thru regulations
o Eminent Domain – to facilitate the taking of private property for public use

AS TO AMOUNT OF EXACTION:

o Taxation – no limit
o Police power - limited to the cost of regulation, issuance of the license or
surveillance fee
 o Eminent Domain – no amount imposed; just compensation is given to the
owner of the expropriated property

BENEFITS RECEIVED:

o Taxation – no direct benefit is received by the taxpayer, merely general

benefit of protection and promotion of public welfare.
o Police Power – no direct benefit is received by taxpayer, yet a healthy
economic standard of society is maintained.
o Eminent Domain – a direct benefit in the form of just compensation

NON IMPAIRMENT OF CONTRACTS

o Taxation – contracts may NOT be impaired

o Police Power – contracts MAY BE impaired
o Eminent Domain – contracts MAY BE impaired

SCOPE:

o Taxation – covers all persons, property and excises.

o Police Power – covers all persons, property, rights and privileges
o Eminent Domain – covers only a particular property

WHO EXERCISES POWER:

o Taxation – government and its political subdivisions

o Police Power – govt and its political subdivisions
o Eminent Domain – government and its political subdivisions / grated to public
service companies or public utilities