NAVOTAS POLYTECHNIC COLLEGE
Bangus St. Corner Apahap St., North Bay Boulevard South, Navotas City
TAXATION (BACC 3)
Module 1: Lecture on Principles of Taxation
( Week 2 / 3 )
INHERENT POWER OF THE STATE
1. Taxation Power. Is the power of the State to enforce proportional contributions
from its subjects to sustain itself.
2. Police Power. Is the general power of the State to enact laws to protect the well-
being of the people.
3. Eminent domain. Is the power of the State to take private for public use after just
compensation.
Comparison of the three powers of the State
Point of Difference Taxation Police Power Eminent Domain
Government and private
Exercising Authority Government Government utilities
For the support of the To protect the general
Purpose government welfare of the people For public use
Community or class of Community or class of
Persons affected individuals individuals Owner of the property
Limited (Imposition is No amount is imposed.
Unlimited ( Tax is based limited to cover cost of (The government pays
Amount of Imposition on government needs) regulation just compensation)
Importance Most important Most superior Important
Relationship with the Inferior to the “Non Superior to the “Non Superior to the “Non
Constitution impairment Clause” of impairment Clause” of impairment Clause” of
the constitution the Constitution the Constitution
Limitation Constitutional and Public interest and due Public purchase and
inherent limitations process just compensation
Similarities of the three powers of the State
1. They are all necessary attributes of sovereignty.
2. They are all inherent to the State.
3. They are all legislative in nature.
4. They are ways in which the State interferes with private rights and properties.
5. They all exist independently of the Constitution and are exercisable by the government even
with out a Constitutional grant. However, the Constitution may impose conditions or limits
for their exercise.
6. They all presuppose an equivalent form of compensation received by the persons affected
by the exercise of the power.
7. The exercise of these powers by the local government units may be limited by the national
legislature.
Taxation
Is the process or means by which the sovereignty , through the lawmaking body,
raises revenue to defray the necessary expenses of the government.
Purposes of taxation
The purposes of taxation maybe classified into primary and secondary, to wit:
1. Primary purpose funds or property with which to promote the general welfare
and protection of its citizens and to enable it to finance its multifarious activities.
2. Secondary purposes
a. To strengthen anemic enterprises by giving tax exemptions;
b. To protect local industries against foreign competition through imposition of
high customs duties on imported goods;
c. To reduce inequalities in wealth and income by imposing progressively higher
tax rates; &
d. To prevent inflation by increasing taxes or ward off depression by decreasing
them
Scope of taxation
In the absence of constitutional restrictions and subject to the will of the legislative
bodies with whom it is entrusted and the discretion of the authorities which exercise it,
the power of taxation is unlimited, comprehensive, plenary and supreme, the principal
check upon its abuse resting in the responsibility of the members of the legislature to
their constituents.
Since the power to tax is the strongest of all the powers of the government, the
legislature is free to select the subjects or objects to be taxed. They may be persons,
whether natural or juridical property, whether real or personal, tangible or intangible:
businesses, transactions, rights, or privileges.
It is of course to be admitted to all its plenitude, the power to tax is not without
restrictions. Despite all its tenacity, transaction is not nonetheless subject to established
limitations, such as those inherent in the power itself or mandated by the constitutional
precepts.
Theory and basis of taxation
1. Theory – The power of taxation proceeds upon the theory that the existence of the
government is a necessity; that it cannot continue without means to pay its
expenses; and that it has a right to compel all its citizens and property within its
limits to contribute
2. Basis – The basis of taxation is found on the reciprocal duties of protection and
support between the State and its inhabitants. The State receives taxes that it may
be enabled to carry out its mandates into effect, and perform functions of
government and the citizen pays the portion of taxes demanded in order he may,
by means thereof, be secured in the enjoyment of benefits of an organized society.
Basic Principles of a sound tax system
1. Fiscal adequacy. The sources of revenue should be sufficient to meet demands
of public expenditures. This can be obtained by creating new taxes or new taxes
or new tax machinery or by merely changing the rates applicable to existing taxes
so that the revenue would substantially respond to the expanding needs of public
expenditures.
2. Equality or Theoretical Justice. The tax burden should be proportionate in the
taxpayer’s ability to pay and – this is called Ability to Pay Principle
3. Administrative Feasibility. The tax laws should be capable of convenient just,
and effective
Administration.
Each tax should be clear and plain to the taxpayer, capable of uniform
enforcement by government officials, convenient as to time, place, and manner of
payment, and not unduly burdensome upon, or discouraging to business activity.
Nature or characteristics of the State’s Power to Tax
1. It is inherent in sovereignty. The power of taxation maybe exercised by the
State although not expressly granted by the constitution
2. Legislative in character. It is only the legislative that can enact tax laws
3. Subject to constitutional and inherent limitations. Taxation is not an
absolute power that can be exercised by the legislature anyway it pleases
SCOPE OF THE TAXATION POWER
The scope of taxation is widely regarded as comprehensive, plenary, unlimited and supreme.
However, despite the seemingly unlimited nature of taxation. it is not absolutely unlimited. Taxation has its own
inherent limitations and limitations imposed by the Constitution.
THE LIMITATIONS OF THE TAXATION POWER
1. Constitutional limitations: Those restrictions found in the constitution or implied from its provisions.
1. Due Process – No person shall be deprived of life, liberty or property without due process
of law, nor shall be denied the equal protection of law
2. Equal protection of the laws –
The constitutional provision on the equal protection of laws means that “no person or class of
persons shall be deprived of the same protection of laws enjoyed by other classes in the same places
in the same place and in like circumstances.
3. Rule of uniformity in taxation – The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation
4. Non-imprisonment for non-payment of poll tax. – No person shall be imprison for debt or
Appropriation non-payment of a poll tax
5. Non-impairment of the obligations of contracts – No law impairing the obligations of
contracts shall be passed
There is “impairment” when a law substantially invalidates, releases, or extinguishes
the obligations of a contract, or that derogates substantial contractual rights
6. Non-infringement of religious freedom. – No law shall be made respecting the establish-
ment of religion, or prohibiting the free exercise
thereof. The free exercise of religious profession
and worship, without discrimination preference,
shall be required for the exercise of civil or political
rights
7. No appropriation for religious purposes - No public money or property shall be approp-
riated, applied, paid or employed, directly or indirectly,
for the use, benefit, or support of any sect, church, deno-
mination, sectarian institution, or system of religion, or
of any priest, preacher, minister or other religious teacher,
minister, or dignitary is assigned to the armed forces, or to any
penal institution, or government orphanage of leprosarium
8. Exemption of religious, charitable or educational entities, non-profit cemeteries, and churches from
taxation - Charitable institution, churches, and parsonages or convents appurtenant thereto,
mosques, non-profit cemeteries, and all lands, buildings and improvements,
actually, directly, and exclusively used for religious, charitable or educational
purposes shall be exempt from taxation.
The word “exclusive” means primarily rather than solely. Thus, the admission of pay patients
does not detract from the charitable character of a hospital if all its funds are devoted exclusively for
the maintenance of the institution as public charity.
9. Exemption of revenues and assets on non-stock, non-profit educational institutions and donations
for educational purposes from taxation. - All revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and duties. Upon the dissolution or cessation of the
corporate existence of such institutions, their assets shall be disposed of in a manner provided by
law.
Proprietary educational institutions, including cooperatively owned may likewise be
entitled to such exemptions, subject to the limitations provided by law, including restrictions.
Subject to the conditions prescribed by law, all grants, endowments, donations or contributions
Used actually, directly, and exclusively for educational purposes shall be exempt from tax
Limitation 8 ( Art V1, Sec. 28) and Limitation 9 (Art XIV, Sec. 4), compared
Limitation 8 Limitation 9
Charitable, educational & Non-stock, non-profit educational
Who are exempt religious institution institutions
Income tax, property tax, customs
What taxes are exempt Property tax duties
10. Concurrence by a majority of all members of the Congress for the passage of a law granting any
tax exemption – No law granting any tax exemption shall be passed without the concurrence of a
majority of all the members of the congress.
11. Power of the President to veto any particular item or items in a revenue or tariff bill – 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.
12. Non-impairment of the jurisdiction of the Supreme Court in tax cases - The Supreme Court shall
have the power to review, revise, reverse, modify or affirm on appeal or certiorari as the law or
Rules of Court may provide, final judgments and orders of lower courts in all cases involving the
legality of any tax, impost, assessment, or toll, or any penalty imposed in relation thereto.
2. Inherent limitations on the power of taxation
1. Requirement that the levy must be for a public purpose.
The tax is valid because raising funds for earthquake victims is for public purpose.
The true test of what is public purpose is that which requires that the work shall be essentially public
and for the general good of all inhabitants of the taxing body. This does not mean, however, that the
tax is not for public purpose unless the benefits from the funds to be spread equally over the whole
community or a large portion thereof.
2. Non-delegation of the legislative power to tax
The rule is “ potestas delegate non-delegare potest” – what has been delegated cannot be
delegated. The people created a legislative department for the exercise of legislative power.
Thus, this power should not be delegated to any other person or body. However, delegation of
this power is permitted in the following cases:
a. Delegation of the President. This based on Section 28 (2) of article VI of the Constitution
which provides that “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.
b. Delegation to local governments. The reason for this is that local legislature are in a better
position to enact necessary and appropriate legislation considering that they are more
knowledgeable than the national lawmaking body on matters of purely local concern.
Section 5, Article X of the constitution provides that “each local government unit shall
have the power to create its sources of revenues and levy taxes, fees and charges, subject
to such guidelines and limitations as the Congress may provide, consistent with basic
policy of local autonomy. Such taxes, fees and charges shall accrue exclusively yo the
local governments”
c. Delegation to administrative bodies – This is otherwise known as the :power of subordinate
legislation.” To be valid (1) the delegation must be complete, in itself, setting forth therein
the policy to be executed, carried out, or implemented by the delegate, and (2) the law must
fix a standard – the limits of which are sufficiently determinate – to which the delegate must
conform in the performance of his functions.
3. Exemption from taxation of government entities.
4. International Comity
The term comity means recognition or respect provided by one jurisdiction within the
territory over the law of another because they are sovereign equals.
As a consequence of international comity, no State can claim jurisdiction over another.
5. Territorial jurisdiction
A state may not tax property lying outside its boarders or lay an excise or privilege tax
In another state. The reason is that tax laws do not operate beyond a country’s jurisdic –
tional limits. Another reason is that properties located within the jurisdiction of another
state generally do not receive protection from the Philippine government.
Aspects of Taxation
1. Levy Deals with the provisions of law which determines the person or property to be taxed, the
the sum or sums to be raised, the rate thereof, and the time and manner of levying, receiving &
collecting the taxes.
2. Collection Constituted with the provisions of law which prescribe, the manner of enforcing the
obligation on the part of those taxed to pay the demand thus created.
