1.

Taxation Defined taxation is the power by which the sovereign raises revenue to defray the necessary expense of the government it is the means of apportioning the costs of governance among those who in some measure enjoy the privilege, its benefits, and must bear its burden 2. Source (CSRJ) - Constitution - Statutes - Jurisprudence - Revenue regulations 3. Nature (ILL) 1. Inherent attribute of sovereignty It belongs to the state as a matter of right. t does not need constitutional conferment. constitutional provisions do not give rise to the power to tax but merely impose limitations on what would otherwise be an invincible power. taxation being an attribute of sovereignty, its relinquishment is never presumed. 2. Legislative in Character The power cannot be exercised by other branches of the government except upon valid delegation. This is based upon the principle that taxes are grant of the people who are taxed, and the grant must be made by the immediate representatives of the people. And where the people have laid the power, there it must remain and be exercised. Courts have no power to inquire into or interfere in the wisdom, objective, motive, or expediency in the passage of a tax law, as this is purely legislative in character. Scope of the legislative power to tax a. Discretion as to purposes for which taxes shall be levied -Courts may review the levy to determined whether the purpose is a public one. but once determined that the purpose is a public one, courts can make no other inquiry as to the purpose of the tax, as such inquiry affects the power to impose it. -Lutz v Araneta - This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act. Promulgated in 1940, due to the threat to our industry by the imminent imposition of export taxes upon sugar as provided in the Tydings-McDuffe Act, and the "eventual loss of its preferential position in the United States market"; wherefore, the national policy was expressed "to obtain a readjustment of the benefits derived from the sugar industry by the component elements thereof" and "to stabilize the sugar industry so as to prepare it for the eventuality of the loss of its preferential position in the United States market and the imposition of the export taxes."

In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of sugar, on a graduated basis, on each picul of sugar manufactured; while section 3 levies on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a consideration, on lease or otherwise a tax equivalent to the difference between the money value of the rental or consideration collected and the amount representing 12 per centum of the assessed value of such land. Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be constitutionally levied. The action having been dismissed by the Court of First Instance, the plaintiffs appealed the case directly to this Court (Judiciary Act, section 17). ISSUE: Whether or not the CA No. 567 or Sugar Adjustment Act is constitutional and for public purpose. HELD: The basic defect in the plaintiff's position is his assumption that the tax provided for in Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and particularly of section 6, will show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is primarily an exercise of the police power. This Court can take judicial notice of the fact that sugar production is one of the great industries of our nation, sugar occupying a leading position among its export products; that it gives employment to thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one of the important sources of foreign exchange needed by our government, and is thus pivotal in the plans of a regime committed to a policy of currency stability. Its promotion, protection and advancement, therefore redounds greatly to the general welfare. Hence it was competent for the legislature to find that the general welfare demanded that the sugar industry should be stabilized in turn; and in the wide field of its police power, the lawmaking body could provide that the distribution of benefits therefrom be readjusted among its components to enable it to resist the added strain of the increase in taxes that it had to sustain. Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be allowed fully play, subject only to the test of reasonableness; and it is not contended that the means provided in section 6 of the law bear no relation to the objective pursued or are oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state's police power. That the tax to be levied should burden the sugar producers themselves can hardly be a ground of complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be benefited from the expenditure of the funds derived from it. At any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that "inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation".

From the point of view we have taken it appears of no moment that the funds raised under the Sugar Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is that very enterprise that is being protected. It may be that other industries are also in need of similar protection; that the legislature is not required by the Constitution to adhere to a policy of "all or none." As ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other instances to which it might have been applied;" and that "the legislative authority, exerted within its proper field, need not embrace all the evils within its reach". protection and promotion of sugar industry is a matter of public concern. legislature may determine within reasonable grounds what is necessary for its protection ad expedient for its promotion. such legislative discretion must be allowed full play, subject only to the test of reasonableness.

b. Discretion as to the subjects of taxation - Inequalities which result from singling out of one particular class infringe no constitutional limitation. - Punsalan v City of Manila - it is not for the courts to judge what particular cities or municipalities should be empowered to impose occupation taxes in addition to those imposed by the National Government. The matter is peculiarly within the domain of the political departments and the courts would do well not to encroach upon it. c. Discretion as to the amount or rate of tax - The power may be carried out even to the extent of exhaustion or destruction, thus becoming in its exercise a power to destroy. d. Discretion as to the manner, means, and agencies of collection of taxes McColloch v Maryland : The power to tax involves the power to destroy - It means that the power to tax includes the power to regulate over to the extent of prohibition or destruction since the inherent power to tax vested in the legislature includes the power to determine who to tax, what to tax and how much tax is to be imposed - Such maxim is used to describe not the purposes for which the taxing power may be used but the degree of vigor with which the taxing power may be employed in order to raise revenue - the power to tax includes the power to destroy if it is used validly as an implement of police power in discouraging and in effect, ultimately prohibiting certain things or enterprises inimical to the public welfare. - but where the power to tax is used solely or the purpose of raising revenue, the modern view is that it cannot be allowed to confiscate or destroy. otherwise, the tax statute may be successfully attacked unconstitutionally. The power to tax is not the power to destroy as long as the Supreme Court sits. - The Constitution as the fundamental law overrides any legislative or executive act that runs counter it. thus where it can be demonstrated that the challenged statutory provision fails to abide by its command, then the court must so declare and adjudge it null. - As regard inferior courts, the power of judicial review should be exercised with due care and circumspection, considering not only the presumption of validity but also the relatively modest rank of a city court in the judicial hierarchy.

3. Subject to inherent and constitutional limitations 4. Bases Life Blood Doctrine - government can neither exist nor endure without taxation. Taxes are the lifeblood of the government and their prompt and certain availability is an imperious need. the collection of taxes must be without hindrance if the state is to maintain its orderly existence. The government's ability to solve and protect the people depends largely upon taxes. Taxes are what we pay for a civilized society. CIR v Pineda : the eldest son of the deceased who is an heir and holder-transferee of property belonging to the taxpayer is to be treated 1. As an HEIR, he is individually answerable for the part of the tax proportion to the share he received from the inheritance. His liability cannot exceed the amount of his share 2. As a HOLDER of property belonging to the estate, he is liable for the tax up to the amount of the property in his possession. REASON: The government has a lien on the value of the property received by him from the estate as his share in the inheritance for unpaid taxes for which the estate is liable pursuant to sec 210 of NIRC. By virtue of such lien, the government has the right to subject the property in said heir's possession to satisfy the income tax assessment. The second remedy (tax lien) is the avenue the government took in this case to collect the tax. The BIR should be given in instances like the case at bar, the necessary discretion to avail itself the most expeditious way to collect the tax because taxes are the lifeblood of the government and their prompt and certain availability is an impenous need. Vera v Fernandez : the statute of non-claims under sec 5 rules 68 of the rules of court does not apply to taxation. The reason for the more liberal treatment of claims for taxes against a decedent's estate is because taxes are the lifeblood of the government's ability to serve the people for whose benefit taxes are collected. CIR v VTA and Citytrust : The Government is not bound by the errors committed by its agents. Although it may generally be estopped through the affirmative acts of public officers acting within their authority, their neglect of omission of public duties will not and should not produce that effect. Government cannot and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the state exercises its functions for the welfare of its constituents. CIR v Algue : Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for the government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation which is the promotion of common good may be achieved. Reyes v Almanzor : Verily, taxes are the lifeblood of the government ad so should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the very reason for the government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of common goods may be achieved. Consequently, it stands to reason that those who are burdened by the government by its Rental Freezing Laws under the same principle of social justice should not now be penalized by the same government by the imposition of excessive taxes as such would eventually result in the forfeiture of their properties. YMCA v CIR : Since taxes are the lifeblood of the nation, a claim of statutory exemption from taxation should be manifested and unmistakable from the language of the law on which it is based. The claimed exemption must expressly be granted in a statute stated in a language too clear to be mistaken. Tax exemptions cannot be merely implied from the provisions of the law.

Marcos v CA : the approval of the court sitting in probate or as a settlement tribunal over the deceased estate is not a mandatory requirement in the collection of estate taxes. The enforcement of tax laws and the collection of taxes are of paramount importance for the sustenance of the government. Taxes are the lifeblood of the government and should be collected without unnecessary hindrance. PBCOM v CIR : Claims for refund or tax credit should be exercised within the time fixed by law. The BIRs functions should not be unduly delayed or hampered by incidental matters. Necessity Theory Taxation is a power predicated upon necessity. It is a necessity burden to preserve the state's sovereignty and a means to give the citizenry an army to resist aggression Benefits Protection Theory The basis of the power of the State to demand and receive taxes is the reciprocal duty of support and protection. The citizen supports the state by paying the portion secured in the enjoyment of the benefits of an organized society. The obligation to pay taxes is involuntary and compulsory in exchange for the protection and benefits on receives from the government. Doctrine of Symbiotic Relationship Taxes are what we pay for a 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 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. 5. Purpose of taxation 1. Raise revenue (primary) 2. Regulation (police power, sin taxes) 3. Promotion of General Welfare (police power to strengthen an industry) 4. Encourage Economic Growth 5. Reduce Social Inequality 6. Protect Local Industries Primary purpose 1. To raise revenue - to provide funds with which the state delivers the basic services to the people - the government cannot simply be operated without the funds to finance its multifarious functions including the delivery of basic services, education, etc. -thus, in case of deficit spending, the government resorts to borrowing locally and internationally. Secondary Purposes (non revenue purpose) 2. Regulation - As an implement of police power - Taxation has a regulatory purpose as in the case of taxes levied on privileges (sin taxes) like those imposed on tobacco and alcoholic products or amusement places like night clubs, cabarets, cockpits, etc. -but the power to tax must be exercised with caution to minimized injury tot the proprietary rights of taxpayers. It must be exercised fairly, equally, and uniformly.

3. Promotion of general welfare -As an implement of police power -Lutz v Araneta - SC upheld the validity of the Sugar Adjustment Act which imposed a tax on milled sugar since the purpose of the law was to strengthen an industry that is undeniably vital to the economy - the sugar industry. - Osmena v Orbos - While the funds collected under the OPSF are referred to as taxes, they are exacted in the exercise of the police power of the State. From such fund, amounts are drawn to reimburse oil companies when appropriate situations arise like increases in, as well as under-recovery of the cost of crude oil importation. 4. Reduction of social inequity - This is made possible through the progressive system of taxation where the objective is to prevent the undue concentration of wealth in the hands of few individuals. Progressivity is keystoned on the principle that those who are able to pay should shoulder the bigger portion of the tax burden. Examples : income tax, donor's tax, estate tax - Taxes under NIRC are either proportionate of progressive. The latter is mandated by the Constitution (to evolve). Progressive means the tax rate increases as the tax base increases. 5. Encouraging Economic growth - The law, at times, grants incentives or exemptions in order to encourage investments and, thereby, promotes the country's growth. a. Tax Sparing Rule b. Income tax holidays - to allow pioneer industries to prosper to enable them to recover their investment before being taxed c. PEZA-registered enterprises - given tax relief; only 5% of their gross income is being taxed the reason being that these are export0oriented industries; so that their products will be competitive to the foreign market. 6. Protectionism - It protects local industries from foreign competition. i.e., protective tariffs and customs duties - Southern Cross Cement v Sec of Finance: the Safeguard Measures Act allows the imposition of emergency measures, including tariffs to protect domestic industries and producers from increased imports which inflict or could inflict serious injury on them. The power to impose general safeguard measure is vested upon the Secretary upon compliance with two conditions: 1. there must be positive final determination of the Tariff Commission that a product is being imported into the country in increased quantities, as to be a substantial cause of serious injury or threat to the domestic industry, and 2. DTI Sec must establish that the application of such safeguard measures is in the public interest. - Destination type VAT - local products consumed within 10% - all products of the same kind (foreign) - 10% VAT on top of excise - for export - zero-rated - Taxes on supply and labor may be recovered in form of refund

6. Objectives of Taxation - Robust environment - Sustainable economy - Equitable relief

7. Taxation v Other Inherent Powers of the State Power to Tax As to Purpose As to amount of exaction As to benefits received by taxpayer To raise revenue Contemplates no limits No special or direct benefit other than the fact that the government secures to the citizen that general benefit resulting from the protection of his person and the welfare of all Recognizes the obligations imposed by contracts Taxes paid form part of public funds Applies to all persons, property and excises that may be subject therein Police Power To promote public welfare through regulation Exaction limited to cost of regulation Similarly, no direct benefits are received yet a healthy economic standard of society is maintained Power of Eminent Domain To take private property for public use No exaction Just compensation is given to the owner of expropriated property

As to superiority of contracts As to transfer of property rights As to persons affected

Does not apply Allows merely the restraint on the exercise of property rights -

Does not apply n/a Only a particular property is comprehended

8. Extent of Taxing Powers Comprehensive - it covers persons, businesses, activities, professions, rights, and privileges Unlimited - Unlimited in force ad so searching in extent that the courts rarely venture to declare that it is subject to any restrictions whatever except such as rest in the discretion of the authority which exercises it. Plenary - It is complete. BIR may avail of certain remedies to ensure the collection of taxes Supreme - insofar as the selection of the subject of taxation is concerned.