1.

Concept and Purpose of Taxation

Taxation has been defined as a mode of raising revenue for public services 1. It is an
act done by the state in expression of its sovereign power in which it raises revenue
by exacting contributions in order to apply the same to the necessary expenses of
government. Stated differently, it is a means by which the government collects
enforced contributions levied upon both persons and property so that the same may
be used for the promotion of the general welfare and protection of its citizens. 2 It is
not an arbitraty exaction of funds but rather a means by which government, and by
extension, order and civil society are preserved.3

So essential and inseparable to the concept of taxation is its link to the protection of
public welfare that it has been said by the US Supreme Court in 1874 that:

"The power to tax is, therefore, the strongest, the most pervading of all the powers
of government, reaching directly or indirectly to all classes of people. To lay with one
hand the power of the government on the property of the citizen and with the other
to bestow it upon the favored individuals, to aid private enterprises and build up
private fortunes, is none the less a robbery because it is done under the form of law
and is called taxation. This is not legislation. It is a decree under legislative forms. We
have established, we think, beyond cavil that there can be no lawful tax which is not
laid for a public purpose."4

Thus the essence and purpose of taxation, whether it be done to raise revenue or to
regulate a particular activity, is ultimately grounded upon its part in the promotion of
the lives of the people who pay for it as well as its role in the maintenance of
government and civil society. Otherwise it would be nothing but a wanton collection
of funds raised for no other purpose than for the enrichment of those collecting it
and to the prejudice of those legally enforced to pay for it.

Taxation, however, is a power dependent on the hands that wield it. Thus in the
celebrated case of McCullough v. Maryland, the US Supreme Court stated:

"It is admitted that the power of taxing the people and their property is essential
to the very existence of government, and may be legitimately exercised on the
objects to which it is applicable, to the utmost extent to which the government
may choose to carry it. The only security against the abuse of this power is found
in the structure of the government itself. In imposing a tax the legislature acts upon
its constituents. This is in general a sufficient security against erroneous and
oppressive taxation.”5

1
Cooley Taxation 4th ed. (1924) as cited in Dimaampao Tax Principles and Remedies 5 th ed (2018)
2
De Leon Fundamentals of Taxation 16th ed (2012) p. 1
3
Commisioner v. Algue, Inc., 158 SCRA 9
4
Citizens Savings and Loan Association v. Topeka, 20 Wall. 655, 662, 664 (1874) as cited in Herman M. Knoeller
The Power to Tax vol 22 (1998) p. 1
5
4 Wheat 316-437 as cited in Herman M. Knoeller The Power to Tax vol 22 (1998) p. 126