Definition and Concept of Taxation

Taxation is the power by which the sovereign, through its law-making body, raises revenue to defray
the necessary expenses of government. It is merely a way of apportioning the costs of government among
those who, in some measure, are privileged to enjoy its benefits and must bear its burdens.

It is a mode by which governments make exactions for revenue in order to support their existence and
carry out their legitimate objectives. Taxation may refer to either or both the power to tax or the act or process
by which the taxing power is exercised.

Nature and Characteristics of taxation

The nature of the State’s power to tax is two-fold: it is both an inherent and a legislative power.

The power to tax is inherent in the state because it is an attribute of sovereignty. It emanates from
necessity because it imposes a necessary burden to preserve the State's sovereignty.

It is a legislative power in that the power of taxation can only be exercised through the enactment of
law. The legislature determines the coverage, object, nature, extent and situs of the tax to be imposed.

Characteristics of taxation
1. Comprehensive - It covers persons, businesses, activities, professions, rights and privileges.
2. Unlimited - Courts scarcely venture to declare that it is subject to any restrictions
3. Plenary - Taxes, being the lifeblood of the government, every precaution must be taken not to unduly
suppress it.
4. Supreme- It is supreme insofar as the selection of the subject of taxation is concerned.

Power of taxation compared with police power and eminent domain

Purposes of taxation
The primary purpose of taxation is to raise revenue in order to satisfy government needs. The
secondary purpose is to promote the general welfare, to regulate certain activities/industries, to reduce social
inequality, to encourage economic growth, and as a method of protectionism such as the imposition of tariffs
and duties to protect local industries.

Principles of sound tax system

The 3 basic principles of a sound tax system are:

1. Fiscal adequacy – means that the sources of revenue should be sufficient to meet the expanding
expenditures of the government
2. Theoretical justice – means that the tax burden should be proportionate to the taxpayer’s ability to
pay
3. Administrative feasibility – means that the tax must be plain and clear to the taxpayer and should
be capable of efficient enforcement by government officials

Theory and basis or necessity of taxation

1. Lifeblood theory – The government chiefly relies on taxation to obtain the means to carry on its
operations. Taxes are essential to its very existence.
2. Necessity theory – The theory behind the exercise of the power to tax emanates from necessity.
Without taxes, the government cannot fulfill its mandate of promoting the general welfare and
wellbeing of the people
3. Benefits-protection theory – It involves the power of the State to demand and receive taxes based on
the reciprocal duties of support and protection between the State and its citizens.
4. Jurisdiction over subjects and objects – It is the country, state or sovereign that gives protection and
has the right to demand payment of taxes with which to finance activities so it could continue to give
protection.

Doctrines in taxation
1. Prospectivity of tax laws - Tax laws must only be imposed prospectively.

2. Imprescriptibility of taxes - Taxes are imprescriptible by reason that it is the lifeblood of the
government.

3. Double taxation - There is no constitutional prohibition against double taxation in the Philippines. It is
something not favored, but is permissible, provided some other constitutional requirement is not
thereby violated

4. Most-favored nation clause - Allows the taxpayer in one state to avail of more liberal provisions
granted in another tax treaty to which the country of residence of such taxpayer is also a party
provided that the subject matter of taxation is the same as that in the tax treaty under which the
taxpayer is liable

5. Power to tax involves the power to destroy - While the power to tax is so unlimited in force extent that
the courts scarcely venture to declare that it is subject to restrictions, it is subject to the inherent and
constitutional limitations which are intended to prevent any abuse
6. Exemption from taxation - Grant of immunity, express or implied, to particular persons or corporations,
from a tax upon property or an excise tax which persons or corporations generally within the same
taxing districts are obliged to pay.

7. Doctrine of equitable recoupment - Allows a taxpayer, whose claim for refund has been barred due to
prescription, to recover said tax by setting off the prescribed refund against a tax that may be due and
collectible from him.

8. Compensation and set-off - Taxes cannot be subject to compensation because the government and the
taxpayer are not creditors and debtors of each other.

9. Compromise and tax amnesty - Compromises are generally allowed when the subject matter thereof is
not prohibited from being compromised and the person entering such compromise is duly authorized.
It partakes of an absolute waiver by the government of its right to collect what is due it and to give tax
evaders who wish to relent a chance to start with a clean slate

10. Taxpayer’s suit - It is a case where the act complained of directly involves the illegal disbursement of
public funds collected through taxation.