INCOME T A X A T I O N

TAX 301
A L P R IN C IP L E S AND
FUNDAMENT N
T S O F TA X AT IO
CONCEP
INHERENT POWERS OF THE STATE
WHEN A SOVEREIGN STATE IS BORN, IT EXISTS WITH
INDISPENSABLE POWERS NECESSARY FOR ITS SURVIVAL. THESE
POWERS ARE CALLED “INHERENT POWERS.” THEY NATURALLY
EXIST AS ESSENTIAL FORCE IN ORDER THAT A GOVERNMENT CAN
COMMAND, MAINTAIN PEACE AND ORDER, AND SURVIVE,
IRRESPECTIVE OF ANY CONSTITUTIONAL PROVISION
NATURE OF POLICE POWER
•POLICE POWER REFERS TO THE INHERENT POWER OF THE SOVEREIGN STATE TO
LEGISLATE FOR THE PROTECTION OF THE HEALTH, WELFARE AND MORALS OF THE
COMMUNITY. IT IS EXERCISED USUALLY TO GUARD AGAINST EXCESSES OR ABUSES OF
INDIVIDUAL LIBERTY. THIS IS RESTRICTED BY THE “DUE PROCESS CLAUSE” OF THE
CONSTITUTION WHICH PROVIDES THAT NO PERSON MAY BE DEPRIVED OF “LIFE,
LIBERTY, OR PROPERTY, WITHOUT DUE PROCESS OF LAW.THE POLICE POWER OF THE
STATE MAY BE EXERCISED THROUGH TAXATION BECAUSE TAXES MAY BE LEVIED FOR
THE PROMOTION OF THE WELFARE OF THE PUBLIC.
NATURE OF EMINENT DOMAIN

•EMINENT DOMAIN REFERS TO THE POWER OF THE SOVEREIGN STATE TO

TAKE PRIVATE PROPERTY FOR PUBLIC PURPOSE. IT IS FOUNDED UPON THE
IDEA THAT THE COMMON NECESSITIES AND INTEREST OF THE COMMUNITY
TRANSCEND INDIVIDUAL RIGHTS IN PROPERTY.
 TAXATION POWER
•TAXATION DEFINED
1. A POWER BY WHICH AN INDEPENDENT STATE, THROUGH ITS LAWMAKING BODY, RAISES AND
ACCUMULATES REVENUE FROM ITS INHABITANTS TO PAY THE NECESSARY EXPENSE OF THE
GOVERNMENT.

2. AS A POWER, IT REFERS TO THE INHERENT POWER OF A STATE, COEXTENSIVE WITH SOVEREIGNTY

TO DEMAND CONTRIBUTIONS FOR PUBLIC PURPOSES TO SUPPORT THE GOVERNMENT.

3. A PROCESS OR ACT OF IMPOSING A CHARGE BY GOVERNMENTAL AUTHORITY ON PROPERTY,

INDIVIDUALS OR TRANSACTIONS TO RAISE MONEY FOR PUBLIC PURPOSES.

4. AS A PROCESS, IT PASSES A LEGISLATIVE UNDERTAKING THROUGH THE ENACTMENT OF TAX LAWS

BY THE CONGRESS WHICH WILL BE IMPLEMENTED BY THE EXECUTIVE BRANCH OF THE
GOVERNMENT THROUGH ITS BUREAU OF INTERNAL REVENUE (BIR) TO RAISE REVENUE FROM THE
INHABITANTS IN ORDER TO PAY THE NECESSARY EXPENSES OF THE GOVERNMENT.

5. A MEANS BY WHICH THE SOVEREIGN STATE THROUGH ITS LAW-MAKING BODY DEMANDS FOR
REVENUE IN ORDER TO SUPPORT ITS EXISTENCE AND CARRY OUT ITS LEGITIMATE OBJECTIVES.

6. AS A MEANS, IT IS A WAYS OF COLLECTING AND APPORTIONING THE COST OF GOVERNMENT AMONG

THOSE WHO ARE PRIVILEGED TO ENJOY ITS BENEFITS.
SIMILARITIES AMONG TAXATION, EMINENT
DOMAIN AND POLICE POWERS
THE SIMILARITIES AMONG THE THREE INHERENT POWERS OF THE STATE ARE AS FOLLOWS:

• THEY ARE INHERENT IN SOVEREIGNTY (THEY CAN BE EXERCISED EVEN WITHOUT BEING EXPRESSLY GRANTED IN
THE CONSTITUTION)

• THEY ARE ALL NECESSARY ATTRIBUTES OF SOVEREIGNTY BECAUSE THERE CAN BE NO EFFECTIVE GOVERNMENT
WITHOUT THEM.

• THEY CONSTITUTE THE THREE WAYS BY WHICH THE STATE INTERFERES WITH THE PRIVATE RIGHTS AND
PROPERTY;

• THEY ARE ALL LEGISLATIVE IN NATURE AND CHARACTER;

• THEY PRESUPPOSE AN EQUIVALENT COMPENSATION; AND
• THE PROVISIONS IN THE CONSTITUTION ARE JUST LIMITATIONS ON THE EXERCISE OF THESE POWERS.
DISTINCTION OF TAXATION, POLICE POWER,
AND EMINENT DOMAIN
6. As to person affected Operates on community Operates on community or a Operates on the particular
or a class of individuals class of individuals property of an individual

7. As to benefits Continuous protection Cost of regulation, license Market value of the property
and organized society and other necessary expropriated
expenses
8. As to amount of imposition Generally no limit Cost of regulation license and No imposition
other necessary expenses
9. As to importance Inseparable for the Protection, safety and welfare Common necessities and interest
existence of a nation – it of society of the community transcend
supports police power individual rights in property
and eminent domain
10. As to relationship to Subject to Constitutional Relatively free from Superior to and may override
Constitution and Inherent limitations Constitutional limitations Constitutional impairment
Inferior to Superior to non-impairment provision because the welfare
non-impairment clause clause
11. As to limitation Constrains by Limited by the demand for Bounded by public purpose and
Constitutional and public interest and due just compensation
Inherent limitations process
NATURE OF TAXATION POWER
•THE POWER TO TAX IS AN ATTRIBUTE OF SOVEREIGNTY THAT IS
EXERCISED BY THE GOVERNMENT FOR THE BETTERMENT OF THE
PEOPLE WITHIN ITS JURISDICTION WHOSE INTEREST SHOULD BE
SERVED, ENHANCED AND PROTECTED.
The nature of tax power includes the following:
1. Inherent power to sovereignty;
2. Essentially a legislative function;
3. For public purposes;
4. Territorial in operation;
5. Tax exemption of government;
6. The strongest among the inherent powers of the government;
7. Subject to constitutional and inherent limitations.
INHERENT POWER OF SOVEREIGNTY
• TAXATION IS AS OLD AS GOVERNMENT ITSELF. ITS EXISTENCE COMMENCES CONCURRENTLY WITH THE
FOUR ELEMENTS OF A STATE – PEOPLE, TERRITORY, SOVEREIGNTY AND GOVERNMENT. FROM THE MOMENT
A STATE IS BORN, IT AUTOMATICALLY POSSESSES THE POWER TO COLLECT TAXES FROM ITS
INHABITANTS. THE GOVERNMENT HAVING SOVEREIGNTY CAN ENFORCE CONTRIBUTIONS UPON ITS
CITIZENS EVEN WITHOUT A SPECIFIC PROVISION IN THE CONSTITUTION AUTHORIZING IT. IT IS SO
BECAUSE THE STATE HAS THE SUPREME POWER TO COMMAND AND ENFORCE OBEDIENCE TO ITS WILL
FROM THE PEOPLE WITHIN ITS JURISDICTION.

NATURE OF TAXATION POWER

IN ORDER FOR THESE GOVERNMENT UNITS OR POLITICAL SUBDIVISIONS TO
HAVE THE POWER TO TAX, THERE MUST BE:

•An expressed constitutional provision granting them the power to tax

•Valid delegation of tax power through the statute from the national
legislature granting local government units or political subdivisions to
exercise such power (i.E., Local government code of the Philippines), in
the absence of a constitutional provision.
ESSENTIALLY A LEGISLATIVE FUNCTION
• THE LAW-MAKING BODY OF THE GOVERNMENT AND ITS POLITICAL SUBDIVISIONS EXERCISE THE POWER
OF TAXATION. THE POWER TO ENACT LAWS AND ORDINANCES, AND TO IMPOSE AND COLLECT TAXES IS
GIVEN TO THE CONGRESS.

The scope of legislative taxing power comprises the following:

a. Amount or rate of the tax (e.g., 5% - 32% for individual’s net taxable income, 30% for
corporation’s net taxable income; 12% value-added tax based on sales or gross receipts, etc.)
b. Purposes of tax (public purposes);
c. Apportionment of tax
d. Situs of taxation; and
e. Method of tax collection.

NATURE OF TAXATION POWER

NON-DELEGATION OF LEGISLATIVE POWER
TO TAX
•IN ITS STRICT SENSE, THE POWER TO MAKE TAX LAWS CANNOT BE DELEGATED TO
OTHER BRANCHES OF THE GOVERNMENT. SINCE PECULIARLY AND EXCLUSIVELY
LEGISLATIVE IN NATURE, THE POWER TO MAKE TAX LAWS CANNOT BE EXERCISED BY
THE EXECUTIVE OR JUDICIAL BRANCH OF THE GOVERNMENT. THEREFORE, LGU, ONLY THE
LEGISLATIVE BRANCH OF THE LGU CAN EXERCISE THE POWER. ALSO, IF DELEGATED TO
THE PRESIDENT, IT IS LIMITED TO ADMINISTRATIVE DISCRETION SUBJECT TO VALID
STANDARDS.
EXAMPLES OF TAXATION POWER THAT
CANNOT BE DELEGATED ARE THE FOLLOWING:
a. Power to select the coverage, object or property to be taxed;
b. Determining the nature and purpose for which taxes shall be collected;
c. Determining the place or situs of tax imposition;
d. Fixing the amount to be imposed and tax rates; and
e. Granting tax exemption or condonations;
f. Setting down rules of taxation in general
FOR PUBLIC PURPOSE
•THE POWER TO TAXATION FLOWS FORTH THE LEGITIMATE
OBJECTIVE OF SUPPORTING THE SERVICE OF THE
GOVERNMENT. PUBLIC TAXES ARE PUBLIC MONEY

NATURE OF TAXATION POWER

TERRITORIAL IN OPERATION
•THE TAXING AUTHORITY MUST OBSERVE “TAX SITUS” BECAUSE THE
COUNTRY’S TAX LAWS ARE AFFECTIVE AND ENFORCEABLE ONLY WITHIN
ITS TERRITORIAL LIMITS. AS A RULE, THE POWER TO TAX CAN ONLY BE
EXERCISED WITH IN THE TERRITORIAL JURISDICTION OF A TAXING
AUTHORITY, EXCEPT WHEN THERE EXISTS A “PRIVATE OF RELATIONSHIP”
BETWEEN THE TAXING STATE AND THE OBJECT OF TAX BASED ON THE
TAX PRINCIPLE OF RECIPROCAL DUTIES.

NATURE OF TAXATION POWER

TAX EXEMPTION OF THE GOVERNMENT
•EXEMPTION FROM TAXATION IS A GRANT OF TAX IMMUNITY TO A
PARTICULAR CLASS OF PERSONS OR CORPORATIONS. THE STATE’S
IMMUNITY FROM TAXATION IS INHERENT ITS POWER IMPOSE TAX. THE
STATE CANNOT BE TAXED WITHOUT ITS CONSENT; OTHERWISE, SUCH IS
DEROGATION TO ITS SOVEREIGNTY. TAX EXEMPTION APPLIES ONLY TO
GOVERNMENT ENTITIES THROUGH WHICH THE GOVERNMENT
IMMEDIATELY AND DIRECTLY EXERCISES ITS GOVERNMENTAL FUNCTIONS
LIKE THE ARMED FORCES OF THE PHILIPPINES (AFP).

NATURE OF TAXATION POWER

STRONGEST AMONG INHERENT POWERS

•TAXATION POWER IS THE STRONGEST OF ALL INHERENT

POWERS OF THE GOVERNMENT CAN EITHER SURVIVE OR
DISPENSE ANY OF ITS OTHER POWERS AND FUNCTIONS
EFFECTIVELY.

NATURE OF TAXATION POWER

IMPORTANCE OF TAXATION
• TAXATION POWER EXISTS INSEPARABLY WITH THE STATE. IT IS ESSENTIAL FOR THE
EXISTENCE OF THE GOVERNMENT. TAXATION IS VERY IMPORTANT FOR THE CONTINUOUS
EXISTENCE OF A NATION. IT IS THE PRIMARY SOURCE OF THE GOVERNMENT REVENUE
THAT IS USED TO EFFECTIVELY AND PERMANENTLY PERFORM GOVERNMENT
FUNCTIONS. THE POWER TO TAX MAY E USED AS AN IMPLEMENT OF POLICE POWER IN
ORDER TO PROMOTE THE GENERAL WELFARE OF THE PEOPLE, TAXATION IS EXERCISED
TO RAISE REVENUE FOR THE VERY EXISTENCE OF THE GOVERNMENT TO SERVE THE
PEOPLE FOR WHOSE THIS REASONS MAKE THE PAYMENT OF TAXES COMPULSORY.
WITHOUT TAXATION, THE OTHER INHERENT POWERS (POLICE AND EMINENT DOMAIN
POWERS) WOULD BE PARALYZED.
TAX / TAXES
•ENFORCED PROPORTIONAL CONTRIBUTIONS FROM PERSONS AND
PROPERTY LEVIED BY THE LAW MAKING BODY OF STATE BY
VIRTUE OF ITS SOVEREIGNTY FOR THE SUPPORT OF THE
GOVERNMENT AND ALL PUBLIC NEEDS.
ESSENTIAL
•IT IS AN ENFORCEDCHARACTERISTICS
CONTRIBUTION OF A TAX
•IT IS LEVIED BY THE LAWMAKING BODY
•IT IS PROPORTIONATE IN CHARACTER
•IT IS GENERALLY PAYABLE IN THE FORM OF MONEY
•IT IS IMPOSED FOR THE PURPOSE OF RAISING REVENUES
•IT IS FOR PUBLIC PURPOSE
ASPECTS OF TAXATION
•LEVYING OR IMPOSITION OF TAX
•ASSESSMENT OR DETERMINATION OF THE CORRECT AMOUNT OF
APPLICABLE TAX

•COLLECTION OF TAX
•
CLASSIFICATION
AS TO SCOPE
OF TAXES
• AS TO ONE WHO BEARS THE BURDEN
✔ NATIONAL ✔ DIRECT
✔ LOCAL ✔ INDIRECT
• AS TO SUBJECT MATTER OR OBJECT • AS TO DETERMINATION OF ACCOUNT
✔ PERSONAL, POLL OR CAPITATION ✔ SPECIFIC
✔ PROPERTY ✔ AD VALOREM
✔ EXCISE
CLASSIFICATION
•AS TO PURPOSE
OF TAXES
✔ PRIMARY, FISCAL, OR REVENUE •AS TO AUTHORITY
✔ SECONDARY, REGULATORY, SPECIAL OR
SUMPTUARY PURPOSE ✔NATIONAL
•AS TO GRADUATION OR RATE
✔ PROPORTIONAL
✔LOCAL
✔ PROGRESSIVE OR GRADUATED
✔ REGRESSIVE
ELEMENTS OF SOUND TAX SYSTEM
•FISCAL ADEQUACY
•THEORETICAL JUSTICE OR EQUITY
•ADMINISTRATIVE FEASIBILITY
TAKE NOTE!
•LOOK FOR THE FOLLOWING CASE
✔25 SCRA 827
✔13 SCRA 775
✔GR NO. 127410 JANUARY 20, 1999
✔PLDT VS. GLOBE AND SMART
✔GR NO. 115455 OCT. 30, 1995
✔GR NO. 120082 SEPTEMBER 11, 1996
ASSIGNMENT
 SITUS OF TAXATION

•PLACE OF TAXATION
FACTORS TO CONSIDER IN DETERMINING
SITUS OF TAXATION
•SUBJECT MATTER
•NATURE OF THE TAX
•CITIZENSHIP
•RESIDENCE OF THE TAXPAYER
•SOURCE OF INCOME
•PLACE OF EXCISE, BUSINESS OR OCCUPATION BEING TAXED
TAX DISTINGUISHED FROM OTHER TERMS
OR IMPOSTS TOLL PENALTY
SPECIAL
ASSIGNMENT REVENUE

TAX VS SUBSIDY
PERMIT / LICENSE
DEBT
FEE

CUSTOM DUTIES TARIFF

 DOUBLE TAXATION
•STRICT SENSE - DIRECT DUPLICATE TAXATION
•BROAD SENSE – INDIRECT DUPLICATE TAXATION

26 SCRA 578 – VILLANUEVA VS. CITY OF ILOILO ASSIGNMENT

MEANS OF AVOIDING OR MINIMIZING THE BURDEN OF TAXATION
•SHIFTING
•TRANSFORMATION
•EVASION
•AVOIDANCE
•EXEMPTION