INCOME TAXATION

Kristine Allen Armando

CHAPTER 1: FUNDAMENTAL PRINCIPLES
TAXATION
A process or means which by the
sovereign (independent state) through its
lawmaking body (the legislature) imposes
burdens upon subjects and objects within its
jurisdiction for the purpose of raising revenues to
carry out legitimate objects of government.
In simple terms it is the act of levying tax
to apportion the costs of government among
those who in some measures are privilege to
enjoy its benefits and must therefore bear its
burdens. It is a power inherent in every sovereign
state being essential to the existence of every
government. hence even if not mentioned in the
constitution the state can still exercise the power.
therefore, any constitutional provision regarding
the state's power to tax should not be interpreted
as a grant of power but merely a limitation on the
state's power to tax. access on the other hand or
the enforce proportional contributions or charges
from persons and property levied by the
lawmaking body of the state by virtue of its
virginity for the support of the government and all
Under American jurisprudence the power to
tax is considered inherent in a sovereign state
because it is a necessary attribute of sovereignty.
Without this power no sovereign state can exist or
endure. The power to tax proceeds upon the theory
that the existence of a government is necessity, and
this power is an essential and inherent attribute of
sovereignty, belonging as a matter of right to every
independent state or government. No sovereign
state can continue to exist without the means to pay
its expenses; and that for those means it has the
right to compel all citizens and property within its
limits to contribute, hence the emergence of the
power to tax. (51 Am. Jur., Taxation 40).
The Three Inherent Powers of the State
1. Police Power – It is the power of the state
by promoting public welfare by restraining
and regulating the use of liberty and
property. It may be exercise only by the
government. The property taken in the
exercise of this power is destroyed
because it is noxious or intended for a
noxious purpose.
2. Power of Taxation – it is the power by
which the state raises revenue to defray
the necessary expenses of the
government.
3. Power of Eminent Domain – it is the
power of the state to acquire private
property for public purposes upon
payment of just compensation
Similarities among the three Inherent Powers
of the State.
1. They are inherent in the state.
2. They exist independently of the
constitution although the conditions for
their exercise may be prescribed by the
constitution.
3. Way by which the State Interfere with
private rights and property.
4. Legislative in nature and character.
5. Presuppose an equivalent compensation
received, directly or indirectly, by the
persons affected.

public needs.

Related Case: Pepsi- Cola Bottling company of

the Phil., Inc. v. Municipality of Tanauan, Leyte,
G.R. No. L-31156, February 27, 1976

Issue: Whether a legislative body may enact laws to

raise revenues in the absence of a constitutional
provision granting said body the power to tax.

Answer: Yes, the legislative body may enact laws

even in the absence of a constitutional provision
because the power to tax is inherent in the
government and not merely a constitutional grant.
The power of taxation is an essential and inherent
attribute of sovereignty belonging as a matter of right
to every independent government without being
expressly granted by the people.
 INCOME TAXATION
Kristine Allen Armando
TABLE 1-1: DISTINCTIONS AMONG THE THREE INHERENT POWERS
TAXATION POLICE POWER
NATURE power to enforce power to make and
contribution studies implement laws for the
government funds general welfare
AUTHORITY government only government only

PURPOSE for the support of the promotion of general

government welfare through
regulation
PERSONS community or a class of community or a class of
AFFECTED individuals. applies to all individuals
persons, property and applies to all persons
exercises that may be property and excise is
subject thereto that may be subject
thereto
SCOPE Plenary, Broader in application.
comprehensive, general power to make
supreme and implement law
EFFECT contribution becomes no transfer or title. there
part of the public fund may just be a restrain on
the injurious use of
property
BENEFITS in form of protection and no direct and immediate
RECEIVED benefits received from benefit but only such as
government may arise from the
maintenance of a healthy
economic standard of
society
AMOUNT OF no limit sufficient to cover costs
IMPOSITION of the license and the
necessary expenses of
police surveillance and
regulation

PURPOSES OF TAXATION
PRIMARY: Revenue of Fiscal Purpose
The primary purpose of taxation on the
part of the government is provide funds or
property with which to promote the general
welfare and the protection of its citizens and to
enable it to finance its multifarious activities. A
government can run its administrative set up
only through public funding which is collected in
the form of tax.
examples of taxes imposed for raising revenues
or income and business taxes
SECONDARY: Regulatory Purpose (or
Sumptuary/ Compensatory)
While the primary purpose of taxation
is to raise revenue for the support of the
government taxation is often employed as a
device for regulation or control by means of
which certain effects are conditions envisioned
by the government may be achieved such as:
a. Promotion of general welfare
b. Reduction of Social Inequality
c. Economic Growth

Example of taxes excise taxes forcing products such as cigarettes and alcohol
imposed for regulation amusement taxes for amusement places such as night and day clubs, cockpits, and
racetracks
Examples of means of increasing taxes in periods of prosperity to curb spending power and halt inflation
attaining some social or granting tax incentives to promote NYU or pioneer industries and encourage growth of
economic objectives local industries
through taxation
 INCOME TAXATION
Kristine Allen Armando
Related Cases

CALTEX V. COMMISSIONER, 208 SCRA 755

Taxation is no longer a measure merely the raise

revenue to support the existence of the government.
Texas may be levied with a regulatory purpose to
provide means for the rehabilitation and stabilization
of a threatened industry which is affected with public
interests as to be within the police power of the state.
the oil industry is imbued with public interest as it
vitally affects general welfare.

TIO V. VIDEOGRAM, 151 SCRA 208

PD 1987 which raided the video gram regulatory board

also impose a 30% tax on the gross receipts’ payable to
the local government. the Supreme Court upheld the
validity of the law ruling that the 30% fax also serve as a
regulatory purpose to answer the need for regulating the
video industry, particularly rampant film piracy, the
flagrant violation of intellectual property rights and the
proliferation of pornographic videotapes.

THEORY AND BASIS OF TAXATION

1. THEORY (Authority): LIFEBLODD
THEORY or NECESSITY THEORY
The power of taxation proceeds upon the
theory that the existence of government is
a necessity. as stated in the case of Phil
Guaranty Co., Inc. v. Commissioner [13
SCRA 775], is a power predicated upon
necessity. it is a necessary burden to
preserve the state sovereignty and a
means to give the citizenry an army to
resist aggression, and navy to defend its
shores from invasion, a corps of civil
servants to serve, public improvements for
the enjoyment of citizenry, and those
which come with the state’s territory and
facilities and protection which a
government is supposed to provide.

The power of taxation is essential

because the government can neither exist
nor endure without taxation. “Taxes are
the lifeblood of the government and their
prompt and certain availability in an
imperious need”. (Lifeblood Doctrine). The
government cannot continue to perform its
basic functions of serving and protecting
its people without means to pay its
expenses. Consequently, the state has
the right to compel all its citizens and
property within its limit to contribute.