TAXATION LAWS NOTES (Dimaampao & Ingles)  Constitutional provisions merely impose limitations on what would otherwise be

an invincible power
A. Definition (Taxation)  Taxation’s relinquishment is never presumed
o Taxation –  It is a necessary attribute of sovereignty
 is an enforced proportional contribution, imposed by the State in its sovereign  Without this power, no sovereign State can exist nor endure
capacity, to support the government  No sovereign State can continue to exist without the means to pay its
 a mode of raising revenue for public purposes expenses and that for those means, it has the right to compel all citizens
o Taxes – and property within its limit to contribute
 enforced proportional contributions from persons and property, levied by the 2. Legislative in Character
state by virtue of its sovereignty for the support of the Government for all its  Such power to tax is exclusively vested in the legislature, except where the
public needs Constitution provides otherwise. (Art. VI, Sec. 28(2); Art. X, Sec. 5)
o Three (3) Elements of Taxation  In the legislature primarily lies the discretion to determine the nature (kind),
 An enforced proportional contribution from persons and properties object (purpose), extent (rate), coverage (subjects), and situs (place) of taxation
 Imposed by the State by its virtue of sovereignty  It has the authority to prescribe a certain tax sat a specific rate for a particular
 Levied for the support of the government public purpose on persons or things within its jurisdiction.
o Nature and Characteristics of Taxation
 Power of taxation is inherent to the State D. Theory and Basis of Taxation
 Right of State to impose taxes exists apart from the Constitution 1. Lifeblood Theory
 The State is free to select the subjects of taxation; inequalities which result from  Taxes are the lifeblood of the State, through which the government and its
singling out of one particular class for taxation or exemption infringe no agencies continue to operate and with which the State effects its functions for
constitutional limitation the welfare of its constituents
 State is also free to select those who will be exempt from taxation  Without taxes, the State would be paralyzed
B. Nature of Internal Revenue Law  Because of the lifeblood theory –
o Power of taxation must be exercised reasonably and in accordance with the law and  Injunction does not lie against the collection of taxes
prescribed procedure  The State is not estopped from collecting taxes by the mistakes or
o It must be exercise fairly, equally, and uniformly errors of its agents
o Taxes are not political in nature, and are continued in force during the period of enemy  Exception: When the taxpayer raises the defense of
occupation. prescription on appeal and the State does not question the
 Such tax laws are deemed to be the laws of the occupied territory and not of the timeliness of the defense, the State can be bound by the acts of
occupying enemy its agents
 Laws exempting subjects from taxation are strictly construed against
C. Scope and Nature of Taxation the taxpayer
1. Inherent Attribute of Sovereignty 2. Necessity Theory
 The power of taxation is an incident of sovereignty as it is inherent in the State;  It is a necessary burden to preserve the State’s sovereignty and means to give the
a matter of right to every independent government citizenry within the State’s territory and facilities and protection which a
 It does not need constitutional conferment government is supposed to provide
3. Benefits-Protection Theory
  Bases the power of the State to demand and receive taxes under reciprocal duties
of support and protection.
 The citizens support the State by paying the portion from his property that is
demanded in order that he may be secured in the enjoyment of the benefits of an
organized society.
 Doctrine of Symbiotic Relationship
 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 in order to improve the lives of the
people and enhance their material and moral values.
E. Purposes of Taxation
1. General/Fiscal/Revenue
 Primary purpose of taxation is to raise funds or property to enable the State to
promote the general welfare and protection of its citizens
2. Non-Revenue/Special or Regulatory
 Reduction of Social Inequality
 Our present tax system has adopted the progressive system of taxation
(tax rate increases as tax base increases)
 This system aims at reducing inequality in the distribution of wealth by
preventing its undue concentration in the hands of few individuals
 Encourage the Growth of Local Industries
 Power of tax carries with it the power to grant tax exemptions
 Tax exemptions and tax reliefs serve as incentives to encourage
investment in our local industry and promote economic growth
 Protect our Local Industry against Unfair Competition
 The Tarriff and Custom Code allows the imposition of certain taxes
upon imported goods or articles to further protect our local industry
 As an Implement of the Police Power of the State
 Imposition of taxes with the end view of regulating a particular activity
 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
 It must be stressed that power of taxation be exercised with caution to
minimize injury to the proprietary rights of the taxpayer; it must be
exercised fairly, equally, and uniformly
 Property rights of individuals may be subjected to restraints and
burdens in order to fulfill the objectives of the government in the
exercise of police power
 Power of Taxation also used as an implement of Eminent Domain
 Tax measures are but “enforced contributions exacted on pain of penal
sanctions” and “clearly imposed for a public purpose
 It is in tax credit that our legislators find support to realize social
justice, and no administrative body can alter the fact.
 20% discount on senior citizen is an exercise of police power
F. Characteristics of a Sound Tax System
o Fiscal Adequacy
 The sources of revenue should be adequate to meet government expenditures
and their variations
o Administrative Feasibility
 Tax system should be capable of being effectively administered and enforced
with the least inconvenience to the taxpayer
 Tax laws must be capable of effective and efficient enforcement; they must not
obstruct business growth and economic development.
 Even if the imposition is burdensome to taxpayer, the tax imposition is not
necessarily invalid unless some aspect of it is shown to violate any law or the
Constitution.
 Each tax should be clear and plain to the taxpayers, capable of enforcement by
an adequate and well-trained staff of public officials, convenient as to time and
manner of payment, and not duly burdensome upon or discouraging business
activity
o Theoretical Justice
 The tax system should be fair to the average taxpayer and based upon the ability
to pay
 Taxes must be reasonable, just, fair, and conscionable.
 Under Article VI, Section 28(1) of the Constitution, the rule of taxation must
be uniform and equitable; it must evolve a progressive system of taxation
 Taxation is equitable when its burden falls on those better able to pay
 Taxation is progressive
 G.R. No. L-9408, October 31,
 Rate goes up depending on the resources of the person affected

 A violation of the principle of a sound tax system may or may not invalidate
a tax law
 A tax law will retain its validity even if it is not in consonance with the
principles of fiscal adequacy and administrative feasibility because the
Constitution does not expressly requires so
1956;
 However, if a tax law runs contrary to the principle of theoretical
justice, such violation will render the law unconstitutional considering
that under the Constitution, the rule of taxation should be uniform and
Facts:
equitable, (Sec. 28 (1), Art, VI, 1987 Constitution)
On March 31, 1952, petitioner
filed his income tax return for
EMILIO Y. HILADO, 1951 with the treasurer of
PETITIONER, VS. THE Bacolod City
COLLECTOR OF wherein he claimed, among
INTERNAL REVENUE other things, the amount of
AND THE COURT OF P12,837.65 as a deductible
TAX APPEALS, item from his
RESPONDENTS;
gross income pursuant to
General Circular No. V-123
issued by the Collector of
Internal Revenue. On
the basis of said return,
an assessment notice
demanding the payment of
P9,419 was sent to
petitioner, who paid the tax in
monthly installments, the last
payment having been made on
January
2, 1953.
Meanwhile, on August 30,
1952, the Secretary of Finance,
through the Collector of
Internal Revenue,
issued General Circular No. V-
139 which not only revoked
and declared void his general
Circular No. V-
123 but laid down the rule that
losses of property which
occurred during the period of
World War II
from fires, storms,
shipwreck or other
casualty, or from robbery,
theft, or embezzlement are
deductible in the year of actual
loss or destruction of said
property. The deduction was
disallowed
and the CIR demanded from
him P3,546 as deficiency
income tax for said year. The
petition for
reconsideration filed by
petitioner was denied so he
filed a petition for review with
the CTA. The SC
affirmed the assessment made
by the CIR. Hence, this appeal.
Issue: 1. Whether Hilado can
claim compensation during the
war; and
 2. Whether the internal
revenue laws can been
enforced during the war
Ruling:
1. No. Assuming that said
amount represents a portion of
the 75% of his war damage
claim which was
not paid, the same would not
be deductible as a loss in 1951
because, according to
petitioner, the last
installment he received from
the War Damage Commission,
together with the notice that no
further
payment would be made on his
claim, was in 1950. In the
circumstance, said amount
would at most
be a proper deduction from his
1950 gross income. In the
second place, said amount
cannot be
considered as a "business
asset" which can be deducted
as a loss in contemplation of
law because its
collection is not enforceable as
a matter of right, but is
dependent merely upon the
generosity and
magnanimity of the U. S.
government. As of the end of
1945, there was absolutely no
law under
which petitioner could claim
compensation for the
destruction of his properties
during the battle for
the liberation of the
Philippines. And under the
Philippine Rehabilitation Act
of 1946, the payments of
claims by the War Damage
Commission merely depended
upon its discretion to be
exercised in the
manner it may see lit, but the
non-payment of which cannot
give rise to any enforceable
right.
2. Yes. It is well known that
our internal revenue laws are
not political in nature and as
such were
continued in force during the
period of enemy occupation
and in effect were actually
enforced by the
occupation government. As a
matter of fact, income tax
returns were filed during that
period and
income tax payment were
effected and considered valid
and legal. Such tax laws are
deemed to be
the laws of the occupied
territory and not of the
out of 1
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EMILIO Y. HILADO,
PETITIONER, VS. THE
COLLECTOR OF
INTERNAL REVENUE
AND THE COURT OF
TAX APPEALS,
RESPONDENTS;