Inherent Powers of the State

The Inherent powers of the state are as follows:

1. Power of Taxation
2. Police Power
3. Power of Eminent Domain

Inherent defined:
As being inherent, it means that as long as the state exists, this power can never be taken away.

1. Power of Taxation – An inherent power of the state exercised through legislature, to

impose burdens upon subjects and objects within its jurisdiction, for the purpose of
raising revenues to carry out the legitimate objects of the government. Nature:
An inherent power of the state exercised through the legislature.

Scope:
To impose burdens upon subjects and objects within its jurisdiction.

Purpose:
For raising revenue to carry out the legitimate objects of the government

Revenue Objective – To build a just and human society and the establishment of a
government under certain ideals and aspirations.

Sumptuary Objective – An implement of the police power of the state for regulatory
purposes. In this case, it is used in furtherance of any government objective either as an
incentive or deterrence. As an implement, the generation of revenue is merely incidental
or in furtherance thereof. (Lutz v. Araneta, 98 Phil 148).

Compensatory Objective – For social justice purposes or other purposes or other

legitimate objectives of the State, with a view to realize social justice, equitable
distribution of wealth, economic progress and other similar objectives (Southern Cross
Cement Corp. v. Cement Manufacturers Assoc. of the Phils, GR 158540)

2. Police Power – This is the power vested in the Legislature by the Constitution to make,
ordain, and establish all manner of wholesome and reasonable laws, statutes and
ordinances, either with penalties or without, not repugnant to the Constitution, for the
good and welfare of the State and its subjects.Basis:
This power is based on the legal maxim “salus populi est suprema lex” (the voice of the
people is the supreme law). Every citizen of every community, in a civilized society must
bear certain burdens imposed for the good of all.Note: No right is absolute in the face of
the common good.
 Nature:
Police power is an attribute of sovereignty and founded on the obligation of the State to
provide protection for its citizens and the safety and good order of society.

Scope:
Police power is founded on which our social system rests and has for its object the
improvement of social and economic conditions affecting the community. It depends on
the security of the social order, life and health of citizens, comfort and existence in a
thickly populated community, enjoyment of social life, and beneficial use of property.

Requisites:
1. Interest of the public is general, not that of particular class
2. means used are reasonably necessary for the purpose, and not unduly oppressive upon
individuals

Police Power Eminent Domain Taxation

To regulate the activities for To raise Revenue and

welfare/Property is taken To take Property for support of the
As to Purpose
for public use Public public use government
purpose Constitution and

As to Exercising Government / Private

Government Government
Authority Entities

The owner is paid the

As to the Amount of Sufficient to cover the costs
fair market value of the No Limit
Imposition of regulation
property expropriated

None. Compensation here Compensation is the

refers to the intangible,
altruistic feeling
As to Compensation
that the individual has
contributed to
the public good
Just Compensation – protection and public
the full and fair improvements
equivalent of the instituted by the
property taken. government for the
taxes paid

liberty and Property

As to Object/Persons property property rights Community or class
affected Community or Owner of the property of
class of individuals individuals

As to the Non- Superior to the Superior and may Inferior to the “Non-
Impairment “Non-Impairment Clause” override the “Non- Impairment Clause”
Clause/Relationship of the Impairment Clause” of of
with the Constitution Constitution the Constitution the Constitution

3. Power of Eminent Domain – This is the right of the State to acquire private property for
public use upon payment of just compensation and observance of due process. Basis:
It is based on genuine necessity and that necessity must be of public character. It must be
reasonable and practicable such that it would greatly benefit the public with the least
inconvenience and expense to the condemning party ad property owner consistent with
such benefit.

Requisites:
1. There must be taking of public property
2. It must be for public use
3. There must be just compensation
4. Due process of law must be observed in taking of the of property

Distinction:

Similarities:

1. They are indispensable to the existence of a state.

2. They are inherent rights which means that they can exist without the constitution.

3. They are the means by which the state interferes with private rights and properties.

4. These powers are generally exercised by the legislature.

5. They contemplate an equivalent compensation or benefit.
POWER OF TAXATION
PRIMARY PURPOSE

◦ To raise revenue to meet the legitimate objectives of government.

◦ The money collected by the government is used to provide various services to promote the
welfare of the people
SECONDARY PURPOSE

◦ Regulatory

◦ Devise for regulation or control by means of which certain effects or conditions

envisioned by the government may be achieved.

◦ Compensatory

◦ Use in attaining some social or economic ends, irrespective of whether revenue is

actually raised or not.
SECONDARY PURPOSE - examples

◦ increase in taxes on foreign products to make local products more competitive

◦ increase in taxes on alcoholic drinks and cigarettes to discourage vices

◦ decrease in taxes for particular businesses to encourage start-ups and investments which
will create more jobs

ASPECTS/STAGES OF TAXATION
The aspects of taxation are:
(1)  LEVYING — the act of the legislature in choosing the persons, properties, rights or privileges to be
subjected to taxation.
(2)  ASSESSMENT and COLLECTION — This is the act of executing the law through the
administrative agencies of government.
(3)  PAYMENT — the act of the taxpayer in settling his tax obligations

BENEFIT RECEIVED OR RECIPROCITY THEORY

PUBLIC
SERVICE

GOVERNME
PEOPLE
NT

TAXES

LIFEBLOOD THEORY
◦ Without taxes, the government can neither exist nor endure.
◦ Without taxes, the government will not survive, resulting in detriment(harm) to society.
◦ Without taxes, the government would be paralyzed for lack of motive power to activate and operate it

SCOPE OF TAXATION
SUPREME: It can impose tax on anything
PLENARY: Avail remedies just to endure collection
UNLIMITED: Without restrictions
COMPREHENSIVE: It may cover person, businesses, activities, professions, rights and privileges

NATURE OF TAXATION
1. Inherent in Sovereignty – necessary to the existence of every government
2. Legislative – refers to legislative branch of our government. Congress makes laws to limit the
power of taxation
a. national tax, uniform implementation but not necessarily same rate for everyone (NIRC) Ex.
Income and business tax
b. local tax, applicable to those who reside within the boundaries (LGU local ordinance)
Ex. Real Property tax, land tax, house/improvement tax

3. Subject to constitutional and inherent limitations- exemption of govt. entities performing

governmental functions from taxation.
Ex. of inherent limitation is the state may only tax persons and property under its
territorial power, agencies of gov’t. are tax free

IV. INHERENT LIMITATIONS

A. IT MUST BE FOR A PUBLIC PURPOSE - A revenue measure must be laid for a public purpose
determined by the legislature. The proceeds of the tax must be used either for the support of the State or
for some recognized objective of government or directly to promote the welfare of the community.
B. EXEMPTION OF GOVERNMENT ENTITIIES, AGENCIES and INSTRUMENTALITIES - As a
rule, the government, its agencies and instrumentalities performing governmental function are exempt
from VAT.

However, Sec. 27(c) of the Tax Code provides for the following corporations
as exempt:
1. Government Service Insurance System (GSIS)
2. Social Security System (SSS)
3. Philippine Health Insurance Corporation (PHIC)
4. Local Water Districts
PAGCOR: is no longer exempt from income tax by its omission from the above list. (

C. THE POWER TO TAX IS INHERENTLY LEGISLATIVE (NON-DELEGABILITY)- Taxation is the

inherent power of the state and it is exercised primarily by the Legislature as delegates of the people. In
accordance with the latin maxim, potestas delegatas non delegare potest, which means, what has been
delegated can no longer be delegated, as a rule, only the Congress (to whom the legislative power has
been delegated by the people) can exercise this power.
 Exceptions:
1. Delegation to Local Government – the Constitution, as implemented by the Local
Government Code, empowers the local government units (LGU) to
create its own sources of revenue and to levy taxes, fees and charges which shall accrue
exclusively to the LGU. (Sec. 5, Art. X of the Constitution)

2. Delegation to the President – the Constitution, as implemented by the Tariff and

Customs Code, allows the President to fix tariff rates, import and
export quotas, tonnage and wharfage dues and other duties or imposts. (Sec. 28[2], Art.
VI of the Constitution)

3. Delegation to Administrative Agencies – administrative agencies may issue rules and

regulations to implement tax laws, under their quasi-legislative powers
D. INTERNATIONAL COMITY -The principle of international comity recognizes that States
are co-equal sovereigns such that one cannot exercise its inherent sovereign powers over another,
including the power to tax.

E. TERRITORIAL IN APPLICATION (SITUS) -Tax is territorial in application in the sense that the
object and/or subject of the tax must be within the territorial jurisdiction of a State. As such, income
earned by non-residents and aliens are not subject to tax in the Philippines unless they are earned herein –
here the subject of the tax is the income. On the other hand, resident citizens are subject to income tax for
their worldwide income – here the object of the tax is the individual who is subject to the protection of the
State.

V. CONSTITUTIONAL LIMITATIONS
A. DUE PROCESS REQUIREMENT - Art. III, Sec. 1: No person shall be deprived of life, liberty or
property without due process of law, nor shall any person be denied the equal protection of laws
B. EQUAL PROTECTION OF THE LAWS - Art. III, Sec. 1: No person shall be deprived of life, liberty
or property without due process of law, nor shall any person be denied the equal protection of laws.

The requirement of equal protection of the laws requires that the law must apply equally
to all persons within the same class. As such, providing for a classification and applying
the law only to a particular class is not violative of the constitutional right so long as it
comes from a valid classification.

C. UNIFORMITY AND PRGRESSIVITY OF TAXATION - Art. VI, Sec. 28 (1) The rule of taxation
shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.
UNIFORMITY means that all taxable articles or kinds of property of the same classes shall be taxed at
the same rate. A tax is uniform when it operates with the same force and effect in every place where the
subject of it is found. (Commissioner vs. Lingayen Gulf Elec. Co., G.R. No. L-23771, August 4, 1988)

• Uniformity – All taxable property shall be alike to be subjected to tax

• Equitability – The burden of taxation falls to those better able to pay.
• Equality – When the burden of the tax falls equally and impartially upon all persons and
property subject to it.
 PROGRESSIVITY means that the tax rate increases as the tax base thereof increases.
Our income tax system is one good example of such progressivity because it is built on
the principle of the taxpayer’s ability to pay. Taxation is progressive when its rate goes
up depending on the resources of the person affected (Reyes vs. Almanzor, G.R. Nos.
49839-46, April 26, 1991)

D. NO IMPRISONMENT FOR PAYMENT OF POLL TAX - Art. III, Sec. 20. No person shall be
imprisoned for debt or non-payment of a poll tax. Poll Tax is a tax on individuals residing within a
specified territory, whether citizens or not, without regard to their property or the occupation in which
they may be engaged.
E. EXEMPTION FROM PROPERTY TAX OF REGILIOUS, CHARITABLE AND EDUCATIONAL
INSTITUTIONS

Art. VI, Section 28. (3) Charitable institutions, churches and parsonages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly, and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation.
Property Tax: The tax exemption under this constitutional provision covers property
taxes only.
.
F. EXEMPTION OF NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS

Art. XIV, Sec. 4(3): All revenues and assets of non-stock, non-profit educational
institutions used actually, directly, and exclusively for educational purposes
shall be exempt from taxes and duties.

G. GRANT OF EXEMPTION REQUIRES THE MAJORITY VOTE OF CONGRESS

Art. VI, Sec. 28(4): No law granting any tax exemption shall be passed without the
concurrence of a majority of all the Members of the Congress.
Rationale: in order to prevent the indiscriminate grant of tax exemptions.

H. PROHIBITION ON TAX LEVIED FOR SPECIAL PURPOSE

Art. VI, Sec. 29(3): All money collected or any tax levied for special purposes shall be
treated as special fund and paid out for such purpose only. If the
purpose for which a special fund was created has been fulfilled or abandoned, the
balance, if any, shall be transferred to the general funds of the government.

I. VETO POWER OF THE PRESIDENT

Art. VI, Sec. 27(2): The President shall have the power to veto any particular item or
items in an appropriation, revenue or tariff bill but the veto shall not
affect the item or items which he does not object.
J. REVENUE OR TARIFF BILL MUST EXCLUSIVELY ORIGINATE FROM THE LOWER HOUSE

Art. VI, Sec. 24: All appropriation, revenue or tariff bills, bills authorizing the increase of
public debts, bills of local application and private bills, shall
originate exclusively in the House of Representatives, but the Senate may propose or
concur with amendments.

K. LOCAL GOVERNMENT’S POWER TO TAX

Art. X, Sec. 5: Each local government unit shall have the power to create its own sources
of revenues and to levy taxes, fees and charges subject to such
guidelines and limitations as the Congress may provide, consistent with the basic policy
of local autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments.

L. NO APPROPRIATION FOR RELIGIOUS PURPOSES

Art. VI, Sec. 29(2): No public money or property shall be appropriated applied, paid or
employed, directly or indirectly, for the use, benefit or support of
any sect, church, denomination, sectarian institution or system of religion, or of any
priest, preacher, minister, other religious teacher, or dignitary as such,
except when such priest, preacher, minister, or dignitary is assigned to the armed forces,
or to any penal institution, or government orphanage or leprosarium.
M. RELIGIOUS FREEDOM
Art. III, Sec. 5: No law shall be made respecting an establishment of religion, or
prohibiting the free exercise thereof. The free exercise and enjoyment of
religious profession and worship, without discrimination or preference, shall forever be
allowed. No religious test shall be required for the exercise of civil or
political rights.
Sale of Bibles at cost or at a low premium: The Constitutional guaranty of the free
exercise of religion carries with it the right to disseminate religious
information. Any restraint on such right can only be justified on the ground that there is a
clear and present danger of any substantive evil which the State has
the right to prevent.
Activities simply and purely for propagation of faith are exempt (i.e., sale of bibles and
religious articles by non-stock, non-profit organizations at minimal profit).
A license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on
the press is unconstitutional because it lays a prior restraint on the exercise
of its right. Hence, although its application to others is valid, its application to the press
or to religious groups, such as the Jehovah’s Witnesses, in connection
with the latter’s sale of religious books and pamphlets, is unconstitutional (American
Bible Society v. City of Manila, G.R. L-9637, April 1957)
N. NON-IMPAIRMENT OF CONTRACTS
Art. III, Sec. 10: No law impairing the obligation of contracts shall be passed.
Revocability of Tax Exemption: A law which changes the terms of the contract by
making new conditions, or changing those in the contract, or dispenses
with those expressed, impairs the obligation.
 However, the non-impairment rule does not apply to public utility franchises since a
franchise is subject to amendment, alteration or repeal by the Congress

O. NON-IMPAIRMENT OF THE JURISDICTION OF THE SUPREME COURT

Art. VIII, Sec. 5[2]: The Supreme Court shall have the power to review, revise, modify or
affirm on appeal or certiorari as the law or the Rules of Court may provide, final
judgments and orders of lower courts in all cases involving the legality of any tax,
impost, assessment, or toll, or any penalty imposed in relation thereto.

Thus, Congress cannot enact a law which makes the decisions of the Court of Tax
Appeals final and non-appealable to the Supreme Court.

TAX - It is an ENFORCED CONTRIBUTION levied by the lawmaking body of the State to raise
revenue for public purpose.
ESSENTIAL ELEMENTS OF A TAX
1. It is an enforced contribution – not voluntary, requirement, does not depend upon the person’s will,
specified rate for different taxes
2. It is generally payable in money - In Philippine peso
3. It is proportionate in character – Ability to pay principle… depends if earning income more
4. It is levied on persons or property, or the exercise of a right or privilege (Excise tax) – person – income
tax, property – property tax, real estate tax, excise tax or privilege tax - tax imposed on a specific good or
activity like alcohol, cigarette, gasoline

5. It is levied by the State which has jurisdiction over the subject or object of taxation.
6. It is levied by the law-making body of the State.- national tax, local tax
7. It is for public purpose – necessary for “the support of the govt. administration of law, or the payment
of public expenses”

CLASSIFICATION OF
TAXES
1.) As to subject matter or
object
a) Personal, poll, or capitation
taxes- tax of fixed amount
imposed on persons within a
specified territory, whether
citizen or not, without regard to
their property or occupation or
business in which they may be
engaged.
Example: community (formerly
residence) tax
Poll tax- tax levied equally on
all: a flat-rate tax levied on all
members of a population, often
as
a prerequisite to voting
b) property- tax imposed on
property whether personal or
real, in proportion either to its
value, or in accordance with
other reasonable methods of
appointment.
Obligation to pay the tax is
absolute and unavoidable and is
not based upon the voluntary
action
of the person assessed.
Example: real state tax
CLASSIFICATION OF TAXES
1.) As to subject matter or object
a) Personal, poll, or capitation taxes- tax of fixed amount imposed on persons within a specified
territory, whether citizen or not, without regard to their property or occupation or business in which
they may be engaged.
Example: community (formerly residence) taX Poll tax- tax levied equally on all: a flat-rate tax
levied on all members of a population, often as a prerequisite to voting
 b) property- tax imposed on property whether personal or real, in proportion either to its value, or
in accordance with other reasonable methods of appointment. Obligation to pay the tax is absolute and
unavoidable and is not based upon the voluntary action of the person assessed.
Example: real state tax

c) Excise- any tax which do not fall within the classification of a poll tax or property tax. It is said
that excise tax is a charge imposed upon the performance of an act, the enjoyment of a privilege,
engaging in an occupation, profession, or business. The obligation to pay this tax is based on the
voluntary action of the person taxes in performing act or engaging in an activity which is subject to the
excise.
Example: income tax, vat, estate tax, donor’s tax

2.) As to who bears the burden

a) Direct- tax which is demanded from the person who also shoulders the burden of the
tax, or for which the taxpayer is directly or primarily liable or which he cannot shift to
another.
Example: corporate or individual income tax, community tax

b) indirect-tax which is demanded from one person in the expectation and intention that
he shall indemnify himself at the expense of another, falling finally upon the ultimate
purchaser or consumer, tax imposed upon goods before they reach the consumer who
ultimately pays for it not as tax but as a part of the purchase price. Thus the person who
absorbs the burden of the tax is other than the one whom it is in
imposed and required by the law to pay the tax. practically all business taxes are indirect.
Example: vat, percentage tax

3) As to determination of amount

a) specific- tax of a fixed amount imposed by the head or number, or by some standard of
weight or measurement, requires no assessment (valuation) other than a listing or
classification of the objects to be taxed.

Examples: taxed on wines, cigarettes, fermented liquors.

b) ad valorem –tax of a fixed proportion of the value of the property with respect to
which the tax is assessed, requires the intervention of assessors or appraisers to estimate
the value of such property before the amount due from each taxpayer can be determined.
The phrase ad valorem means literally according to value
Examples: real state tax, excise tax on automobiles, jewelry etc.

4) As to purpose
a) General, fiscal, or revenue- tax imposed for the general purposes of the govt. to raise
revenue for govt.needs.
Example: almost al of the taxes.
b) Special or regulatory- tax imposed for a special purpose, to achieve some social or
economic ends irrespective of whether revenue is actually raised or not.
Example: protective tariffs or custom duties on imported goods to enable similar products
manufactured locally to compete with such imports in domestic market.

5) As to scope (or authority imposing the tax)

a) National- tax imposed by the natl. govt.
Example: national internal revenue taxes,
b) Municipal or local- tax imposed by municipal corp. or LGU
Example: real state tax; professional tax
6) As to graduation or rate
a) Proportional – tax based on a fixed percentage of the amount of the property, receipts
or other basis to be taxed
Example: percentage tax, vat, real state tax
b) Progressive or graduated – tax the rate of which increases as the tax bases/bracket
increases.
Example: state tax, income tax
c) Regressive – tax the rate of which decreases as the tax base/bracket increases i.e. the tax rate
and the tax base move in opposite direction. We have no regressive taxes. Regressive taxing poorer
people more harshly: describes a tax system in which those with low incomes pay proportionally higher
taxes than the wealthy