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C-TX1TX1/PRINCIPLES OF TAXATION AND SPECIAL TOPICS

CHAPTER 1: BASIC PRINCIPLES IN TAXATION

What is Taxation?
-defined as a State power, a legislative process, and a mode of government
cost disttribution.
- is a mode of allocating govenment costs or burden to the people distributinf
the cost or burden.
 As a state power
- taxation is an inherent power of the state to enforce a proportional
contribution from its subjects for public purpose.
 As a process
- taxation is a process of levying taxes by the legislature of the State to
enforce proportional contributions from its subject for public purpose.
 As a mode of cost distribution
- taxation is a mode by which the state allocates its costs or burden to its
subjects who are benefited by its spending.

The Theory of Taxation

- government provides a vast array of public services including defense, public
order and safety, health, education and social protection among others.
- a system of government is indispensable to every society. Without it, the
people will not relish the benifits of a civilized and orderly society. However, a
government cannot exist without a system of funding.

The Basis of Taxation

- government provides benifits to people in form of public services, and
people provide the funds that the finance the government .

Receipt of benefits is conclusively presumed

- every citizen and resident of the state directly or indirectly benefits from the
public services rendered by the government. (benefits can be: free usage of public
infrastructures, access to public health or educational services, the protection and
security of person and property, comfort of living)
- most public services are received indirectly, their realization by every citizen
and resident is undeniable. In taxation, the receipt of these benefits by the people
conclusively presumed. Thus, taxpayers cannot avoid payment of taxes under the
defense of absense of benefit received.

Theories of Cost Allocation

the government regards the following general considerations in the excerside of its
taxation power:
1) Benefit received theory, presupposes that the more benefit one receives
from the government, the more taxes he should pay.
2) Ability to pay theory, presupposes that taxation should also consider the
taxpayer’s ability to pay. Taxpayers should be required to contribute based
on their capacity to sacrifice for the support of the government. In short,
those who have more should be taxed more even if they benifit less from the

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government. Those who have less shall contribute less even if they receive
more of the benefits from the government.
Aspects of ability to pay theory:
a. Vertical equity, proposes that the extent of one’s ability to pay
is directly proportional to the level of his tax base. (grosee
concept)
b. Horizontal equity, requires consideration of the particular
circumstance of the taxpayer. (net concept)

The Lifeblood Doctrine

- taxes are essential and indispensable to the continued substence of the
government. Without taxes, the government would be paralyzed for lack of motive
power to activate or operate it. (CIR vs. Algue)
- taxes are lifeblood of the government, and their prompt and certain
availability are an imperious need. Upon taxation depends the government’s ability to
serve the people for whose benefit taxes are collected. (Vera vs. Fernandez)
Implication of the lifeblood doctorine in taxation:
a. Tax is imposed even in the absense of a Constitutional grant.
b. Claims for tax exeption are construed against taxpayers.
c. The government reserves the right to choose the objects of taxation.
d. The court are not allowed to interfere with the collection of taxes.
e. In income taxation:
a) Income received in advance is taxable upon receipt.
b) Deduction for capital expenditures and prepayments is not allowed
as effectively deferes the collection of income tax
c) A lower amount of deduction is preferred when a claimable expense
is subject to limit.
d) A higher tax base is preferred when the tax object has multiple tax
bases.

Inherent Powers of the State

1.Taxation Power, is the power of the State to enforce proportional contribution
from its subject to sustain itself.
2.Police Power, is the general power of the State to enact laws to protect the well-
being of the people.
3.Eminent Domain, is the power of the State to take private property for public use
after paying just compensation.

Similarities of the three powers of the State

 They are all necessary attributes of sovereignty.
 They are all inherent to the State.
 They are all legislative in nature
 They are all ways which the state interferes with private rights and
properties.
 They all exist independently of the cobtitution and are exercisable by the
government even without a Constitutional grant. However, the
Constritution may impose conditions or limits for their excercise.
 They all presuppose an equivalent form of compensation received by the
persons affected by the exercise of the power.

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 The exercise of these powers by the local government units may be

limited by the national legislature.

Scope of the taxation power

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