Definition

Taxation is the process or means by which the sovereign, through its lawmaking body, raises
income todefray the necessary expenses of the government.

Purposes of taxation

The purposes of taxation may be classified into

primary and secondary:

1. Primary PurposeTo provide funds or property with which to promote the general welfare
and protection of its citizens and toenable it to finance its multifarious activities. In other
words, to raise revenue for governmental needs.

2. Secondary

a. To encourage the growth of home industries and strengthen anemic enterprises by giving
tax exemptionsand tax incentives;

b. To protect local industries against foreign competition through imposition of high customs
duties on importedgoods;

c. To reduce inequalities in wealth and income by imposing progressively higher tax rates;

d. To prevent inflation by increasing taxes or ward off depression by decreasing them; and

e. To implement the police power of the state and to promote the general welfare.Scope of
taxationIn the absence of constitutional restrictions and subject to the will of the
legislative bodies with whom it isentrusted and the discretion of the authorities which
exercise it, the power of taxation is unlimited, comprehensive,plenary and supreme.
However, it is subject to inherent and constitutional limitations.

Theory and basis of taxationTheory –

The power of taxation proceeds upon the theory that the existence of the government is a
necessity; that it can not continue without means to pay its expenses; and that it has a right
to compel all its citizens and propertywithin its limits to contribute.

Basis – The basis of taxation is found on the reciprocal duties of protection and support
between the State and itsinhabitants. The state receives taxes that it may be enabled to
carry out its mandates into effect, and performfunctions of government and the citizen pays
the portion of taxes demanded in order that he may, by means thereof,be secured in the
enjoyment of benefits of an organized society

Nature or Characteristics of the State’s Power to Tax

1. It is inherent in sovereignty. The power of taxation may be exercises by the State

although not expresslygranted by the constitution.
2. Legislative in character. It is only the legislature that can enact tax laws.3. Subject to
constitutional and inherent limitations.

Taxation is not an absolute power that can be exercisedby the legislature anyway it
pleases.

Limitations on the Power of Taxation

1. Constitutional Limitations – those restrictions found in the constitution or implied from its
provisions.

2. Inherent limitations – those which restrict the power although they are not embodied in
the constitution

Constitutional Limitations

*Observance of due process of law and equal protection of the laws. nor shall any person be
denied the equal protection of the law.

*The rule of taxation must be uniform and equitable

Rule of uniformity- all properties belonging to the same class shall be taxed at the same
rate.

Rule of Equitable- equitable taking intoconsideration the taxpayer’s ability to pay

*Non-imprisonment for non-payment of poll tax. No person shall be imprisoned for failure
to pay communitytax but he may be imprisoned for non-payment of other taxes like income
tax.

*Non-impairment of the obligations of contracts. No law impairing the obligation of

contracts shall be passed.

*Non-infringement of religious freedom

*No apportionment for religious purposes. No public money or property shall be

appropriated

*Exemption of religious, charitable or educational entities, non-profit cemeteries,

and churches fromtaxation

*Exemptions for revenues and assets of non-stock, non-profit educational institutions and
donations foreducational purposes from taxation.

* passage of law granting any taxexemption. No law granting any tax exemption shall be
passed without the concurrence of a majority of all themembers of the Congress