DLSU College of Law Atty. Martin Ignacio D.

Mijares
Taxation Law Review First Semester, AY 2019-2020

TODAY
 General Principles of Taxation
 Concept, Underlying Basis, and Purpose of Taxation
 What is Taxation
 Purpose of Taxation

TAXATION LAW REVIEW  Definition of Taxes

 Importance of Taxes
 Theory and Basis of Taxation

 Scope and Limitation of Taxation

Martin Ignacio D. Mijares 1  Inherent Limitations
Week One – 07/25/2019
 Constitutional Limitations

WHAT IS TAXATION
 Taxation is –
 the power by which the sovereign, through its law-making

GENERAL body, raises revenue to defray the necessary expenses

of government
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PRINCIPLES OF  A mode by which governments make exactions for
revenue in order to support their existence and carry out
their legitimate objectives
TAXATION  A way of apportioning the costs of government among
those who in some measure are privileged to enjoy its
benefits and must bear its burdens
 Inherent power of the state to demand enforced
Concept, Underlying Basis, and Purpose of contributions for public purpose or purposes
Taxation

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DLSU College of Law Atty. Martin Ignacio D. Mijares
Taxation Law Review First Semester, AY 2019-2020

PURPOSE OF TAXATION PURPOSE OF TAXATION

 Primary purpose: to provide funds or property with  Regulation
which to promote the general welfare and protection of  Sin taxes
its citizens  Rehabilitation and stabilization of a threatened industry
 “It is said that taxes are what we pay for civilized society. imbued with public interest
Without taxes, the government would be paralyzed for
 Promotion of general welfare
lack of motive power to activate and operate it.”
 Taxation as an implement of the police power to promote
 “Taxes are the lifeblood of the Government and their
the welfare of the people
prompt and certain availability are an imperious need.”
 Oil Price Stabilization Fund to protect the public from the
 “Symbiotic” relationship whereby taxes are paid in adverse effects of the fluctuations in the prices of imported
exchange for the protection that the citizens get from the crude oil
Government  Sugar Adjustment Act which imposed a tax on milled sugar
to protect a vital industry

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PURPOSE OF TAXATION DEFINITION OF TAXES

 Reduction of social inequality  Taxes are –
 Progressive system of taxation  Enforced proportional and pecuniary contributions from
 Those who are able to pay should shoulder the bigger persons and property levied by the law-making body of
portion of the tax burden the State by virtue of its sovereignty for the support of
government and for public needs
 Encourage economic growth
 Tax exemptions and reliefs to encourage investments
aimed at promoting the country’s economic growth
 Protectionism
 Protect local industries through protective tariffs and
customs duties, e.g., dumping duties, countervailing
duties, marking duties, discriminatory duties

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DLSU College of Law Atty. Martin Ignacio D. Mijares
Taxation Law Review First Semester, AY 2019-2020

DEFINITION OF TAXES DEFINITION OF TAXES

 Essential characteristics –  Essential characteristics –
 It is an enforced contribution  It is levied on persons or property

 Not a voluntary payment or donation  May also be levied on acts, transactions, rights or privileges

 Imposition is in no way dependent upon the will or assent of

 It is levied by the state which has jurisdiction over the
the taxpayer person or property
 The object to be taxed must be subject to the jurisdiction of
 It is proportionate in character the taxing state
 There is some rule of apportionment according to which  Necessary for the tax to be enforced
persons share the public burden
 It is levied by the law-making body of the state
 Based on the ability to pay
 The power to tax is a legislative power which only Congress
 It is generally payable in money can exercise through the enactment of statutes
 Unless specifically qualified by law, taxes are understood to  No longer exclusively vested on Congress: local legislative
bodies are now given authority to levy taxes, fees, and other
be a pecuniary burden charges subject to such guidelines and limitations as may be
provided by law

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NATURE AND CHARACTERISTICS OF

DEFINITION OF TAXES
 Essential characteristics –
 It is levied for a public purpose or purposes
 For the support of the government, the administration
of the law, or the payment of public expenses
 Revenue derived from taxes cannot be used for purely
private purposes or for the exclusive benefit of private
persons
TAXATION
 The power of taxation is inherent to the State
 The right of the State to impose taxes exists apart from
the Constitution
 Taxes are the lifeblood of the State
 Through which the government and its agencies continue
to operate and with which the State effects its functions
for the welfare of its constituents
 Thus:
 Generally, injunction does not lie against the collection of
taxes
 The State is not estopped from collecting taxes in cases of
mistakes or errors of its agents
 Exemptions from taxes are strictly construed against the
taxpayer

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DLSU College of Law Atty. Martin Ignacio D. Mijares
Taxation Law Review First Semester, AY 2019-2020

NATURE AND CHARACTERISTICS OF TAXATION, POLICE POWER, AND EMINENT

TAXATION
 Taxes are the lifeblood of the State
 But the power of taxation must be exercised reasonably
and in accordance with the law and prescribed procedure
 Power of taxation as the power to destroy: it must be
exercised with caution to minimize injury to the proprietary
rights of a taxpayer
 Taxes are not political in nature
 Continue to be in force during the period of enemy
occupation
 Tax laws of the occupied territory (and not that of the
occupying enemy) continue to be in force
DOMAIN
 Police power
 Power of the State to enact such laws in relation to
person and property as may promote public health, public
morals, public safety, and the general prosperity and
welfare of its inhabitants
 Power of eminent domain
 Power of the State or those to whom the power has been
delegated to take private property for public use upon the
payment to the owner of a just compensation ascertained
according to law

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TAXATION, POLICE POWER, AND EMINENT TAXATION, POLICE POWER, AND EMINENT
DOMAIN DOMAIN
 Similarities  Distinctions
 They all rest upon necessity because there can be no Criteria Taxation Police Power Eminent Domain
effective government without them As to authority May be exercised only by government May be granted to
 They all underlie and exist independently of the which exercises or its political subdivision public service
the power companies or
Constitution
public utilities
 Although the conditions for their exercise may be prescribed
As to purpose Property is taken Use of property is Property is taken
by the Constitution and by law for the support of regulated to for public use or
 They are ways by which the State interferes with private the government promote the benefit
general welfare
rights and property
As to persons Operates upon a community or a class Operates on an
 They are all legislative in nature and character affected of entities or individuals entity or
 They all presuppose an equivalent compensation individual as the
owner of a
received, directly or indirectly, by the person affected by particular
the exercise of these powers by the government property

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DLSU College of Law Atty. Martin Ignacio D. Mijares
Taxation Law Review First Semester, AY 2019-2020

TAXATION, POLICE POWER, AND EMINENT TAXATION, POLICE POWER, AND EMINENT
DOMAIN DOMAIN
 Distinctions  Distinctions
Criteria Taxation Police Power Eminent Domain Criteria Taxation Police Power Eminent Domain
As to effect Money collected There is no Transfer of right As to amount of Generally, there is Amount imposed The owner is paid
become public transfer of title to property to the imposition no limit on the should not be the market value
funds government (in amount of tax more than of the property
ownership or sufficient to cover taken
lesser rights) the cost of the
As to benefits Taxpayer receives Person affected Person affected license and
received protection and does not receive receives the necessary
benefits from the direct or market value of expenses or cost
government immediate benefit the property of regulation
taken As to Subject to certain Relatively free Inferior to the
relationship to constitutional from prohibition
the Constitution limitations constitutional against
limitation impairment of
obligation of
contracts
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THEORY AND BASIS OF TAXATION THEORY AND BASIS OF TAXATION

 Necessity theory  Benefits-protection theory
 Existence of government is a necessity  State demands and receives taxes from the subject of
 But, it cannot continue to operate without the means to taxation within its jurisdiction so that it may be enabled to
pay for its expenses carry out its mandate and perform the functions of
government
 Compel its citizenry and property, within certain limits, to
contribute  In exchange for the protection that the state gives to its
citizens, taxes must be correspondingly paid to it
 Taxation as a necessary burden to preserve the State’s
sovereignty  However, the basis of the obligation to pay taxes is not
the privileges enjoyed or the protection given to a
citizen by the Government, although the payment of
taxes gives a right to protection
 Both are enjoyed as well by those members of a State
who do not pay taxes because they are not able to do
so
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DLSU College of Law
Taxation Law Review
THEORY AND BASIS OF TAXATION
 Qualification on public purpose requirement for lawful
taxation
 It does not mean that only those who pay taxes can enjoy
the privileges and protection given by government
 Special benefits to particular taxpayers are not required
 A person cannot object to or resist the payment of taxes
solely because no personal benefit to him can be pointed
out as arising from the tax
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CIR V. ALGUE
 Taxes are the lifeblood of the government and so
should be collected without unnecessary hindrance
 Such collection should be made in accordance with law
as any arbitrariness will negate the very reason for
government itself
 It is said that taxes are what we pay for civilized
society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and
operate it
 Hence, 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
running of the government
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Atty. Martin Ignacio D. Mijares
First Semester, AY 2019-2020
CIR V. CTA
 Taxes are the lifeblood of the nation through which the
government agencies continue to operate and with
which the State effects its functions for the welfare of
its constituents
 The errors of certain administrative officers should
never be allowed to jeopardize the Government's
financial position, especially in the case at bar where
the amount involves millions of pesos the collection
whereof, if justified, stands to be prejudiced just
because of bureaucratic lethargy
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CIR V. ALGUE
 The government for its part, is expected to respond in
the form of tangible and intangible benefits intended to
improve the lives of the people and enhance their
moral and material values
 This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary
method of exaction by those in the seat of power
 But even as we concede the inevitability and
indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably
and in accordance with the prescribed procedure
 If it is not, then the taxpayer has a right to complain and
the courts will then come to his succor.
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DLSU College of Law Atty. Martin Ignacio D. Mijares
Taxation Law Review First Semester, AY 2019-2020

SCOPE
 Scope or extent of taxation is as broad as the purpose
for which it is given – the support of the government to

SCOPE AND enable it to provide basic goods and services

 Unlimited, plenary, comprehensive, and supreme
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LIMITATION OF  Power to impose tax as “one so unlimited in force and
so searching in effect that the courts scarcely venture
TAXATION to declare that it is subject to any restrictions whatever,
except such as to rest in the discretion of the authority
which exercises it.”
 It is sometimes called the “power to destroy”
 This describes the degree of vigor by which the taxing power
may be employed to raise revenues

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LIMITATIONS INHERENT LIMITATIONS

 The power to tax, although very broad, it is not  These are limitations to the power to tax as an
unconfined or without limitations attribute of sovereignty
 These limitations may be classified into:  A violation of these limitations can amount to the
 Inherent limitations – or those which restrict the power taking of property without due process of law
although these are not embodied in the Constitution
 Constitutional limitations – or those expressly found in
the Constitution or implied from its provisions

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DLSU College of Law
Taxation Law Review
INHERENT LIMITATIONS
 Taxation is for a public purpose
 The proceeds of the tax must be used
 For the support of the State or
 For some recognized objects of government or directly to
promote the welfare of the community
VALENTIN TIO V. VIDEOGRAM
REGULATORY BOARD
 Held:
 A tax does not cease to be valid merely because it
regulates, discourages, or even definitely deters the
activities taxed
 The power to impose taxes is one so unlimited in force
and so searching in extent, that the courts scarcely
venture to declare that it is subject to any restrictions
whatever, except such as rest in the discretion of the
authority which exercises it
 The tax imposed is not only a regulatory but also a
revenue measure prompted by the realization that
earnings of videogram establishments of around P600
million per annum have not been subjected to tax,
thereby depriving the Government of an additional source
of revenue
Atty. Martin Ignacio D. Mijares
First Semester, AY 2019-2020
INHERENT LIMITATIONS
 Pascual v. Sec. of Public Works
 It is a general rule that the legislature is without power to
appropriate public revenue for anything but a public purpose
 It is the essential character of the direct object of the
expenditure which must determine its validity as justifying a tax,
and not the magnitude of the interests to be affected nor the
degree to which the general advantage of the community, and
thus the public welfare, may be ultimately benefited by their
promotion
 Incidental advantage to the public or to the state, which results
from the promotion of private interests and the prosperity of
private enterprises or business, does not justify their aid by the
use of public money
 The test of the constitutionality of a statute requiring the use of
public funds is whether the statute is designed to promote the
public interests, as opposed to the furtherance of the
advantage of individuals, although each advantage to
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VALENTIN TIO V. VIDEOGRAM
REGULATORY BOARD
 Held:
 The levy of the 30% tax is for a public purpose
 It was imposed primarily to answer the need for regulating
the video industry, particularly because of the rampant film
piracy, the flagrant violation of intellectual property rights,
and the proliferation of pornographic video tapes. And while
it was also an objective of the DECREE to protect the movie
industry, the tax remains a valid imposition
 The public purpose of a tax may legally exist even if the
motive which impelled the legislature to impose the tax was
to favor one industry over another
 It is inherent in the power to tax that a state be free to select the
subjects of taxation, and that “inequities which result from a
singling out of one particular class for taxation or exemption
infringe no constitutional limitation”
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DLSU College of Law Atty. Martin Ignacio D. Mijares
Taxation Law Review First Semester, AY 2019-2020

INHERENT LIMITATIONS INHERENT LIMITATIONS

 Taxation is inherently legislative  Taxation is territorial
 It is a legislative in character and a legislative prerogative  Taxation may be exercised only within the territorial
 These powers are not inherent in local government as jurisdiction of the taxing authority
these are merely delegated to them by constitutional  There are rules that fix or determine the “place of
mandate or by law
taxation” (situs)
 The power to tax may not be delegated, except –
 To local governments (to be exercised by the local legislative
bodies thereof)
 When allowed by the Constitution
 When the delegation relates merely to administrative
implementation that may call for some degree of
discretionary powers under a set of sufficient standards
expressed by law or implied from the policy and purpose of
the law

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DEUTSCHE BANK AG MANILA BRANCH V.

INHERENT LIMITATIONS
 Taxation is subject to international comity
 Constitution has expressly adopted the general accepted
principles of international law as part of the law of the
land [Art. II, Sec.2]
 Under international comity, a state must recognize the
generally accepted tenets of international law, e.g., the
principles of sovereign equality among states and their
freedom from suit without their consent
 International respect and reciprocity
CIR
 Held:
 Our Constitution provides for adherence to the general
principles of international law as part of the law of the
land. The time-honored international principle of pacta
sunt servanda demands the performance in good faith of
treaty obligations on the part of the states that enter into
the agreement.
 Every treaty in force is binding upon the parties, and
obligations under the treaty must be performed by them
in good faith. More importantly, treaties have the force
and effect of law in this jurisdiction.

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DLSU College of Law Atty. Martin Ignacio D. Mijares
Taxation Law Review First Semester, AY 2019-2020

DEUTSCHE BANK AG MANILA BRANCH V.

CIR
 Held:
 Our Constitution provides for adherence to the general
principles of international law as part of the law of the
land. The time-honored international principle of pacta
sunt servanda demands the performance in good faith of
treaty obligations on the part of the states that enter into
the agreement.
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THANK YOU
 Every treaty in force is binding upon the parties, and
obligations under the treaty must be performed by them
in good faith. More importantly, treaties have the force
and effect of law in this jurisdiction.

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