CHAPTER 1 2.
Claims for tax exemption are construed against
Taxation – defined as a state power, a legislative
process, and a mode of gvrmnt cost distribution.
 As a state power – an inherent power
of the state.
 As a process – process of levying taxes
by the legislature of the state.
 As a mode of cost distribution - mode
by which the state allocates its costs.
The theory of taxation – A system of government is
indispensable to every society. Without it, the people
will not relish the benefits of a civilized and orderly
society. However, a government cannot exist without a
system of funding.
The basis of taxation – government provides benefits to
the people and the people provides the funds that
finances the government.
THEORIES OF COST ALLOCATION
Benefit received theory – presupposes that the more
benefit one receives from the government, the more
taxes he should pay.
Ability to pay theory – presupposes that taxation
should also consider the taxpayer’s ability pay. Required
to contribute based on their relative capacity to
sacrifice.
ASPECTS OF THE ABILITY TO PAY THEORY
1. Vertical equity (Gross concept) – extent of one’s
ability to pay is directly proportional to the level
of his taxes.
2. Horizontal equity (Net concept) – requires
consideration of the particular circumstance of
the tax payer.
The lifeblood doctrine – taxes are essential and
indispensable to the continue subsistence of the
government.
Implication of the lifeblood doctrine in taxation:
1. Tax is imposed even in the absence of a
Constitutional grant
taxpayers.
3. The government reserves the right to choose the
objects of taxation
4. The courts are not allowed to interfere with the
collection of taxes.
5. In income taxation:
a. Income received in advance is taxable upon
receipt
b. Deduction for capital expenditures and
prepayments is not allowed effectively defers the
collection of income tax.
c. A lower amount of deduction is preferred
when a claimable expense subject to limit.
d. A higher tax base is preferred when the tax
object has multiple tax base.
INHERENT POWERS OF THE STATE- It rights to
sustenance, protection, and properties.
The Inherent Powers of the State
1. Taxation power is the power of the State to enforce
proportional contribute from its subjects to sustain
itself.
2. Police power is the general power of the State to
enact laws to protect 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.
Scope of the taxation power – widely and
comprehensive, plenary, unlimited, and supreme but it
is not absolute limited.
THE LIMITATION OF THE TAXATION POWER
A. Inherent limitation
1. Territorial of taxation – provide within the
boundaries of the state.
2. International comity – no country is
powerful than the other.
3. Public purpose – intended for common
good.
4. Exemption of the government – the
government does not tax itself
 5. Non delegation of the taxing power –
vested exclusively in congress and is non
delegable.
B. Constitutional limitation of taxation
1. Observance of due process of law- tax
should be neither be harsh nor oppressive.
 Substantive due process- imposed
for public purpose and collected
under authority of a valid law.
 Procedural due process – there
should be no arbitrariness in
assessment and collection of taxes.
2. Equal protection of law – no person shall
be denied the equal protection of the law.
3. Uniformity rule in taxation - rule of
taxation shall be uniform and equitable.
4. Progressive system of taxation - congress
shall evolve a progressive system of
taxation. Tax rates increase as the tax base
increase.
5. Non-imprisonment for non- payment of
debt or poll tax- no one shall be imprisoned
because of his poverty, and no one shall
imprisoned for mere inability to pay debt.
Poll tax has two components:
a. Basic community tax
b. Additional community tax
6. Non-impairment of obligation and contract
- Tax exemptions granted under contract
should be honored and should not be
cancelled by a unilateral government
action.
7. Free worship rule - adopts free exercise of
religion and does not subject its exercise to
taxation.
8. Exemption of religious, charitable or
educational entities, non-profit
cemeteries, churches and mosques, lands,
buildings, and improvements from
property taxes - exemption from property
tax applies for properties actually, directly,
and exclusively (Le. primarily) used for
charitable, religious, and educational
purposes.
9. Non-appropriation of public funds or
property for the benefit of any church,
sect, or system of religion - intended to
highlight the separation of religion and the
State.
10. Exemption from taxes of the revenues and
assets of non-profit, non-stock educational
institutions - applies only on revenues and
assets that are actually, directly, and
exclusively devoted for educational
purposes.
11. Concurrence of a majority of all members
of Congress for the passage of a law
granting tax exemption - requires the vote
of the majority of all members of Congress
in the grant of tax exemption.
12. Non-diversification of tax collections - Tax
collections should be used only for public
purpose. It should never by diversified or
used for private purpose.
13. Non-delegation of the power of taxation -
requires that taxation power as part of
lawmaking be vested exclusively in
Congress.
14. Non-impairment of the jurisdiction of the
Supreme Court to review tax cases - taxes
can be raised to and be finally decided by
the Supreme Court of the Philippines.
15. Appropriations, revenue, or tariff bills shall
originate exclusively in the House of
Representatives, but the Senate may
propose or concur with amendments.
16. Each local government unit shall exercise
the power to create its own sources of
revenue and shall have a just share in the
national taxes - recognition of the local
autonomy of local governments and an
express delegation of the taxing power.
STAGES OF THE EXERCISE OF TAXATION POWER
1. Levy or imposition - This process involves the
enactment of a tax law by Congress and is called impact
of taxation. It is also referred to as the legislative act in
taxation.
Congress is composed of two bodies:
1. The House of Representatives, and
2. The Senate
2. Assessment and Collection - implemented by
the administrative branch of the government.
Implementation involves assessment or the
determination of the tax liabilities of taxpayers
and collection. This stage is referred to as
incidence of taxation or the administrative act
of taxation.
4. Non- compensation or set-off – taxes are not
subject to automatic set-off or compensation
5. Non-payment of taxes – tax obligations cannot
be assigned or transferred to another entity by
contract.
6. Imprescriptibility in taxation – prescription is
the lapsing of a right due to the passage of time.
7. Doctrine of estoppel – government id not
subject to estoppel
8. Judicial Non-interference – lifeblood doctrine
9. Strict construction of tax laws – taxation is the
rule, exemption is exception
 Vague tax laws - construed against the
government and in favor of the tax
payers

SITUS OF TAXATION

Situs is the place of taxation. It is the tax jurisdiction

that has the power to levy taxes tax object

Examples of Situs Rules:

1. Business tax situs: Businesses are subject to tax in

the place where the business is conducted.
2. Income tax situs on services: Service fees are subject
to tax where they are rendered.

3. Income tax situs on sale of goods: The gain on sale is

subject to tax in the place of sale

4. Property tax situs: Properties are taxable in their

location.

5. Personal tax situs: Persons are taxable in their place

of residence.

OTHER FUNDAMENTAL DOCTRINES IN TAXATION

1. Marshall Doctrine – the power of tax involves

the power to destroy.
2. Holmes’s doctrine – taxation power is not the
power to destroy while the court sits.
3. Prospectivity of tax laws – tax laws are
generally prospective in operation.