Professional Documents
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Aban
CABANEIRO) A2011
Chapter 1: GENERAL PRINCIPLES
TAXATION DEFINED
Taxation is the inherent power of the sovereign, exercised
through the legislature, to impose burdens upon the
subjects and objects within its jurisdiction, for the purpose
of raising revenues to carry out the legitimate objects of the
government.
It is also defined as the act of levying a tax, i.e. the process
or means by which the sovereign, through its law-making
body, raises income to defray the necessary expenses of
government. It is a method of apportioning the cost of
government among those who, in some measure, are
privileged to enjoy its benefits and must therefore bear its
burdens.
It is a mode of raising revenue for public purposes, (Cooley)
Symbiotic relationship between the government and the
citizens.
RATIONALE OF TAXATION: DOCTRINE OF SYMBIOTIC
RELATIONSHIP
This doctrine is enunciated in CIR v. Algue, Inc. [158
SCRA 9], which states 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 ones hard-earned income to the
taxing authorities, every person who is able must
contribute his share in the burden of running the
government. 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 material and moral values.
TAXES DEFINED
Taxes are the enforced proportional contributions from
persons and property levied by the law-making body of the
State by virtue of its sovereignty for the support of the
government and all public needs, [Cooley]
IMPORTANCE OF TAXES
Taxes are importants because they the lifeblood of the
government and so should be calculated without
unnecessary hindrance (CIR vs Algue).
LIFEBLOOD DOCTRINE
The lifeblood theory constitutes the theory of taxation,
which provides that the existence of government is a
necessity; that government cannot continue without means
to pay its expenses; and that for these means it has a right
to compel its citizens and property within its limits to
contribute.
TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
CABANEIRO) A2011
TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
CABANEIRO) A2011
IS THE POWER TO TAX THE POWER TO DESTROY? /
CONSTITUTIONAL RESTRAINTS RE: TAXATION IS THE POWER
TO DESTROY
The power to tax "is an attribute of sovereignty". In fact, it is
the strongest of all the powers of government. But for all its
plenitude, the power to tax is not unconfined as there are
restrictions. Adversely effecting as it does property rights,
both the due process and equal protection clauses of the
Constitution may properly be invoked to invalidate in
appropriate cases of a revenue measure. If it were
otherwise, there would be truth to the 1903 dictum of Chief
Justice Marshall that "the power to tax involves the power to
destroy." The web or unreality spun from Marshall's famous
dictum was brushed away by one stroke of Mr. Justice
Holmes' pen, thus: "The power to tax is not the power to
destroy while this Court sits." "So it is in the Philippines." It
is because of the constitutional restraints placed on a taxing
power that violates fundamental rights.
The power to tax includes the power to destroy if it is used
as an implement of the police power (regulatory) of the
State. However, it does not include the power to destroy if it
is used solely for the purpose of raising revenue. (ROXAS vs.
CTA)
If the purpose of taxation is regulatory in character, taxation
is used to implement the police power of the state
If the power of taxation is used to destroy things,
businesses, or enterprises and the purpose is to raise
revenue, the court will come in because there will be
violation of the inherent and constitutional limitations and it
will be declared invalid.
POWER OF JUDICIAL REVIEW IN TAXATION
Courts cannot inquire into the wisdom of a taxing act.
(CIR vs Lingayen Gulf Electric Power Co)
Courts power in taxation is limited only to the
application and interpretation of the law.
It is not within the province of the court to inquire into
the wisdom of the law for indeed courts are bound by
POLICE POWER
AS TO PURPOSE
AS
TO
COMPENSATION
Protection
and
benefits
received
from
the government.
To
promote
general welfare
through
regulations
The
maintenance of
a
healthy
economic
standard
of
society
(damnum
absque injuria)
EMINENT
DOMAIN
For public use
Just
compensation,
not to exceed the
market value by
the
owner
or
administrator or
anyone
having
legal interest in
TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
CABANEIRO) A2011
AS TO PERSONS
AFFECTED
AS TO AUTHORITY
WHICH
EXERCISES
THE
POWER
AS TO AMOUNT
OF IMPOSITION
Generally
limit
to
amount of
that
may
imposed
AS
TO
THE
RELATIONSHIP TO
THE
CONSTITUTION
Subject
to
certain
constitutional
limitations,
including
the
prohibition
against
impairment
of
the obligation of
contracts
Taxes
paid
become part of
the public funds
AS TO TRANSFER
OF
PROPERTY
RIGHTS
no
the
tax
be
Limited to
cost
regulation
the
of
Relatively
free
from
constitutional
limitations and
superior to the
non-impairment
provisions
the property, or
as determined by
the
assessor,
whichever
is
lower.
Operates on the
individual
property owner
May be exercised
by public services
corp or public
utilities if granted
by law
There
is
no
imposition;
rather, it is the
owner
of
the
property
taken
who is paid just
compensation.
Subject to certain
constitutional
limitations, NOT
including
the
prohibition
against
impairment
of
the obligation of
contracts
No transfer, but
only restraint on
the exercise, of
property
right
exists
ASPECTS OF TAXATION
1) LEVY or IMPOSITION
enactment of tax laws
legislative in character
2) ASSESSMENT
collection
administrative in character
TAXES DISTINGUISHED FROM OTHER IMPOSITIONS
TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
CABANEIRO) A2011
Penalty v. Tax
Penalty is any sanction imposed as a punishment for
violation of law or for acts deemed injurious; taxes are
enforced proportional contributions from persons and
property levied by the State by virtue of its sovereignty for
the support of the government and all public needs.
Penalty is designed to regulate conduct; taxes are generally
intended to generate revenue.
Penalty may be imposed by the government or by private
individuals or entities; taxes only by the government.
Special assessment v. Tax
A special assessment tax is an enforced proportional
contribution from owners of lands especially benefited by
public improvements
A special assessment is levied only on land; tax is imposed
on persons, property and excises.
A special assessment is not a personal liability of the person
assessed; it is limited to the land.
A special assessment is based wholly on benefits, not
necessity.
A special assessment is exceptional both as to time and
place; a tax has general application.
Some rules:
An exemption from taxation does not include
exemption from a special assessment.
The power to tax carries with it the power to levy a
special assessment.
TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
CABANEIRO) A2011
TAXES CLASSIFIED
AS TO SUBJECT MATTER OR OBJECT
1. Personal, poll or capitation tax
Tax of a fixed amount imposed on persons residing within a
specified territory, whether citizens or not, without regard to
their property or the occupation or business in which they
may be engaged, i.e. community tax.
2. Property tax
Tax imposed on property, real or personal, in proportion to
its value or in accordance with some other reasonable
method of apportionment.
3. Excise tax
A charge imposed upon the performance of an act, the
enjoyment of privilege, or the engaging in an occupation.
AS TO PURPOSE
4. General/fiscal revenue tax is that imposed for the
purpose of raising public funds for the service of the
government.
5. Special or regulatory tax is imposed primarily for the
regulation of useful or non-useful occupation or enterprises
and secondarily only for the purpose of raising public funds.
AS TO WHO BEARS THE BURDEN
6. Direct tax
A direct tax is demanded from the person who also
shoul,ders the burden of the tax. It is a tax which the
taxpayer is directly or primarily liable and which he or she
cannot shift to another.
7. Indirect tax
An indirect tax is demanded from a person in the
expectation and intention that he or she shall indemnify
himself or herself at the expense of another, falling finally
upon the ultimate purchaser or consumer. A tax which the
taxpayer can shift to another.
TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
CABANEIRO) A2011
TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
CABANEIRO) A2011
business requiring millions of pesos. The assessment was not
reasonable.
Tolentino vs. Secetary of Finance
GR No. 115455. August 25, 1994
Facts: The value-added tax (VAT) is levied on the sale, barter or
exchange of goods and properties as well as on the sale or
exchange of services. RA 7716 seeks to widen the tax base of the
existing VAT system and enhance its administration by amending
the NationalInternal Revenue Code. There are various suits
challenging the constitutionality of RA 7716 on various grounds.
One contention is that RA 7716 did not originate exclusively in the
House of Representatives as required by Art. VI, Sec. 24 of the
Constitution, because it is in fact the result of the consolidation of
2distinct bills, H. No. 11197 and S. No. 1630. There is also a
contention that S. No. 1630 did not pass 3 readings as required by
the Constitution.
Issue: Whether or not RA 7716 violates Art. VI, Secs. 24 and 26(2)
of the Constitution
Held: The argument that RA 7716 did not originate exclusively in
the House of Representatives as required by Art. VI, Sec. 24 of the
Constitution will not bear analysis. To begin with, it is not the law
but the revenue bill which is required by the Constitution to
originate exclusively in the House of Representatives. To insist that
a revenuestatute and not only the bill which initiated the legislative
process culminating in the enactment of the law must substantially
be the same as the House bill would be to deny the Senates power
not only to concur with amendments but also to propose
amendments. Indeed, what the Constitution simply means is that
the initiative for filingrevenue, tariff or tax bills, bills authorizing an
increase of the public debt, private bills and bills of local
application must come from the House of Representatives on the
theory that, elected as they are from the districts, the members of
the House can be expected to be more sensitive to the local needs
and problems. Nor does the Constitution prohibit the filing in the
Senate of a substitute bill in anticipation of its receipt of the bill
from the House, so long as action by the Senate as a body is
withheld pending receipt of the House bill.
The next argument of the petitioners was that S. No. 1630 did not
pass 3 readings on separate days as required by the Constitution
because the second and third readings were done on the same day.
But this was because the President had certified S. No. 1630 as
urgent. The presidential certification dispensed with the
requirement not only of printing but also that of reading the bill on
separate days. That upon the certification of a bill by the President
the requirement of 3 readings on separate days and of printing and
distribution can be dispensed with is supported by the weight of
legislative practice.
EXERCISES:
Discuss the importance of taxes
SUGGESTED ANSWER:
Taxes are the lifeblood of the government, for without taxes, the
government can neither exist nor endure. A principal attribute
of sovereignty, the exercise of taxing power derives its source
from the very existence of the state whose social contract with
its citizens obliges it to promote public interest and common
good. The theory behind the exercise of the power to tax
emanates from necessity; without taxes, government cannot
fulfill its mandate of promoting the general welfare and wellbeing of the people. (NAPOCOR v. City of Cabanatuan, G.R. No.
149110, April 9, 2003).
TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
CABANEIRO) A2011
the broadest scope of all the powers of government
because in the absence of limitations, it is considered an
unlimited, plenary, comprehensive and supreme. The two
limitations on the power of taxation are the inherent and
constitutional limitations which are intended to prevent
abuse on the exercise of the otherwise plenary and unlimited
power. It is the Courts role to see to it that the exercise of the
power does not transgress these limitations.
Power of Taxation: Legislative in Nature (Bar 1994)
The Secretary of Finance, upon recommendation of the
Commissioner of Internal Revenue, issued a Revenue
Regulation using gross income as the tax base for
corporations doing business in the Philippines. Is the
Rev.Reg.valid?
SUGGESTED ANSWER:
The regulation establishing gross income as the tax base for
corporations doing business in the Philippines (domestic as
well as resident foreign) is not valid. This is no longer
implementation of the law but actually it constitutes
legislation because among the powers that are exclusively
within the legislative authority to tax is the power to
determine -the amount of the tax. (See 1 Cooley 176-184).
Certainly, if the tax is limited to gross income without
deductions of these corporations, this is changing the amount
of the tax as said amount ultimately depends on the taxable
base.
Power of Taxation; Inherent in a Sovereign State
(2005)Describe the power of taxation. May a legislative body
enact laws to raise revenues in the absence of a
constitutional provision granting said body the power to tax?
Explain.
SUGGESTED ANSWER:
Yes, the legislative body may enact laws even in the absence
of a constitutional provision because the power to tax is inherent
in the government and not merely a constitutional grant. The
power of taxation is an essential and inherent attribute of