Taxation is the process or means by which the purpose upon payment of

sovereign (independent State), through its just compensation.

law-making body (the legislature), imposes
burdens Similarities among the three (3)
upon subjects and objects within its Inherent powers of the State
jurisdiction for the purpose of raising 1. They are inherent in the State.
revenues to carry out the legitimate objects of 2. They exist independently of the
government. Constitution although the conditions
for their exercise may be prescribed by
In simple terms, it is the act of levying a tax to the Constitution.
apportion the cost of government among 3. Ways by which the State Interfere
those who, in some measure, are privileged to with private rights and property.
enjoy its 4. Legislative in nature and character.
benefits and must therefore bear its burdens. 5.Presuppose an equivalent
It is a power inherent in every sovereign State
compensation received, directly or
being essential to the existence of every
indirectly, by the persons affected.
government. Hence, even if not mentioned in
the
constitution, the State can still exercise the
power.

Therefore, any constitutional provision

regarding the State's power to tax should not
be interpreted as a "grant of power", but
merely a limitation on the State's power to
tax. Taxes, on the other hand, are the
enforced proportional contributions or
charges 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.

The Three (3) Inherent Powers of the State

1. Police- It is the power of the State for
Purpose of Taxation
promoting public welfare by
restraining and regulating the use of
1. Revenue or Fiscal Purpose
liberty and property. It may be - The primary purpose of taxation on the
exercise only by the government. The part of the government is to provide
property taken in the exercise of this funds or property with which to
power is destroyed because it is promote the general welfare and the
noxious or intended for a noxious protection of its citizens and to enable
purpose it to finance its multifarious activities.
2. Taxation- It is the power by A government can run its
which the State raises administrative set up only through
revenue to defray the public funding which is collected in the
necessary expenses of the form of tax
government. 2. Regulatory Purpose
3. Eminent Domain- It is the power - While the primary purpose of taxation
of the State to acquire is to raise revenue for the support of
private property for public the government, taxation is often
employed as a devise for regulation or
 control (implementation of State's b. Collection of Taxes cannot be
police power) by means of which enjoined(stopped) by injunction.
certain effects or conditions envisioned c. Taxes could not be the subject of
by the government may be achieved compensation or set-off.
such as: d. Right to select objects(subjects) of
a) Promotion of General taxation
Welfare e. A valid tax may result in the
b) Reduction of Social destruction of the taxpayer’s property
Inequality
c) Economic Growth Scope of the Power to Tax
The Supreme Court held that the power
Theories of Taxation of taxation is the most absolute of all
1. Necessity Theory- The power of powers of the government. It has the
taxation proceeds upon the theory broadest scope of all the powers of the
that the existence of government is government because in the absence of
a necessity. It is a necessary burden limitations, it is considered as
to preserve the State's sovereignty comprehensive, unlimited, plenary and
and a means to give the citizenry supreme.
an army to resist aggression, a navy a) Comprehensive - as it covers
to defend its shores from invasion, persons, businesses, activities,
a corps of civil servants to serve, professions, rights and privileges.
public improvements for the b) Unlimited - In the absence of
enjoyment of the citizenry, and limitations prescribed by law or the
those which come within the State's constitution, the power to tax is
territory and facilities and unlimited and comprehensive. Its force
protection which a government is is so searching to the extent that the
supposed to provide courts scarcely venture to declare that
2. Life Blood Theory- Taxes are the it is subject to restrictions.
lifeblood of the government and c) Plenary - as it is complete; the
their prompt and certain BIR may avail of certain remedies to
availability is an imperious need. ensure collection of taxes.
The power of taxation is essential d) Supreme - in so far as the
because the government can neither selection of the subject of taxation.
exist nor endure without taxation.
The government cannot continue to Essential Elements of Tax
perform its basic functions of a) It is an enforced contribution.
serving and protecting its people Payment of tax is not voluntary payment
without means to pay its expenses. or donation, but an enforced contribution,
Consequently, the State has the exacted pursuant to legislative authority.
right to compel all its citizens and b) It is generally payable in
property within its limits to money. It is a pecuniary burden payable in
contribute. money which must be in legal tender.
c) It is proportionate in
Basis of Taxation (Benefits Received or character. Payment of taxes should be
Reciprocity Theory) based on the ability to pay theory or
theoretical justice. The use of a graduated
Manifestation of The Lifeblood Theory tax rates is in consonance with this rule.
a. Rule of No Estoppel Against the d) It is levied on persons,
Government property, or the exercise of a right or
privilege (subjects or objects of taxation).
 e) It is levied by the law-making sustain the level of public services
body of the State. The power of demanded by citizens and
"imposing" a tax, being purely legislative policymakers.
function. Congress cannot delegate such 2. Theoretical Justice or Equity
power. This limitation arises from the Taxpayer's ability to pay must be
doctrine of separation of powers among taken into consideration. The tax
the three branches of the government. burden should be proportionate to
f) It is levied for public purpose the taxpayer's ability to pay
3. Administrative Feasibility- a good
Aspects of Taxation tax system requires informed
- Aspects refer to "stages or phases" stakeholders who understand how
that are included or embodied in the taxes are assessed, collected and
term "taxation" such as: complied with. It should be clear
1. Levying or imposition of the tax which who and what is being taxed, and
is a legislative act or function. how tax burdens affect them.
2. Assessment or determination of the Therefore, the tax system should be
correct amount of applicable tax. as simple as possible, and should
3. Collection of the tax levied which is minimize gratuitous complexity.
essentially administrative in character. The
national agency charged with the function Limitations on the Taxing Power
of collecting internal revenue taxes is the 1. Inherent Limitations
Bureau of Internal Revenue 1. Public Purpose
2. Situs of Taxation
Nature/Characteristics of State’s Power to 3. International Comity or Treaty
Tax 4. Non-Delegability of the Taxing
1. It is inherent in sovereignty- The Power (Enactment of Tax
State, having sovereignty, can Laws)
enforce contribution (tax) even in 5. Tax Exemption of the
the absence of a constitutional Government
provision because the State has the 2. Constitutional Limitation
supreme power to command and 1. Observance of due process of
enforce obedience to its will from law
the people within its jurisdiction. 2. Equal protection of law
2. It is legislative in character- The 3. Uniformity in taxation
power to tax (levying or 4. Progressive scheme of taxation
imposition) is peculiarly and 5. Non-imprisonment for non-
exclusively legislative in payment of poll tax
nature. It cannot be 6. Non-impairment of the
exercise by the executive or obligations of contracts
judicial branches of 7. Free-worship clause
the government. 8. Exemption of charitable
institutions, churches,
Elements of Sound Tax System parsonages, or convents
1. Fiscal Adequacy- The fundamental appurtenant thereto, mosques,
purpose of taxation is to raise the and non-profit cemeteries, and
revenue necessary to fund public all lands, buildings and
services. Consequently, it is improvements actually, directly
necessary that the sources of and exclusively used for
revenues must be adequate to meet religious, charitable or
government expenditures and educational purposes.
 9. Exemption from taxes of the • For the same purpose;
revenues and assets of non- • In the same year or taxing period; and
profit, non-stock educational • Same kind or character of tax
institutions including grants, 2. Indirect Duplicate Taxation- It is
endowments, donations or not legally objectionable. It
contributions for educational extends to all cases in
purposes. which there is a burden of
10. Non-appropriation of public two or more pecuniary
funds or property for the imposition but imposed by
benefit of any church, sect or different taxing authorities.
system of religion, etc.
11. No money shall be paid out of Source of Tax Laws
the Treasury except in 1. Constitution
pursuance of an appropriation 2. Tax Treaties and Conventions with
made by law. Concurrence of a Foreign Countries
majority of ALL MEMBERS 3. The "Tax Code" [RA No. 8424 -
OF CONGRESS for the National Internal Revenue Code, as
passage of a law granting tax amended (i.e., RA 10963- TRAIN
exemption Non-diversification Law; RA 11534-CREATE Law),
of tax collections Tariff and Customs Code, and
12. The President shall have the portion of the Local Government
power to veto any particular Code]
items) in an appropriation, 4. Statutes and laws like RA 1125 (an
revenue or tariff, but the veto Act Creating the Court of Tax
shall not affect the items) to Appeals) and RA 7716 (EVAT
which no objection has been Law)
made. 5. Presidential Decrees and Executive
13. Non-impairment of the Orders
jurisdiction of the Supreme 6. Court Decisions
Court to review tax cases 7. Local Tax Ordinances
14. Appropriations, revenue or 8. Revenue issuances promulgated by
tariff bills shall originate the Department of Finance such as
exclusively in the House of Revenue Regulations (RR)
Representatives but the Senate Revenue Memorandum Circulars
may propose or concur with (RMCs), Revenue Memorandum
amendments. Orders (RMOs), BIR Revenue
15. Each local government unit Rulings and those of the Bureau of
shall exercise the power to Customs like Customs
create its own Memorandum Orders

Double Taxation Order of Priority

1. Direct Duplicate Taxation- This is 1. Constitution
objectionable and prohibited 2. Tax treaties
because it violates the 3. Tax Laws/statues and judicial
constitutional provision on decisions
uniformity and equality. It means: 4. Revenue issuances (revenue
• Taxing twice; regulations, revenue memo
• By the same taxing authority;
• Within the same jurisdiction or taxing NATURE OF TAX LAWS
district;
- Tax laws are civil and not penal in a poll tax or a property tax. This is
nature, although there are penalties a tax on the exercise of certain
provided for their violation. The rights and privileges (e.g. income
purpose of tax laws in imposing tax, estate tax, donor's tax, VAT)
penalties for delinquencies is to According to who Bears the
compel the timely payment of taxes or Burden:
to punish evasion or neglect of duty in 1. DIRECT TAX (e.g. income
respect thereof. tax, estate tax, donor's tax)
CONSTRUCTION OR Imposed on the person
INTERPRETATION OF TAX LAWS IN obliged to pay the same
CASE OF DOUBT OR AMBIGUITY and this burden cannot be
a. Tax statutes are construed strictly shifted or passed on to
against the government and another. A tax in which the
liberally in favor of the taxpayer. taxpayer who pays the tax
Taxes, being burdens, are not to be is directly liable therefor,
presumed beyond what the statute that is, the burden of
expressly and clearly declares. paying the tax falls directly
b. Provisions granting tax exemptions on the person paying the
are construed strictly against the tax. Demanded from the
taxpayer claiming tax exemption very person who, as
and liberally in favor of the intended, should pay the
government. tax which he cannot shift to
another
APPLICATION OF TAX LAWS 2. INDIRECT TAX (e.g. VAT}
- Tax laws are prospective in operation Payment is demanded from
because the nature and amount of the a person who is allowed to
tax could not be foreseen and transfer the burden of
understood by the taxpayer at the time taxation to another. A tax
the transactions which the law seeks to paid by a person who is not
tax was completed. directly liable therefor, and
who may therefore shift or
Classification of Taxes pass the tax to another
According to Subject Matter: person or entity, which
1. Personal, Poll or Capitation Tax - ultimately assumes the tax
tax of a fixed amount imposed burden. Is demanded in the
upon individual, whether citizens
first instance form one
or not, residing within a specified
person with the
territory without regard to their
expectation that he can
property or the occupation in which
shift the burden to
he may be engaged (e.g. basic
someone else, not as a tax
community tax)
but as part of the purchase
2. Property Tax - tax imposed on
price
property, whether real or personal,
According to Determination of Amount:
in proportion either to its value, or
1. Specific Tax - this is a fixed
in accordance with some other
amount based on volume, weight
reasonable method of
or quantity of goods as measured
apportionment (e.g. real estate
by tools, instruments or standards.
tax) .
(e.g. excise tax on cigars and
3. Excise Tax - any tax which does
liquors)
not fall within the classification of
 2. Ad Valorem Tax - this imposition 1. Equitable Recoupment- Claim for
is based on the value of the refund which is prevented by
property subject to tax. (e.g. VAT, prescription may be allowed to be
income tax, donor's tax and estate used as payment for unsettled tax
tax) liabilities if both taxes arise from
According to Purpose: the same transaction in which
1. Fiscal/General/Revenue overpayment is made and
Tax - levied without a underpayment is due.
specific or pre-determined 2. Set-off taxes - Taxes are not
purpose. (e.g. income tax, subject to set-off or legal
donor's tax and estate tax) compensation because the
2. Regulatory/Special/ government and the taxpayer are
Sumptuary Tax - those not mutual creditors and debtors of
intended to achieve some each other.
social or economic goals. 3. Taxpayer Suit -This provides that a
(e.g. tariff and certain taxpayer suit can only be allowed if
duties on imports) the act involves a direct and illegal
According to Jurisdiction/Scope or disbursement of public funds
Authority: derived from taxation.
1. National Tax - imposed by
the National Government Exemptions from Taxation
2. Local Tax - imposed by - It is a grant of immunity, express or
municipal corporations implied, to particular persons, or
(e.g. real estate tax) corporations of a particular class, from
According to Graduation or Rate: a tax upon property or an excise tax
1. Proportional/Flat Rate which persons and corporations
Tax - unitary or single rate. generally within the same taxing
(e.g. VAT, OPT) district, are obliged to pay.
2. Progressive/Graduated
Tax - as the tax base grows CLASSIFICATION OF EXEMPTION:
the tax rate increases. (e.g. 1. Express or affirmative - these are
income tax on individuals, express provisions in the
estates, trusts, estate tax, Constitution, statues, treaties,
donor's tax) ordinances, franchises or contracts
3. Regressive Tax - the tax 2. Implied or exemption by omission
rate increases as the tax - this occurs when a tax is levied on
certain classes of persons,
base decreases.
properties or transactions without
SYSTEMS OF "INCOME" TAXATION
mentioning other classes. Those
1. Global System - All items of gross
not mentioned are deemed
income, deductions are reported in
exempted by omission
one income tax return and the
applicable tax rate is applied on the
INTERPRETATION OF EXEMPTION
tax base.
GRANT
2. Schedular System - Different types
- Exemption grants are strictly construed
of income are subject to different
against the person or entity claiming
sets of graduated or flat income tax
exemption. One must justify such
rates.
claim by clear and positive grant.
OTHER DOCTRINES/RULES IN
TAXATION
Escape from Taxation
1. Evasion or Dodging, the taxpayer
uses unlawful means to evade or
lessen the payment of tax.
2. Avoidance, also called tax
minimization, it is the reduction or
totally escaping payment of tax
through. legally permissible means.
3. Shifting, basically, it is the transfer
of tax burden to another. The
imposition of tax is transferred
from the statutory taxpayer to
another without violating the law.
 Impact is the point at which a
tax is originally imposed.
 Incidence is the point at which
the tax burden finally rests or
settles down.
4. Capitalization- the seller is willing
to lower the price of the
commodity provided the taxes will
be shouldered by the buyer.
5. Transformation- the manufacturer
absorbs the additional taxes
imposed by the government
without
passing it to the buyers for fear of
lost of his/its market. Instead, he/it
increases quantity of production,
thereby turning their units of
production at a lower cost resulting
to the transformation of the tax into
a gain through the medium of
production.
6. 6. Exemption
7. it is an immunity, privilege or
freedom from payment of a charge
or burden to which
8. others are obliged to pay