GENERAL PRINCIPLES

AND
CONCEPTS OF
TAXATION
 BASIS OF TAXATION
1. Principle of Necessity.
Taxation is a power emanating from necessity to preserve the
State's sovereignty. (Phil, Guaranty Co., Inc. US CIR, 13
SCRA 775)

The government has a right to compel all its citizens,

residents and property within its territory to contribute
money. It isbecause the
government cannot exist without any means to pay its
expenses-a necessary burden to preserve the State's
sovereignty.
Taxation is the “lifeblood” or the “bread
and butter” of the government
and every citizen must pay his taxes.
2. Principle of Benefits-Received or Benefits-
Protection Theory.
Based on the reciprocal duties, the government
collects taxes from the subjects of taxation in order
that it may be able to perform its functions and
provide services to them.

The government's right to tax income emanates from

its being a silent partner in the production of income
through means
of providing protection, proper business climate, and
peace and order to the taxpayers in the making of
earnings.
 INCOME TAXATION

The payment of taxes may therefore mean helping the

government to finance its legitimate objectives. The
government revenue is used to serve the people for
whose benefit taxes are collected. This is an
indispensable partnership between the people and the
government.
Qualifications of Benefit-Received Principle

The application of the "benefit-received principle" is

intended for the general welfare.

a. It does not mean that only those who are able to pay taxes
can enjoy the privileges and protection given to a citizen by
the government.

b. The government renders no special or commensurate

benefit to
any particular property or person.
 PURPOSES OF TAXATION

1. Revenue Purpose.

The primary purpose of taxation is to “raise revenue”

by collecting funds or property or property for the
support of the government in promoting the general
welfare and protecting its inhabitants.
2. Regulatory Purposes
Regulatory, also known as Sumptuary, is a
secondary objective of imposing tax.

This objective is accomplished to

a. Regulate inflation,
b. Achieve economic and social stability, and
c. Serve as key instrument for social control.
A tool to protect trade relation, special duties may be created to
protect new conditions, such as:

(1) Discriminatory duty- this special duty is designed to offset any

foreign discrimination against our local commerce.

(2) Countervailing duty- it may be imposed to offset any foreign

subsidy granted to imported goods to the prejudice of our local
industries.

(3) Marking duty- it is generally imposed as additional duty tax on

imported articles and/or containers with improper classifications.

(4) Dumping duties- it refers to the additional duty taxes imposedwhere the price of a
product is more cheaper than the local goodsw
3. COMPENSATORY PURPOSES

A tax may be used to make up for the benefit received,

For example, an excise tax on gasoline consumed is
imposed on vehicle owners using roads. In this case, the
tax is compensatory for the use of road.

Taxation is a way of giving back the expected economic

and social
benefits due to the inhabitants.

Taxes may be imposed for the equitable distribution of

wealth and
income in the society.
 OBJECTS OF
TAXATION
Objects of taxation may refer to the subject to which
taxes are imposed.

1. Persons, whether natural or juridical person.

a. Natural Person
b. Juridical person
2. Properties, whether real, personal,
tangible or intangible properties.

a. Real properties
b. Personal properties
c. Tangible properties-
d. Intangible properties

3. Excise objects

a. Transaction
b. Privilege
c. Right
d. Interest
SCOPE OF TAXATION POWER

In the absence of limitations provided by the

Constitution, the power to tax is unlimited in its
range, complete (plenary), with wide extent of
application (comprehensive) and with highest
degree (supreme). If there is any limitation at all, it
is the sense of responsibility by the members of the
law-making body to the people restricts its
exercise.
Taxation reaches every trade or occupation,
every object of industry, and every
species of possession. It imposes a burden
which, in case of failure to discharge,
may be followed by seizure or confiscation of
property.
LIMITATIONS TO THE
POWER OF TAXATION
Although, taxation power is supreme, its exercise is not absolute
because it is
subject to Inherent and Constitutional Restrictions.
As an inherent power, by its very purpose and nature restrict
taxation. Tax power
should be exercised for its very nature, purpose and jurisdiction.
While taxation is said to be the power to destroy, it is by no
means unlimited. It is
equally correct to say that the "power to tax is not the power to
destroy while the
Supreme Court sits, because of the Constitutional restraints
placed on a taxing
power that violated fundamental rights.
 INHERENT LIMITATIONS
Inherent limitations are the natural restrictions to safeguard
and ensure that the power of taxation shall be exercised by
the government only for the betterment of the people whose
interest should be served, enhanced and protected.

1. Taxes may be levied only for public purposes;

2. Being inherently legislative, taxation may not be
delegated;3. Tax power is limited to territorial jurisdiction
of the State;
4. Taxation is subject to international comitys and
5. Government entities are generally tax-exempt.
 CONSTITUTIONAL LIMITATIONS

Constitutional limitations are provisions of the fundamental law

of the land that restrict the supreme, plenary, unlimited and
comprehensive power to tax by the State.

As a rule, the Constitution does not create the power to tax on the
State. Instead, it simply defines and regulates the exercise of tax
power in order to safeguard the interest of affected taxpayers.
THE 1987 PHILIPPINE CONSTITUTION SETS LIMITATIONS IN THE
EXERCISE OF THE POWER TO TAX AS FOLLOWS:

1. Due process of law;

2. Equal protection of laws;
3. Rule of uniformity and equity;
4. Non-impairment of contracts;
5. Origination of appropriation, revenue and tariff bills;
6. President's power to veto separate items in revenue or tariff bills;
7. Congress granting tax exemption
8. Exemption from taxation of properties actually, directly and exclusively used
for religious, charitable or educational purposes;
9. No public money shall be appropriated for religious purposes
10. The power of judicial review;
11. Nonimprisonment for nonpayment of poll tax; and2.ction shall generally be
treated as general funds of the government.
EQUAL PROTECTION OF LAWS
"Equal protection of law"means that all persons subject to
legislation shall be treated alike under similar circumstances
and conditions both in the privileges conferred and liabilities
imposed.

It is the right of all persons to have the same access to the law
and courts, and to be treated equally by the law and courts

There is denial of equal protection of laws if there is

discrimination in the implementation of tax
laws.
 RULE OF UNIFORMITY
AND EQUITY IN TAXATION

Art. VI, Section 28. par. 1 of the Constitution states that "The
rule of taxation shall be uniform and equitable. Congress shall
evolve a progressive system of taxation."

A tax is said to be "uniform in application" if it operates with

the same force and effect in every place where the subject
may be found, not when it singles out one particular class for
taxation or exemption.
A tax for a national purpose must be uniformly and equally applied
throughout the country. All taxable articles or kinds of the same
class shall be taxed at the same rate. In other words, a tax for a
province, city, municipality, or barangay must likewise be uniformly
and equally applied throughout the province, city, municipality or
barangay.

EEquality in taxation" is similar to progressive system of taxation.

The tax laws and their
implementation must be fair, just, reasonable and proportionate to
one's ability to pay.
The primary requisite of the equity principle is that a progressive tax
rate shall be applied equally to all persons, firms and situation.
The progressive system of taxationmeans that the tax
laws shall give emphasis on the
ability-to -pay principle of taxation whereby more
direct rather than indirect taxes are
imposed. wards as the tax base