Different Kinds of Government Power:

 Police Power
 Eminent Domain Power
 Taxation Power (strongest of all)

Nature of Police Power

 Inherent power of the sovereign state (provide safety and to legislate protection)
- Safety - Health - Welfare - Morals
 Exercised through taxation
 Restricted by the Due Process clause of Art. III, Sec. 1 of the Philippine
Constitution (No person shall be deprived of life or property without due process
of law nor shall any person be denied by legal protection).
 Examples of Police Power: Preservation of natural resources, imprisonment of
convicted criminals, and regulation of various professions

Eminent Domain Power

 Power of state to take private property for public purpose

 The constitution limits the exercise of the power by providing the property may
not be taken without just compensation (paying the owner the full monetary
equivalent of the property taken for public use).

Taxation Power

What is Taxation?

1. It is a power
2. A process or an act
3. A means
 It is the power to enforce contributions from the state’s inhabitants
Nature of Taxation Power

1. Inherent power of sovereignty: can enforce contribution without specific

provisions in the constitution because the state has the supreme power to
command and enforce obedience to its well from the people within its jurisdiction.
Only the national government exercise inherent power of taxation of the state
(LGU’s do not possess the power).
2. Essentially a legislative function: powers to enact laws and ordinances and to
impose and collect taxes are given to congress.
Scope of Legislative taxing power:
1. Subjects taxation such as persons, property, rights and transactions.
2. Apportionment of tax
3. Amount rate of tax (5% to 32% - individual net taxable income, 30%
corporation net taxable income, 12% VAT on sales/gross receipts.
4. Situs of taxation meaning Method of tax collection or Purpose of tax
3. For public purposes
public taxes = public money
 Used to finance public funds
 Used to constructions, maintenance of roads, health care, education, security,
promotion of science, commerce, industry, and other for the common good or
welfare of the general public
4. Territorial in operation
 Taxes is effective and enforceable only within its territory except when there is a
privity of relationship between the taxing state and the object of the tax

What is International Comity and Privity of Relationship?

 Taxation is bound to observe international comity. This is the courteous

recognition, friendly agreement, interaction, and respect accorded by one nation
to the laws and institutions of another where privity of relationship exists, this
state can still exercise its taxing power over its citizen outside the territory.

Object of taxation may refer to the subject which taxes are imposed.
 Taxes are imposed on the following:

1. Persons, whether natural which refers to individual tax

payers or juridical which includes corporations, and
partnerships.
2. Properties, whether real, personal, tangible or intangible and
excise objects.
5. Tax exemption of government
 Grant of tax immunity to a particular class of persons or corporations
 Tax exemption only to government entities like Armed Forces of the Philippines
except proprietary function such as Philippine National Railways and National
Power Commissions
6. Strongest among inherent powers
 Taxation is the strongest of all inherent powers of the government
 Without money, government cannot function
7. Constitutional and inherent limitations

Limitations to the power of taxation

Inherent Limitations vs. Constitutional Limitations

Natural Restrictions Provisions of fundamentals law of the
land

Equal protection of law means that all person subject to legislation shall be
treated alike under similar circumstances and conditions both in the privileges conferred
and liabilities imposed.

Article VI, Section 28, par. 1 states that “The rule of taxation shall be uniform and
equitable. Congress shall evolve a progressive system of taxation.”.

 The rule of uniformity and equity is observed in taxation wherein all taxable
articles where kinds of the same class are taxed at the same rate.

Article III, Section 10 states that “No law impairing the obligation of contracts shall be
passed.”.
The origination of appropriation revenue or tariff bills as dictated in Article VI, Section 24
of the Philippine Constitution states that “The power to tax is exclusively vested on the
House of Representatives but the Senate may propose or concur with the amendments.

Article VI, Section 27 enforces the executive’s power to refuse to sign into law a bill that
has been passed by the legislative. Once vetoed, two-thirds of the House is required to
make the bill of law through. Through this, the President’s veto powers overturned.

Article VI, Section 28, par.4 states that “No law granting any tax exemption shall be
passed without the concurrence of a majority of all the Members of the Congress.”.

Article VI, Section 28, par.3 states that all lands, buildings, and improvements actually
directly and exclusively used for religious, charitable or educational purposes are
automatically tax exempt.

Article VI, Section 29: public money is not intended for religious purposes

Article VI, Section 30: “No law shall be passed increasing the appellate jurisdiction of
the Supreme Court as provided in this Constitution without its advice and concurrence.”.

Judicial review is limited only to where involves:

1. Determination of validity of tax in relation to Constitutional precepts or

provisions

2. Determination of the application of law

Juridical tribunals have no concern on the wisdom of taxing act. They cannot inquire on
the policy of legislation nor questioned or refused the sanction of any law consistent
with the constitution.

Albeit, the Supreme Court may provide final judgements in all tax cases.

Poll tax is a tax imposed on a person as a resident within a territory without regard to his
property, business, or occupations as governed by Article III. Section 20 (No person
shall be imprisoned for debt or non-payment of a poll tax).

All money collected on any tax levied for a special purpose shall be treated as a special
fund and paid out for such purposes only. Once fulfilled or abandoned, any balance
shall be transferred to the general funds of the government as mandated by Article VI,
Section 29, par.3.

Stages of Taxation:

Stage 1: Levy – Passage of tax, laws, and ordinances through the legislative. It is
when the nature, subject, objective, rate, and base of tax and the manner of imposing,
collecting and granting of tax exemptions, amnesty, and remedies is done.

Stage 2: Assessment – Involves appraisal and valuation of the subject of taxation

and the administration and implementation of tax laws by the executive through the
Bureau of Internal Revenue and Bureau of Customs.

Stage 3: Payment of Tax

Fundamental Principles of a sound tech system – Adam Smith

Fiscal Adequacy, Equality, and Administrative Feasibility

Certain Doctrines in Taxation:

1. Prospective applications of tax laws dictates that the effectivity of the tax law
commences upon its approval covering present and future transactions alone.
2. Imprescriptibility of taxes stating the taxes in general are not cans level.
3. Tax evasion – Illegal
4. Tax Avoidance – Legal
5. Tax Option – Allows the peer to choose a lower rate
6. Shifting – Transfer of tax burden to another
7. Capitation – Reducing the price of the taxed object
8. Transformation – Producer absorbs the tax
9. Tax Exemption – Which can be express, implied, or contractual

Compensation and Set-Off

 Overpaid taxes can actually be used as payment for unsettled tax liabilities
(Dictated by Doctrine of Equitable Recoupment)
  Set-Off/Legal Compensation could not be applied because the tax payers and
government under Article 1278 of the Civil Code of the Philippines are not mutual
Creditor and Debtor of each other.
 If public funds from taxation are directly and illegally disbursed, a taxpayer’s suit
may arise. This doctrine provides the compromises are generally allowed and
enforceable. In behalf of the government, the Bureau of Internal Revenue
Commissioner, collector of customs, and the customs commissioner are allowed
to do compromise.

Build vs. Destiny

 This tax doctrine is based on the marshal dictum as a taxpayer has no option but
to pay the tax and post to him while the power to destroy is based on the Holmes
Doctrine as a tax burden is only means to nation-building.

Situs of Taxation

 Situs (position on site) the people of taxation where a state has a jurisdiction to
impose tax over its inhabitants. Determinants are in nature of tax, subject matter
of the tax, source of income, place of business/occupation taxed, citizenship and
residence.

Nature of Taxes

Taxes are:

 Burdens
 Charge
 Exactions
 Impositions
 Contributions assessed in accordance with some reasonable rule of
apportionment by authority of the sovereign state. It is an obligation and is
personal to the tax payers
Essential Characteristics of Taxes

o Enforced contribution o Increase revenue

o Imposed by the legislative body o Used for public purpose
o Pecuniary contributions o Enforced on persons, properties
o Proportional or rights
o Imposed by the state within its o Paid at regular interval
jurisdiction

Classification of Taxes

o As to Purpose
o Fiscal
o Regulatory
o Compensatory
o As to Object
o Personal poll or capitation
o Property
o Excise
o As to Amount Determination
o Ad valorem
o Specific
o As to Burden Bearer
o Direct
o Indirect
o As to Scope
o National
o Local/Municipal

Other Charges and Fees

o Penalty
 o Toll
o Debt
o Revenue
o License Fee
o Custom Duties
o Subsidy
o Tariffs

o Marginal Fee
o Special Assessment

Tax Laws

- The tax law is a body of laws including income, estate, gift, excise, stamp, and
other taxes
- Comprising the Republic Act 8424, known as the National Internal Revenue
Code of 1997 or the Tax Code

The Supreme Court has the exclusive power of constructing and interpreting laws for
strict imposition of the tax laws.

Sources of Philippine Tax Laws

 Constitution
 Judicial Decisions
 Statutes
 Executive Order
 Tax Treaties and Conventions
 Revenue Regulations
 Bureau of Internal Revenue Memorandum Circulars
 Bureau of Customs Memorandum Orders
 Bureau of Internal Revenue Ruling
 Local Tax Ordinances