Taxation Reviewer for Midterm

A. Definition and concept of taxation need.

Taxation is the inherent power of the sovereign, exercised
Taxes are the lifeblood of the nation through which
through the legislature, to impose burdens upon the subjects
and objects within its jurisdiction, for the purpose of raising the agencies of the government continue to
revenues to carry out the legitimate objects of the operate and with which the state effects its
government. functions for the benefit of its constituents
It is the power of the sovereign to impose burdens or charges Illustrations of the lifeblood theory
upon persons, property or property rights for the use and Collection of the taxes may not be enjoined by
support of the government to be able to discharge its
injunction
functions.
Taxes could not be the subject of compensation or
It is one of the inherent powers of the state.
set off
B. Nature of the Power of Taxation [SALN] A valid tax may result in destruction of the
1) Attribute of sovereignty - There is no need to enact a law taxpayers property
to exercise that power as this power springs from the Taxation is an unlimited and plenary power
moment a state comes into existence.
2. Necessity theory
2) Legislative in character - Even in the absence of any
constitutional provision, the power falls to the legislature as Existence of a government is a necessity
part of the more general power of law-making. and cannot continue without any means to
3) Not delegated to executive or judicial department pay for expenses
4) Subject to constitutional and inherent limitations To a 3. Benefits-protection theory (Symbiotic relationship)
certain extent, Congress will abuse that power. To a certain
extent, you have that principle also that the power to tax Reciprocal duties of protection and support
involves the power to destroy. Congress may abuse that between State and inhabitants. Inhabitants
power given to it by the people through the electoral process. pay taxes and in return receive benefits and
protection from the State
C. Aspects of Taxation [LAP]
1.) Levy - This refers to the enactment of a law by Congress
E. Purposes and Objectives of Taxation
authorizing the imposition of tax. It further contemplates the
1. Revenue to raise funds or property to enable the
determination of the subject of taxation, purpose for which
State to promote the general welfare and protection
the tax shall be levied, fixing the rate of taxation and the rules
of the people.
of taxation in general.
2. Regulation of activities/industries
2.) Assessment and Collection - This is the act of 3. Promotion of general welfare taxation may be
administration and implementation of the tax law by used as an implement of police power to promote
executive through its administrative agencies. the general welfare of the people.
4. Reduction of Social inequality a progressive
The act of assessing and collecting taxes is administrative in system of taxation prevents the undue
character, and therefore can be delegated. concentration of wealth in the hands of few
individuals. Progressivity is based on the principle
3.) Payment - The act of compliance by the taxpayer, that those who are able to pay more should shoulder
including such options, schemes or remedies as may be the bigger portion of the tax burden.
legally available.
5. Encourage economic growth the grant of
incentives or exemptions encourage investment
D. Theory or Underlying Basis of Taxation thereby stimulating economic activity.
1. Lifeblood theory 6. Protectionism In case of foreign importations,
Taxes are the lifeblood of the nation. protective tariffs and customs are imposed to
Without revenue raised from taxation, the protect local industries.
government will not survive, resulting in detriment
to society. Without taxes, the government would be F. Taxation Distinguished from Police Power and Eminent
paralyzed for lack of motive power to activate and Domain
operate it. (CIR vs. ALGUE) 1) As to purpose:
Taxes are the lifeblood of the government and there Taxation for the support of the government Eminent
prompt and certain availability is an imperious Domain_- for public use
 Taxation Reviewer for Midterm
Police Power to promote general welfare, public health, enforcement.
public morals, and public safety. c. Convenient as to time and manner
of payment; must not obstruct business growth and
2) As to compensation: economic development.
Taxation Protection and benefits received from the
3. Theoretical justice
government.
Must take into consideration the taxpayers ability
Eminent Domain just compensation, not to exceed the
market value declared by the owner or administrator or to pay (Ability to Pay Theory).
anyone having legal interest in the property, or as Art. VI, Sec. 28(1), 1987 Constitution mandates
determined by the assessor, whichever is lower. that the rule on taxation must be uniform and
Police Power The maintenance of a healthy economic equitable and that the State must evolve a
standard of society. progressive system of taxation.

3) As to persons affected:
Taxation and Police Power operate upon a community or a H. Attributes or Characteristics of Taxation
class of individuals 1) An enforced contribution, for its imposition is in no way
Eminent Domain operates on the individual property dependent upon the will or assent of the person taxed;
owner.
2) It is generally payable in the form of money, although the
law may provide payment in kind;
4) As to authority which exercises the power:

Taxation and Police Power Exercised only by the
3) It is laid by some rule of apportionment, which, in case of
government or its political subdivisions.
income taxes, is usually based on ability to pay;
Eminent Domain may be exercised by public services
corporation or public utilities if granted by law. 4) Levied upon persons, property or business, acts,
transactions, right or privileges, In each case, however it is
5) As to amount of imposition: only a person who pays the tax;
Taxation Generally no limit to the amount of tax that may
be imposed. 5) It is levied by the State which has jurisdiction over the
Police Power Limited to the cost of regulation Eminent object taxed. It is necessary that the State has jurisdiction or
Domain There is no imposition; rather, it is the owner of the control over the objects to be taxed in order that the tax can
property taken who is just paid compensation. be enforced;

6) Levied by the lawmaking body of the State. The power to

6) As to the relationship to the Constitution:
tax is a legislative power that only the legislature can
Taxation and Eminent Domain Subject to certain
constitutional limitations, including the exercise. Except:
prohibition against impairment of the obligation of contracts. a) Delegated power of the LGUs pursuant to Art. X, Sec. 5
Police Power Relatively free from constitutional limitations of the Constitution;
and superior to the non- impairment provisions thereof. b) The President pursuant to Art. VI Section 28 (2) on tariff
rates, import and export quotas, tonnage and wharfage dues,
G. Basic Principles of sound tax system [FAT]
and other duties and imposts;
1. Fiscal adequacy c) Delegation to administrative agencies of the executive
a. Revenue raised must be sufficient branch such as the BIR, Bureau of Customs and the
to meet government/public expenditures and other public Department of Finance; and
needs. (Chavez v. Ongpin, G.R. No. 76778, June 6, 1990) d) Peoples initiative and referendum under RA 6735
where the people is granted power to take back the
2. Administrative feasibility legislatives authority in enacting tax laws.
a. Tax laws must be clear and
7) Levied for public purpose. A tax levied for private purpose
concise.
is unconstitutional and, therefore, void; it constitutes taking
b. Capable of effective and efficient of property without due process of law.
 Taxation Reviewer for Midterm
. Toll is paid for the use of anothers property; tax is paid for
I. TAXES DISTINGUISHED FROM OTHER IMPOSITIONS the support of government.
TAX VS. DEBT
. The amount paid as toll depends upon the cost of
. A debt is generally based on contract, express or implied,
construction or maintenance of the public
while a tax is based on laws. improvements used; while there is no limit on the
. A debt is assignable, while a tax cannot generally be amount collected as tax as long as it is not excessive,
assigned. unreasonable, or confiscatory.
. A debt may be paid in kind, while a tax is generally paid in . Toll may be imposed by the government or by private
money. individuals or entities; tax may be imposed only by
the government.
. A debt may be the subject of set off or compensation, a tax
cannot. TAX vs. LICENSE FEE
. A person cannot be imprisoned for non-payment of tax, . 1) As to purpose: Tax imposed for revenue WHILE license
except poll tax. fee for regulation. Tax for general purposes WHILE
. A debt is governed by the ordinary periods of prescription, license fee for regulatory purposes only.
while a tax is governed by the special prescriptive . 2) As to basis: Tax imposed under power of taxation
periods provided for in the NIRC. WHILE license fee under police power.
. A debt draws interest when it is so stipulated or where . 3) As to amount: In taxation, no limit as to amount WHILE
there is default, while a tax does not draw interest license fee limited to cost of the license and
except only when delinquent. expenses of police surveillance and regulation.
Rules re: set off or compensation of debts . 4) As to the time of payment: Taxes normally paid after
General rule: A tax delinquency cannot be extinguished by commencement of business WHILE license fee
legal compensation. This is so because the government and
before.
the tax delinquent are not mutually creditors and debtors.
. 5) As to the effect of payment: Failure to pay a tax does
Neither is a tax obligation an ordinary act. Moreover, the
not make the business illegal WHILE failure to pay
collection of a tax cannot await the results of a lawsuit
against the government. Finally, taxes are not in the nature of license fee makes business illegal.
contracts but grow out of the duty to, and are the positive . 6) as to surrender: Taxes, being lifeblood of the state,
acts of the government to the making and enforcing of which cannot be surrendered except for lawful
the personal consent of the taxpayer is not required. (Francia consideration WHILE a license fee may be
v. IAC, 162 SCRA 754 and Republic v. Mambulao Lumber, 4 surrendered with or without consideration.
SCRA 622)
SPECIAL ASSESSMENT vs. TAX
Exception: SC allowed set off in the case of Domingo v.
. A special assessment tax is an enforced proportional
Garlitos [8 SCRA 443] re: claim for payment of unpaid services
contribution from owners of lands especially
of a government employee vis--vis the estate taxes due from
his estate. The fact that the court having jurisdiction of the benefited by public improvements.
estate had found that the claim of the estate against the . A special assessment is levied only on land.
government has been appropriated for the purpose by a . A special assessment is not a personal liability of the
corresponding law shows that both the claim of the
person assessed; it is limited to the land.
government for inheritance taxes and the claim of the
intestate for services rendered have already become overdue . A special assessment is based wholly on benefits, not
and demandable as well as fully liquidated. Compensation necessity.
therefore takes place by operation of law. . A special assessment is exceptional both as to time and
place; a tax has general application.
TAX VS. TOLL
.
. Toll is a sum of money for the use of something. It is the
TAX vs. PENALTY
consideration which is paid for the use of a road,
. Penalty is any sanction imposed as a punishment for
bridge, or the like, of a public nature. Taxes, on the
violation of law or for acts deemed injurious; taxes
other hand, are enforced proportional contributions
are enforced proportional contributions from
from persons and property levied by the State by
persons and property levied by the State by virtue of
virtue of its sovereignty for the support of the
its sovereignty for the support of the government
government and all public needs.
and all public needs.
. Toll is a demand of proprietorship; tax is a demand of
. Penalty is designed to regulate conduct; taxes are
sovereignty.
 Taxation Reviewer for Midterm
generally intended to generate revenue. Specific tax
. Penalty may be imposed by the government or by private - A specific tax is a tax of a fixed amount imposed by
individuals or entities; taxes only by the government. the head or number or by some other standard of
weight or measurement. It requires no assessment

other than the listing or classification of the objects
J. Classification of Taxes to be taxed.
As to subject matter or object Ad valorem tax
Personal, poll or capitation tax - An ad valorem tax is a fixed proportion of the value
- Tax of a fixed amount imposed on persons residing of the property with respect to which the tax is
within a specified territory, assessed. It requires the intervention of assessors or
whether citizens or not, without regard to their appraisers to estimate the value of such property
property or the occupation or before due from each taxpayer can be determined.
business in which they may be engaged, i.e.
community tax. As to graduation or rate
Property tax Proportional tax

- Tax imposed on property, real or personal, in - Tax based on a fixed percentage of the amount of
proportion to its value or in accordance with some the property receipts or other
other reasonable method of apportionment. basis to be taxed. Example: real estate tax.
Excise tax Progressive or graduated tax

- A charge imposes upon the performance of an act, - Tax the rate of which increases as the tax base or
the enjoyment of privilege, or bracket increases.
the engaging in an occupation. Digressive tax rate
- progressive rate stops at a certain point
As to purpose - Progression halts at a particular stage.
General/fiscal revenue tax is that imposed for the purpose of Regressive tax
raising public funds for the service of the government.
- Tax the rate of which decreases as the tax base or
bracket increases. There is no such tax in the
A special or regulatory tax is imposed primarily for the
Philippines.
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

Direct tax
- A direct tax is demanded from the person who also
shoulders 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.
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.

As to the scope of the tax

National tax
- A national tax is imposed by the national
government.
Local tax
- A local tax is imposed by the municipal corporations
or local government units
(LGUs).

As to the determination of amount