Concept of Taxation

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I.GENERAL PRINCIPLES  THE POWER OF TAXATION

 Definitions:

1. Taxation: Power by which the sovereign raises revenue to defray the necessary expenses

of the government from among those who in some measure are privileged to enjoy its

benefits and must bear its burden.

2. Taxes: Enforced proportional contribution from properties and persons levied by the State

by virtue of its sovereignty for the support of government and for public needs.

 Characteristics of Taxes:

1. forced charge;

2. generally payable in money;

3. levied by the legislature;

4. assessed with some reasonable rule of apportionment;

5. imposed by the State within its jurisdiction;

6. levied for public purpose.

 Theories or bases of taxation:

1. Lifeblood Theory

Taxes are the lifeblood of the nation. Without revenue raised from taxation, the

government will not survive, resulting in detriment to society. Without taxes, the government

would be paralyzed for lack of motive power to activate and operate it. (CIR vs Algue, Inc., et.

al.)

Illustrations of Lifeblood Theory:

a. Collection of taxes may not be enjoined by injunction.

b. Taxes could not be the subject of compensation and set-off.

c. A valid tax may result in destruction of the taxpayer's property.

2. Necessity Theory

Existence of a government is a necessity and cannot continue without any means to pay

for expenses.

a. Marshall Dictum

“ Power to tax is the power to destroy” – describes the unlimitedness of the power

and the degree of vigor with which the taxing power may be employed in order to raise

revenue.

b. Oliver Wendell Holmes Dictum

“Power to tax is not the power to destroy while this court (US Supreme Court)

sits” – power to tax knows no limits except those expressly stated in the Constitution.

Marshall and Holmes Dictums Reconciled:

Although the power to tax is almost unlimited, it must not be exercised in an arbitrary

manner. We have courts to which people may seek redress in case of irregularities.

3. Benefits-Protection Theory

There exist reciprocal duties of protection and support between State and its inhabitants.

Inhabitants pay taxes and in return receive benefits and protection from the State.

 Importance of Taxes

Taxes are the lifeblood of the government and so should be calculated without

unnecessary hindrance; therefore, their prompt and imperious availability is an imperious need.

 General Rule: Taxes are personal to the taxpayer. Illustrations:

1. Corporation’s tax delinquency cannot be enforced against the stockholder (Corporate Entity

Doctrine). Exception: Stockholders may be held liable for unpaid taxes of a dissolved

corporation if the corporate assets have passed into their hands.

2. Transfer tax on the estate cannot be assessed against the heirs. Exception: Heirs may be

held liable for the transfer tax on the estate, if prior to the payment of the same, the

properties of the decedent have been distributed to the heirs.

 Nature of the Taxing Power

1. attribute of sovereignty and emanates from necessity, relinquishment of which is never

presumed;

2. legislative in character; and

3. subject to inherent and constitutional limitations.

 Purpose and Objectives of Taxation:

1. Revenue

2. Non-Revenue (still a tax but imposed under its non-revenue objective) KEY: PR

a. Regulation;

b. Promotion of general welfare;

c. Reduction of social inequity;

d. Encouragement of economic growth; and

e. Protectionism.

 Scope of legislative taxing power (MS SAPAK):

1. Subject to be taxed, provided it is within its

jurisdiction;

2. Amount or rate of the tax;

3. Purposes for its levy, provided it be for public purpose;

4. Kind of tax to be collected;

5. Apportionment of the tax;

6. Situs of taxation; and

7. Method of collection.

 Aspects of Taxation:

1. Levy or imposition of the tax; and

2. Enforcement or tax administration

 Basic Principles of a sound tax system:

A sound tax system must be:

1. sufficient to meet governmental expenditures (fiscal adequacy);

2. capable of being effectively enforced (administrative feasibility); and

3. based on the taxpayer’s ability to pay (theoretical justice).

 TAXATION, POLICE POWER AND EMINENT DOMAIN DISTINGUISHED

TAXATION

POLICE POWER

EMINENT DOMAIN

 Purpose:

To raise revenue

To promote public

welfare through

regulations

To facilitate the State’s need of

property for public use

 Amount of exaction:

Not limited

Limited

No exaction; just

compensation is paid by the

Government

 Benefits:

No special or direct benefits

are received by the

taxpayer

No direct benefits are

received; damnum

absque injuria is

attained

Direct benefits result in the

form of just compensation

 Non-impairment of

contracts:

Contracts may not be

impaired

Contracts may be

impaired

Contracts may be impaired

 Effect of transfer:

Taxes paid become part of

the public funds

No transfer but only

restrain on the

exercise of property

rights

Property is taken by the State

upon payment of just

compensation

 Scope:

It affects all persons, property,

and excises

It affects all persons,

property, privileges,

and even rights

It affects only the particular

property compre-hended

 Basis:

Public necessity

Public necessity and

right of State and of

public to self-

protection and self-

preservation

Necessity of the public for

private property

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I.GENERAL PRINCIPLES  THE POWER OF TAXATION  Definitions: 1. Taxation: Power by which the sovereign raises revenue to defray the necessary expenses of the government from among those who in some measure are privileged to enjoy its benefits and must bear its burden. 2. Taxes: Enforced proportional contribution from properties and persons levied by the State by virtue of its sovereignty for the support of government and for public needs.  Characteristics of Taxes: 1. forced charge; 2. generally payable in money; 3. levied by the legislature; 4. assessed with some reasonable rule of apportionment; 5. imposed by the State within its jurisdiction; 6. levied for public purpose.  Theories or bases of taxation: 1. Lifeblood Theory Taxes are the lifeblood of the nation. Without revenue raised from taxation, the government will not survive, resulting in detriment to society. Without taxes, the government would be paralyzed for lack of motive power to activate and operate it. (CIR vs Algue, Inc., et. al.) Illustrations of Lifeblood Theory: a. Collection of taxes may not be enjoined by injunction. b. Taxes could not be the subject of compensation and set-off. c. A valid tax may result in destruction of the taxpayer's property. 2. Necessity Theory Existence of a government is a necessity and cannot continue without any means to pay for expenses. a. Marshall Dictum “ Power to tax is the power to destroy” – describes the unlimitedness of the power and ...
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