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A means by which governments finance their expenditure by imposing charges on citizens and

corporate entities.
Governments use taxation to encourage or discourage certain economic decisions. For example,
reduction in taxable personal (or household) income by the amount paid as interest on home
mortgage loans results in greater construction activity, and generates more jobs. See also taxation
principles.
Taxation refers to compulsory or coercive money collection by a levying authority, usually a
government. The term "taxation" applies to all types of involuntary levies, from income to capital
gains to estate taxes. Though taxation can be a noun or verb, it is usually referred to as an act; the
resulting revenue is usually called "taxes."
3 Inherent Powers of the State:
1. Police Power;
2. Power of Eminent Domain or Power of Expropriation; and
3. Power of Taxation
Purpose:
1. for public good or welfare - Police Power
2. for public use - Power of Eminent Domain
3. for revenue - Power of Taxation

1. POLICE POWER is the power of promoting the public welfare by restraining and regulating the use
of both liberty and property of all the people. It is considered to be the most all-encompassing of the
three powers. It may be exercised only by the government. The property taken in the exercise of this
power is destroyed because it is noxious or intended for a noxious purpose.
It lies primarily in the discretion of the legislature. Hence, the President, and administrative boards as
well as the lawmaking bodies on all municipal levels, including the barangay may not exercise it
without a valid delegation of legislative power. Municipal governments exercise this power by virtue
of the general welfare clause of the Local Government Code of 1991. Even the courts cannot compel
the exercise of this power through mandamus or any judicial process.
Requisites of a valid police measure:
(a.) Lawful Subject the activity or property sought to be regulated affects the public welfare. It
requires the primacy of the welfare of the many over the interests of the few.
(b.) Lawful Means the means employed must be reasonable and must conform to the safeguards
guaranteed by the Bill of Rights.
2. POWER OF EMINENT DOMAIN affects only property RIGHTS. It may be exercised by some private
entities. The property forcibly taken under this power, upon payment of just compensation, is needed
for conversion to public use or purpose.
The taking of property in law may include:

- trespass without actual eviction of the owner;


- material impairment of the value of the property; or
- prevention of the ordinary uses for which the property was intended.
The property that may be subject for appropriation shall not be limited to private property. Public
property may be expropriated provided there is a SPECIFIC grant of authority to the delegate. Money
and a chose in action are the only things exempt from expropriation.
Although it is also lodged primarily in the national legislature, the courts have the power to inquire
the legality of the right of eminent domain and to determine whether or not there is a genuine
necessity therefore.
3. POWER OF TAXATION affects only property rights and may be exercised only by the government.
The property taken under this power shall likewise be intended for a public use or purpose. It is used
solely for the purpose of raising revenues, to protect the people and extend them benefits in the form
of public projects and services (I hope so). Hence, it cannot be allowed to be confiscatory, except if it
is intended for destruction as an instrument of the police power.
It must conform to the requirements of due process. Therefore, taxpayers are entitled to be notified of
the assessment proceedings and to be heard therein on the correct valuation to be given the
property. It is also subject to the general requirements of the equal protection clause that the rule of
taxation shall be uniform and equitable.

The power of taxation, is however, subject to constitutional and inherent limitations.


Constitutional limitations are those provided for in the constitution or implied from its provisions,
while inherent limitations are restrictions to the power to tax attached to its nature.
The following are the inherent limitations.
1. Purpose. Taxes may be levied only for public purpose;
2. Territoriality. The State may tax persons and properties under its jurisdiction;
3. International Comity. the property of a foreign State may not be taxed by another.
4. Exemption. Government agencies performing governmental functions are exempt from
taxation
5. Non-delegation. The power to tax being legislative in nature may not be delegated. (subject
to exceptions)
Constitutional limitations.
1. Observance of due process of law and equal protection of the laws. (sec, 1, Art. 3) Any
deprivation of life , liberty or property is with due process if it is done under the authority of
a valid law and after compliance with fair and reasonable methods or procedure prescribed.
The power to tax, can be exercised only for a constitutionally valid public purpose and the
subject of taxation must be within the taxing jurisdiction of the state. The government may
not utilize any form of assessment or review which is arbitrary, unjust and which denies the
taxpayer a fair opportunity to assert his rights before a competent tribunal. All persons
subject to legislation shall be treated alike under like circumstances and conditions, both in

2.

3.

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5.

6.

7.
8.
9.

the privileges conferred in liabilities imposed. Persons and properties to be taxed shall be
group, and all the same class shall be subject to the same rate and the tax shall be
administered impartially upon them.
Rule of uniformity and equity in taxation (sec 28(1)Art VI) All taxable articles or properties of
the same class shall be taxed at the same rate. Uniformity implies equality in burden not in
amount. Equity requires that the apportionment of the tax burden be more or less just in the
light of the taxpayers ability to bear the tax burden.
No imprisonment for non-payment of poll tax (sec. 20, Art III) A person cannot be imprisoned
for non-payment of community tax, but may be imprisoned for other violations of the
community tax law, such as falsification of the community tax certificate, or for failure to pay
other taxes.
Non-impairment of obligations and contracts, sec 10, Art III . the obligation of a contract is
impaired when its terms and conditions are changed by law or by a party without the
consent of the other, thereby weakening the position or the rights of the latter. IF a tax
exemption granted by law and of the nature of a contract between the taxpayer and the
government is revoked by a later taxing law, the said law shall not be valid, because it will
impair the obligation of contract.
Prohibition against infringement of religious freedom Sec 5, Art III, it has been said that the
constitutional guarantee of the free exercise and enjoyment of religious profession and
worship, which carries the right to disseminate religious belief and information, is violated by
the imposition of a license fee on the distribution and sale of bibles and other religious
literatures not for profit by a non-stock, non-profit religious corporation.
Prohibition against appropriations for religious purposes, sec 29, (2) Art. VI, Congress cannot
appropriate funds for a private purpose, or for the benefit of any priest, preacher or minister
or for the support of any sect, church except when such priest, preacher, is assigned to the
armed forces or to any penal institutions, orphanage or leprosarium.
exemption of all revenues and assets of non-stock, non-profit educational institutions used
actually, directly, and exclusively for educational purposes from income, property and
donors taxes and custom duties (sec. 4 (3 and 4) art. XIV.
Concurrence by a majority of all members of Congress in the passage of a law granting tax
exemptions. Sec. 28 (4) Art. VI.
Congress may not deprive the Supreme Court of its jurisdiction to review, revise, reverse,
modify or affirm on appeal or certiorari, final judgments and orders of lower courts in all
cases involving the legality of any tax, impost, assessment or any penalty imposed in the
relation thereto.

Every assessee wants to escape from paying taxes, which encourages them to use various means to
avoid such payment. Tax Avoidance and Tax Evasion are two techniques which are used by many
people to reduce their tax liability. They do so by taking expert advice. Tax Avoidance is completely
lawful while Tax Evasion is considered as a crime in the whole world.
In spite of many differences in the two practices, people use them interchangeably which is incorrect.
So, this article will help you to know the significant differences between Tax Avoidance and Tax
Evasion.
Content: Tax Avoidance Vs Tax Evasion
1. Comparison Chart
2. Definition
3. Key Differences
4. Conclusion
Comparison Chart

Basis for
Comparison

Tax Avoidance

Tax Evasion

Meaning

Minimization of tax liability, by taking such


means which do not violate the tax rules, is
Tax Avoidance.

Reducing tax liability by using


illegal ways is known as Tax
Evasion.

Concept

Taking unfair advantage of the shortcomings


in the tax laws.

Deliberate manipulations in
accounts resulting in fraud.

Which type of
means used?

Use of Justified means

Use of such means that are


forbidden by law

Happened when

Before the occurrence of tax liability.

After tax liability arises.

Type of act

Legal

Criminal

Consequences

Deferment of tax liability

Penalty or imprisonment

Definition of Tax Avoidance


An arrangement made to beat the intent of the law by taking unfair advantage of the shortcomings in
the tax rules is known as Tax Avoidance. It refers to finding out new methods or tools to avoid the
payment of taxes which are within the limits of the law.
This can be done by adjusting the accounts in a manner that it will not violate any tax rules as well as
the tax incurrence will also be minimized. Formerly tax avoidance is considered as lawful, but now it
comes to the category of crime in some special cases.
The only purpose of tax avoidance is to postpone or shift or eliminate the tax liability. This can be
done investing in government schemes and offers like the tax credit, tax privileges, deductions,
exemptions, etc., which will result in the reduction in the tax liability without making any offense or
breach of law.
Definition of Tax Evasion
An illegal act, made to escape from paying taxes is known as Tax Evasion. Such illegal practices can
be deliberate concealment of income, manipulation in accounts, disclosure of unreal expenses for
deductions, showing personal expenditure as business expenses, overstatement of tax credit or
exemptions suppression of profits and capital gains, etc. This will result in the disclosure of income
which is not the actual income earned by the entity.
Tax Evasion is a criminal activity for which the assesse is subject to punishment under the law. It
involves acts like:
Deliberate misrepresentation of material facts.
Hiding relevant documents.
Not maintaining complete records of all the transactions.
Making false statements.
Conclusion
Tax Avoidance and Tax Evasion both are meant to reduce the tax liability ultimately but what makes
the difference is that the former is justified in the eyes of the law as it does not make any offense or
breaks any law. However, it is biased as the honest tax payers are not fools, but they can also make
arrangements for postponing unnecessary tax. If we talk about the latter, it is completely unjustified

because it is a fraudulent activity, because it involves the acts which are forbidden by the law and
hence it is punishable.

Double taxation is a taxation principle referring to income taxes paid twice on the same source
of earned income. It can occur when income is taxed at both the corporate level and personal level.
Double taxation also occurs in international trade when the same income is taxed in two different
countries.

1. Situation where a country levies tax on an income that has already been taxed in the same or
another country. For example, corporate profits are taxed when they are earned, and then taxed
again as personal income when distributed to stockholders (shareholders) as dividend or (in case of
an owner-manager) as salary.
2. Tax on tax. Sales tax (unlike a value added tax) is imposed on the gross price (seller's net cost
price + sale tax paid on net price + seller's profit) of an item as it moves from one seller to the next
purchaser.