Nature of the power to tax, purpose, and scope

Taxation is the act of levying the tax, i.e., the process or means by which the sovereign, through
its law-making body, raises income to defray the necessary expenses of the government. It is
merely a way of apportioning the cost if the government among those who in some measures are
privileged to enjoy its benefits and, therefore, must bear its burdens. (71 Am Jur. 2nd 342; 1
Cooley 72-73).

Tax is defined as the lifeblood of the government. Major revenue of the government is sourced from
taxation so that in the most pressing times of financial and economic crisis, the agency authorized to
administer taxes – the Bureau of Internal Revenue (BIR) should always be on the front line. As a matter
of fact, BIR nowadays are becoming stricter in the implementation of the tax laws and are seeking ways
to collect much revenue from taxes. Lately the BIR has widened the coverage of mandatory withholding
of virtually all income payments certain taxpayers by the implementation of the Top Twenty Thousand
Corporations (TTC) from the previous Top Ten Thousand Corporation list. Under the program, on top of
those income payments subjected to expanded withholding tax, these corporations are required to
withhold 1% for payments to its suppliers of goods and 2% for regular suppliers of services. Additionally,
reportorial requirements are required to be submitted to BIR to monitor and verify compliance through
its computer systems. Currently, the BIR is coming up with a similar scheme for individual taxpayers,
expectedly, under the same procedures of TTC above. A draft regulation is now in place for comments at
the BIR website.

By a simple definition, tax may be defined as an enforced proportional contribution levied by the law
making body of the state to raise revenue to support the indispensable and all the necessary expenses
of the government.

 Enforced as it involves the mandate of the law so that its imposition is mandatory to those
covered by it. Unreasonable deviation from the mandate is subject to penalties imposable to an
organized society which gives due respect to each and every humanly right. This implies that the
sanction, nevertheless, undergoes a due process.
 Proportional as theoretically, tax is proportioned upon a taxpayer’s ability to pay. This goes to
show that the cost of the entire governance in the state is being apportioned among the
inhabitants through a certain rule of apportionment being put into play.
 Raise revenue goes with the very heart of taxation, to earn income for the government.
Secondary however to this primary purpose, tax is being seconded to serve some other concerns
for the majority. Example is the import duties and taxes of imported articles. At some point
where quality of local and imported article is of no moment, imported ones prove to be more
costly that the local ones because of this import duties and taxes being imposed as a way of
encouraging the public to buy locally produced for the comparable quality.
 Support the expenses of the government is related to public purpose of the imposition of
taxation. While the government is empowered to collect from among its inhabitants by the
power of taxation, proceeds are bound to serve the public needs and expenditure only. For this
purpose, a collection of taxes for a sugar industry was held to constitute as a public purpose for
the sugar industry represents and directly affects the public.
Nature of the power of taxation as an inherent power

Power to tax, being inherent in an independent state for its existence and survival by the
furtherance of its multifarious functions, the same does not require delegation from the supreme
law of the land. However, exercise of such power upon the inhabitants is subject to limitations
imposed by the power, by its very nature, or by the Supreme law of the land, the Philippine
Constitution. To tax a subject matter, person, property or excise, there must be a valid law
imposing the same. Validity of a tax measure presupposes the fact that it has overcome the test
and scrutiny against it. Tax measures duly passed by the legislative department, the Congress or
the local legislative under its delegated power, enjoy the presumption of validity and he who
controverts has the duty of proving that the same is otherwise.

By nature, power to tax is inherent in a sovereign estate so that the grant of which is not necessary but
the exercise is provided safeguard and limitations. This means that the state needs not be empowered
by its constitution or any mandate for it to be allowed to tax. Such power co-exists with the state and
thus, grant is not necessary. What are being provided by the supreme law of the land, the Constitution,
are the guidelines and the limit on the exercise of the power. It wishes to curtail the exercise in such a
way as not to abuse and misuse said power to the detriment of the majority and to the advantage of the
selected few.

Under our tax system, compliance is initially voluntary on the part of the taxpayers.
Nevertheless, the government through the administrative agency empowered to administer the
tax, the BIR , is clothed with such remedies, under proper procedures, to imposed correct amount
of taxes due to the government upon finding that the compliance based on the declarations in the
return is insufficient. It can issue deficiency assessment and impose such measures provided
under the law within the prescribed period to see to it that taxes are paid and that tax measures
are complied with. This does not however follow that a taxpayer being assessed is doing an
illegal business because non-payment of the tax does not make the business illegal.

Scope of the taxing power

To give a more meaningful power, power of taxation is essentially unlimited and plenary. This means
that the state can tax on anything, anytime, anywhere, and at any amount. Example is the issue on
taxing short messaging (SMS or commonly known as text message through mobile phones). The author
in on the humble view that there could be nothing wrong on taxing this item as it primarily belongs to
the state. What keeps them perhaps in the meantime is the impact to the poor and underprivileged
depending primarily on the medium to communicate their loved ones from other places. This follows
however, that the limitations and guidelines for the said purpose had been properly observed.
While the power does not emanate from a grant, as the same is necessarily inherent upon the
existence of the state, exercise of the power is subject to those limitations inherent upon it and
those expressly provided for by the Constitution as follows:

Inherent limitations. These limitations are those limitations that emanates from the very nature of
the power of taxation. They are very basic and are built-in with the power. Some may be similar
to the constitutional limitation but the constitutional limitation seems to be supreme as they are
the most specific, thus, specifically intended to rule the application or exercise of the power of
taxation. Hereunder are the INHERENT LIMITATIONS:

• Levy for public purpose. To levy a tax means to impose or to charge or to collect a tax from
those to whom it is addressed. Technically however, to levy is to pass on laws or ordinances
imposing a tax or duty upon specific group of taxpayers. Under this concept, the impelling
reason for the imposition of the tax must be the welfare of the public, in general. This follows
that the proceeds from such imposition shall inure to the benefit of the public.

In one case, a certain imposition was successfully passed for the purpose of upholding the
welfare of the sugar industry. It was questioned on the ground that there is no PUBLIC purpose
since the sugar industry does not allegedly represent the public. The issue was resolved in favor
of the validity of the imposition. While sugar industry does not represent the entire public as the
proceeds would not add to the general budget of the national government, nevertheless, the
industry itself admits of a public nature whose circumstances and effects directly affect the
public. The requirement of direct purpose does not admit of a direct public benefit from the
imposition.

• Non-delegation of legislative power to tax. To delegate is to pass on or to entrust to another a

certain duty or obligation. Power to tax is lodged with the legislative department. To my mind,
this is because the legislative branch is theoretically the representative of the people and they are
directly aware and in common contact with the instances and situations of their districts making
them the ones knowledgeable of how best their district could be affected by the new taxes
imposed. Likewise, this is premised on the legal maxim “delegate potestas, non delegari
potest” which means, what has been delegated cannot be re-delegated so as not to hamper the
objective of the delegation. However, there are at least two (2) instances where delegation is
possible (a) delegation to the President of some tariff powers, and (b) Local government unit’s
fiscal autonomy for their self serving needs.

• Exemption of government entities. Government is the people, by (not BUY) the people, for
(not POOR) the people. Government exists for the people and whatever amount it makes, came
from the people and such amount it use to finance its various activities to address the general
welfare of its inhabitants. It is not constituted to engage in any trade or business but to deliver
basic services and serve everyone within. Analytically, taxing the government itself will not
generate more revenue. The money will only rotate and so no effect, at all, would be made.
Suffice it to say however, there exist no express prohibition

• International comity has something to do with the friendly interaction and participation of
different estates. This adheres to some amount of submission and compliance of certain
international rules and covenants for mutual benefits and enjoyment of the states and its
inhabitants. Bilateral agreements, conventions and international treaties fall under this category.

• Territorial jurisdiction relates to the area of jurisdiction and responsibility of a particular

estate. Independent states power of taxation is generally confined only within its jurisdiction to
give due respect and as courtesy to other states. A state, as a rule, can only impose and
implement tax laws and rules within its jurisdiction in accordance with its wishes. Outside its
jurisdiction, it is without power to do so. But then, it can tax on citizens or entities of other states
doing a trade or business or deriving income within the jurisdiction of its state. See the case of
Spratley islands for better picture. Issue on who owns spratley had long been outstanding for
each party claims jurisdiction in accordance with its of the parties belief that it rightfully belongs
to it.