GENERAL PRINCIPLES OF

TAXATION
CONCEPTS, CLASSIFICATIONS AND DISTINCTIONS
 DEFINE TAXATION

• TAXATION is the act of levying tax.

• It is the process or means by which the sovereign,
through its law making body, raises income to defray
the necessary expenses of the government.
• As a power, it refers to the inherent power of the State to
demand enforced contributions for public purpose or
purposes.
 BASIC PURPOSES OF TAXATION

1) The primary purpose of taxation on the part of the

government is to provide funds or property with which to
promote the general welfare and protection of its citizens,
and to enable it to finance its multifarious activities. Almost
all revenues of the government are derived from taxes
raised through taxation.
2) Taxation may also be employed for purposes of regulation
or control. Typical examples of this extra-revenue objective
of taxation are the imposition of protective tariffs on
imported goods to protect local industries, the adoption of
progressively higher tax rates to reduce inequalities in
wealth and income, and the increase or decrease of taxes to
prevent inflation or ward off depression.
 DEFINE TAXES

• Taxes are enforced proportional contributions from

persons and property levied by the law-making body of
the State by virtue of its sovereignty for the support of
the government and all public needs.
 ESSENTIAL ELEMENTS OF TAX

1) It is an enforced contribution
2) It is generally payable in money
3) It is proportionate in character
4) It is levied on persons, property or the exercise of a right or
privilege
5) It is levied by the State which has jurisdiction over the
subject or object of taxation
6) It is levied by the law-making body of the State
7) It is levied for public purpose or purposes.

It is also an important characteristics of a tax that it is

commonly required to be paid at regular periods or intervals.
 THEORY AND BASIS OF TAXATION

• THEORY. The power of taxation proceeds upon the

theory that the existence of government is a necessity;
that it cannot continue without means to pay its
expenses; and that for this means it has a right to compel
all its citizens and property within its limits to
contribute. This is known as the Life-Blood Theory.
• BASIS. The basis of taxation is found in the reciprocal
duties of protection and support between the State and
its inhabitants. In return for his contribution, the
taxpayer receives benefits and protection from the
government. This is the so-called Benefits Received
Principle.
QUESTION:

May a person legally refuse to pay a tax on the ground

that he will derive no personal benefit from the tax?

ANSWER:
No. in return for the tax, the government promises or
renders no definite specific commodity or benefit to any
particular property or person. The only benefit to which
the taxpayer is entitled is that derived from his enjoyment
of the privileges of living in an organized society
established and safeguarded by the devotion of taxes to
public purposes.
 NATURE OR CHARACTERISTIC OF THE
STATE’S POWER TO TAX
1) It is inherent in sovereignty; hence, it may be
exercised although not expressly granted by the
Constitution;
2) It is legislative in character; hence, only the legislature
can impose taxes (although the power may be
delegated); and
3) It is subject to constitutional and inherent limitations;
hence, it is not an absolute power that can be exercised
by the legislature anyway it pleases.
 PROCESSES THAT ARE INCLUDED OR
EMBODIED IN THE TERM “TAXATION”
1) Levying or imposition of the tax which is a legislative
act; and
2) Collection of the tax levied which is essentially
administrative in character.

The first is taxation, strictly speaking, while the second

may be referred to as tax administration. The two
processes together constitute the taxation system.
In the exercise of the power to tax, what matters are
within the competence of the legislature to determine?

1) The subject or object to be taxed;

2) The purpose of the tax so long as it is a public purpose;
3) The amount or rate of the tax; and
4) The manner, means, and agencies of collection of the
tax
Do taxpayers have sufficient interest to question or
prevent illegal expenditure of public funds?

Pascual v. Sec of Public Works and Communications,

110 Phil. 331
Not only persons individually affected but even taxpayers
whose money paid as taxes to the government is being
appropriated by the legislature may question or prevent
illegal expenditures of public money.
 BASIC PRINCIPLES OF A SOUND TAX
SYSTEM
1) Fiscal adequacy – it means that the sources of revenue
should be sufficient to meet the demands of public
expenditures;
2) Equality or Theoretical Justice – it means that the tax
burden should be proportionate to the taxpayer’s
ability to pay. This is the so-called “Ability to Pay
Principle”; and
3) Administrative feasibility – it means that the tax laws
should be capable of convenient, just and effective
administration
CLASSIFICATION OF TAX AS TO SUBJECT
MATTER OR OBJECT
1) Personal, poll or capitation – tax of a fixed amount
imposed on individual, whether citizens or not, residing
within a specified territory without regard to their property
or the occupation in which they may be engaged. Example:
Community tax
2) Property – tax imposed on property, whether real or
personal, in proportion either to its value, or in accordance
with some other reasonable method of apportionment.
Example: Real Estate Tax
3) Excise – any tax which does not fall within the classification
of a poll tax or a property tax. Thus, it is said that an excise
tax is a charge imposed upon the performance of an act, the
enjoyment of privilege, or the engaging in an occupation.
Examples: Income Tax, VAT, Estate Tax, Donor’s Tax
CLASSIFICATION OF TAX AS TO SUBJECT
MATTER OR OBJECT
Note:
Excise tax, as used in the previous slide, is not to be confused
with excise taxes imposed on certain specific articles
manufactured or produced in or imported into the Philippines
for domestic sale or consumption or for other disposition. The
latter are taxes on property.
 CLASSIFICATION OF TAX AS TO WHO
BEARS THE BURDEN
1) Direct – tax which is demanded from the person who
also shoulders the burden of the tax; or tax which the
taxpayer cannot shift to another. Examples: Corporate
and Individual Taxes; Estate Tax; Donor’s Tax
2) Indirect – tax which is demanded from one person in
the expectation and intention that he shall indemnify
himself at the expense of another; or tax which the
taxpayer can shift to another. Examples: Excise Taxes on
certain specific goods; Professional Tax; VAT; other
Percentages Taxes such as Amusement Taxes, Custom
Duties.
 CLASSIFICATION OF TAX AS TO
DETERMINATION OF AMOUNT
1) Specific – tax of a fixed amount imposed by the head or
number, or by some standard of weight or measurement; it
requires no assessment other than a listing or classification
of the subjects to be taxed. Examples: Excise taxes on distilled
spirits, wines, fermented liquors, cigars, cigarettes, petroleum
products and others; and
2) Ad valorem – tax of a fixed proportion of the value of the
property with respect to which the tax is assessed; it
requires the intervention of assessors or appraisers to
estimate the value of such property before the amount due
from each taxpayer can be determined. Examples: Real Estate;
Tax Customs Duties (except on cinematographic films), excise tax
on automobiles, non-essential goods, and others.
CLASSIFICATION OF TAX AS TO PURPOSE

1) General, fiscal or revenue – tax imposed solely for the

general purpose of the government, i.e., to raise
revenue for government expenditures. Examples:
Income Tax, VAT. Excise Taxes
2) Special or regulatory – tax imposed for a special
purpose, i.e., to achieve some social or economic ends
irrespective of whether revenue is actually raised or
not. Examples: Protective Tariffs or Customs Duties on
imports to protect local industries against foreign
competition; low tariffs on imports to encourage foreign
trade.
 CLASSIFICATION OF TAX AS TO THE
AUTHORITY IMPOSING THE SAME
1) National – tax imposed by the national government.
Examples: National Internal Revenue Taxes; Customs
Duties; and National Taxes under Special Laws
2) Municipal or local – tax imposed by municipal
corporations or local government units. Examples: Real
Property Tax; Professional Tax
 CLASSIFICATION OF TAX AS TO
GRADUATION OR RATE
1) Proportional – tax based on a fixed percentage of the
amount of the property, receipts, or other basis to be
taxed. Examples: VAT, Real Property Taxes
2) Progressive or graduated – tax, the rate of which
increases as the tax or bracket increases. Example:
Income Tax
3) Regressive – tax, the rate of which decreases as the tax
base or bracket increases. We have no regressive taxes.
 DISTINGUISH TAX FROM TOLL
TOLL has been defined as a sum of money for the use of
something, generally applied to the consideration which is
paid for the use of a road, bridge or the like, of a public nature.

TOLL
A demand of proprietorship
Paid for the use of another’s property
Amount is based on the cost of the
construction or maintenance of the
public improvement used
May be imposed by the government
or private individuals or entities
TAX
Demand of sovereignty
Paid for the support of the
government
Amount is based on the necessities of
the State
Imposed only by the State
 DISTINGUISH TAX FROM PENALTY
PENALTY is any sanction imposed as a punishment for
violation of law or acts deemed injurious. Thus, the violation
of tax laws may give rise to imposition of penalty

PENALTY TAX
Designed to regulate conduct Aimed at raising revenue
May be imposed by the government Imposed only by the State
or private individuals or entities
 DISTINGUISH TAX FROM SPECIAL
ASSESSMENT
• SPECIAL ASSESSMENT is an enforced proportional
contribution from owners of lands for special benefits
resulting from public improvements. Under the Local
Government Code (RA 7160), a province, city or municipality,
or the National Government, may impose a special levy on
lands especially benefitted by public works or improvements
financed by it.
• A tax can be distinguished from a special assessment by
considering the characteristics of the latter, namely:
1) A special assessment is levied only on land;
2) It is not a personal liability of the person assessed;
3) It is based wholly on benefits (not necessity); and
4) It is exceptional both as to time and place.
 DISTINGUISH TAX FROM PERMIT OR
LICENSE FEE
PERMIT OR LICENSE FEE is a charge imposed under the
police power for the purposes of regulation.
PERMIT OR LICENSE FEE TAX
Imposed for regulation Levied for revenue
Involves an exercise of police power Involves the exercise of taxing power
Amount is usually limited to the There is generally no limit on the
necessary expenses of regulation amount of tax that may be imposed
Imposed on the right to exercise a Imposed also on persons and property
privilege
It is the legal compensation or reward An enforced contribution assessed by
of an officer for specific services sovereign authority to defray public
expenses
Failure to pay a license makes the act Failure to pay does not necessarily
or business illegal make the act or business illegal
 DISTINGUISH TAX FROM PERMIT OR
LICENSE FEE
Progressive Development Corp. v. Quezon City, 172
SCRA 629, April 24, 1989

The general rule is that if the generating of revenue is the

primary purpose and regulation is merely incidental, the
imposition is a tax; but if regulation is the primary
purpose, the fact that incidentally, revenue (even if
substantial) is also obtained does not make the imposition
a tax.
 DISTINGUISH TAX FROM DEBT
DEBT
Generally based on contract
Assignable
May be paid in kind
May be the subject if set-off or
compensation
A person cannot be imprisoned for
non-payment of debt (except when it
arises from a crime)
Governed by the ordinary periods of
prescription
Draws interest when it is so stipulated
or when there is default
TAX
Based on law
Cannot be generally assigned
Generally payable in money
Generally not be the subject if set-off
or compensation
Imprisonment is a sanction for non-
payment of tax (except poll tax)
Governed by the special prescriptive
periods provided for in the Tax Code
Does not draw interest except only
when delinquent
 DISTINGUISH TAX FROM SUBSIDY

• Subsidy is a pecuniary aid directly granted by the

government to an individual or private commercial
enterprise deemed beneficial to the public.
• A Subsidy is, therefore, not a tax although a tax may
have to be imposed to pay it.
 DISTINGUISH TAX FROM INTERNAL
REVENUE
• Internal Revenue refers to taxes imposed by the
legislature other than duties on imports and exports.
 DISTINGUISH TAX FROM CUSTOMS
DUTIES
• Customs duties are taxes imposed on goods exported
from or imported into a country. Customs duties are
really “taxes” but the latter term is broader in scope.
 DISTINGUISH TAX FROM TARIFF

Tariff mat be used in one of three (3) senses:

1) A book of rates drawn usually in alphabetical order
containing the names of several kinds of merchandise
with the corresponding duties to be paid for the same;
or
2) The duties payable on goods imported or exported; or
3) The system or principle of imposing duties on the
importation (or exportation) of goods.
SOURCES IF OUR LAW ON TAXATION

1) Constitution
2) Statutes and Presidential Decrees
3) Regulations
4) Administrative rulings and opinions
5) Judicial decisions
6) Provincial, city, municipal and barangay ordinances
7) Treaties or international agreements
 CONCEPT OF THE POWER OF EMINENT
DOMAIN
The power of Eminent Domain is the power of the State
or those to whom the power has been delegated, to take
private property for public use upon paying the owner a
just compensation to be ascertained according to law.
 CONCEPT OF POLICE POWER

Police Power has bene referred to as the power of the

State to enact such laws in relation to persons and
property as may promote public health, public morals,
public safety and the general welfare of the people.
 SIMILARITIES AMONG THE POWER OF EMINENT
DOMAIN, POLICE POWER AND POWER OF TAXATION

1) They are all necessary attributes of sovereignty, resting

upon necessity
2) They all underlie and exist independently of the
constitution although the conditions for their exercise may
be prescribed by the Constitution
3) They are ways by which the State interferes with private
rights and property
4) They are legislative in nature and character; and
5) They all presuppose an equivalent compensation received,
directly or indirectly, by the persons affected by the exercise
of these powers by the government
 DISTINCTIONS AMONG THREE POWERS

TAXATION POLICE POWER EMINENT DOMAIN

As to authority May be May be exercised May be granted to
which exercises exercised only only by the public service
the power by the government companies or public
government utilities
As to purpose Property Property is taken Property is taken for
(generally in the or destroyed for public use
form of money) the purpose of
taken for the promoting the
support of the general welfare
government
As to persons Operate upon a Operate upon a Operates on an
affected community or a community or a individual as the
class of class of owner of a particular
individuals individuals property
 DISTINCTIONS AMONG THREE POWERS

TAXATION POLICE POWER EMINENT DOMAIN

As to effect The money There is no There is a transfer of
contributed in the transfer of title; at the right to property
concept of taxes most, there is a whether it be of
becomes part of restraint on the ownership or a lesser
the public funds injurious use of right
property
As to benefits It is assumed that The person The person receives
received the individual affected receives the market value of
receives the no direct and the property taken
equivalent of the immediate benefit from him
tax in the form of but only such as
protection and may arise from the
benefits he maintenance of a
receives from the healthy economic
government standard of society
 DISTINCTIONS AMONG THREE POWERS

TAXATION POLICE POWER EMINENT DOMAIN

As to amount There is generally no The amount should There is no imposition;
of imposition limit on the amount of only be sufficient to rather, the owner of the
tax that may be cover the cost of the property taken is paid its
imposed license and the market value
necessary expenses
of police surveillance
and regulation
As to Taxing power is Relatively free from Inferior to the
relationship subject is subject to constitutional impairment provision so
to the certain constitutional limitations and is that the government
Constitution limitations including superior to the cannot expropriate
the prohibition impairment property which under a
against the provision. contract it has previously
impairment of the bound itself to purchase
obligation of from the other
contracts. contracting party.
 CLASSIFICATION OF LIMITATIONS OR
RESTRICTIONS OF THE POWER OF TAXATION

1) Constitutional limitations or those expressly found in

the Constitution or implied from its provisions; and
2) Inherent limitations or those which restrict the power
although they are not embodied in the Constitution.
CONSTITUTIONAL LIMITATIONS ON THE
POWER OF TAXATION
1) Due process of law
2) Equal protection of the laws
3) Rule of uniformity and equity in taxation
4) No imprisonment for non-payment of a poll tax
5) Non-impairment of the obligation of contracts
6) Non-infringement of religious freedom
7) No appropriation for religious purposes
8) Exemption of religious, charitable or educational
entities, non-profit cemeteries and churches from
property taxation
CONSTITUTIONAL LIMITATIONS ON THE
POWER OF TAXATION
9) Exemption of revenues and assets of non-stock, non-
profit educational institutions and donations for
educational purposes from taxation
10) Concurrence by a majority of all the members of the
Congress for the passage of a law granting any tax
exemption
11) Power of the President to veto any particular item or
items in a revenue or tariff bill
12) Non-impairment of the jurisdiction of the Supreme
Court in tax cases
INHERENT LIMITATIONS ON THE POWER
OF TAXATION
1) Requirement that levy must be for a public purpose
(also implied from the Constitution)
2) Non-delegation of the legislative power to tax (also
implied from the Constitution)
3) Exemption from taxation of government entities
4) International comity
5) Territorial jurisdiction