L7 01 Nature and Characteristics of Taxation

• Inherent power of the sovereignty. The government can impose it even without a specific provision in the Constitution authorizing it.
• Essentially a legislative function. The power to enact laws and ordinances, and to impose and collect taxes given to Congress.
• For public purposes. Taxation flows forth from the legitimate purpose to support the government and use it to serve the public.
• Territorial in operation. Tax laws are enforceable only within territorial jurisdictions.
• Tax exemption of the government. It runs with the concept that the government should not tax itself unless it is expressly stated or it performs proprietary functions.
• The strongest among the inherent powers of the government. Taxation is considered the “lifeblood” of the government; without funds, the government can neither survive nor perform its powers and functions.
• Subject to Constitutional and inherent limitations. As an inherent power, its very purpose and nature

  restrict taxation. Tax power should be exercised for its very nature, purpose, and jurisdiction. A violation of

  these inherent limitations is tantamount to taking property without due process of law (Course Hero, 2018).
• Taxes Defined

  According to De Leon and De Leon (2004), taxes are the enforced proportional contributions, generally payable

  in money, levied by the law-making body of the State by its sovereignty upon the persons or property within
• Smith (2014) identified the following canons which are still considered when evaluating a particular tax structure:

  1. Equality – Each taxpayer is entitled to just or equitable treatment by paying taxes proportionate to his/her

  income level.

  2. Convenience – Administrative feasibility is assessed in formulating tax policy.

  3. Certainty - The taxpayer can quickly identify the mode of payment, sanctions, and place of payment.

  4. Economy - A good tax system must alleviate the problems of the government and promote economic

  progress.
• Certainty - The taxpayer can quickly identify the mode of payment, sanctions, and place of payment.
• Economy - A good tax system must alleviate the problems of the government and promote economic

  progress.
• Equality – Each taxpayer is entitled to just or equitable treatment by paying taxes proportionate to his/her income level.
• Convenience – Administrative feasibility is assessed in formulating tax policy.
• Theory of Taxation

  1. Lifeblood Theory

  2. Necessity Theory or Principle of Necessity

  3. Ability to Pay Theory
• Lifeblood Theory: taxes are the lifeblood of the government; without it, the government can neither

  operate nor survive.
• Necessity Theory or Principle of Necessity: Tax laws are created to support the necessity of any state. The burden for expenses to maintain the sovereignty, services of the government, and administrative expenses must be borne by its own people.
• Ability to Pay Theory: Tax payments should be based relative to the ability of the taxpayers to pay.
• Benefits Received Theory: In exchange for the benefits received, taxes are paid by the citizen to sustain the

  activities and for the improvement of the government. It is also called the Benefits-Protection Theory, wherein the basis of taxation is the reciprocal duties of protection and support between the state and its inhabitants. The state collects taxes from the subjects of taxation so that it may be able to perform the functions of the government. On the other hand, the citizens pay taxes so that they may be secured in the enjoyment of the benefits of organized society.