General Principles of Taxation

• The tax system is designed to raise revenue, redistribute income, promote economic growth, and reduce inequality.
• Taxation is the process or means by which the sovereign, through its law-making body, imposes burdens upon subjects and objects within its jurisdiction for the purpose of raising revenues to carry out the legitimate objects of government.
• The primary purpose of taxation is to raise funds for the expenses of the government.
• The secondary purpose of taxation is to be a tool for general, social and economic welfare.
• Another purpose of taxation is the promotion of general welfare, reduction of social inequality, encourages economic growth and protectionism.
• Characteristics of the Taxing Power

  1. Inherent
  2. Legislative
  3. Subject to Inherent and Constitutional Limitations
• Taxation is generally exercised by the law-making body of a state.
• Being inherent in sovereignty, the state has the power to tax even if not expressly granted by the constitution.
• In the absence of inherent and constitutional limitations, the power to tax is comprehensive and unlimited.
• Three Inherent Powers of the State

  1. Police Power
  2. Taxation
  3. Eminent Domain
• Police Power is the power of the State to promote public welfare by restraining and regulating the use of liberty and property. It may be exercised only by the government.
• Property taken in the exercise of Police Power is destroyed because it is noxious or intended for a noxious purpose.
• The power of eminent domain is the power of the State to take private property for public purposes upon payment of just compensation.
• Police power and the power to tax is only exercised by the government.
• The power of eminent domain may be granted to public service or utility companies.
• Necessity Theory


  The power of taxation proceeds upon the theory that the existence of government is a necessity.
• Lifeblood Doctrine


  Taxes are the lifeblood of the government and their prompt and certain availability is an imperious need. The government cannot perform its basic functions of serving and protecting the people without paying its expenses.
• Reciprocity Theory


  There is a reciprocal duty of protectionism and support between the State and its inhabitants.
• The State cannot be estopped by the neglect of its agents/officers in the performance of its governmental functions.
• In the performance of its government functions, erroneous application and enforcement of law by public officers do not block the subsequent correct application of statutes.
• The collection of taxes cannot be enjoined by injunction.
• Taxes could not be the subject of compensation or set-off since claim for taxes is not a debt or contract.
• Taxes are the lifeblood of the government. Thus, it should be collected without unnecessary delay. Its collection, however, should not be tainted with arbitrariness.
• Scope of the Legislative Taxing Power

  1. Subject or Object to be owed
  2. The purpose of the tax as long as it is a public purpose
  3. The amount of rate of the tax
  4. Kind of Tax
  5. Apportionment of the Tax
  6. Situs of Taxation
  7. The manner, means, and agencies of collection of the tax
• A valid tax may result in the destruction of the taxpayer's property. The power of tax includes the power to destroy, where the tax is valid.
• The scope of the power to tax is the broadest among all the powers. In the absence of limitations, it is considered comprehensive, unlimited, plenary, and supreme.
• Comprehensive


  Taxation covers persons, businesses, activities, professions, rights and privileges.
• Unlimited


  In the absence of limitations prescribed by law or constitution, the power to tax is unlimited and comprehensive.
• Plenary


  As it is complete, the BIR may avail of certain remedies to ensure collection of tax.
• Supreme


  It is supreme in so far as the selection of the subject of taxation.
• Essential Elements of Tax

  1. 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 law-making body of the State
  6. It is levied for public purposes.
• Aspects of Taxation

  1. Levying or imposition of tax (legislative act or function)
  2. Assessment or determination of the correct amount of the applicable tax (executive function)
  3. Collection of the tax levied (executive function, BIR collects)
• Characteristics of the State's Power to Tax

  1. Inherent in sovereignty
  2. Legislative in character
  3. Subject to Constitutional and Inherent Limitations
• Delegation to Administrative Agencies: Certain aspects of the taxing process that are not really legislative in nature are vested in administrative agencies such as (1) the power to value property, (2) power tot assess and collect taxes, (3) power to perform details of computations, appraisement or adjustment.
• International Comity

  Polite and friendly agreement among nations
• National Tax

  imposed by the National Government (e.g. income tax, estate tax, donor's tax, VAT, documentary stamp tax)
• Local Tax


  imposed by local government units such as municipal corporations (e.g. real estate tax and professional tax receipts).
• Personal Tax


  tax of a fixed amount imposed upon individuals, whether citizens or not, residing within a specified territory without regard to their property or the occupation in which he may be engaged (e.g. community tax).
• Property Tax


  tax imposed on property, whether real or personal, in proportion either to its value or in accordance with some other reasonable method of apportionment (e.g. real estate tax).
• Excise Tax


  any tax that does not fall within the classification of a personal tax or property tax. This is a tax on the exercise of certain rights and privileges (e.g. income tax, estate tax, donor's tax). May also be levied on sin products and non-essential goods.