Fundamental Principles of Taxation

• Taxation


  A State power, a legislative process, and a mode of government cost distribution
• Taxation as a state power

  • An inherent power of the State to enforce a proportional contribution from its subjects for public purpose
• Taxation as a process

  • A process of levying taxes by the legislature of the State to enforce proportional contributions from its subjects for public purpose
• Taxation as a mode of cost distribution


  • A mode by which the State allocates its costs or burden to its subjects who are benefited by its spending
• Every government provides a vast array of public services including defense, public order and safety, health, education, and social protection among others
• A system of government is indispensable to every society. Without it, the people will not relish the benefits of a civilized and orderly society
• A government cannot exist without a system of funding. The government's necessity for funding is the theory of taxation
• Basis of taxation


  The government provides benefits to the people in the form of public service and the people provide the funds that finance the government. This mutuality support between the people and the government is referred to as the basis of taxation
• Receipt of benefits is conclusively presumed


  Every citizen and resident of the State directly or indirectly benefits from the public services rendered by the government. These benefits can be in the form of daily free usage of public infrastructures, access to public health or education services, the protection and security of person and property, or simply the comfort of living in a civilized and peaceful society which is maintained by the government
• Theories of cost allocation

  • Benefit received theory
  • Ability to pay theory
• Benefit received theory


  The more benefit one receives from the government, the more taxes he should pay
• Ability to pay theory


  Taxation should consider the taxpayer's ability to pay. Taxpayers should be required to based on their relative capacity to sacrifice for the support of the government
• Vertical equity


  • The extent of one's ability to pay is directly proportional to the level of his tax base
• Horizontal equity


  • Consideration of the particular circumstance of the taxpayer
• Lifeblood doctrine


  Taxes are essential and indispensable to the continued subsistence of the government. Without taxes, the government would be paralyzed for lack of motive power to activate or operate it
• Implications of the lifeblood doctrine in taxation

  • Tax is imposed even in the absence of a Constitutional grant
  • Claims for tax exemption are construed against taxpayers
  • The government reserves the right to choose the objects of taxation
  • The courts are not allowed to interfere with the collection of taxes
  • Income received in advance is taxable upon receipt
  • Deduction for capital expenditures and prepayments is not allowed and effectively defers the collection of income tax
  • A lower amount of deduction is preferred when a claimable expense is subject to limit
  • A higher tax base is preferred when the tax object has multiple tax bases
• Inherent powers of the state

  • Taxation power
  • Police power
  • Eminent domain
• The exercise of these powers by the local government units may be limited by the national legislature
• Taxation power


  The power of the State to enforce proportional contribution from its subjects to sustain itself
• Police power


  The general power of the State to enact laws to protect the well-being of the people
• Eminent domain


  The power of the State to take private property for public use after paying just compensation
• Taxation; Exercising Authority

  Government
• Police Powe; Exercising Authority

  Government
• Eminent Domain; Exercising Authority

  Government and private utilities
• Amount of Imposition - Taxation

  Unlimited (Tax is based on the government needs)
• Amount of Imposition - Police Power

  Limited (Imposition is limited to cover cost of regulation)
• Amount of Imposition - Eminent Domain

  No amount imposed (The government pays just compensation)
• Importance


  • Taxation: Most important
  • Police Power: Most superior
  • Eminent Domain: Important
• Taxation - Relationship with the Constitution

  Inferior to the "Non-impairment clause" of the Constitution
• Police Power - Relationship with the Constitution

  Superior to the "Non-impairment clause" of the Constitution
• Eminent Domain - Relationship with the Constitution

  Superior to the "Non-impairment clause" of the Constitution
• Limitation


  • Taxation: Constitutional and inherent limitations
  • Police Power: Public interest and due process
  • Eminent Domain: Public purpose and just compensation