Taxation 1

• Inherent power of the state

  The basic needs and rights which co-exist with the creation of a government, including the power of taxation, police power, and eminent domain
• Inherent powers of the state

  • Taxation power
  • Police power
  • Eminent domain
• Inherent powers of the state

  • They are all necessary attributes of sovereignty
  • They are inherent to the state
  • They are all legislative in nature
  • They are all ways in which the state interferes with private rights and properties
  • They all exist independently of the constitution and are exercisable by the government even without Constitutional grant, though the Constitution may impose conditions or limits for their exercise
  • They all presuppose an equivalent form of compensation received by the persons affected by the exercise of the power
  • 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
• Scope of the taxation power

  • Territoriality of taxation
  • International comity
  • Public purpose
  • Exemption of the government
  • Non-delegation of the taxing power
• Territoriality of taxation


  Public services are normally provided within the boundaries of the state, so the government can only demand tax obligations upon its subjects or residents within its territorial jurisdiction. There is no basis for taxing foreign subjects since they do not derive benefits from the government. Extraterritorial taxation would amount to encroachment of foreign sovereignty.
• Two-fold obligations of taxpayers

  • Filling of returns and payment of taxes
  • Withholding of taxes on expenses and its remittance to the government
• International comity


  The principle that no country is more powerful than another, so each country observes mutual courtesy or reciprocity between them. This means governments do not tax the income and properties of other governments, and they give primacy to their treaty obligations over their own domestic tax laws.
• Public purpose


  Tax is intended for the common good. Taxation must be exercised absolutely for public purpose and cannot be exercised to further any private interest.
• Exemption of the government

  Under the NIRC, government properties and income from essential public functions are not subject to taxation, but income of the government from its properties and activities conducted for profit, including income of government owned and controlled corporations, is subject to tax.
• Non-delegation of the taxing power

  The legislative taxing power is vested exclusively in Congress and is non-delegated, pursuant to the doctrine of separation of powers to ensure a system of checks and balances. However, there are exceptions where the power may be delegated, such as to local government units, the President for tariffs, and other cases requiring expedient and effective administration and implementation of assessment and collection of taxes.
• Constitutional limitations of taxation

  • Observance of due process of law
  • Equal protection of the law
  • Uniformity rule in taxation
  • Progressive system of taxation
  • Non-imprisonment for non-payment of debt or poll tax
  • Non-impairment of obligation and contract
  • Free worship rule
  • Exemption of religious, charitable or educational entities, non-profit cemeteries, churches and mosques, lands, building, and improvements from property tax
  • Non-appropriation of public funds or property for the benefit of any church, sect, or system of religion
  • Exemption from taxes of the revenues and assets of non-profit, non-stock educational institutions including grants, endowments, donations, or contributions for educational purposes
  • Concurrence of a majority of all members of congress for the passage of a law granting tax exemption
  • Non-diversification of tax collections
  • Non-delegation of the power of taxation
  • Non-impairment of the jurisdiction of the supreme court to review tax cases
  • Appropriations, revenue, or tariff bills shall originate exclusively in the House of Representatives, but the senate may propose or concur with amendments
  • Each local government unit shall exercise the power to create its own sources of revenue and shall have a just share in the national taxes
• Substantive due process


  Tax must be imposed only for public purposes, collected only under authority of a valid law and only by the taxing power having jurisdiction. An assessment without a legal basis violates the requirements of due process.
• Procedural due process


  There should be no arbitrariness in assessment and collection of taxes, and the government shall observe the taxpayer's right to notice and hearing. The law established procedures which must be adhered to in making assessment and enforcing collections.
• Double taxation


  When the same taxpayer is taxed twice by the same tax jurisdiction for the same thing.
• Types of double taxation

  • Direct double taxation
  • Indirect double taxation
• Direct double taxation


  When all the elements of double taxation exist for both impositions.
• Indirect double taxation


  When at least one of the secondary elements of double taxation is not common for both impositions.
• Escapes from taxation


  • Those that result to loss of government revenue
  • Those that do not result to loss of government revenue
• Those that result to loss of government revenue


  • Tax evasion
  • Tax avoidance
  • Tax exemption
• Tax evasion


  Any act or trick that tends to illegally reduce or avoid the payment of tax.
• Tax avoidance


  Any act or trick that reduces or totally escapes taxes by any legally permissible means.
• Tax exemption


  The immunity, privilege or freedom from being subject to a tax which others are subject to. Tax exemptions may be granted by the constitution, law, or contract.
• Those that do not result to loss of government revenue

  • Shifting
  • Capitalization
  • Transformation
• Shifting


  The process of transferring tax burden to other taxpayers, including forward shifting, backward shifting, and onward shifting.
• Capitalization


  The adjustments of the value of an asset caused by changes in tax rates, a form of backward shifting of tax.
• Transformation


  The elimination of waste or losses by the taxpayer to form savings to compensate for the tax imposition or increase in taxes.
• Tax amnesty


  A general pardon granted by the government for erring taxpayers to give them a chance to reform and enable them to have a fresh start. It is an absolute forgiveness or waiver by the government on its rights to collect and is retrospective in application.
• Tax condonation


  Forgiveness of the tax obligation of a certain taxpayer under certain justifiable grounds, also referred to as tax remission. It covers only civil liabilities of the taxpayer and applies prospectively to any unpaid balance of the tax.
• Tax amnesty vs tax condonation

  Amnesty covers both civil and criminal liabilities, while condonation covers only civil liabilities. Amnesty operates retrospectively by forgiving past violations, while condonation applies prospectively. Amnesty is also conditional upon the taxpayer paying a portion of the tax, whereas condonation requires no payment.