LIMITATIONS OF THE TAXATION POWER

• Non Delegation of the power to Tax


  The power to tax is purely legislative and it cannot be delegated by the legislature to the executive or judicial department of the government
• Exemption from taxation of government entities


  Government agencies performing essential government functions are exempt from tax unless expressly taxed, while those performing proprietary functions are subject to tax unless expressly exempted. Government cannot tax itself.
• Public Purpose


  Purpose affecting the inhabitants of the state as a community and not merely as individuals. Financing educational activities, promotion of science, maintenance of roads and bridges, aid for victims of calamities, etc.
• Territorial Jurisdiction


  The tax laws of the state are enforceable only within its territorial limits. Tax laws do not operate beyond the country's territorial limits.
• International comity


  The property of a foreign State or government may not be taxed by another<|>Courteous and friendly agreement and interaction between nations
• 
  

  Constitutional limitations - provided for in the constitution or implied from its provisions<|>Inherent limitations - restrictions to the power to tax attached to its nature
• Inherent limitations on the power of taxation

  • Purpose - Taxes may be levied only for public purpose
  • Territoriality - The State may tax persons and properties under its jurisdiction
  • International Comity - the property of a foreign State may not be taxed by another
  • Exemption - Government agencies performing governmental functions are exempt from taxation
  • Non-delegation - The power to tax being legislative in nature may not be delegated (subject to exceptions)
• Due process of law and equal protection of the laws


  Any deprivation of life, liberty or property is with due process if it is done under the authority of a valid law and after compliance with fair and reasonable methods or procedure prescribed
• Power to tax


  Can be exercised only for a constitutionally valid public purpose and the subject of taxation must be within the taxing jurisdiction of the state<|>Government may not utilize any form of assessment or review which is arbitrary, unjust and which denies the taxpayer a fair opportunity to assert his rights before a competent tribunal<|>All persons subject to legislation shall be treated alike under like circumstances and conditions, both in the privileges conferred in liabilities imposed<|>Persons and properties to be taxed shall be group, and all the same class shall be subject to the same rate and the tax shall be administered impartially upon them
• Rule of uniformity and equity in taxation


  All taxable articles or properties of the same class shall be taxed at the same rate<|>Uniformity implies equality in burden not in amount<|>Equity requires that the apportionment of the tax burden be more or less just in the light of the taxpayers ability to bear the tax burden
• Non-impairment of obligations and contracts


  The obligation of a contract is impaired when its terms and conditions are changed by law or by a party without the consent of the other, thereby weakening the position or the rights of the latter<|>If a tax exemption granted by law and of the nature of a contract between the taxpayer and the government is revoked by a later taxing law, the said law shall not be valid, because it will impair the obligation of contract
• Prohibition against infringement of religious freedom


  The constitutional guarantee of the free exercise and enjoyment of religious profession and worship, which carries the right to disseminate religious belief and information, is violated by the imposition of a license fee on the distribution and sale of bibles and other religious literatures not for profit by a non-stock, non-profit religious corporation
• Prohibition against appropriations for religious purposes


  Congress cannot appropriate funds for a private purpose, or for the benefit of any priest, preacher or minister or for the support of any sect, church except when such priest, preacher, is assigned to the armed forces or to any penal institutions, orphanage or leprosarium
• Exemption of revenues and assets of non-stock, non-profit educational institutions


  Used actually, directly, and exclusively for educational purposes from income, property and donor's taxes and custom duties
• Supreme Court jurisdiction


  Congress may not deprive the Supreme Court of its jurisdiction to review, revise, reverse, modify or affirm on appeal or certiorari, final judgments and orders of lower courts in all cases involving the legality of any tax, impost, assessment or any penalty imposed in the relation thereto
• Due process - taxes may not be deprived of life, liberty, or property without due process
• Equal protection of law - taxpayers shall be treated alike
• Uniformity - taxable articles or kind of property of the same class shall be tax at the same rate
• Non imprisonment for non payment of debt or tax poll - no one shall be imprisoned because of his poverty
• Non impairment of obligation and contract - tax exemption granted under contract should be honored and should not be cancelled by unilateral government action
• Free worship rule - adopts free exercise of religion and does not subject it's exercise to taxation. Exemption does not extend to income from properties or activities that are proprietary in nature
• In observing this Constitutional limitation, the Philippines follows the doctrine of use wherein only properties actually devoted for religious, charitable, or educational activities are exempt from real property tax
• Under the doctrine of ownership, the properties of religious, charitable, or educational entities whether or not used in their primary operations are exempt from real property tax. This, however, is not applied in the Philippines
• Non-appropriation of public funds or property for the benefit of any church, sect, or system of religion
• This constitutional limitation

  Intended to highlight the separation of religion and the State
• To support freedom of religion


  The government should not favor any particular system of religion by appropriating public funds or property in support thereof
• Compensation to priests, imams, or religious ministers working with the military, penal institutions, orphanages, or leprosarium is not considered religious appropriation
• Exemption from taxes of the revenues and assets of non-profit, non-stock educational institutions including grants, endowments, donations, or contributions for educational purposes


  The Constitution recognizes the necessity of education in state building by granting tax exemption on revenues and assets of non-profit educational institutions
• This exemption, however, applies only on revenues and assets that are actually, directly, and exclusively devoted for educational purposes
• Consistent with this constitutional recognition of education as a necessity, the NIRC also exempts government educational institutions from income tax and subjects private educational institutions to a minimal income tax
• Concurrence of a majority of all members of Congress for the passage of a law granting tax exemption


  Tax exemption law counters against the lifeblood doctrine as it deprives the government of revenues. Hence, the grant of tax exemption must proceed only upon a valid basis
• the approval of an exemption law - absolute majority or the majority of all members of Congress, not a relative majority or quorum majority, is required. the withdrawal of tax exemption - only a relative majority is required
• Majority required for members of Congress


  Not a relative majority or quorum majority
• Majority required for withdrawal of tax exemption

  Relative majority
• Tax collections


  • Should be used only for public purpose
  • Should never be diversified or used for private purpose
• Non-diversification of tax collections - tax used only for public purposes not used for private purpose
• Non delegation of the power of taxation - The principle of checks and balances in a republican state requires that taxation power as part of lawmaking be vested exclusively in Congress.
• Hence, implementing administrative agencies such as the Department of Finance and the Bureau of Internal Revenue (BIR) issues revenue regulations, rulings orders, or circulars to interpret and clarify the application of the law.