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Law On Taxation Review.-Chapter 1
Law On Taxation Review.-Chapter 1
TAXATION DEFINED
This doctrine is enunciated in CIR v. Algue, Inc. [158 SCRA 9], which
states that “Taxes are what we pay for civilized society. Without
taxes, the government would be paralyzed for lack of the motive
power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one’s hard-earned income to the
taxing authorities, every person who is able must contribute his
share in the burden of running the government. The government for
its part, is expected to respond in the form of tangible and
intangible benefits intended to improve the lives of the people and
enhance their material and moral values.”
TAXES DEFINED
Thus:
a. Taxes are enforced contributions
It operates in invitum which means that it is in no way dependent
on the will or contractual assent, express or implied, of the
person taxed. They are positive acts of the government
(Rochester vs. Bloss ).
b. Taxes are proportional in character, since taxes are based on
one’s ability to pay.
c. Taxes are levied by authority of law.
The power to impose taxes is a legislative power; it cannot be
imposed by the executive department nor by the courts.
d. Taxes are for the support of the government and all its public
needs.
e. Taxes are pecuniary burden payable in money, such that a tax is
not necessarily confined to those payable in money (e.g. a
backpay cert may be used to pay real estate taxes).
f. Taxes are imposed by the State on persons, property or services
within its jurisdiction.
IMPORTANCE OF TAXES
LIFEBLOOD DOCTRINE
• Taxes are the lifeblood of the government and there prompt and
certain availability is an imperious need. (CIR vs Goodrich
International Rubber Co.)
1) Inherent in sovereignty
2) Legislative in character
PRIMARY
1. To raise revenue in order to support the government (Revenue)
SECONDARY
2. Used for regulatory purposes (Regulation)
3. Used to reduce social inequality (Reduction of Social Inequality)
4. Utilized to implement the police power of the State (Promotion of
General Welfare)
5. Used to protect our local industries against unfair competition
(Protectionism)
6. Utilized by the government to encourage the growth of local
industries (Encourage Economic Growth)
1) NECESSITY THEORY
• Taxation as stated in the case of Phil. Guaranty Co., Inc. v.
Commissioner [13 SCRA 775], is a power predicated upon
necessity. It is a necessary burden to preserve the State’s
sovereignty and a means to give the citizenry an army to resist
aggression, a navy to defend its shores from invasion, a corps of
civil servants to serve, public improvements for the enjoyment of
the citizenry, and those which come within the State’s territory
and facilities and protection which a government is supposed to
provide.
1) FISCAL ADEQUACY
• The sources of revenues must be adequate to meet government
expenditures. (Chavez v. Ongpin, 186 SCRA 331).
• Even if a tax law violates the principle of Fiscal Adequacy and the
proceeds may not be sufficient to satisfy the needs of the
government, still the tax law is valid
2) THEORETICAL JUSTICE
• The tax burden should be in proportion to the taxpayers
ability to pay (ABILITY TO PAY PRINCIPLE)
3) ADMINISTRATIVE FEASIBILITY
• The tax law must be capable of effective or efficient
enforcement.
• There is no law that requires compliance with this principle, so
even if the tax law violates this principle; such tax law is valid.
ASPECTS OF TAXATION
1) LEVY or IMPOSITION
• enactment of tax laws
• legislative in character
2) ASSESSMENT
• collection
• administrative in character
Toll v. Tax
• Toll is a sum of money for the use of something. It is the
consideration which is paid for the use of a road, bridge, or the like,
of a public nature. Taxes, on the other hand, are enforced
proportional contributions from persons and property levied by the
State by virtue of its sovereignty for the support of the government
and all public needs.
• Toll is a demand of proprietorship; tax is a demand of sovereignty.
• Toll is paid for the use of another’s property; tax is paid for the
support of government.
• The amount paid as toll depends upon the cost of construction or
maintenance of the public improvements used; while there is no
limit on the amount collected as tax as long as it is not excessive
unreasonable, or confiscatory.
• Toll may be imposed by the government or by private individuals or
entities; tax may be imposed only by the government.
Penalty v. Tax
• Penalty is any sanction imposed as a punishment for violation of law
or for acts deemed injurious; taxes are enforced proportional
contributions from persons and property levied by the State by
virtue of its sovereignty for the support of the government and all
public needs.
• Penalty is designed to regulate conduct; taxes are generally
intended to generate revenue.
• Penalty may be imposed by the government or by private
individuals or entities; taxes only by the government.
Some rules:
• An exemption from taxation does not include exemption from a
special assessment.
• The power to tax carries with it the power to levy a special
assessment.
TAXES CLASSIFIED
2. Property tax
Tax imposed on property, real or personal, in proportion to its value
or in accordance with some other reasonable method of
apportionment.
3. Excise tax
A charge imposed upon the performance of an act, the enjoyment of
privilege, or the engaging in an occupation.
AS TO PURPOSE
4. General/fiscal revenue tax is that imposed for the purpose of
raising public funds for the service of the government.
7. Indirect tax
An indirect tax is demanded from a person in the expectation and
intention that he or she shall indemnify himself or herself at the
expense of another, falling finally upon the ultimate purchaser or
consumer. A tax which the taxpayer can shift to another.
9. Local tax
A local tax is imposed by the municipal corporations or local
government units (LGUs).
AS TO GRADUATION OR RATE
13. Proportional tax
Tax based on a fixed percentage of the amount of the property
receipts or other basis to be taxed. Example: real estate tax.
TAXPAYER’S SUIT
CASES:
Facts: The value-added tax (VAT) is levied on the sale, barter or exchange
of goods and properties as well as on the sale or exchange of services. RA
7716 seeks to widen the tax base of the existing VAT system and enhance
its administration by amending the National Internal Revenue Code. There
are various suits challenging the constitutionality of RA 7716 on various
grounds.
One contention is that RA 7716 did not originate exclusively in the House
of Representatives as required by Art. VI, Sec. 24 of the Constitution,
because it is in fact the result of the consolidation of 2distinct bills, H. No.
11197 and S. No. 1630. There is also a contention that S. No. 1630 did
not pass 3 readings as required by the Constitution.
Issue: Whether or not RA 7716 violates Art. VI, Secs. 24 and 26(2) of the
Constitution.
Held: The argument that RA 7716 did not originate exclusively in the
House of Representatives as required by Art. VI, Sec. 24 of the
Constitution will not bear analysis. To begin with, it is not the law but the
revenue bill which is required by the Constitution to originate exclusively
The next argument of the petitioners was that S. No. 1630 did not pass 3
readings on separate days as required by the Constitution because the
second and third readings were done on the same day. But this was
because the President had certified S. No. 1630 as urgent. The
presidential certification dispensed with the requirement not only of
printing but also that of reading the bill on separate days. That upon the
certification of a bill by the President the requirement of 3 readings on
separate days and of printing and distribution can be dispensed with is
supported by the weight of legislative practice.
EXERCISES:
SUGGESTED ANSWER:
Taxes are the lifeblood of the government, for without taxes, the
government can neither exist nor endure. A principal attribute of
sovereignty, the exercise of taxing power derives its source from the
very existence of the state whose social contract with its citizens obliges
it to promote public interest and common good. The theory behind the
exercise of the power to tax emanates from necessity; without taxes,
government cannot fulfil its mandate of promoting the general welfare
and well-being of the people. (NAPOCOR v. City of Cabanatuan, G.R. No.
149110, April 9, 2003).
SUGGESTED ANSWER:
SUGGESTED ANSWER:
The regulation establishing gross income as the tax base for
corporations doing business in the Philippines (domestic as well as
resident foreign) is not valid. This is no longer implementation of the
law but actually it constitutes legislation because among the powers
that is exclusively within the legislative authority to tax is the power to
determine -the amount of the tax. (See 1 Cooley 176-184). Certainly, if
the tax is limited to gross income without deductions of these
corporations, this is changing the amount of the tax as said amount
ultimately depends on the taxable base.
SUGGESTED ANSWER:
Yes, the legislative body may enact laws even in the absence of a
constitutional provision because the power to tax is inherent in the
government and not merely a constitutional grant. The power of taxation
is an essential and inherent attribute of sovereignty belonging as a
matter of right to every independent government without being
expressly granted by the people. (Pepsi-Cola Bottling Company of the
Philippines, Inc. v. Municipality of Tanauan, Leyte, G.R. No. L-31156)
SUGGESTED ANSWER:
Yes. The exempting statutes are both granted unilaterally by Congress in
the exercise of taxing powers. Since taxation is the rule and tax
exemption, the exception, any tax exemption unilaterally granted can be
withdrawn at the pleasure of the taxing authority without violating the
Constitution (Mactan Cebu International Airport Authority v, Marcos, G.R
No. 120082, September 11, 1996).
Neither of these were issued by the taxing authority in a contract
lawfully entered by it so that their revocation would not constitute
an impairment of the obligations of contracts.
ALTERNATIVE ANSWER:
No. The withdrawal of the tax exemption amounts to a
deprivation of property without due process of law, hence
unconstitutional.