1. What is taxation?

The term “taxation” defines the power by which the sovereign raises revenue to
defray the necessary expenses of government. Taxation is merely a way of
apportioning the cost of government among those who in some measure are
privileged to enjoy the benefits and must bear its burdens. (51 Am. Jur. 341; Cooley
72-93)
3 INHERENT POWER
 police power- exercise the right of the government
 power of eminent domain- takeover of the government into private property
(ex. Road widening)
 Power of Taxation-
Life blood doctrine- taxes are the life blood of the nation, which is to continue the state

2. What is the rationale of taxation?

It is said that taxes are what we pay for civilized society. Without taxes, the
government would be paralyzed for lack of power to activate and operate it. 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 moral and
material values, this symbiotic relationship is the rationale of taxation and should
dispel the erroneous notion that it is an arbitrary method of exaction by those in the
seat of power. (Commission of Internal Revenue vs. Algue, Inc., GR no. L-28896, February
17, 1988)
Jurisprudence- case na dinecide ng supreme court
Symbiotic relationship- protection of the state and the member of the state

3. What are the purposes and objectives of taxation?

a. Revenue – A tax is imposed under the taxing power of the government

principally for the purpose of raising revenues to fund public expenditures.
(Diaz vs. Secretary of Finance, GR no, 193007, June 19, 2011)

b. Non-revenue/Sumptuary purposes
 i. Promotion of general welfare – taxing power may be used as an
implement of police power. (Gerochi vs. Department of Energy, GR no.
159796, July 17, 2007);

ii. Regulation – taxes may be levied with a regulatory purpose to provide

means for the rehabilitation and stabilization of a threatened industry
which is affected with public interest as to be within the police power
of the state. (Caltex Philippines, Inc. vs. Commission on Audit);

iii. Reduction of social inequality – this is made possible through the

progressive system of taxation where the objective is to prevent the
undue concentration of wealth in the hands of a few individuals.
Progressivity is based on the principle that those who are able to pay
should shoulder bigger portion of the tax burden. This is also known as
the compensatory purpose. (ABAN, Law of Basic Taxation in the
Philippines, 2001, p6);

iv. Encourage economic growth – in the realm of tax exemptions and tax
reliefs, the purpose is to grant incentives or exemptions in order to
encourage investments and thereby promote the country’s economic
growth (Id p6);

v. Protectionism – in case of foreign importations, protective tariffs and

customs are imposed for the benefit of local industries. (Id p6-7)

4. Distinguish tax from other forms of exaction:

Tax vs. Debt

TAX DEBT

As to basis based on law based on contract

Taxpayer may be
As to effect of non-payment No imprisonment for failure
imprisoned for his failure to
to pay debt.
pay the tax.
As to mode of payment Generally payable in money May be payable in money,
property or services.
As to assignability Not assignable Assignable
 As to interest Does not draw interest Draws interest if stipulated
unless delinquent or delayed
Imposed by public
As to authority Imposed by private
authority individuals

As to prescription Determined by the NIRC Determined by the Civil

Code

Tax vs. Toll fee

Tax Toll Fee

As to definition Enforced proportional A sum of money for the use of

contributions from persons and something, a consideration which is
property paid for the use of a property which
is of a public nature
As to basis A demand of sovereignty A demand of proprietorship

As to amount No limit Depends upon the cost of

construction or maintenance of the
public improvement
As to authority May be imposed only by the May be imposed by the government
government or private individuals or entities

Tax vs. License fee

Tax License fee

As to purpose Imposed for revenue Imposed for regulatory

purposes purposes
As to basis Imposed under the power of Imposed under the police
taxation power of the government
As to amount No limit Limited to the cost of
Issuance of license,
inspection and surveillance
As to time of payment Normally paid after the start Normally paid before the
of the business commencement of the
business
 As to effect of non- Failure to pay the tax does Failure to pay the license fee
not make the business illegal makes the business illegal
payment

As to nature Taxes, being the lifeblood of License fee may be with or

the State, cannot be without consideration
surrendered except for
lawful consideration

What is the test in determining whether the imposition is a tax or a fee?

The primary purpose is used to determine whether the imposition is a tax or a fee. Under

the primary purpose test, if the generating of revenue is the primary purpose and

regulation is merely incidental, the imposition is a tax; but if regulation is the primary

purpose, the fact that incidental revenue is also obtained does not make the imposition a

tax. (Progressive Development Corp. vs. Quezon City GR. No. L-36081, April 24, 1989)

Imposition is:

Revenue- tax

Regulate- license fee

Enforced proportional contribution- capacity to pay

Tax vs. Penalty

Tax Penalty

As to definition Enforced proportional Sanction imposed as punishment for

contributions from persons and violation of a law or acts deemed
property injurious; violation of tax laws may
give rise to imposition of penalty
As to purpose Intended to raise revenue Designed to regulate conduct
 As to authority May be imposed only by the May be imposed by the government
government or private individuals or entities

Tax vs. Special Assessment

Tax Special assessment

As to definition Enforced proportional Enforced proportional

contributions from persons contributions from owners of lands
and property especially or peculiarly benefited
by public improvements
As to subject Taxes are levied on land, Levied only on land
persons, property, income
business, etc.
As to liability Personal liability of the Cannot be made liability of the
taxpayer person assessed
As to basis Based on necessity and Based solely on benefits
partially on benefits
As to application General application Special application only as to a
particular time and place

Why is it important to distinguish taxes from other exaction?

It is important to differentiate taxes and other exactions, especially when it comes to

problems and issues of double taxation and tax exemptions and the jurisdiction of the
courts.
-Para maiwasan ang double taxation (to raise revenue not to regulate)

Theory and Basis of taxation:

a. Lifeblood Doctrine – The “Lifeblood theory” consider taxes as the lifeblood

of the nation through which the government agencies continue to operate and
with which the State effects its functions for the welfare of its constituents.
(Commissioner of Internal Revenue vs. Court of Appeals, GR. No 106611, July 21,
1994). Taxes are the lifeblood of the government and so should be made in
accordance with the law as any arbitrariness will negate the very reason for
 government itself (Commissioner of Internal Revenue vs. Algue Inc. GR. No. L-
28896, February 17, 1988);
(Need ng government para mapatakbo ang bansa, dito sila nagrerely)

b. Necessity Theory – The Necessity Theory considers taxation as a power

emanating from necessity. It is a necessary burden to preserve the State’s
sovereignty and a means to give the citizenry an army to resist an aggression,
a navy to defend the shores from invasion, a corps of civil servants to serve,
public improvement designed for the enjoyment of the citizenry and those
which come within the State’s territory, and facilitates and protection which a
government cannot fulfill its mandate of promoting the general welfare and
well-being of the people (Commission of Internal Revenue vs. Bank of the
Philippine Islands, GR no. 134062, April 17, 2007);
(kailangan dahil sa budget mapprotektahan ang bansa natin)

c. Benefits protection theory – Under the “Benefits Protection Theory” or the

“Doctrine of Symbiotic Relationship”, taxation arises because of the reciprocal
relation of protection and support between the State and the taxpayers. The
State gives protection and for it to continue giving protection, it must be
supported by taxpayers in the form of taxes. (Commissioner of Internal Revenue
vs. Algue Inc. GR. No. L-28896, February 17, 1988);
(operative word-reciprocal relation)
B at c ay connected kay a dahil lahat ay nagmumula sa budget na kinukuha
ng gobyerno sa tao para magawa yung mga kailangan ng bansa.
5. What is income taxation?

Income tax is a tax on all yearly profits arising from property, professions, trades or
offices, or as a tax on a person’s income, emoluments, profits and the like. (LG
Electronics Philippines vs. Commission of Internal Revenue, GR. No. 165451, December 3,
2014).
-Capacity to pay- depende sa income mo ang babayadan mong tax

6. What is the nature of income tax?

Income tax is a kind of tax levied upon the privilege of receiving income or profit. It
is an Excise tax and not a tax on property. (Dimaampao, Tax Principles and Remedies)
-Pera na kinukuha sa privilege mo na tumanggap ka ng income
 Three branches of government:
-Legislative- (nagawa ng batas) congressman (house of congress), senador
-Executive- president
-Judicial branches- supreme court (titingnan kung tama ang batas na ginawa
ng congress)