THE INHERENT POWERS OF THE STATE

• Inherent power means a power existing as a natural or basic part of

every sovereign State, without being conferred or granted by the
people or the Constitution.

THE 3 INHERENT POWERS OF STATE:

• POWER TO TAX – The act of levying or imposing tax. It is the process or
means by which the sovereign through its law-making body raises income to
defray the necessary expenses of the government by appointing the cost
among those who, in some measure, are privileged to enjoy its benefits, and
therefore, must bear its burden.
 THE 3 INHERENT POWERS OF STATE:
• POWER TO TAX – (cont.) The power of Taxation is the power to impose
burdens on subjects and objects within its jurisdiction.
• POLICE POWER – it is the power of the state to promote public
welfare by restraining and regulating the use of liberty and property.
It may be exercised only by the government. The property taken in the
exercise of this power is destroyed because it is noxious purpose.
• EMINENT DOMAIN - It is the power to take private property for public
purpose upon payment of just compensation.
 PURPOSE OF TAXATION
• The Primary Purpose of Taxation is to raise revenues/funds to defray
the necessary expenses of the government (also called Revenue or
Fiscal Purpose).

NATURE AND CHARACTERISTICS OF TAXATION

• Inherent Power – may be exercised although not expressly granted by
the constitution
• Essentially a legislative function – only the legislative can impose taxes
• Subject to inherent and constitutional limitations – not an absolute
power
NATURE AND CHARACTERISTICS OF TAXATION
• For public purpose
• The strongest of all the inherent powers of the State.
• Subject to international treaty or comity
• Generally payable in money
• Territorial in scope

TAX
• Taxes are enforced proportional contributions from persons and
property, levied by the State by the virtue of its sovereignty for the
support of the government and for all its public needs.
ESSENTIAL CHARACTERISTICS OF TAX

• A tax is a forced charge, imposition or contribution

• It is pecuniary burden payable in money
• It is imposed for public purpose
• It is imposed pursuant to a legislative authority
• It is levied within the territorial and legal jurisdiction of a state
• It is assessed in accordance with some reasonable rule of appointment
 THEORY AND BASIS OF TAXATION

• Necessity Theory – The power of taxation proceeds upon the theory

that the existence of government is a necessity.
• Lifeblood Doctrine – Taxes are the lifeblood of the government
without which it can neither exist nor endure.
• The Benefits-Protection Theory – The basis of taxation is the
reciprocal duties of “protection and support” between the State
and its inhabitants.
 SCOPE OF TAXATION
• The Supreme Court held that the power of taxation is the most absolute
of all powers of the government. It has the broadest scope of all the
powers of the government because in the absence of limitations, it is
considered as comprehensive, unlimited, plenary and supreme.

STAGES/ASPECTS OF TAXATION
• Levying or Imposition – passage of tax laws or ordinances thru
legislature.
• Assessment & Collection – act of administration and implementation of
tax laws by the executive thru its agencies such as BIR and BOC.
 ELEMENTS OF SOUND TAX SYSTEM
• Fiscal Adequacy – The sources of government revenue must be
sufficient to meet government expenditures and other public needs.
• Theoretical Justice – A good tax system must be based on the tax
payer’s ability to pay.
• Administrative Feasibility – Tax laws must be capable of convenient,
just and effective administration (free from confusion and
uncertainty).
 INHERENT LIMITATION OF TAXATION
• Public Purpose
• Situs of Taxation or Territoriality (within and subject to its jurisdiction)
• Exemption of the Government from Taxes
• International Comity or Treaty – a State cannot tax another State
based on the principle of Sovereign Equality among States.
 INHERENT LIMITATION OF TAXATION
• Non-delegability of Taxation – Power of taxation is purely legislative,
hence, cannot be delegated to the executive or judicial departments.
Exceptions:
a. Delegation to the President, subject to some limitations and
restrictions, to fix within specified limits, tariff rates and tonnage or
wharfage duties.
b. Delegation to local governments to create its own sources of
revenues and to levy taxes, subject to limitations as may be provided
by law.
 INHERENT LIMITATION OF TAXATION
• Non-delegability of Taxation
Exceptions: (cont.)
c. Delegation to administrative agencies certain aspects of the
taxing process that are not legislative.

• Tax Exemptions of the government

a. tax exempt gov’t agencies
b. tax exempt proprietary agencies
c. tax exempt GOCCs (GSIS, SSS, PHIC, Local Water Districts).
CONSTITUTIONAL LIMITATION OF TAXATION
• Observance of due process of law
• Equal protection of law
• Uniformity in taxation
• Progressive scheme of taxation
• Non-imprisonment for non-payment of poll tax
• Non-impairment of the obligations of contracts
• Free-worship clause
 CONSTITUTIONAL LIMITATION OF TAXATION
• Exemption of charitable institutions, churches, parsonages, or convents
appurtenant thereto, mosques and non profit cemeteries, and all lands,
buildings, and improvements actually, directly and exclusively used for
religious, charitable or educational purposes.
• Exemption from taxes of the revenues and assets of non-profit, non-
stock educational institutions including grants, endowments, donations
or contributions for educational purposes.
• Non-appropriation of public funds or property for the benefit of any
church, sect or system of religion, etc.
 CONSTITUTIONAL LIMITATION OF TAXATION
• No money shall be paid out of the Treasury except in pursuance of an
appropriation made by law.
• Concurrence of a majority of ALL MEMBERS OF CONGRESS for the
passage of a law granting tax exemption.
• Non-diversification of tax collections
• The President shall have the power to veto any particular item(s) in an
appropriation, revenue or tariff, but the veto shall not affect the
item(s) to which no objection has been made.
• Non-impairment of the jurisdiction of the Supreme Court to review tax
cases
 CONSTITUTIONAL LIMITATION OF TAXATION
• 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.
NIR TAXES UNDER BIR
• Income Tax
• Estate and Donor’s Tax
• Value-Added Tax
• Other Percentage Tax
• Excise Tax
• Documentary Stamp Tax
 DOUBLE TAXATION
Kinds of Double Taxation:
• Direct Duplicate Taxation
- taxing twice
- same taxing authority
- same jurisdiction or taxing district
- same purpose
- same year or taxing period
- same kind or character of tax
• Indirect Duplicate Taxation – burden of 2 or more pecuniary
imposition but imposed by different taxing authorities
CLASSIFICATION OF TAXES
a. According to Subject Matter
- Personal, Poll or Capitation Tax
- Property Tax
- Excise Tax
b. According to Who Bears the Burden
-Direct Tax
-Indirect Tax
c. According to Determination of Amount
-Specific Tax
-Ad Valorem Tax
CLASSIFICATION OF TAXES
d. According to Purpose
- Fiscal, General, Revenue Tax
- Regulatory, Special, Sumptuary Tax
e. According to Jurisdiction/Scope or Authority
-National Tax
-Local Tax
f. According to Graduation or Rate
- Proportional/Flat Rate Tax
- Progressive/Graduated Tax
- Regressive Tax
 OTHER DOCTRINES/RULES IN TAXATION
Equitable Recoupment – Claim for refund which is prevented by
prescription may be allowed to be used as payment for unsettled tax
liabilities if both taxes arise from the same transaction in which
overpayment is made and underpayment is due.
Set-off taxes – Taxes are not subject to set-off or legal compensation
because the government and the tax payer are not mutual creditors
and debtors of each other.
Taxpayer Suit – This provides that a taxpayer suit can only be allowed
if the act involves a direct and illegal disbursement of public funds
derived from taxation.
 ESCAPE FROM TAXATION
Evasion or Dodging – the taxpayer uses unlawful means to evade or lessen the
payment of tax
Avoidance – also called tax minimization, it is the reduction or totally escaping
payment of tax through legally permissible means.
Shifting – it is the transfer of tax burden to another.
Capitalization – the seller is willing to lower the price of the commodity provided the
taxes will be shouldered by the buyer.
Transformation – the manufacturer absorbs the additional taxes imposed by the
government without passing it to the buyers for fear of lost of his/its market.
Exemption – it is an immunity, privilege or freedom from payment of a charge or
burden to which others are obliged to pay.