Taxation

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TAXATION LAW

I. General Principles

POWER OF TAXATION
TAXATION – power by which the sovereign through its law-making body raises revenue to defray the necessary expenses of government from among those who in some measure are privileged to enjoy its benefits and must bear its burdens.

Two Fold Nature of the Power of Taxation

1. It is an inherent attribute of sovereignty
2. It is legislative in character

Extent of Taxing Power

Subject to constitutional and inherent restrictions, the power of taxation is regarded as comprehensive, unlimited, plenary and supreme.

Scope of Legislative Taxing Power

1. Amount or rate of tax
2. Apportionment of the tax
3. Kind of tax
4. Method of collection
5. Purpose/s of its levy, provided it is for public purpose
6. Subject to be taxed, provided it is within its jurisdiction 7. Situs of taxation

TAXES – enforced proportional contributions from the persons and property levied by the law-making body of the State by virtue of its sovereignty in support of government and for public needs.

Characteristics of Taxes
1. forced charge;
2. pecuniary burden payable in money;
3. levied by the legislature;
4. assessed with some reasonable rule of apportionment; (see theoretical justice) 5. imposed by the State within its jurisdiction;

6. levied for a public purpose.

Requisites of A Valid Tax
1. should be for a public purpose
2. the rule of taxation shall be uniform
3. that either the person or property taxed be within the jurisdiction of the taxing authority 4. that the assessment and collection of certain kinds of taxes guarantees against injustice to individuals, especially by way of notice and opportunity for hearing be provided 5. the tax must not impinge on the inherent and Constitutional limitations on the power of taxation

Theories and Bases of Taxation

1. Lifeblood Theory
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 to must contribute his share in the running of the government. (CIR v. Algue, Inc.)

2. Necessity Theory
The power to tax is an attribute of sovereignty 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 its shores from invasion, a corps of civil servants to serve, public improvements designed 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. (Phil. Guaranty Co., Inc. v. CIR)

3. Benefits-Protection / Reciprocity Theory
Taxation is described as a symbiotic relationship whereby in exchange of the benefits and protection that the citizens get from the Government, taxes are paid. (CIR v. Algue, Inc.) Note: While taxes are intended for general benefits, special benefits to taxpayers are not required. The Government renders no special or commensurate benefit to any particular person or property.

Is the Power to Tax the Power to Destroy?

1. “Power to tax is the power to destroy” (Marshall Dictum) – refers to the unlimitedness and the degree or vigor with which the taxing power may be employed to raise revenue. - the financial needs of the State may outrun any human calculation, so the power to meet those needs by taxation must not be limited even though taxes become burdensome or confiscatory.

2. “Power to tax is not the power to destroy while the Supreme Court sits” (Holmes Dictum) – the power to tax knows no limit except those expressly stated in the Constitution.

Marshall and Holmes Dictum Reconciled

Although the power to tax is almost unlimited, it must not be exercised in an arbitrary manner. If the abuse is so great so as to...
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