7/25/2019 Tax Reviewer.docx

1/4

I. Taxation

A.Theory and basis of taxation

1.Necessity Theory

existence of the government is a necessity;

That it cannot continue without the means to pay its expenses;(51 Am. Jur. 42).

2.Lifeblood Theory

3.Benefits- Protection Theory state demands and receives taxes

so that it may be enabled to carry its mandate into effect and

perform the functions of government

and to be secured in the enjoyment of the benefits of organized

society

B.Purposes of taxation (6)1.Revenue to provide funds or property with which the State promotes

the general welfare and protection of its citizens ( 51 Am. Jur. 71-73)

2.Regulation taxation also has a regulatory purpose like those

imposed on tobacco and alcoholic products, or amusement places like

night clubs, cabarets, cockpits, etc.

3.Promotion of General Welfare taxation may be used as an implement

of the police power in order to promote the general welfare of the

people.

4.Reduction of Social Inequality

Made through progressive system of taxation

Where the objective is to prevent the undue concentration of

wealth in the hands of a few individuals.

5.Encourage Economic Growth the purpose is to grant incentives or

exemptions in order to encourage investments and thereby promote

the countrys economic growth.6.Protectionism provide protection to local industries like protective

tariffs and customs duties

C.Principles of a Sound Tax System (3)

7/25/2019 Tax Reviewer.docx

2/4

1.Fiscal adequacy sources of government revenue must be sufficient to

meet government expenditures and other public needs.

Fiscal adequacy as one of the characteristics of a sound tax system

which requires that sources of revenue must be adequate to meet

government expenditures and their variations(Chavez v. Ongpin)

2.Administrative Feasibility taxes should be capable of being effectively

enforced.

3.Theoretical Justice a good tax system must be based on the taxpayers

ability to pay.

Congress shall evolve a progressive system of taxation (Sec. 28 (1),

Art. VI, 1987 Constitution

D.Taxation Distinguished from Police Power and Eminent Domain

Taxation Police power

Purpose raising revenue promote public welfare

Amount of

exactionno limit

to cover the cost of

regulation, issuance of

license or surveillance

Benefitsreceived No special or direct onlygeneral benefit

no direct benefits , a

healthy economicstandard is attained

(damage without injury)

Non-

impairment of

contracts

it subsist, a taxing act

cannot impair the

obligations of contracts

it does not apply

Transfer of

property rights

taxes paid become part

of the public funds

no transfer but only

restraint on the exercise

of property rights exists

Taxation Eminent Domain

Nature of power

exercisedto raise public revenue

taking of private

property for public use

7/25/2019 Tax Reviewer.docx

3/4

Compensation

received

general benefit of all

citizens and inhabitants

of a State

direct benefit results in

the form of just

compensation to the

property owner

Non-impairment of

contracts

may not be impairedthis is not so in eminent

domain

Persons

Affected

applies to all persons,

property and exercised

that may be subject

thereto,

only a particular

property is

comprehended

E.Taxes distinguished from other impositions

F.Scope of the Legislative Taxing Power (7)

1.person, property, or occupation

2.amount or rate of the tax

3.purposes for which taxes shall be levied provided they are public

purposes

4.kind of tax to be collected

5.apportionment of the tax, whether the tax shall be general or limited to a

particular locality or partly general and partly local;

6.situs of taxation

7.method of collection

G.Power of Judicial Review in Taxation

Courts cannot inquire into the wisdom of a taxing act. (CIR v.

Lingayen Gulf Electric Power Co.)

As long as the legislature, in imposing a tax, does not violate

applicable constitutional limitations or restrictions, the courts have

no concern with the wisdom or policy of the exaction (51 Am. Jur. 77-

78)

Courts power in a taxation is limited only to the application and

interpretation of the law

7/25/2019 Tax Reviewer.docx

4/4

Courts have no authority to pass judgment upon the taxation policy

of the Government. it is inherent in the power to tax that the State be

free to select the subjects of taxation, and it has been repeatedly held

that inequalities which result from singling out of one particular class

for taxation or exemption infringe no constitutional limitation (CIR v.

Santos)

H.Nature of the power of Taxation