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)

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
exaction

no limit

Benefits
received

No special or direct only

general benefit

Nonimpairment 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
exercised

to raise public revenue

to cover the cost of

regulation, issuance of
license or surveillance
no direct benefits , a
healthy economic
standard is attained
(damage without injury)

taking of private
property for public use

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

Nonimpairment of
contracts

may not be impaired

this 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.
1.
2.
3.

Scope of the Legislative Taxing Power (7)

person, property, or occupation
amount or rate of the tax
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

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