General Principles

Question 1

What is taxation?

Answer 1

Taxation has been defined as:

• the power
• by which the sovereign raises revenue
• to defray the necessary expenses of the government.

Question 2

What is the Lifeblood Doctrine?

Answer 2

In Bull vs. US, the Supreme Court held that “the power of taxation is essential because the government can neither exist nor endure without taxation. Taxes are the lifeblood of the government and their prompt and certain availability is an imperious need. The collection of taxes must be made without hindrance if the state is to maintain its orderly existence.”

Question 3

What are the different theories in taxation?

Answer 3

The different theories in taxation are:

1. Necessity Theory
2. Benefits-Protection Theory

Question 4

What is the Necessity Theory?

Answer 4

In Phil. Guaranty Co., Inc. v. Commissioner, the Supreme Court held that “taxation is a power predicated upon necessity. It is a necessary burden to preserve the State’s sovereignty and a means to give:

1. The citizenry an army to resist aggression,
2. A navy to defend its shores from invasion,
3. A corps of civil servants to serve,
4. Public improvements for the enjoyment of the citizenry, and
5. Those which come within the State’s territory and facilities and protection which a government is supposed to provide.

Question 5

What is the Benefits-Protection Theory?

Answer 5

The Benefits-Protection Theory bases the power of the State to demand and receive taxes on the reciprocal duties of support and protection. The citizen supports the State by paying the portion from his property that is demanded in order that he may, by means thereof, be secured in the enjoyment of the benefits of an organized society. Thus, the taxpayer cannot question the validity of the tax law on the ground that payment of such tax will render him impoverished, or lessen his financial or social standing, because the obligation to pay taxes is involuntary and compulsory, in exchange for the protection and benefits one receives from the government.

Question 6

What is the Doctrine of Symbiotic Relationship?

Answer 6

In CIR v. Algue, Inc., the Supreme Court stressed that “taxes are what we pay for in a 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 burden of running the government. 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 material and moral values.”

Question 7

Are taxes a personal liability of the taxpayer?

Answer 7

YES, taxes are personal to the taxpayer.

Question 8

When may a person be held liable for the tax liability of another?

Answer 8

Applying the Doctrine of Piercing the Corporate Veil, stockholders may be held liable for the unpaid taxes of a dissolved corporation if it appears that the corporate assets have passed into their hands.

Question 9

What are the liabilities created by a tax?

Answer 9

Tax creates a CIVIL liability on the part of the delinquent taxpayer, although the non-payment thereof (due to failure or refusal to pay) creates a CRIMINAL liability.

Question 10

What is the nature of the taxing power?

Answer 10

Taxation is:

1. An inherent attribute of sovereignty, and
2. Legislative in character

Question 11

What does “taxation as an inherent attribute of sovereignty” mean?

Answer 11

The power of taxation is an incident of sovereignty as it is inherent in the State, belonging as a matter of right to every independent government. It does not need of constitutional conferment. (Churchill and Tait v. Concepcion)

Taxation being an attribute of sovereignty, its relinquishment is never presumed. (Luzon Stevedoring Co. v. CTA)

It is considered inherent in a sovereign State because it is a necessary attribute of sovereignty. Without this power, no sovereign State can exist nor endure. The power to tax proceeds upon the theory that the existence of a government is a necessity and this power is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent State or government. No sovereign State can continue to exist without the means to pay its expenses; and that for those means, it has the right to compel all citizens and property within its limits to contribute, hence, the emergence of the power to tax. (#1, 2003 Bar)

Question 12

To whom is the power to tax vested?

Answer 12

Under the 1987 Constitution, the power to tax is exclusively vested in the legislature, EXCEPT where the Constitution provides otherwise.

Question 13

What is the basis in vesting the power to tax in the legislative?

Answer 13

This is based upon the principle that “taxes are a grant of the people who are taxed, and the grant must be made by the immediate representatives of the people. And where the people have laid the power, there is must remain and be exercised.”

Question 14

What does the phrase “the power to tax is purely legislative” mean?

Answer 14

This means that in the legislature lies the discretion to determine the:

1. Nature(kind)
2. Object(purpose)
3. Extent(rate
4. Coverage(subjects), and
5. Situs(place) of taxation. (Chamber of Real Estate and Builder’s Assoc., Inc. v. Romulo)

The legislature has the authority to prescribe a certain tax at a specific rate for a particular public purpose on persons or things within its jurisdiction. (Ibid.)

The legislature wields the power to define:

1. What tax shall be imposed,
2. Why it should be imposed,
3. How much tax shall be imposed,
4. Against whom (or what) it shall be imposed, and
5. Where it shall be imposed. (Ibid.)

Question 15

What are the aspects/processes/phases of taxation?

Answer 15

The aspects/process/phases of taxation are:

1. Levy/Imposition/Impact of taxation
2. Assessment and Collection
3. Payment

Question 16

What is levy?

Answer 16

Levy refers to the enactment of tax laws or statutes.

Question 17

May the Courts inquire into the wisdom, objective, motive or expediency in the passage of a tax law?

Answer 17

NO. In Tolentino v. Sec. of Finance, the Supreme. Court held that Courts have no power to inquire into or interfere in the wisdom, objective, motive or expediency of a tax law, as this is purely legislative in character. To do so would be tantamount to a violation of both the letter and the spirit of the organic laws by which the Philippine Government was brought into existence, to invade a coordinate and independent department of the Government, and to interfere with the legitimate powers and functions of the Legislature.

Question 18

What is the scope of the legislative’s discretion as to purposes for which taxes shall be levied?

Answer 18

The legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be allowed full play, subject only to the test of reasonableness. (Lutz v. Araneta)

Question 19

What is the scope of the legislative’s discretion as to subjects of taxation?

Answer 19

The legislature has unlimited scope as to the persons, property or occupation to be taxed, where there are no constitutional restrictions, provided, the property is within the territorial jurisdiction of the taxing state.

In Lutz v. Araneta, the Supreme Court held that “it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that ‘inequalities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation.”

Question 20

What is the scope of legislative’s discretion as to amount or rate of tax?

Answer 20

The legislature has the right to finally determine the amount or rate of tax, in the absence of constitutional prohibitions. Not only is the power to tax unlimited in its reach as to subjects, but in its very nature, it acknowledges no limits and may be carried even to the extent of exhaustion and destruction, thus becoming in its exercise a power to destroy.

Question 21

What is the scope of legislative’s discretion as to the manner, means and agencies of collection of taxes?

Answer 21

The discretion of the legislature in imposing taxes extends to the mode, method or kind of tax. As to the kind of taxes which may be imposed, the legislature has the power to levy one or more of the following:

1. Property tax
2. Excise tax
3. License or occupation tax
4. Poll or capitation tax
5. Franchise tax
6. Income tax
7. Inheritance tax
8. Stock transfer tax
9. Etc.

Question 22

Is the power to tax the power to destroy? (2000 Bar)

Answer 22

Chief Justice Marshall, in the case of McCulloch v. Maryland, declared that “the power to tax involves the power to destroy.” This might be construed to mean that the power to tax includes the power to regulate even to the extent of prohibition or destruction since the inherent power to tax vested in the legislature includes the power to determine who to tax, what to tax, and how much tax is to be imposed. (Cooley)

The power to tax includes the power to destroy if it is used as an implement of the police power in discouraging and in effect, ultimately prohibiting certain things or enterprises inimical to the public welfare. But where the power to tax is used solely for the purpose of raising revenues, the modern view is that it cannot be allowed to confiscate or destroy