INCOME

TAXATION
Atty. Robert V. Labe, Jr.
College of Business and Management
Pamantasan ng Lungsod ng Pasig
INHERENT POWERS of the State

Police Power

Power of Eminent Domain

Power to TAX
Police Power

is the capacity of a state to regulate behaviors and

enforce order within its territory. Police power is an
inherent attribute of sovereignty. It can exist even
without reservation in the constitution. It is based on
necessity as without it, there can be no effective
government. It is also referred to as the law of
overwhelming necessity.
Police Power
It is the sovereign power to promote and protect the
general welfare. It is the most pervasive and the least
limitable of the three powers of the state, the most
essential, consistent and illimitable which enables the State
to prohibit all hurtful things to the comfort, safety and
welfare of the society.

It also refers to the power vested in the legislature by the

Constitution to make, ordain, establish all manner of
wholesome and reasonable laws, statutes, or ordinances,
either with penalties, or without, nor repugnant to the
constitution, as they shall be judge to be for the good and
welfare of the state and the subjects.
The Basic Purposes of
Police Power:
To serve the general welfare, comfort and
convenience of the people;

To promote and preserve public health;

To promote and protect public safety;

To maintain and safeguard public order;

To protect public morals; and,

To promote the economic security of the people.

What is the basis of the exercise of the
police power of the state?

The exercise of police power is founded on the

basic principles of salus populi est suprema lex

(the welfare of the people is the supreme law) and

sic utere tu et alienum non laedas (so use

your property so as not to impair another)
Who has the ultimate power to determine
the necessity and the means of exercising
the police power of the state?

Congress has the ultimate power, because

it is the judge of necessity, adequacy,
reasonableness and wisdom of any law. The
congress is the constitutional repository of police
power and exercise the prerogative of
determining the policy of the state.
 Limitations in the exercise of
Police power

a) Due process clause, and

b) Equal protection clause

No person shall be deprived of life, liberty, or property without due process of law, nor
shall any person be denied the equal protection of the laws.

1987 Constitution, Article 3, Section 1

Power of Eminent Domain

It is an inherent power of the state that enables it to forcibly

acquire private property, which is intended for public use, upon the
payment of just compensation. It is based on political necessity; it is
inseparable from the state unless it is denied to it by its fundamental
law.
Condemnation of private property is justified only if it is for the
public good character. It is the courts of law that have the power to
determine whether there is necessity therefore. Also called the power
of expropriation, eminent domain is described as the ―highest and
most exact idea of property remaining in the government that may be
acquired for some public purpose through a method ―in the nature of
a compulsory sale to the state.
Power of Eminent Domain

Taking may not only include the import of a physical

possession of the owner, as when he is ousted from his
land or relieved of his watch or car but also covers
trespass without actual eviction of the owner, material
impairment of the value of the property or prevention of
the ordinary uses for which the property was intended.
What are the requisites in exercising the
Power of Eminent Domain

The property taken must be private property;

The taking must be within constitutional limitations;

The taking must be for public use;

Just compensation must be paid; and,

There must be due process of law

Who may exercise the
Power of Eminent Domain

The Congress

The President

The local legislative bodies

What are the requisites before an LGU
can exercise the Power of Eminent Domain

a.) an ordinance is enacted by the local legislative council

authorizing the local chief executive to exercise the power of
eminent domain;

b.) it is exercised for the public use, purpose and welfare;

c.) there must be payment of just compensation; and

d.) a valid and definite offer has been previously made to the
owner of the property sought to be expropriated.
Power of Taxation

Sources of Tax Laws

1. Constitution
2. Tax Treaties and Conventions with Foreign Countries
3. Tax Code (R.A. 8424 – National Internal Revenue Code and potion
amended; i.e., R.A. 10693 – TRAIN LAW), Tariff and Customs Code,
and portion of the Local Government Code.
4. Statutes and laws like R.A. 1125 (an Act Creating the Court of Tax
Appeals), R.A. 7716 (E-VAT Law)
Power of Taxation

Sources of Tax Laws

5. Presidential Decrees
6. Executive Orders
7. Court Decisions
8. Revenue Regulations promulgated by the Department of
Finance
9. Administrative Issuances of the BIR like Revenue Memorandum
Circulars, and those of the Bureau of Customs like Customs
Memorandum Orders
10. BIR Rulings
11. Local Ordinances
 Power of Taxation

It is the inherent power of the sovereign, exercised through the

legislature, to impose burdens upon subjects and objects within its
jurisdiction for the purpose of raising revenues to carry out the
legitimate objects of government.

It is the inherent power of the state to raise revenues to defray the

expenses of the government or for any public purpose. This can be
done through the imposition of burdens on persons, properties, services,
rights, occupations or transactions.
Power of Taxation

The importance of taxation derives from the

unavoidable obligation of the government to protect the
people and to extend to them benefits in the form of public
projects and services. Taxation is based on necessity and
the reciprocal duties of protection and support between the
state and those that are subject to its authority.
Power of Taxation

Who may exercise the power of taxation?

It is the Congress who exercises the plenary power

to tax. However, it may be delegated by congress to
local government units under such terms and
conditions as may be prescribed by law.
 Nature of the Power of Taxation

The power to tax being inherent in an independent state for its existence
and survival and for the furtherance of its multifarious functions; the same
does not require delegation from the supreme law of the land. However,
exercise of such power upon the inhabitants is subject to limitations
imposed by the power, by its very nature, or by the Supreme law of the
land, the Philippine Constitution.

To tax a subject matter, person, property or excise, there must be a

valid law imposing the same. Validity of a tax measure presupposes the
fact that is has overcome the test and scrutiny against it. Tax measures
duly passed by the legislative department, the Congress or the local
legislative under its delegated power, enjoy the presumption of validity and
he who controverts has the duty of proving that the same is otherwise.
Nature of the Power of Taxation

By nature, power to tax is inherent in sovereign estate so that

the grant of which is not necessary for the exercise. This means
that the state needs not be empowered by its constitution or any
mandate for it to be allowed to tax. Such power co-exists with the
state and thus, grant is not necessary.

What are being provided by the supreme law of the land, the
Constitution, are the guidelines and the limit on the exercise of the
power. It wishes to curtail the exercise in such a way as not to
abuse and misuse said power to the detriment of the majority and
to the advantage of the selected few. Under our tax system,
compliance is initially voluntary on the part of the taxpayers.
Nature of the Power of Taxation

Nevertheless, the government through the administrative

agency empowered to administer the tax, the BIR, is clothed with
such remedies, under proper procedures, to impose correct
amount of taxes due to the government upon finding that the
compliance based on the declaration in the return is insufficient.

It can issue deficiency assessment and impose such

measures provided under the law within the prescribed period to
see to it that taxes are paid and that tax measure are complied
with. This does not however follow that the taxpayer being
assessed is doing an illegal business because non-payment of
the tax does not make the business illegal.
The Inherent and Constitutional Limitations on the Power of Taxation

The Power of Taxation is not absolute; it is subject to some inherent

and constitutional limitations. The true definition of Taxation is embodied
in its limitations. Power without limitation is like a straight line without
end points. What is a straight line without end points? It is an infinity and
power, no matter how huge and vast, must be subjected to some form of
restrictions or limitations so as to shape itself and be defined as a
source of benefits for its subjects . Thus the power of taxation to be truly
beneficial and not destructive should be exercised with the following
restrictions or limitations:
 Inherent limitations Power of Taxation

1. Taxes may be levied only for public purpose;

2. The power to tax is limited to the territorial jurisdiction if the sovereign

state; Situs or territoriality, as a rule, the taxing power cannot go beyond
the territorial limit of the taxing authority. Situs of taxation is the State or
country which has jurisdiction to tax a person, property or interest.

3. The power to tax, being essentially legislative, cannot be delegated;

The principle in administrative law that congress cannot delegate its
legislative powers to agencies. Rather, when it instructs agencies to
regulate, it must give them an "intelligible principle on which to base
their regulations.
Inherent limitations Power of Taxation

4. International comity (respect afforded by one state to

another by virtue of the principle of sovereignty); and

5. Exemption from taxation of governmental entities.

6. Prohibition against double taxation

Constitutional Limitation of the Power of Taxation

What is a Constitution?

Constitution is the fundamental law of the land, written or unwritten that

establishes the character of government by defining the basic principles to
which the society must conform; by describing the organization of the
government and regulations, limitations and distributions of the functions of
the different government departments; and by prescribing the extent and
manner of the exercise of its sovereign powers. It is a legislative charter from
which the government or group derives its authority to act.
 Constitutional Limitation of the Power of Taxation
Limitations on the power of taxation under the 1987 Constitution:

1. Observance of due process of law and equal protection of the laws, (sec, 1,
Art. 3) is any deprivation of life liberty or property is with due process if it is
done under the authority of a valid law and after compliance with fair and
reasonable methods or procedure prescribed. The power to tax can be
exercised only for a constitutionally valid public purpose and the subject of
taxation must be within the taxing jurisdiction of the state. The government
may not utilize any form of assessment or review which is arbitrary, unjust
and which denies the taxpayer a fair opportunity to assert his rights before a
competent tribunal. All persons subject to legislation shall be treated alike
under like circumstances and conditions, both in the privileges conferred in
liabilities imposed. Persons and properties to be taxed shall be grouped, and
all the same class shall be subject to the same rate and the tax shall be
administered impartially upon them.
Constitutional Limitation of the Power of Taxation

2. Rule of uniformity and equity in taxation (sec 28(1) Art VI) All taxable
articles or properties of the same class shall be taxed at the same rate.
Uniformity implies equality in burden not in amount. Equity requires that
the apportionment of the tax burden be more or less just in the light of
the taxpayer‘s ability to bear the tax burden.

3. No imprisonment for non-payment of poll tax (sec. 20, Art III) A person
cannot be imprisoned for non-payment of community tax, but may be
imprisoned for other violations of the community tax law, such as
falsification of the community tax certificate, or for failure to pay other
taxes.
Constitutional Limitation of the Power of Taxation
4. Non-impairment of obligations and contracts (sec 10, Art III ). the
obligation of a contract is impaired when its terms and conditions are
changed by law or by a party without the consent of the other, thereby 17
weakening the position or the rights of the latter. IF a tax exemption
granted by law and of the nature of a contract between the taxpayer and
the government is revoked by a later taxing law, the said law shall not be
valid, because it will impair the obligation of contract.

5. Prohibition against infringement of religious freedom (Sec 5, Art III) it

has been said that the constitutional guarantee of the free exercise and
enjoyment of religious profession and worship, which carries the right to
disseminate religious belief and information, is violated by the imposition
of a license fee on the distribution and sale of bibles and other religious
literatures not for profit by a non-stock, non-profit religious corporation.
Constitutional Limitation of the Power of Taxation

6. Prohibition against appropriations for religious purposes, (Sec 29,

(2) Art. VI) Congress cannot appropriate funds for a private purpose,
or for the benefit of any priest, preacher or minister or for the support
of any sect, church except when such priest, preacher, is assigned to
the armed forces or to any penal institutions, orphanage or
leprosarium.

7. Exemption of all revenues and assets of non-stock, non-profit

educational institutions used actually, directly, and exclusively for
educational purposes from income, property and donor‘s taxes and
custom duties (sec. 4 (3 and 4) art. XIV.)
Constitutional Limitation of the Power of Taxation

8. Concurrence by a majority of all members of Congress in the

passage of a law granting tax exemptions. Sec. 28 (4) Art. VI.

9. Non Deprivation of the Supreme Court to review tax cases.

Congress may not deprive the Supreme Court of its jurisdiction to
review, revise, reverse, modify or affirm on appeal or certiorari, final
judgments and orders of lower courts in all cases involving the legality
of any tax, impost, assessment or any penalty imposed in relation
thereto.