BASIC PRINCIPLES OF A SOUND

TAX SYSTEM
1. Fiscal Adequacy- The sources (proceeds) of tax revenue
should coincide with and approximate needs of government
expenditures. The sources of revenue should be sufficient and
elastic to meet the demands of public expenditures;

2. Theoretical Justice- The tax system should be fair to the average

taxpayer and based upon his ability to pay.

3. Administrative Feasibility- The tax system should be capable of being

properly and efficiently administered by the government and enforced
with the least inconvenience to the taxpayer.

Limitation on the power of taxation

The power of taxation, is however, subject to constitutional and inherent
limitations.
Constitutional limitations are those provided for in the constitution or
implied from its provisions, while inherent limitations are restrictions
to the power to tax attached to its nature.

The following are the inherent limitations.

1. Purpose. Taxes may be levied only for public purpose;
2. Territoriality. The State may tax persons and properties under its
jurisdiction;
3. International Comity. the property of a foreign State may not be taxed
by another.
4. Exemption. Government agencies performing governmental functions
are exempt from taxation
5. Non-delegation. The power to tax being legislative in nature may not
be delegated. (subject to exceptions)

Situs of taxation
SITUS OF TAXATION- literally means the place of taxation, or the
country that has jurisdiction to levy a particular tax on persons, property,
rights or business.
Basis: Symbiotic relationship. The jurisdiction, state or political unit that
gives protection has the right to demand support.
The situs of taxation is determined by a number of factors
a. Subject matter- or what is being taxed. He may be a person or it may
be a property, an act or activity;
b. Nature of tax- or which tax to impose. It may be an income tax, an
import duty or a real property tax;
c. Citizenship of the taxpayer
d. Residence of the taxpayer.
SITUS OF PERSONS
1. Residence tax- place where the person resides
2. Income Tax-
a. citizenship, or the country of which he is a citizen
b. legal residence
c. place where the income is derived.
3. Estate Tax- residence of the decedent at the time of his death
4. Donors Tax- residence of the donor at the time of donation
5. Business/occupation tax- where the business is done or the occupation
is engaged in;

SITUS OF TAXATION OF PROPERTY

1. Real Property- location of the property
2. Tangible personal property- location of the property
3. Intangible personal property- domicile or residence of the owner

Double taxation

Most countries impose taxes on income earned or gains realized within

that country regardless of the country of residence of the person or firm.
Most countries have entered into bilateral double taxation treaties with
many other countries to avoid taxing nonresidents twiceonce where the
income is earned and again in the country of residence (and perhaps, for
U.S. citizens, taxed yet again in the country of citizenship)however,
there are relatively few double-taxation treaties with countries regarded
as tax havens. To avoid tax, it is usually not enough to simply move ones
assets to a tax haven. One must also personally move to a tax haven
(and, for U.S. citizens, renounce ones citizenship) to avoid tax

Tax evasion
is the illegal evasion of taxes by individuals, corporations and trusts. Tax
evasion often entails taxpayers deliberately misrepresenting the true
 state of their affairs to the tax authorities to reduce their tax liability and
includes dishonest tax reporting, such as declaring less income, profits or
gains than the amounts actually earned, or overstating deductions. Tax
evasion is an activity commonly associated with the informal economy.
One measure of the extent of tax evasion (the tax gap) is the amount
of unreported income, which is the difference between the amount of
income that should be reported to the tax authorities and the actual
amount reported.

Tax avoidance
is the legal usage of the tax regime to ones own advantage, to reduce
the amount of tax that is payable by means that are within the law. Tax
sheltering is very similar, and tax havens are jurisdictions which facilitate
reduced taxes. The term tax mitigation is sometimes used; its original
use was by tax advisers as an alternative to the pejorative term tax
avoidance. Tax aggressive strategies fall into the grey area between
commonplace and well-accepted tax avoidance (such as purchasing
municipal bonds in the United States) and evasion. However, the uses of
these terms varies.

PRINCIPLES AND DOCTRINES ON TAXATION

Prepared by: Arnel D. Mateo

I. PRINCIPLE OF NECESSITY

The existence of the government is a necessity; the main source of revenue of the
government is taxes. These are the life-blood of the government. The primary purpose of
taxation is to generate funds for the State to finance the needs of the citizenry and to
advance the common wealth. The government chiefly relies on taxation to obtain the means
to carry on its operation.

Cases:

Commissioner vs. Pineda, 21 SCRA 105- Taxes are the lifeblood of the government and
their prompt and certain availability are an imperious need.

CIR vs. Algue, 158 SCRA 8- The government will not be able to survive and continue to
perform its functions without taxes.

II. TAXATION IS INHERENTLY LEGISLATIVE

Along with police power ( for public good and welfare ) and eminent domain ( for public
use ), taxation ( for revenue ) is an inherent power of the sovereignty.

Cases:

National Power Corporation vs. Albay, 186 SCRA 198- Power of taxation is legislative in
character and is a legislative prerogative.

Petro vs. Petilla, 198 SCRA 82- The legislative taxing power includes the authority: a. to
determine the nature, object, extent, coverage, and situs of the tax imposition, b. to grant
tax exemptions or condonations, and c. to specify or provide for the administrative, as well
as judicial remedies that either the government or the taxpayers may avail themselves of in
the proper implementation of the tax measure.

III. TAXATION INCLUDES THE POWER TO DESTROY

The power of taxation is sometime also called the power to destroy. Therefore, it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the tax collector kills the hen that lays the
golden egg. And, in order to maintain the general publics trust and confidence in the
government, this power must be used justly and not treacherously.

Cases:

Roxas vs. CTA, 23 SCRA 276- The power of taxation includes the power to destroy if it is
used validly as an implement of the police power of the state. If it is used solely for the
purpose of raising revenue, it does not include the power to destroy.

Standard Oil Co. vs. Posadas, 55 Phil 715- While ordinarily the government does not tax its
own political subdivisions or its other entities, it may, however, do so by providing for it
explicitly.

IV. TAXATION IS FOR A PUBLIC PURPOSE

The proceeds of the tax must be used a. for the support of the State or b. for some
recognized objects of government or directly to promote the welfare of the community.

Cases:

Pascual vs. Sec. of Public Works, 110 Phil 331- The legislature is without power to
appropriate public revenues for anything but a public purpose.

Valentin Tio vs. Videogram Regulatory Board, 151 SCRA 208- The public purpose of a tax
may legally exist even if the motive which impelled the legislature to impose the tax was to
favor one industry over another.
V. TAXPAYER SUIT

It is the remedy available to a taxpayer when taxes are used for illegal activities or when
the public funs are used by the government for projects which are not intended for a public
purpose.

Cases:

Pascual vs. Sec. of Public Works, 110 Phil 331- It is only when an act complained of, which
may include a legislative enactment, directly involves illegal disbursement of public funds
derived from taxation.

Maceda vs. Macaraig, 197 SCRA 771- When the issue involve the legality of expenditure of
tax money, a taxpayer suit could be filed.