TAXATION NOTES Atty. Mendoza
I. TAXATION 1. DEFINITION OF TAXATION Taxation as a power: Taxation is the inherent power of the sovereign, exercised exercised through Taxation 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. Taxation as a process: It is the act of levying the tax, i.e., the process or means by which the sovereign, through its lawma!ing body, raises income to defray the necessary expenses of the government. It is merely a way of apportioning the cost if the government among those who in some measures are privileged to enjoy its bene"ts and, therefore, must bear its burdens. #$% Am &ur. 'nd ()'* % +ooley $' $( Note: The power of taxation is inherently legislative. Thus, congress has the power to determine- +/0123 %. +overage of taxation '. /bject or purpose of taxation (. 0ature or !ind of product taxed ). 1xtent or rate of tax 4. 2itus of taxation 2. NATURE OF INTERNAL REVENUE LAS !i"a#o $ %IR an# %TA &1'()* 5etitioner6s contention that during the last war and as a conse7uence of enemy occupation in the 5hilippines 8there was no taxable year9 within the meaning of our internal revenue laws because during that period they were unenforceable, is without merit. It is well !nown that our internal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in e:ect were actually enforced by the occupation government. As a matter of fact, income tax retur eturns ns wer were "led "led duri during ng that that perio period d and and incom income e tax tax paym paymen entt wer were
e:ected and considered considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy. It is a legal maxim, that excepting that of a political nature, once esta establ blis ishe hed d cont contin inu ues unti untill cha changed nged by so som me ;Law once comp compet eten entt legi legisl slat ativ ive e powe power r. It is not not chan change ged d mere merely ly by change of sovereignty .6 .6 #&oseph <. =eale
As the same author says, in his Treatise Treatise on the +on>ict of ?aws ;There can be no break or interregnun in law . @rom the time the law comes into existence with the "rstfelt corporateness of a primitive people it must last until the "nal disappearance of human society. /nce created, it persists until a change ta!es place, and when changed it continues in such changed condition until the next change and so forever. +on7uest or colonization is impotent to bring law to an end* inspite of change of constitution, the law continues uncha unchange nged d until until the the new new sove soverreign eign by legis legisla lati tive ve act act crea create tes s a change.68 #+o im +han vs. Baldes Tan eh and Cizon
The Secretary of Finance is vested with authority to revoke, repea epeall or abrog broga ate the acts cts or previ reviou ous s rulin ulings gs of his predecessor in oce because the construction of a statute by those administering it is not binding on their successors if thereafter the latter become satis"ed that a di:erent construction should be given. #Assoc #As sociat iation ion of +lerica +lericall 1mploy 1mployees ees vs. =roth =rother erhoo hood d of Dailw Dailways ays E 2teamship +ler!s
An erroneous construction of the law by the Treasury Cepartment or the the colle collect ctor or of in inte tern rnal al revenu evenue e does does not not precl preclude ude or esto estop p the the government from collecting a tax which is legally due. #=en 2toc!er, et al.
Art. ''4). F o vested or ac!uired right can arise from acts or om omiss issio ions ns whic which h are are agai agains nstt the the law law or whic which h infr infrin inge ge upon the rights of others . #0ew +ivil +ode
+. S%O,E OF TAXATION AXATION -st /e: +omprehensive G Hnlimited G 5lenary G 2upreme
Restrictions: 5ractical G Hseful G ?awful G 5ublished a. Section 20 Art. VI 1'0 %onstittion #% The rule of taxation shall be uniform and e7uitable. The +ongress shall evolve a progressive system of taxation. #' The +ongress may, by law, authorize the 5resident to "x within speci"ed limits, and subject to such limitations and restrictions as it may impose, tari: rates, import and export 7uotas, tonnage and wharfage dues, and other duties or imposts within the framewor! of the national development program of the overnment. #( +haritable institutions, churches and parsonages or convents appurtenant thereto, mos7ues, nonpro"t cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation. #) 0o law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the +ongress. /. 1 A3 4r 2n# +'56+'( 7 +'6+'0 In the absence of constitutional restrictions, and subject to the will of the legislative bodies and discretion of the authorities which exercise it, the power of ta"ation is regarded as unlimited, plenary and supreme, the principal chec! upon its abuse resting in the responsibility of the members of the legislature to their constituents. Although the power may be exercised even to the point of destroying the commercial or use value of the thing taxed, it has been said, on the other hand, that even in the absence of constitutional restrictions, such exercise must rest upon justice. 5ersonal property belonging to a foreign sovereign and temporarily located in a particular country is not subject to state taxation in that country. A sovereign state has inherent power to determine the subjects of taxation for general or particular public purposes, and may ta!e appropriate changes in the selections and classi"cations of the properties made subject to or exempted from taxation. c. %RE8A $ Ro3"o &2919* 2ection '$#1 of DA J)') provides for M+IT on domestic corporations and is implemented by DD KKJ. 5etitioner argues that the M+IT violates the
due process clause because it levies income tax even if there is no realized gain. 5etitioner also asserts that the enumerated provisions of the subject revenue regulations violate the due process clause because, li!e the M+IT, the government collects income tax even when the net income has not yet been determined. They contravene the e7ual protection clause as well because the +LT is being levied upon real estate enterprises but not on other business enterprises, more particularly those in the manufacturing sector.
The M+IT on domestic corporations is a new concept introduced by DA J)') to the 5hilippine taxation system. It came about as a result of the perceived inade7uacy of the selfassessment system in capturing the true income of corporations.
#$IT does not ta" capital but only ta"es income as shown by the fact that the M+IT is arrived at by deducting the capital spent by a corporation in the sale of its goods, i.e., the cost of goods and other direct expenses from gross sales. =esides, there are sucient safeguards that exist for the M+IT#% it is only imposed on the )th year of operations* #' the law allows the carry forward of any excess M+IT paid over the normal income tax* and #( the 2ecretary of @inance can suspend the imposition of M+IT in justi"able instances.
The primary purpose of any legitimate business is to earn a pro"t. +ontinued and repeated losses after operations of a corporation or consistent reports of minimal net income render its "nancial statements and its tax payments suspect. @or sure, certain tax avoidance schemes resorted to by corporations are allowed in our jurisdiction. The #$IT serves to put a cap on such ta" shelters. %s a ta" on gross income, it prevents ta" evasion and minimi&es ta" avoidance schemes achieved through sophisticated and artful manipulations of deductions and other stratagems. 2ince the tax base was broader, the tax rate was lowered.
S%: -%IT is not $io"ati$e o #e process. Taxes are the lifeblood of the government . Lithout taxes, the government can neither exist nor endure. The exercise of taxing
power derives its source from the very existence of the 2tate whose social contract with its citizens obliges it to promote public interest and the common good. Taxation is an inherent attribute of sovereignty . It is a power that is purely legislative. 1ssentially, this means that in the legislature primarily lies the discretion to determine the nature #!ind, object #purpose, extent #rate, coverage #subjects and situs #place of taxation. It has the authority to prescribe a certain tax at a speci"c rate for a particular public purpose on persons or things within its jurisdiction. In other words, the legislature wields the power to de"ne what tax shall be imposed, why it should be imposed, how much tax shall be imposed, against whom #or what it shall be imposed and where it shall be imposed. As a general rule, the power to tax is plenary and unlimited in its range, ac!nowledging in its very nature no limits, so that the principal chec! against its abuse is to be found only in the responsibility of the legislature #which imposes the tax to its constituency who are to pay it. 0evertheless, it is circumscribed by constitutional limitations. At the same time, like any other statute, tax legislation carries a presumption of constitutionality .
Inco3e $ %apita" Income means all the wealth which >ows into the taxpayer other than a mere return on capital. $apital is a fund or property existing at one distinct point in time while income denotes a >ow of wealth during a de"nite period of time. Income is gain derived and severed from capital. For inco3e to /e taxa/"e t;e o""owin< re=isites 3st exist: #% there must be gain* #' the gain must be realized or received and #( the gain must not be excluded by law or treaty from taxation. +ertainly, an income tax is arbitrary and con"scatory if it taxes capital because capital is not income. In other words, it is income,
not capital, which is subject to income tax.
%re#ita/"e it;;o"#in< Tax &%T* S>ste3 The withholding tax system is a procedure through which taxes #including income taxes are collected.N%3 Hnder 2ection 4$ of DA J)'), the types of income subject to withholding tax are divided into three categories#a withholding of "nal tax on certain incomes* #b withholding of creditable tax at source and #c taxfree covenant bonds. The 2ecretary of @inance is granted, under 2ection ')) of DA J)'), the authority to promulgate the necessary rules and regulations for the e:ective enforcement of the provisions of the law. 2uch authority is subject to the limitation that the rules and regulations must not override, but must remain consistent and in harmony with, the law they see! to apply and implement. It is wellsettled that an administrative agency cannot amend an act of +ongress. Le have long recognized that the method of withholding tax at source is a procedure of collecting income tax which is sanctioned by our tax laws. The withholding tax system was devised for three primary reasons% to provide the taxpayer a convenient manner to meet his probable income tax liability* ' to ensure the collection of income tax which can otherwise be lost or substantially reduced through failure to "le the corresponding returns and ( to improve the governments cash >ow. This results in administrative savings, prompt and ecient collection of taxes, prevention of delin7uencies and reduction of governmental e:ort to collect taxes through more complicated means and remedies.
'espondent Secretary has the authority to re!uire the withholding of a ta" on items of income payable to any person, national or (uridical, residing in the )hilippines. ,assi$e Inco3e The =ID de"nes passive income by stating what it is notif the income is generated in the active pursuit and performance of the corporations primary purposes, the same is not passive income It is income generated by the taxpayers assets. These assets can be in the form of real properties that return rental income, shares of stoc! in a corporation that earn dividends or interest income received from savings. E=a" ,rotection %"ase The e7ual protection clause under the +onstitution means that no person or class of persons shall be deprived of the same protection of laws which is enjoyed by other persons or other classes in the same place and in like circumstances. 2tated di:erently, all persons belonging to the same class shall be taxed ali!e. It follows that the guaranty of the e7ual protection of the laws is not violated by legislation based on a reasonable classi"cation. %"assi?cation to /e $a"i# 3st #% rest on substantial distinctions* #' be germane to the purpose of the law* #( not be limited to existing conditions only and #) apply e7ually to all members of the same class. The taxing power has the authority to ma!e reasonable classi"cations for purposes of taxation. Ine7ualities which result from a singling out of one particular class for taxation, or exemption, infringe no constitutional limitation. The real estate industry is, by itself, a class and can be validly treated di:erently from other business enterprises.
#. Sison $ Anc;eta &1'05*
The power to tax is not uncon"ned. There are restrictions set forth by the +onstitution. As it adversely a:ects property rights, both the due process and e7ual protection clauses may be properly invo!ed. Justice arshall- 8The power to tax involves the power to destroy.9 Justice !rankfurter - 8The power to tax is not the power to destroy while this +ourt sits.9 According to +.&. @ernando, so it is in the 5hilippines.
*!uality and uniformity in ta"ation means that all ta"able articles of kinds of property of the same class shall be ta"ed at the same rate . The taxing power has the authority to ma!e reasonable and natural classi"cations for purposes of taxation. There is a similarity to the standard of e7ual protection for what is re7uired is that the tax applies e7ually to all persons, "rms and corporations placed in a similar situation.
It is undoubted that the due process clause may be invoked where a ta"ing statute is so arbitrary that it +nds no support in the $onstitution. An obvious example is where it can be shown to amount to the con"scation of property. That would be a clear abuse of power. It then becomes the duty of this +ourt to say that such an arbitrary act amounted to the exercise of an authority not conferred. That properly calls for the application of the
e. Saraso"a $ Trini#a# &1'1'* The broad principle is that every taxpayer has a right to a remedy for any actual wrong he may have su"ered in the collection of taxes. Hsually a party will "nd a plain and sucient remedy for the injuries complained of, or threatened, in the courts of law* in such instances, e7uity will not ta!e jurisdiction. O5resumptively,O &udge +ooley says, Othe remedy at law is ade7uate.O #+ooley on Taxation Lhere, as in the 5hilippines, the taxpayer is permitted to pay the amount demanded of him under protest and then maintain an action at law to recover bac! the whole amount paid or so much of it as
was illegally exacted, this is ordinarily regarded as an ade7uate remedy. 2ec. %4$J of the Administrative +ode- 0o court shall have authority to grant an injunction to restrain the collection of any internal revenue tax. 5ublic policy decrees that, since upon the prompt collection of revenue there depends the very existence of government itself, whatever determination shall be arrived at by the ?egislature should not be interfered with unless there be a clear violation of some constitutional inhibition.
Re: ,a>3ent o Interest Taxes only draw interest as do sums of money when expressly authorized- Interest is not to be awarded against a sovereign government, unless its consent has been manifested by an %ct of its legislature or by lawful contract of its executive ocers. If there be doubt upon the subject, that doubt must be resolved in favor of the 2tate. There is no ground for charging the +rown with interest. Interest is only payable by statute or by contract. The 2tate never pays interest unless she expressly engages to do so. =ut when an illegal tax has been collected, the citizen who has paid and is obliged to bring suit against the collector is entitled to interest from the time of the illegal exaction. The di:erence lies in the fact that the suit is against the collector and not the 2tate, although the judgment is not be paid by the collector but directly from the treasury.
5. UNDERL@IN T!EOR@ AND 8ASIS a. 1 A3 4r 2n# +5)6+5 The existence of government is a necessity* it cannot continue without means to pay its expenses* and for those means it has the right to compel all citizens and property within its limits to contribute. The state demands and receives taxes so that it may be enabled to carry its mandates into e:ect and perform the functions of government. The citizen pays from his property the portion demanded, in order that he may, by means thereof, be secured in the enjoyment of the bene"ts of organized society. The general levy of taxes is understood to exact contributions in return for the general bene"ts of government, and it promises nothing to the person taxed beyond what may be anticipated from
an administration of the laws for individual protection and the general public good. Although the duty to pay taxes by the individual is founded in his participation in the bene"ts arising from the expenditure, it does not mean that a man#s property cannot be taxed unless some bene$t to him personally can be pointed out.
/. %IR $ A"<e &1'00* The petitioner contends that the claimed deduction of 5$4,PPP.PP was properly disallowed because it was not an ordinary reasonable or necessary business expense. The +ourt of Tax Appeals had seen it di:erently. Agreeing with Algue, it held that the said amount had been legitimately paid by the private respondent for actual services rendered. The payment was in the form of promotional fees. These were collected by the 5ayees for their wor! in the creation of the Begetable /il Investment +orporation of the 5hilippines and its subse7uent purchase of the properties of the 5hilippine 2ugar 1state Cevelopment +ompany.
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance /n the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself.
S% Decision: The 2olicitor eneral is correct when he says that the burden is on the taxpayer to prove the validity of the claimed deduction. In the present case, however, we "nd that the onus has been discharged satisfactorily. The private respondent has proved that the payment of the fees was necessary and reasonable in the light of the e:orts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business re7uiring millions of pesos. This was no mean feat and should be, as it was, suciently recompensed.
It is said that ta"es are what we pay for civili&ation society . Lithout taxes, the government would be paralyzed for lac! of the motive power to activate and operate it.
is expected to respond in the form of tangible and intangible bene"ts intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.
=ut even as we concede the inevitability and indispensability of taxation, it is a re7uirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. @or all the awesome power of the tax collector, he may still be stopped in his trac!s if the taxpayer can demonstrate, as it has here, that the law has not been observed.
T!EORIES: NE%ESSIT@ T!EOR@ Taxation is a power predicated upon necessity. It is a necessary burden to preserve the 2tate6s sovereignty and a means to give the citizenry an army to resist aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvements for the enjoyment of the citizenry, and those which come within the 2tate6s territory and facilities and protection which a government is supposed to provide. 8ENEFITS RE%EIVED ,RIN%I,LE This theory bases the power of the 2tate to demand and receive taxes on the reciprocal duties of support and protection. The citizen supports the 2tate 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 bene"ts of an organized society. Thus, the taxpayer cannot 7uestion the validity of the tax law on the ground that payment of such tax will render him impoverished, or lessen his "nancial or social standing, because the obligation to pay taxes is involuntary and compulsory, in exchange for the protection and bene"ts one receives from the government. DO%TRINE OF S@-8IOTI% RELATIONS!I, This doctrine states that 8Taxes are what we pay for civilized society. Lithout taxes, the government would be paralyzed for lac! of the
motive power to activate and operate it.
(. ,RIN%I,LES OF A SOUND TAX S@STE% Fisca" a#e=ac> means that the sources of revenues should be sucient to meet the demand of public expenditures. ' E=a"it> or t;eoretica" Bstice means that the tax burden should be in proportion to the taxpayerQs ability to pay. #abilitytopay principle. ( A#3inistrati$e easi/i"it> means that tax laws should be capable of convenient, just and e:ective administration A/aCa#a ro ,art> List $ Er3ita &299(* =efore D.A. 0o. K(($ too! e:ect, petitioners A=AACA HD/ 5arty ?ist, et al., "led a petition for prohibition on May '$, 'PP4 7uestioning the constitutionality of 2ections ), 4 and N of D.A. 0o. K(($, amending 2ections %PN, %P$ and %PJ, respectively, of the 0ational Internal Devenue +ode #0ID+. 2ection ) imposes a %PR BAT on sale of goods and properties, 2ection 4 imposes a %PR BAT on importation of goods, and 2ection N imposes a %PR BAT on sale of services and use or lease of properties. These 7uestioned provisions contain a uniformp ro v is o authorizing the 5resident, upon recommendation of the 2ecretary of @inance, to raise the BAT rate to %'R, e:ective &anuary %, 'PPN, after speci"ed conditions have been satis"ed. 5etitioners argue that the law is unconstitutional.
@or the delegation to be valid, it must be complete and it must "x a standard. A sucient standard is one which de"nes legislative policy, mar!s its limits, maps out its boundaries and speci"es the public agency to apply it.
The principle of +scal ade!uacy as a characteristic of a sound tax system was originally stated by Adam 2mith in his +anons of Taxation #%$$N, as-
IB. 1very tax ought to be so contrived as both to ta!e out and to !eep out of the poc!ets of the people as little as possible over and above what it brings into the public treasury of the state.
It simply means that sources of revenues must be ade%uate to meet government expenditures and their variations.
a. De ,rocess an# E=a" ,rotection The doctrine is that where the due process and e7ual protection clauses are invo!ed, considering that they are not "xed rules but rather broad standards, there is a need for proof of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail. Input Ta" is de"ned under 2ection %%P#A of the 0ID+, as amended, as the valueadded tax due from or paid by a BATregistered person on the importation of goods or local purchase of good and services, including lease or use of property, in the course of trade or business, from a BATregistered person, and utput Ta" is the valueadded tax due on the sale or lease of taxable goods or properties or services by any person registered or re7uired to register under the law. As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he buys goods. /utput tax meanwhile is the tax due to the person when he sells goods. In computing the BAT payable, three possible scenarios may arise% If at the end of a taxable 7uarter the output taxes charged by the seller are e7ual to the input taxes that he paid and passed on by the suppliers, then no payment is re7uired* ' Lhen the output taxes exceed the input taxes, the person shall be liable for the excess, which has to be paid to the =ureau of Internal Devenue #=ID* and ( If the input taxes exceed the output taxes, the excess shall be carried over to the succeeding 7uarter or 7uarters. 2hould the input taxes result from zerorated or e:ectively zerorated transactions, any excess over the output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes, at the taxpayers option.
E=a" ,rotection %"ase The e7ual protection clause under the +onstitution means that no person or class of persons shall be deprived of the same protection of laws which is enjoyed by other persons or other classes in the same place and in li!e circumstances. The e%ual protection clause does not re%uire the universal application of the laws on all persons or things without distinction. This might in fact sometimes result in une7ual protection. Lhat the clause re7uires is e7uality among e7uals as determined according to a valid classi"cation. =y classi"cation is meant the grouping of persons or things similar to each other in certain particulars and di:erent from all others in these same particulars.
/. Unior3it> an# E=ita/i"it> o Taxation Article BI, 2ection 'J#% of the +onstitution readsThe rule of taxation shall be uniform and e%uitable. The &ongress shall evolve a progressive system of taxation. Unior3it> in taxation means that all taxable articles or !inds of property of the same class shall be taxed at the same rate. Ci:erent articles may be taxed at di:erent amounts provided that the rate is uniform on the same class everywhere with all people at all times. c. ,ro
in Taxation 5rogressive taxation is built on the principle of the taxpayers ability to pay. This principle was also lifted from Adam 2miths +anons of Taxation, and it statesI. The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities* that is, in proportion to the revenue which they respectively enjoy under the protection of the state. Taxation is progressive when its rate goes up depending on the resources of the person a"ected. The BAT is an antithesis of progressive taxation. =y its very nature, it is regressive. The principle of progressive taxation has no relation with the BAT system inasmuch as the BAT paid by the consumer or
business for every goods bought or services enjoyed is the same regardless of income. The +ourt stated in the Tolentino case, thus The +onstitution does not really prohibit the imposition of indirect taxes which, li!e the BAT, are regressive. Lhat it simply provides is that +ongress shall evolve a progressive system of taxation. The constitutional provision has been interpreted to mean simply that direct taxes are . . . to be preferred and3 as much as possible, indirect taxes should be minimized.
). %O-,ARISON IT! ,OLI%E ,OER AND E-INENT DO-AIN a. Si3i"arities an# Distinctions &1 A3 4r 2n# +'(6+'* ,OLI%E ,OER: TASATI/0 5/?I+1 5/L1D 1xercised for the purpose of 1xercised for the promotion of the raising revenue public welfare by means of regulation of dangerous or potentially dangerous businesses, occupations, or activities 2ubject to certain designated 0ot subject to constitutional constitutional limitations restrictions applicable to taxing power The power of taxation and the police power are both distinct, coexistent powers of a state. An exaction which is invalid as an exercise of the taxing power may not be upheld as an exercise of police power where it is clear that the legislative body imposing it did not intend it as such. An exaction which would be invalid as an exercise of the taxing power may be upheld as a regulatory measure where the primary purpose of the legislature in imposing it was the regulation of some calling or activity which is potentially adverse, unless, of course, the legislature, in imposing such an exaction, acts in an arbitrary and unreasonable manner.
E-INENT DO-AIN: TASATI/0 0o compensation.
1MI010T C/MAI0 De7uires compensation for private property ta!en for public use.
/. eroc;i $ DOE &299* DA K%(N, otherwise !nown as the 1lectric 5ower Industry Deform Act of 'PP% #15IDA, which sought to impose a universal charge on all endusers of electricity for the purpose of funding 0A5/+/D6s projects, was enacted and too! e:ect in 'PP%. 5etitioners contested the constitutionality of the 15IDA, stating that the imposition of the universal charge on all endusers is oppressive and con"scatory and amounts to taxation without representation for not giving the consumers a chance to be heard and be represented.
The power to tax is an incident of sovereignty and is unlimited in its range, ac!nowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency that is to pay it. It is based on the principle that taxes are the lifeblood of the government, and their prompt and certain availability is an imperious need.
/n the other hand, po"ice power is the power of the state to promote public welfare by restraining and regulating the use of liberty and property. It is the most pervasive, the least limitable, and the most demanding of the three fundamental powers of the 2tate. The justi"cation is found in the ?atin maxims salus populi est suprema lex #the welfare of the people is the supreme law and sic utere tuo ut alienum non laedas #so use your property as not to injure the property of others.
If generation of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax * but if regulation is the primary purpose, the fact that revenue is incidentally raised does not ma!e the imposition a tax.
The taxing power may be used as an implement of police power. The theory behind the exercise of the power to tax emanates from necessity* without taxes, government cannot ful"ll its mandate of promoting the general welfare and wellbeing of the people.
c. -ata"in %ocont %o. $ -nicipa" %onci" o -a"a/an< &1'0)*
The Municipal +ouncil of Malabang, ?anao del 2ur enacted a Municipal /rdinance which made it unlawful for any person, company or group of persons Oto ship out of the Municipality of Malabang, cassava starch or >our without paying to the Municipal Treasurer or his authorized representatives the corresponding fee "xed by #the ordinance.O The validity of the ordinance was challenged by the Matalin +oconut, Inc. alleging that the ordinance is not only ultra vires, being violative of DA 0o. ''N) #?ocal Autonomy Act, but also unreasonable, oppressive and con"scatory.
The amount collected under the ordinance in %uestion partakes of the nature of a tax, although denominated as 'police inspection fee' since its undeniable purpose is to raise revenue.
#. Lt $ Araneta &1'((* +ommonwealth Act 0o. 4N$, otherwise !nown as 2ugar Adjustment Act was promulgated in %K)P 8to stabilize the sugar industry so as to prepare it for the eventuality of the loss of its preferential position in the Hnited 2tates mar!et and the imposition of export taxes.9 Lalter ?utz see!s to recover from the +ollector of Internal Devenue the sum paid by the estate as taxes alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in plainti:6s opinion is not a public purpose for which a tax may be constitutionally levied.
The act is primarily an exercise of the police power. It is shown in the (ct that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabili)ation of the threatened sugar industry.
This +ourt can ta!e judicial notice of the fact that sugar production is one of the great industries of our nation, sugar occupying a leading position among its export products* that it gives employment to thousands of laborers in "elds and factories* that it is a great source of the stateQs wealth, is one of the important sources of foreign exchange needed by our government, and is thus pivotal in the plans of a regime committed to a policy of currency stability. Its promotion, protection and advancement, therefore redounds greatly to the general welfare.
The protection of a large industry constituting one of the great sources of the stateQs wealth and therefore directly or indirectly a:ecting the welfare of so great a portion of the population of the 2tate is a:ected to such an extent by public interests as to be within the police power of the sovereign.
e. NT% $ %A &1'''* 2ometime in %KJJ, the 0T+ served on 5?CT the following assessment notices and demands for payment of 2upervision and regulation fee under 2ection )P #e of the 52A for the said year, %KJJ* 5ermit fee under 2ection )P #f of the 52A for the approval of the protestants increase of its authorized capital stoc!* and 5ermit fees under 2ection )P #g of the 52A in connection with the +ommissions decisions in 0T+ +ases approving the 5rotestants e7uity participation in the @iber /ptic Interpaci"c +able systems and S4 2ervice Improvement and 1xpansion 5rogram. 5?CT challenged the aforesaid assessments alleging that the assessments were being made to raise revenues and not as mere reimbursements for actual regulatory expenses.
2uccinct and clear is the ruling of this +ourt in the case of 5hilippine ?ong Cistance Telephone +ompany vs. 5ublic 2ervice +ommission, NN 2+DA ()%, that the basis for computation of the fee to be charged by 0T+ on 5?CT, is the capital stoc! subscribed or paid and not, alternatively, the property and e7uipment.
The law in point is clear and categorical. There is no room for construction. It simply calls for application. To repeat, the fee in 7uestion is based on the capital stoc! subscribed or paid, nothing less nothing more.
It bears stressing that it is not the 0T+ that imposed such a fee. It is the legislature itself. 2ince +ongress has the power to exercise the 2tate inherent powers of 5olice 5ower, 1minent Comain and Taxation, the distinction between police power and the power to ta", which could be signi+cant if the e"ercising authority were mere political subdivisions -since delegation by it to such political subdivisions of one power does not necessarily include the other, would not be of any moment when, as in the case under consideration, $ongress itself e"ercises the power. All that is to be done would be to apply and enforce the law when suciently de"nitive and not constitutional in"rm.
II. TAXES 1. DEFINITION Rep/"ic $ ,;i"ippine Ra//it 8s Lines +ooley- OTaxes are the enforced proportional contributions from persons and property levied by the state by virtue of its sovereignty for the support of government and for all public needs.O
As distinguished from other pecuniary burdens, the di:erentiating factor is that the purpose to be subserved is the raising of revenue. A tax then is neither a penalty that must be satis"ed or a liability arising from contract.
2. ESSENTIAL %!ARA%TERISTI%S OF TAXES % It is an enforced contribution. ' It is generally payable in money. ( It is proportionate in character. ) It is levied on persons, property, or the exercise of a right or privilege #1xcise tax. 4 It is levied by the 2tate which has jurisdiction over the subject or object of taxation. N It is levied by the lawma!ing body of the 2tate. $ It is levied for public purpose or purposes.
+. TAXES DISTINUIS!ED FRO-:
