TAXATION LAW
I. General Principles of Taxation
A. Definition and concept of taxation
B. Nature of taxation
Congress passed a sin tax law that increased the tax rates on cigarettes by
1,000%. The law was thought to be sufficient to drive many cigarette companies
out of business, and was questioned in court by a cigarette company that would
go out of business because it would not be able to pay the increased tax.
The cigarette company is __________ (1%) (2013 Bar Question)
(A) wrong because taxes are the lifeblood of the government
(B) wrong because the law recognizes that the power to tax is the power to destroy
(C) correct because no government can deprive a person of his livelihood
(D) correct because Congress, in this case, exceeded its power to tax
SUGGESTED ANSWER:
(B) wrong because the law recognizes that the power to tax is the power to destroy
In McCulloch v. Maryland Chief Justice Marshall declared that the power to tax involves
the power to destroy. This maxim only means that the power to tax includes the power to
regulate even to the extent of prohibition or destruction of businesses. The reason is that
the legislature has the inherent power to determine who to tax, what to tax and how
much tax is to be imposed. Pursuant to the regulatory purpose of taxation, the
legislature may impose tax in order to discourage or prohibit things or enterprises
inimical to the public welfare.
In the given problem, the legislature’s imposition of prohibitive sin tax on cigarettes is
congruent with its purpose of discouraging the public form smoking cigarettes which are
hazardous to health.
C. Characteristics of taxation
XYZ Corporation manufactures glass panels and is almost at the point of
insolvency. It has no more cash and all it has are unsold glass panels. It
received an assessment from the BIR for deficiency income taxes. It wants to
pay but due to lack of cash, it seeks permission to pay in kind with glass panels.
Should the BIR grant the requested permission? (1%) (2013 Bar Question)
(A) It should grant permission to make payment convenient to taxpayers.
(B) It should not grant permission because a tax is generally a pecuniary burden.
(C) It should grant permission; otherwise, XYZ Corporation would not be able to pay.
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,(D) It should not grant permission because the government does not have the storage
facilities for glass panels.
SUGGESTED ANSWER:
(B) It should not grant permission because a tax is generally a pecuniary burden. This
principle is one of the attributes or characteristics of tax.
D. Power of taxation compared with other powers
1. Police power
2. Power of eminent domain
E. Purpose of taxation
1. Revenue-raising
2. Non-revenue/special or regulator
Money collected from taxation shall not be paid to any religious dignitary
EXCEPT when: (2011 Bar Question)
(A) the religious dignitary is assigned to the Philippine Army
(B) it is paid by a local government unit
(C) the payment is passed in audit by the COA
(D) it is part of a lawmaker’s pork barrel
SUGGESTED ANSWER:
(A) the religious dignitary is assigned to the Philippine Army
F. Principles of sound tax system
1. Fiscal adequacy
2. Administrative feasibility
A law that allows taxes to be paid either in cash or in kind is valid.
SUGGESTED ANSWER:
True. There is no law which requires the payment of taxes in cash only. However, a law
allowing payment of taxes in kind, although valid, may pose problems of valuation,
hence, will violate the principle of administrative feasibility. (BAR 2009)
3. Theoretical justice
G. Theory and basis of taxation
1. Lifeblood theory
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,Briefly explain the following doctrines: lifeblood doctrine; necessity theory;
benefits received principle; and doctrine of symbiotic relationship. (5%) (2016
BAR)
SUGGESTED ANSWER:
The following doctrines, explained:
a. Lifeblood Doctrine – Without revenue raised from taxation, the government will not
survive, resulting in detriment to society. Without taxes, the government would be
paralyzed for lack of motive power to activate and operate it. (CIR v. Algue, Inc.,
G.R. No. L-28896, February 17, 1988, 158 SCRA 9)
b. Necessity Theory – The exercise of the power to tax emanates from necessity,
because without taxes, government cannot fulfill its mandate of promoting the
general welfare and well being of the people. (CIR v. Bank of Philippine Islads, G.R.
No. 134062, April 17, 2007, 521 SCRA 373)
c. Benefits received principle – Taxpayers receive benefits from taxes through the
protection the State affords to them. For the protection they get arises their
obligation to support the government through payment of taxes. (CIR v. Algue, Inc.,
G.R. No. L-28896, February 17, 1988, 158 SCRA 9)
d. Doctrine of symbiotic relationship - Taxation arises because of reciprocal relation of
protection and support between the State and taxpayers. The State gives protection
and for it to continue giving protection, it must be supported by the taxpayers in the
form of taxes. (CIR v. Algue, Inc., G.R. No. L-28896, February 17, 1988, 158 SCRA
9)
Which statement below expresses the lifeblood theory? (2012 BAR)
a) The assessed taxes must be enforced by the government.
b) The underlying basis of taxation is government necessity, for without taxation, a
government can neither exist nor endure;
c) Taxation is an arbitrary method of exaction by those who are in the seat of power;
d) The power of taxation is an inherent power of the sovereign to impose burdens upon
subjects and objects within its jurisdiction for the purpose of raising revenues.
SUGGESTED ANSWER:
b) The underlying basis of taxation is government necessity, for without taxation, a
government can neither exist nor endure
Taxes are the lifeblood of the government, for without taxes, the government can neither
exist nor endure. A principal attribute of sovereignty, the exercise of taxing power
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, derives its source from the very existence of the state whose social contract with its
citizens obliges it to promote public interest and common good. The theory behind the
exercise of the power to tax emanates from necessity; without taxes, government
cannot fulfill its mandate of promoting the general welfare and well-being of the people.
(National Power Corporation vs. City of Cabanatuan)
Anne Lapada, a student activist, wants to impugn the validity of a tax on text
messages. Aside from claiming that the law adversely affects her since she sends
messages by text, what may she allege that would strengthen her claim to the right
to file a taxpayer’s suit? (2011 Bar Question)
(A) That she is entitled to the return of the taxes collected from her in case the court
nullifies the tax measure.
(B) That tax money is being extracted and spent in violation of the constitutionally
guaranteed right to freedom of communication.
(C) That she is filing the case in behalf of a substantial number of taxpayers.
(D) That text messages are an important part of the lives of the people she represents.
SUGGESTED ANSWER:
(B) That tax money is being extracted and spent in violation of the constitutionally
guaranteed right to freedom of communication.
Real property taxes should not disregard increases in the value of real property
occurring over a long period of time. To do otherwise would violate the canon of
a sound tax system referred to as: (2011 Bar Question)
(A) theoretical justice.
(B) fiscal adequacy.
(C) administrative feasibility.
(D) symbiotic relationship.
SUGGESTED ANSWER:
(B) fiscal adequacy
Explain the principles of a sound tax system. (2015 Bar Question)
SUGGESTED ANSWER:
The principles of a sound tax system are the following:
a. Fiscal adequacy which means that the sources of revenue should be sufficient to meet
the demands of public expenditures;
b. Equality or theoretical justice which means that the tax burden should be proportionate
to the taxpayer’s ability to pay (this is the so-called ability to pay principle); and
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Law on Taxation
I. General Principles of Taxation
A. Definition and concept of taxation
B. Nature of taxation
Congress passed a sin tax law that increased the tax rates on cigarettes by
1,000%. The law was thought to be sufficient to drive many cigarette companies
out of business, and was questioned in court by a cigarette company that would
go out of business because it would not be able to pay the increased tax.
The cigarette company is __________ (1%) (2013 Bar Question)
(A) wrong because taxes are the lifeblood of the government
(B) wrong because the law recognizes that the power to tax is the power to destroy
(C) correct because no government can deprive a person of his livelihood
(D) correct because Congress, in this case, exceeded its power to tax
SUGGESTED ANSWER:
(B) wrong because the law recognizes that the power to tax is the power to destroy
In McCulloch v. Maryland Chief Justice Marshall declared that the power to tax involves
the power to destroy. This maxim only means that the power to tax includes the power to
regulate even to the extent of prohibition or destruction of businesses. The reason is that
the legislature has the inherent power to determine who to tax, what to tax and how
much tax is to be imposed. Pursuant to the regulatory purpose of taxation, the
legislature may impose tax in order to discourage or prohibit things or enterprises
inimical to the public welfare.
In the given problem, the legislature’s imposition of prohibitive sin tax on cigarettes is
congruent with its purpose of discouraging the public form smoking cigarettes which are
hazardous to health.
C. Characteristics of taxation
XYZ Corporation manufactures glass panels and is almost at the point of
insolvency. It has no more cash and all it has are unsold glass panels. It
received an assessment from the BIR for deficiency income taxes. It wants to
pay but due to lack of cash, it seeks permission to pay in kind with glass panels.
Should the BIR grant the requested permission? (1%) (2013 Bar Question)
(A) It should grant permission to make payment convenient to taxpayers.
(B) It should not grant permission because a tax is generally a pecuniary burden.
(C) It should grant permission; otherwise, XYZ Corporation would not be able to pay.
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Law on Taxation
,(D) It should not grant permission because the government does not have the storage
facilities for glass panels.
SUGGESTED ANSWER:
(B) It should not grant permission because a tax is generally a pecuniary burden. This
principle is one of the attributes or characteristics of tax.
D. Power of taxation compared with other powers
1. Police power
2. Power of eminent domain
E. Purpose of taxation
1. Revenue-raising
2. Non-revenue/special or regulator
Money collected from taxation shall not be paid to any religious dignitary
EXCEPT when: (2011 Bar Question)
(A) the religious dignitary is assigned to the Philippine Army
(B) it is paid by a local government unit
(C) the payment is passed in audit by the COA
(D) it is part of a lawmaker’s pork barrel
SUGGESTED ANSWER:
(A) the religious dignitary is assigned to the Philippine Army
F. Principles of sound tax system
1. Fiscal adequacy
2. Administrative feasibility
A law that allows taxes to be paid either in cash or in kind is valid.
SUGGESTED ANSWER:
True. There is no law which requires the payment of taxes in cash only. However, a law
allowing payment of taxes in kind, although valid, may pose problems of valuation,
hence, will violate the principle of administrative feasibility. (BAR 2009)
3. Theoretical justice
G. Theory and basis of taxation
1. Lifeblood theory
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Law on Taxation
,Briefly explain the following doctrines: lifeblood doctrine; necessity theory;
benefits received principle; and doctrine of symbiotic relationship. (5%) (2016
BAR)
SUGGESTED ANSWER:
The following doctrines, explained:
a. Lifeblood Doctrine – Without revenue raised from taxation, the government will not
survive, resulting in detriment to society. Without taxes, the government would be
paralyzed for lack of motive power to activate and operate it. (CIR v. Algue, Inc.,
G.R. No. L-28896, February 17, 1988, 158 SCRA 9)
b. Necessity Theory – The exercise of the power to tax emanates from necessity,
because without taxes, government cannot fulfill its mandate of promoting the
general welfare and well being of the people. (CIR v. Bank of Philippine Islads, G.R.
No. 134062, April 17, 2007, 521 SCRA 373)
c. Benefits received principle – Taxpayers receive benefits from taxes through the
protection the State affords to them. For the protection they get arises their
obligation to support the government through payment of taxes. (CIR v. Algue, Inc.,
G.R. No. L-28896, February 17, 1988, 158 SCRA 9)
d. Doctrine of symbiotic relationship - Taxation arises because of reciprocal relation of
protection and support between the State and taxpayers. The State gives protection
and for it to continue giving protection, it must be supported by the taxpayers in the
form of taxes. (CIR v. Algue, Inc., G.R. No. L-28896, February 17, 1988, 158 SCRA
9)
Which statement below expresses the lifeblood theory? (2012 BAR)
a) The assessed taxes must be enforced by the government.
b) The underlying basis of taxation is government necessity, for without taxation, a
government can neither exist nor endure;
c) Taxation is an arbitrary method of exaction by those who are in the seat of power;
d) The power of taxation is an inherent power of the sovereign to impose burdens upon
subjects and objects within its jurisdiction for the purpose of raising revenues.
SUGGESTED ANSWER:
b) The underlying basis of taxation is government necessity, for without taxation, a
government can neither exist nor endure
Taxes are the lifeblood of the government, for without taxes, the government can neither
exist nor endure. A principal attribute of sovereignty, the exercise of taxing power
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Law on Taxation
, derives its source from the very existence of the state whose social contract with its
citizens obliges it to promote public interest and common good. The theory behind the
exercise of the power to tax emanates from necessity; without taxes, government
cannot fulfill its mandate of promoting the general welfare and well-being of the people.
(National Power Corporation vs. City of Cabanatuan)
Anne Lapada, a student activist, wants to impugn the validity of a tax on text
messages. Aside from claiming that the law adversely affects her since she sends
messages by text, what may she allege that would strengthen her claim to the right
to file a taxpayer’s suit? (2011 Bar Question)
(A) That she is entitled to the return of the taxes collected from her in case the court
nullifies the tax measure.
(B) That tax money is being extracted and spent in violation of the constitutionally
guaranteed right to freedom of communication.
(C) That she is filing the case in behalf of a substantial number of taxpayers.
(D) That text messages are an important part of the lives of the people she represents.
SUGGESTED ANSWER:
(B) That tax money is being extracted and spent in violation of the constitutionally
guaranteed right to freedom of communication.
Real property taxes should not disregard increases in the value of real property
occurring over a long period of time. To do otherwise would violate the canon of
a sound tax system referred to as: (2011 Bar Question)
(A) theoretical justice.
(B) fiscal adequacy.
(C) administrative feasibility.
(D) symbiotic relationship.
SUGGESTED ANSWER:
(B) fiscal adequacy
Explain the principles of a sound tax system. (2015 Bar Question)
SUGGESTED ANSWER:
The principles of a sound tax system are the following:
a. Fiscal adequacy which means that the sources of revenue should be sufficient to meet
the demands of public expenditures;
b. Equality or theoretical justice which means that the tax burden should be proportionate
to the taxpayer’s ability to pay (this is the so-called ability to pay principle); and
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