Inherent Limitations Of Taxation 421134

INHERENT LIMITATIONS OF TAXATION [PENIS] If taxation is for a public purpose, the tax must be used: (1) For the of the state or (2) for some recognized objects of governments or (3) directly to promote the welfare of the community (taxation as an implement of police power) A tax levied for a private purpose constitutes a taking of property without due process of law. Public purpose of taxes

The purposes to be accomplished by taxation need not be exclusively public. Although private individuals are directly benefited, the tax would still be valid provided such benefit is only incidental. In the imposition of taxes, public purpose is presumed.

Exemption of the Government from taxes

Non-delegability of the Taxing Power

International Comity

TEST IN DETERMINING PUBLIC PURPOSE a. Duty Test – whether the thing to be threatened by the appropriation of public revenue is something which is the duty of the State, as a government. b. Promotion of General Welfare Test – whether the law providing the tax directly promotes the welfare of the community in equal measure. Reasons for Exemptions: (1) To levy tax upon public property would render necessary new taxes on other public property for the payment of the tax so laid and thus, the government would be taxing itself to raise money to pay over to itself; (2) In order that the functions of the government shall not be unduly impede; and (3) To reduce the amount of money that has to be handed by the government in the course of its operations. Unless otherwise provided by law, the exemption applies only to government entities through which the government immediately and directly exercises its sovereign powers. (Infantry Post Exchange vs Posadas, 54 Phil 866) Notwithstanding the immunity, the government may tax itself in the absence of any constitutional limitations. Government-owned or controlled corporations, when performing proprietary functions are generally subject to tax in the absence of tax exemption provisions in their charters or law creating them. General Rule: Taxation is purely legislative, Congress cannot delegate the power to others. Exceptions: a. Delegation to the President (Art.VI. Sec. 28(2) 1987 Constitution) The power granted to Congress under this constitutional provision to authorize the President to fix within specified limits and subject to such limitations and restrictions as it may impose, tariff rates and other duties and imposts include tariffs rates even for revenue purposes only. Customs duties which are assessed at the prescribed tariff rates are very much like taxes which are frequently imposed for both revenue-raising and regulatory purposes (Garcia vs Executive Secretary, et. al., G.R. No. 101273, July 3, 1992) b. Delegations to the Local Government (Art. X. Sec. 5, 1987 Constitution) It has been held that the general principle against the delegation of legislative powers as a consequence of the theory of separation of powers is subject to one well-established exception, namely, that legislative power may be delegated to local governments. The theory of non-delegation of legislative powers does not apply in maters of local concern. (Pepsi-Cola Bottling Co. of the Phil, Inc. vs City of Butuan, et . al., L-22814, Aug. 28, 1968) c. Delegation to istrative Agencies with respect to aspects of Taxation not legislative in character. Example: assessment and collection Limitations on Delegation a. It shall not contravene any Constitutional provisions or inherent limitations of taxation; b. The delegation is effected either by the Constitution or by validly enacted legislative measures or statute; and c. The delegated levy power, except when the delegation is by an express provision of Constitution itself, should only be in favor of the local legislative body of the local or municipal government concerned. The property of a foreign state or government may not be taxed by another. The grounds for the rule are: (1) Sovereign equality among states (2) Usage among states that when one enter into the territory of another, there is an implied understanding that the power does not intend to degrade its dignity by placing itself under the jurisdiction of the latter (3) Foreign government may not be sued without its consent so that it is useless to assess the tax since it cannot be collected (4) Reciprocity among states Territoriality or Situs of Taxation means “place of taxation” depending on the nature of taxes being imposed. It is an inherent mandate that taxation shall only be exercised on persons, properties, and excise within the territory of the taxing power because: (1) Tax laws do not operate beyond a country’s territorial limit. (2) Property which is wholly and exclusively within the jurisdiction of another state receives none of the protection for which a tax is supposed to be compensation.

Territoriality or the Situs of Taxation

However, the fundamental basis of the right to tax is the capacity of the government to provide benefits and protection to the object of the tax. A person may be taxed, even if he is outside the taxing state, where there is between him and the taxing state, a privity of relationship justifying the levy. Factors to Consider in determining Situs of Taxation a. Kind and Classification of the Tax b. Location of the subject matter of the tax c. Domicile or residence of the person d. Citizenship of the person e. Source of income f. Place where the privilege, business or occupation is being exercised