Commercial and Taxation Laws › Taxation Law › General Principles
1. Concept, Nature, Purpose, and Basis of Taxation
DISTINGUISH: POWER OF TAXATION, POLICE POWER, AND EMINENT DOMAIN
| TAX | POLICE POWER | EMINENT DOMAIN |
| Concept | ||
| Power to enforce contribution to raise funds for Government | Power to make and implement laws for the general Welfare | Power to take private property for public use with just Compensation |
| Scope | ||
| Plenary, comprehensive | Broader in application; General power to make and implement laws | Merely a power to “take” private property for public use |
| Exercising Authority | ||
| National and Local Governments | National Government or political subdivisions | May be granted to public service companies or public utilities |
| Purpose | ||
| Raise revenues | Exercised to promote public welfare through regulation | The taking of property for public use |
| Amount of Imposition | ||
| No limit | Limited to the cost of regulation, issuance of license, or surveillance | No limit imposed, but the amount should be based on the fair market value of the property |
| Effect | ||
| Becomes part of public fund | Restraint on the injurious use of property | Transfer of right to the property |
| Persons Affected | ||
| Applies to all persons, property, and excises that may be subject thereto | Applies to all persons, property, and excises that may be subject thereto | Only particular property is covered |
| Superiority of Contracts | ||
| Taxation may affect contractual rights, subject to applicable constitutional and statutory limits. A franchise is subject to amendment, alteration, or repeal by Congress when the common good so requires (1987 Constitution, Art. XII, Sec. 11). | Contracts may be impaired | |
| Benefits Received | ||
| Protection and general benefits from the government | No direct or immediate benefit but only such as may arise from the maintenance of a healthy economic standard of society | Just compensation equivalent to fair market value of the property |
| Relationship to Constitution | ||
| Subject to certain constitutional limitations | Subjected to certain constitutional limitations | Subject to certain constitutional limitations |
Distinguished from Other Forms of Exactions
Tax as Distinguished from Other Forms of Exactions
1. Customs Duty/Tariff
| TAX | CUSTOMS DUTY | |
| Coverage | More comprehensive than customs duty | Importation or export of goods |
| Object | Persons, prop, etc. | Goods imported or exported |
2. Toll
| TAX | TOLL | |
| Kind of demand | Demand of sovereignty | Demand of ownership |
| Purpose | Support of government | Collection for the use of property |
| Amount | No limit – depends on need of the government | Fair return of the cost of the property or improvement |
3. License Fee
| TAX | LICENSE FEE | |
| Source of authority | Exercise of taxing power | Emanate from the police power of the State |
| Purpose | Raise revenue | Regulation |
| Object | Persons, property and privilege | Right to exercise a privilege |
| Amount | No limit | Only necessary to carry out regulation |
Distinction lies in the primary purpose:
- The primary purpose of license fees is for regulation and the excess of the amount collected, from the cost to carry out the regulation, should be minimal and incidental.
- Tax’s primary purpose, or at least one of the real and substantial purposes, is to raise revenue.
- If amount is too high for regulation and/or the amount levied is not related to costs of regulation, it would be a tax.
- Purpose of distinction: limitations and exemptions apply only to one and not to the other (ex. Exemption from taxation does not include exemption from fees).
Whether a charge is a regulatory fee rather than a tax does not, by itself, determine whether an institution is exempt from paying it. Angeles University Foundation was held exempt from payment of building permit and other fees. (Angeles University Foundation v. City of Angeles, G.R. No. 189999, 27 June 2012)1
Royalty fees are regulatory fees. Clark Special Economic Zone (“CSEZ”) imposes payments on the movement of petroleum fuel to and from the economic zone. Specifically, CSEZ provides for the payment of accreditation fees, annual inspection fees, royalty fees and gate pass fees. Chevron is a domestic company located within the economic zone. CSEZ billed Chevron for royalty fees at 0.50/liter. (Chevron Philippines, Inc. v. Bases Conversion Development Authority and Clark Development Corporation, G.R. No. 173863, 15 September 2010)2
The imposition of capital contribution component of P10 per bag was an exercise by the State of its taxation power. While it is true that the power of taxation can be used as an implement of police power, the primary purpose of the levy is revenue generation. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. (Planters Products, Inc. v. Fertiphil Corporation, G.R. No. 166006, 14 March 2008)3
The employment permit fee exacted from aliens under the ordinance in Villegas lacked justification. The imposition is not regulatory but a revenue measure. It follows then that the permit fee is essentially a tax for the purpose of raising money under the guise of regulation. (Mayor Antonio J. Villegas v. HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, G.R. No. L-29646, 10 November 1978)4
4. Special Assessment
| TAX | SPECIAL ASSESSMENT | |
| Imposed on | Persons, properties, etc. | Only on land |
| Why imposed | For public purpose regardless who/what will benefit | Public improvement that benefits the land |
| Purpose | To support the general purposes of government | Contribution to cost of public improvement |
| When imposed | Regular exaction | Exceptional as to time and locality |
| Basis | Necessity | Benefits obtained |
5. Debt
| TAX | DEBT | |
| Source | Law; legal obligation | May arise from a contract, law, quasi-contract, delict, or quasi-delict (Civil Code, Arts. 1157 and 1159–1162). |
| Nature | Personal | Assignable |
| Right to set-off | Generally not subject to compensation/ set-off | May be the subject of compensation/ set-off |
| Effect | Mere nonpayment of a tax does not automatically result in imprisonment; imprisonment may be imposed for tax offenses defined by law. | No person shall be imprisoned for debt (1987 Constitution, Art. III, Sec. 20). |
Authorities
- Angeles University Foundation v. City of Angeles, G.R. No. 189999, 27 June 2012
- Chevron Philippines, Inc. v. Bases Conversion Development Authority, G.R. No. 173863, 15 September 2010
- Mayor Antonio J. Villegas v. Hiu Chiong Tsai Pao Ho, G.R. No. L-29646, 10 November 1978
- Planters Products, Inc. v. Fertiphil Corporation, G.R. No. 166006, 14 March 2008