What is
Lifeblood Doctrine?
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 derives its source from
the very existence of the state, whose social contract with its citizens
obliges it to promote public interest and the common good. The theory behind
the exercise of the power to tax emanates from necessity; without taxes, the
government cannot fulfill its mandate of promoting the general welfare and
well-being of the people. (National Power Corporation v. City of
Cabanatuan, G.R. No. 149110, April 9, 2003).
The three
inherent powers of the State
Why is it called
inherent powers?
The powers do
not need to be written in the Philippine Constitution to be exercised by the
government.
Police Power
It is
the power to promote public welfare by restraining
and regulating the use of liberty and property. The power to
prescribe regulations to promote the health, morals, peace, education, good
order or safety, and general welfare of the people. It is the most essential,
insistent, and illimitable of powers. In a sense, it is the greatest and most
powerful attribute of the government. (Sangalang et al. v. IAC, 176 SCRA 719)
Eminent Domain
Constitution which provides that private property shall not be taken for
public use without just compensation. (Art. Sec. 9)
Examples of
problems of cases about eminent domain and police power
TELEBAP and GMA Network, Inc. challenged the validity of Section 92 of
the Omnibus Election Code, or Batas Pambansa Blg. 881, which states that all
radio and television broadcasting entities must provide airtime to the
Commission on Elections (COMELEC) free of charge, for the purpose of ensuring
equal opportunities, time, and space for political campaigning. The Supreme
Court upheld the validity of the law and ruled that it was a legitimate
exercise of police power not of eminent domain (Telecommunications and
Broadcast Attorneys of the Philippines, Inc. and GMA Network, Inc. s.
Commission on Elections, G.R. No. 132922, April 21, 1998). The Court emphasized
that airwaves are not private property within the definition of eminent domain.
Therefore, police power was the applicable principle in this case.
In another case, the property in question contained a house and a chicken
farm. The end of one of the airport’s runways was located 2,220 feet from the
respondents’ property, and the glide path passed overhead at an altitude of 83
feet, 67 feet above the house, 63 feet above the barn, and 18 feet above the
tallest tree. As a result, chicken production had to stop, with 150 chickens
reportedly killed after flying into walls out of fright. Is this an example of
government taking of private property? The answer is yes, the owner must be
compensated (United States v. Causby).
Power of Taxation
Taxation is the power by which the State
raises revenue to defray the necessary expenses of governance. The State has
the authority to require from its citizens their proportionate share or
contribution toward the maintenance of government functions.
Theories of Taxation
1. Necessity
Theory. The exercise of the power to tax emanates from
necessity, because without taxes, the government cannot fulfill its mandate of
promoting the general welfare and well-being of the people (CIR v. Bank of the
Philippine Islands, G.R. No. 134062, April 17, 2007, 521 SCRA 373).
2. Benefits-Protection
Theories. Taxpayers receive benefits
from taxes through the protection the State affords them. In exchange for this
protection, they are obligated to support the government through the payment of
taxes (CIR v. Algue, Inc., G.R. No. L-28896, February 17, 1988, 158 SCRA 9).
3. Doctrine of
Symbiotic Relationship. It is said that taxes are what we pay for a civilized society. Without
taxes, the government would be paralyzed for lack of the motive power to
activate and operate its functions. Hence, despite the natural reluctance to
surrender part of one's hard-earned income to taxing authorities, every person
who is able must contribute their share to the running of the government. The
government, for its part, is expected to respond in the form of tangible and
intangible benefits intended to improve the lives of the people and enhance
both their moral and material values. This symbiotic relationship is the
rationale behind taxation and should dispel the erroneous notion that it is
merely an arbitrary method of exaction by those in power (Commissioner of
Internal Revenue v. Algue, Inc., and the Court of Tax Appeals, G.R. No.
L-28896, February 17, 1988).
Phases of Taxation
A. Levy/Imposition. This refers to the
enactment of tax laws or statutes. Examples of enacted tax laws include the
National Internal Revenue Code of the Philippines (R.A. No. 8424) and the Tax
Reform for Acceleration and Inclusion or TRAIN Law (R.A. No. 10963).
B. Assessment and
Collection.
·
The tax law must designate an agency responsible for collecting taxes. In
the Philippines, this is the Bureau of Internal Revenue (BIR), under the
supervision of the Secretary of Finance.
·
The implementing rules, circulars, or regulations issued by the Secretary
of Finance must align with the tax measures enacted by Congress.
C. Payment. This is the act of
compliance by the taxpayer in fulfilling their obligation to remit taxes.
Purposes of Taxation
The
primary purpose of taxation is to raise revenue. Its secondary or non-revenue
purposes include the following:
- Reduction of social
inequality
- Encouragement of the growth
of local industries
- Protection of local
industries against unfair competition
- Implementation of the police
power of the State as a regulatory measure
As an
Implement of the Police Power of the State or as a Regulatory Measure
The proliferation and unregulated circulation
of videograms, including, among others, videotapes, discs, cassettes, and any
technical improvement or variation thereof, adversely affected the operations
of movie houses and theaters. This led to a decline in theatrical attendance by
at least forty percent (40%) and a significant drop in the collection of sales,
contractor’s specific amusement, and other taxes, resulting in estimated losses
of four hundred million pesos (₱400 million) annually in government revenues.
To address this, the government enacted
Presidential Decree No. 1987, which served not only as a regulatory measure but
also as a revenue-generating law. The thirty percent (30%) levy was imposed for
a public purpose, primarily to regulate the video industry in response to rampant
violations of intellectual property rights (Valentin Tio v. Videogram
Regulatory Board, G.R. No. L-75697, June 18, 1987).
Principle of A Sound Tax System
1. Fiscal Adequacy – The sources of revenue
must be sufficient to meet government expenditures (Chavez v. Ongpin, 186 SCRA
331), as well as other public needs such as the construction of bridges, town
halls, public plazas, and the payment of salaries for teachers and professors.
2. Theoretical
Justice – As stated in the
Constitution, taxation must be reasonable, just, fair, and conscionable (Art.
VI, Sec. 28[1]). It must be uniform and equitable. Taxation is equitable when
the taxpayer is able to bear the burden imposed. It is progressive when the tax
rate increases in proportion to the taxpayer’s resources.
3.
Administrative Feasibility- The tax law must be capable of effective
and efficient implementation. It should not obstruct the economic growth and
development of the country.
Is Tax a Debt?
No, tax is not considered a debt
because it does not depend on the consent of the taxpayer, nor is there any
express or implied contract to pay taxes.
In Francia v. Intermediate Appellate Court, et al. (162 SCRA 753),
Francia contended that his tax delinquency of ₱2,400.00 had been extinguished because the government owed him ₱4,116.00 as compensation for a portion of
his land acquired through expropriation under the power of eminent domain.
However, the Supreme Court held that taxes cannot be offset against claims the
taxpayer may have against the government.
Brief History of Taxation in the
Philippines.
History of Taxation in Philippines
During the pre-colonial period, barangays were led by datus and rajahs.
The datu, belonging to the upper caste, provided protection and security in
exchange for goods or crops, a practice known as buwis or handog. Historical
records indicate that freemen, or timawa, were subject to buwis, while oripuns
or uripons, referred to as alipins, were exempt from taxation, as their role was
to serve members of the upper caste.
From 1521 to 1898, under Spanish rule, the colonial government
established the Contador de Resultas (Chief Royal Accountant), whose role
resembled that of today’s Commissioner of Internal Revenue. Filipinos were
required to pay tribute to the colonial government. Individuals aged sixteen
(16) to sixty (60) were obligated to pay 8 reales, or 1 peso per year, as a
sign of loyalty to the Spanish crown. Other forms of tribute included gold,
chickens, textiles, rice, and forced labor, known as Polo y Servicio.
In 1884, the tribute system was replaced by the cedula, a certificate
identifying the taxpayer. It included details such as name, age, birthplace,
civil status, occupation, nationality, residence, and sex.
On August 1, 1904, the Bureau of Internal Revenue (BIR) was established
in the Philippines. Its foundation was laid by the Internal Revenue Law of
1904, authored by Henry Ide, who served as Secretary of Finance during the
American regime. The Bureau underwent reorganization on January 1, 1913,
resulting in the creation of eight divisions: Accounting, Cash, Clerical,
Inspection, Law, Real Estate, License, and Records. This restructuring marked a
significant step toward institutionalizing tax administration in the country,
aligning it with evolving governance structures and public finance systems.
Throughout its development, the BIR has played a central role in shaping fiscal
policy and ensuring revenue collection, with its early framework reflecting
both colonial influence and the gradual emergence of a national administrative
identity (Commission on Higher Education, n.d.).
R.A. No. 10963 or TRAIN Law
Tax Reform for Acceleration and Inclusion
Republic Act No. 10963 was signed into law by President Rodrigo Duterte
on December 19, 2017. According to the Department of Finance, the TRAIN Law
will provide substantial income tax cuts for the majority of Filipino taxpayers
while raising additional funds to support the government’s accelerated spending
on its “Build, Build, Build” program and social services initiatives.
TRAIN addresses several weaknesses in the previous tax system, such as
lowering and simplifying personal income taxes, streamlining estate and donor’s
taxes, expanding the value-added tax (VAT) base, adjusting excise taxes on oil
and automobiles, and introducing an excise tax on sugar-sweetened beverages.
The law lowered income tax rates in the personal income tax schedule for
individual taxpayers and introduced a new 8% flat tax rate option, allowing
them to enjoy significant tax savings and higher take-home pay. It also
simplified estate and donor’s taxation through the implementation of a 6% flat
tax rate on net estate and net donations. Certain allowable deductions from the
gross estate were also increased.
A considerable increase in the VAT threshold is one of the substantial
amendments under TRAIN. From ₱1,919,500 to ₱3,000,000, the new threshold has enabled a
substantial number of taxpayers to qualify for VAT exemption. Amendments
increasing excise taxes, particularly on petroleum, mineral products, and automobiles, were also
enacted, along with the implementation of a tax on sugar-sweetened beverages.
Changes in the Tax System Under the Train Law
1. Reduced Taxes
Personal
Income Tax (PIT) is one of the most widely recognized
components of the TRAIN Law, particularly due to its reduction for the majority
of individual taxpayers. Prior to the enactment of the law, individual
employees or self-employed taxpayers were subject to income tax rates ranging
from 5% to 32%, depending on their income bracket.
Under TRAIN, individuals with a taxable
income of ₱250,000 or less are now exempt from income tax. Those earning above ₱250,000 are
subject to rates ranging from 20% to 35% starting in 2018, and from 15% to 35%
beginning in 2023. Additionally, the deductible amount for the 13th month pay
and other benefits has increased to ₱90,000,
compared to ₱82,000 under the previous law.
The law also ensures that minimum wage
earners who receive a modest salary increase will not end up with a net income
below the minimum wage after PIT deductions. Furthermore, married couples where
both spouses are employed may be exempted up to ₱500,000,
excluding the separate exemption of ₱90,000 for
their 13th month pay and additional bonuses. Lastly, self-employed individuals
and professionals with gross sales below the VAT threshold may opt to pay a
flat 8% tax on gross receipts instead of the graduated income and percentage
taxes.
Estate Tax has also been simplified and reduced. It is now set at a flat rate of 6%
based on the net value of the estate. The law provides a standard deduction of ₱5 million and
a ₱10 million exemption for the family home.
What
is estate tax?
If
a person dies the movable and immovable properties become the estate. Under the
old law, this is a known as inheritance tax.
Donor’s Tax. The donor’s tax rate was amended to a single rate of 6%, regardless of
the relationship between the donor and the recipient. Under the previous law,
donor’s tax rates ranged from 2% to 15% if the donor and recipient were
related, and 30% if they were not. Additionally, donations of real property are
now subject to a Documentary Stamp Tax of ₱15 for every ₱1,000 of the
property's value.
Value-Added
Tax (VAT). Under TRAIN, the VAT threshold was
increased from ₱1.9 million to ₱3 million. This means that small businesses with annual sales of ₱3 million and
below are now exempt from paying VAT—a reform intended to encourage growth and
job creation.
TRAIN also aims to simplify and streamline
the VAT system to make it fairer and reduce compliance costs for both taxpayers
and tax administrators. As a result, VAT exemptions are now limited to
essential sectors such as health, education, and raw agricultural food.
Beginning in 2019, medicines for hypertension, high cholesterol, and diabetes
were exempted from VAT. Similarly, purchases made by senior citizens and
persons with disabilities remain exempt. Housing valued at less than ₱2 million was
also made VAT-exempt starting in 2021.
Increased taxes
Passive
Income. The law imposes higher taxes on certain types of
passive income, including interest earned from dollar and other foreign
currency deposits.
Excise
Tax. TRAIN increases excise taxes on cigarettes,
petroleum products (manufactured oils), mineral products, and automobiles.
Documentary
Stamp Tax. Unlike the House of Representatives’ version of
TRAIN, which did not introduce changes to the rates of Documentary Stamp Tax
(DST), the enacted law increases DST on nearly all taxable documents.
2.
New taxes.
Sugar-Sweetened Beverage (SSB) Tax. The TRAIN Law also imposed a tax
on sugar-sweetened beverages (SSBs) to promote a healthier Philippines. Its
goal is to reduce the rising cases of diabetes and obesity by raising public
awareness, encouraging the consumption of healthier products, and motivating
companies to innovate healthier alternatives. The law imposes new taxes of ₱6 per liter on drinks containing
sweeteners and ₱12 per liter on
drinks containing high-fructose corn syrup. Milk, 100% natural juice, and
3-in-1 instant coffee drinks are exempt from this excise tax.
Other Excise Taxes. TRAIN also introduced a 5% excise
tax on invasive cosmetic procedures that are performed solely to improve,
alter, or enhance a patient’s appearance. Additionally, winnings from the
Philippine Charity Sweepstakes Office (PCSO) are now subject to a 20% final
withholding tax if the amount exceeds ₱10,000.
It can be deduced that the law
presents both potential benefits and negative impacts:
The potential benefits are as
follows:
1. Higher take-home pay and, therefore, improved spending
power, particularly for those earning ₱40,000 a month or less
2. Better post-tax income rates for corporations
3. More efficient tax collection
4. Offsetting measures targeting the most affluent
businesses and individuals are expected to generate revenue that will support
the government’s aggressive infrastructure projects and improve basic services
such as housing, education, and social protection
The negative impacts are as follows:
1. Inflationary effects from higher petroleum prices,
which are expected to disproportionately affect the bottom 60% of households.
The government aims to offset these effects through a “transfer scheme” that
will allocate around ₱30 billion from petroleum excise taxes to support
lower-income sectors. However, this scheme has been criticized for being
unsustainable—projected to last only one to four years—and a “logistical
nightmare.”
2. Excise taxes on sugar-sweetened beverages may burden
lower-income sectors, particularly those who are already tax-exempt under the
current system and therefore will not benefit from reduced income tax rates
3. Higher property taxes due to increased property
valuation
4. Investors seeking to benefit from PEZA (Philippine
Economic Zone Authority) incentives may be discouraged by the removal or
restructuring of some of these incentives
5. VAT on low-rental housing may lead to increased rental
costs
6. For small businesses like sari-sari stores, being
taxed on gross income rather than net income (computed after expenses) may
result in higher tax payments