Summary
Highlights
The video introduces the two main categories of limitations on the power of taxation: inherent and constitutional. It emphasizes that the constitution serves as a contract between the state and its people, defining fundamental laws that cannot be easily changed by congressional action alone.
There are six inherent limitations on the power of taxation, which are universally recognized even if not explicitly stated in the constitution. These include taxes for public purpose, non-delegation of taxing power, territorial limits, international comity, government exemptions, and avoidance of double taxation.
Taxes must be levied only for public purposes. This means funds must be used for governmental functions and benefit the public, not private individuals. Two tests to determine public purpose are the 'duty test' and the 'promotion of general welfare test'.
The power to tax, being legislative, generally cannot be delegated. However, there are exceptions: delegation to the president for tariff rates, to local government units for revenue generation, to administrative agencies for implementing rules, and to the people through initiatives and referendums.
The power to tax is limited to the territorial jurisdiction of the sovereign state. Generally, income or subjects outside the Philippines cannot be taxed. An exception is personal jurisdiction, where resident citizens are taxed on worldwide income, though OFWs and seamen are exempt from tax on income earned abroad.
A sovereign state cannot exercise jurisdiction over another sovereign state, based on the principle of 'par in parem non habet imperium'. This extends to exemption from taxes for foreign ambassadors and embassies, as they are considered extensions of their home countries.
Government entities, agencies, and instrumentalities exercising governmental sovereign functions are generally not taxed. This is because taxing them would be like taking money from one hand and giving it to the other within the same government. However, if a government agency engages in proprietary, profit-oriented functions, it becomes taxable.
GOCCs, created through legislation for socioeconomic development objectives, can be either wholly-owned or have private sector capitalization. They often receive tax exemptions to free up resources for their objectives, with entities like GSIS, SSS, PhilHealth, and the Philippine National Red Cross enjoying broad exemptions.
Double taxation is prohibited when the same subject matter is taxed twice for the same purpose, by the same taxing authority, within the same jurisdiction, and during the same taxing period. The speaker uses the example of a community tax certificate (sedula) to illustrate instances where double taxation can and cannot occur based on these criteria.
The inherent limitations are crucial in defining the boundaries and scope of the power of taxation. The video concludes by reiterating the importance of these inherent limitations and hints at a future discussion on constitutional limitations.