Taxation is unlimited, plenary, comprehensive and supreme. However, despite this, taxation is subject to various inherent limitations. These limitations prevent taxation power from being too powerful. Inherent limitations are limitations that need no passage of laws in order for them to limit and suppress the power of taxation.
The Inherent Limitations of Taxation
(1) Territoriality of taxation
(2) International comity
(3) Public purpose
(4) Exemption of the government
(5) Non-delegation of the taxing power
Territoriality of Taxation
Public services are normally provided within the boundaries of the State. Therefore, tax can only be imposed within the State territory. There is no basis in taxing foreign subjects abroad since they do not derive benefits from our government. Furthermore, extraterritorial taxation will amount to encroachment of foreign sovereignty.
This inherent limitation pertains to the mutual courtesy or reciprocity between states. It is a basic principle of international law that all states are equally sovereign despite how large or how small a country is. Each state observes co-equal sovereignty by not taxing on transfers of property effects of fellow states.
Tax is intended for the common good. Therefore, another inherent limitation is that taxation must be exercised absolutely for public purpose. It cannot be exercised to further any private interest. Any tax that is does not benefit the general public would not be a valid tax and cannot be enacted.
Exemption of the Government
The taxation power is broad. The government can exercise the power upon anything including itself. However, the government usually does not tax itself as this will not raise additional funds but will only impute additional costs. It would just be like transferring money from your left pocket to your right pocket. It would require effort but would not result to any benefit.
Non-Delegation of Taxing Power
The legislative taxing power is vested exclusively in Congress and is non-delegable pursuant to the doctrine of separation of the branches of the government to ensure a system of checks and balances. The power of lawmaking, including taxation, is delegated by the people to the legislature. So as not to spoil the purpose of delegation, it is held that what has been delegated cannot be further delegated.