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Tax1 1 Basic Principles of Taxation 01.30.11-Long - For Printing - Without Answers
Tax1 1 Basic Principles of Taxation 01.30.11-Long - For Printing - Without Answers
Definition:
1. Inherent power of Sovereignty – the power of taxation is co-extensive with sovereignty. It
is existing inseparably with the State. The government could exercise this power
even without any provision in the Constitution mentioning it.
i. Taxation begins its existence from the time a state is born with the
concurrence of its four elements which are people, territory, sovereignty and
government.
2. Essentially a legislative Function – The Law-making body of the government and its
political subdivisions exercise the power of taxation.
3. For Public Purposes – Taxes are public money, and its appropriation to be valid must be for
the common good of the people, such that no individual or particular entity shall
primarily be enriched or benefited from its use.
4. The strongest of all inherent powers of the State - Without money, the government cannot
exist permanently and cannot dispense and exercise any of its powers and / or functions
for its people.
i. In the absence o the limitations provided by the Constitutions, the power of
taxation is unlimited, complete, and supreme. The members of the law-
making body could impose taxes on things and rights at appropriate rates
within boundaries of its inherent restrictions.
5. Subject to Inherent International Treaty or Comity – As a matter of international courtesy,
property of a foreign state may not be taxed by another state based on principle of
sovereign equality among states of international law. One state cannot exercise its
sovereign dominion over another, therefore, a nation cannot impose enforced
contribution to the properties of other nations.
6. Normally payable in Money – Taxes are contributions normally payable in the form of
money.
7. Territorial in Scope – As a rule, tax laws do not operate beyond a country’s
jurisdictional limits unless there exists a privity of relationship between the taxing State
and the object of the tax. Where privity of relationship exists, the state can still exercise
its taxing powers over its citizens outside its territory because the personal jurisdiction of
his government over him still remains.
PURPOSE OF TAXATION
4. What are the two main purposes of the exercise of taxation power?
Taxation power is exercised for two main purposes; to raise revenue (fiscal) and to regulate
certain activities or consumption (regulatory)
1. Fiscal purpose – taxes are imposed primarily to raise the necessary revenue to finance
various activities of the government in the promotion of the general welfare and
promotion of the public.
2. Regulatory purpose – taxation power could also be exercised to regulate inflation, achieve
economic and social stability, and to serve as a key instrument for social control.
Definition:
1. Levy – pertains to the passage of tax laws and tax ordinances to
legislature
2. Assessment – refers to the appraisal and valuation process of the subject
or object of taxation to arrive at total amount of collectible tax.
3. Collection – involves the effective administrative implementation of
obtaining payment of tax from the taxpayer.
6. Which of the aspects of taxation process could not be delegated to other
branches of the government?
The levying or imposition aspect of taxation could not in anyway to be delegated and which
should be exclusively exercised by the law-making body; while the other stages of taxation
may lawfully be delegated to other branches of the government. The collection aspect of
taxation could even be delegated to private entity.
12. What are the three basic similarities of the three inherent powers of the
government?
1. Inherent to the existence of the government
2. Exercised for public purposes
3. Legislative in nature and character
4. Presuppose equivalent compensation
5. All underlie and exist independently on the Constitution, but their exercise can only be
limited by the Constitution.
6. All are necessary attributes of the Sovereign State
13. What are the basic distinctions of the three inherent powers of the government?
1. Police power is broader than taxation and eminent domain because it involves a general
power to make and implement laws.
2. The law on public service or public utility entity may grant eminent domain while police
power and taxation power are to be exercised only by government units.
3. Both taxation and eminent domain are limited by the non-impairment clause in the
Constitution, but not police power.
4. The exercise of police power merely restricts the use of property, while eminent domain
requires the take over of specific property. In taxation, now specific property is being
taken, because this requires payment, generally in money.
5. The exercise of eminent domain requires payment of just compensation to the private
property owner, while in taxation and police power, the government has to receive tax or
fee for its exercise.
SITUS OF TAXATION
Tax1a Basic Principles of Taxation 4
Basic Principles of Taxation Rubenil B. Ibuyan, CPA, MBA
14. What is situs of taxation?
Situs of taxation refers to the place of taxation, or to the State or political unit which has
jurisdiction to impose tax.
15. The following are the factors which are determinant to the situs of taxation
1. Citizenship of the taxpayer
2. Residency of the taxpayer
3. Nature, kind or classification of tax being imposed
4. Subject or object of taxation
5. Source of income
6. Place of exercise, business or occupation being taxed
19. What is the main distinction between tax avoidance and tax invasion?
• Tax avoidance is the legal means to lessen or totally eliminate the tax liability.
Examples are tax shifting, transformation, and other exercise of legal options, which
reduce the tax burden.
• Tax evasion is the illegal means to reduce tax payment.
Example is the willful understatement of the income or the overstatement of
deductions from what is lawfully
authorized or permitted.
DOUBLE TAXATION
TAX ADMINISTRATION
22. What are the main agency implementing the National Internal Revenue
Laws?
The Bureau of Internal Revenue is the administrative agency of the government in charge
with the primary function of administering the National Internal Revenue laws and
regulations. It is responsible for the collection of National Internal Revenue taxes. It is
under the executive supervision and control of the Department of Finance. The Internal
Revenue Commissioner heads it (Sec. 2)