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Pinedapcg,rn,man 2015

AMOUNT
EXACTION

BENEFITS

TAXATION
POLICE POWER
For
revenue Promote public
raising
welfare through
regulation
OF No limits
Limited to cost
of
regulation,
issuance
of
license,
or
surveillance
No
direct No direct benefit

TAXATION
PURPOSE

Raised for public

revenue

COMPENSATION

Payment o taxes
accrues to the
general benefit
of the citizens

PERSONS
AFFECTED

are
received
through
the
exercise of PP,
yet a healthy
economic
standard
of
society
is
maintained

Does not apply

to PP

Allows merely
the restraint on
the exercise of
property rights

EMINENT
DOMAIN
Taking
of
property
for
public use
Compensation is
given to the
owner of the
expropriated
property
Particular
property
is
comprehended

All
persons,
property
and
end
exercise
which
are
subject thereto
E. Purpose of taxation
a. Revenue raising-primary purpose is to
raise funds or property to enable the
state to promote the general welfare
and protection of its citizen
b. Non-revenue/special or regulatory
(Secondary)
i. Reduction of social inequity
through progressive system of
taxation

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PURPOSE

benefits
is
received by the
taxpayer other
than that the
government
secures to the
citizen
that
general benefit
resulting from
protection of his
person
and
property
and
welfare of all
SUPERIORITY OF Recognizes the
CONTRACTS
obligations
imposed
by
contracts
TRANSFER
OF Paid to form part
PROPERTY
of public funds
RIGHTS

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A. Definition and concept of taxation

a. Definition
i. Taxation is a mode revenue
raising for public purpose
b. Concepts of taxation
i. Power to tax
ii. The act or process by which the
taxing power is exercised
B. Nature of taxation
a. Inherent power an attribute of
sovereignty, belonging as a matter of
right to every independent government
without being expressly granted by the
people.
b. Legislative power-generally vested to
the legislature.
C. Characteristics of taxation
a. Forced
charge,
imposition
or
contribution
b. Assessed in accordance to the
taxpayers ability to pay
c. Pecuniary burden payable in money,
but backpay certificates may be used in
payment
d. Imposed by the state on persons,
property, or exercises it s jurisdiction ,
in accordance with the principle of
territoriality (territorial)
e. Levied by the legislative body
f. Levied for public purpose
g. It is personal to the taxpayer
D. Power of taxation compared with other
powers

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The power to tax is an attribute of sovereignty

emanating from necessity. It is a necessary burden to
preserve the States sovereignty.
Taxation is a symbiotic relationship whereby in
exchange of the benefits and protection that the
citizens get from the government, taxes are paid.
a. Lifeblood theory-taxes are the lifeblood
of the Government. Without taxes, the
government cannot fulfill its mandate
of promoting the general welfare and
wellbeing of the people.

b. Necessity theory-the existence of a

government is a necessity. It has the
right to compel all citizens and property
within its limits to pay taxes.
c. Benefits-protection theory (symbiotic
relationship)-Taxes are what we pay for
a civilized society. Without taxes, the
government will be paralyzed for lack of
motive power to activate and operate
it. Hence despite the natural reluctance
to surrender part of their hard earned
income to the government, every
person who is able to must contribute
his share in the running of the
government. The government in return,
is expected to respond in the form of
tangible and intangible benefits
intended to improve the lives of the
people, and enhance their moral and
material
values.
This
symbiotic
relationship is the rationale of taxation
and should dispel the erroneous notion
that it is an arbitrary method of
exaction by those in the seat of power.
(Commissioner of Internal Revenue vs
Algue, 158 SCRA 9).
d. Jurisdiction over subjects and objectsthe State may impose on persons,
property, or exercises its jurisdiction , in
accordance with the principle of
territoriality (territorial)
H. Doctrines of taxation
a. Prospectivity of tax laws-general rule
under the Civil Code that laws shall
have prospective application applies to
tax laws. Retroactive application of the
revenue law may be allowed id it will
not amount to denial of sue process.
There is violation of due process when
the tax law imposes harsh and
oppressive tax.
b. Imprescribility-as a rule, taxes are
imprescriptible as they are the lifeblood

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ii. Encourage growth of Local

Industries through incentives or
tax exemptions to encourage
investment in our local industry
thereby promoting economic
growth.
iii. Protect our Local industry
against unfair competition
through imposition of certain
taxes upon imported goods or
articles to further protect our
local industries
iv. As an implement of police
power (Regulatory Measure)
F. Principles of a sound tax system
a. Principle of fiscal adequacy-sources of
revenues must be adequate to meet
government expenditures and their
variations.
b. Principle of administrative feasibilityrequires that tax law must be capable of
convenient,
just
and
effective
administration. Taxes should be capable
of being effectively enforced.
c. Principle of equality or theoretical
justice-tax
imposed
must
be
proportionate to taxpayers ability to
pay.
G. Theory and basis of taxation

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*Although NIRC provides for prescriptive period it is

applicable only to those taxes that were returnable. The
prescriptive period shall start from the time the
taxpayer files the tax return and declares his liability
c. Double Taxation-Taxing the same
subject or object within the same
taxable period or taxing the same
subject or object twice by the same
taxing power within the same taxable
period for the same purpose.
i. Strict Sense (Direct duplicate
taxation/Obnoxious)-the
objectionable kind or double
taxation in its prohibited sense,
since it violates the equal
protection clause of the
Constitution. Elements are the
following
1. The same property or
subject matter is taxed
twice when it should
only be taxed only
once.
2. Both taxes are levied
for the same purpose.
3. Imposed by the same
taxing authority;

a. Within
the
same
jurisdiction
b. During
the
same
taxing
period
c. Covering
the
same kind or
character of tax
ii. Broad sense (Indirect Duplicate
Taxation)-the permissible kind
of double taxation. This arises
in the absence of one or more
of
the
above-mentioned
elements of direct double
taxation
iii. Constitutionality of double
taxation-is
not
expressly
forbidden in our Constitution,
but the Court has recognized it
as obnoxious where the
taxpayer is taxed twice for the
benefit
of
the
same
governmental entity or by the
same jurisdiction or for the
same purpose. However DT
will not be allowed if it results
to violation of equal protection
clause.
iv. Modes of eliminating double
taxation (CD-RET)
1. Tax Credit-an amount
subtracted from the
individual or entitys tax
liability to arrive at a
total tax liability
2. Tax
Deductions-an
amount of tax is written
off or treated from an
individuals or entity;s
GROSS INCOME on
which resulting amount

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of the government. However tax

statutes may provide for statute of
limitation.
i. NIRC (3 years), Tariff and
Custom Code (impliedly) (3
years see sec 4 RA 9135), LGC (5
years from the date they
became due. 10 {years from
discovery of fraud} in case of
fraud and intent to evade
payment of charges) provides
for prescriptive periods for both
assessment and collection of
taxes.

Pinedapcg,rn,man 2015

2. Backward shifting-when
the
burden
is
transferred
from
consumer through the
factors of distribution
to the factors of
production.
3. Onward shifting-when
the tax is shifted 2 or
more times either
forward or backward.
ii. Taxes that can be shifted-only
indirect taxes may be shifted.
Indirect taxes are those that are
demanded in the first instance
from one person in the
expectation or intention that he
can shift the burden to
someone else, not as tax but as
a part of the purchase price.
(e.g. VAT, excise tax, other
percentage tax, documentary
stamp.) The liability for the
payment of the tax remains
with the taxpayer but the
burden thereof is shifted or
passed on the purchaser.
iii. Meaning of Impact and
incidence of taxation
1. Impact of taxation-is
the point on which tax
is originally imposed or
the one whom the tax
is formally assessed.
2. Incidence of taxation-is
the point which the tax
burden finally rest or
settles.
b. Tax
avoidance-Also
called
tax
minimization, it is the exploitation by
the taxpayer of legality permissible
alternative tax rates or methods of
assessing taxable property or income, in

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I.

the tax liability is

calculated.
3. Reduction
of
the
Philippine income tax
rate-an example is the
Tax
Sparring
Rule
wherein the dividend
earned by a nonresident
foreign
corporation w/in the
Philippines is reduced
by imposing a lower
rate of 15%.
4. Tax Exemptions-grant
of
immunity
to
particular persons or
corporations from the
obligation to pay taxes.
5. Tax Treaties-agreement
between two countries
specifically what items
of income will be taxed
by the authorities of
the country where the
income is earned.
Escape from taxation
a. Shifting of tax burden-it is the transfer
of the burden by the original payer or
the one on whom the tax was assessed
(impact of taxation/statutory taxpayer)
or imposed to another or someone else
(incidence of taxation)
i. Ways of shifting tax burden;
1. Forward shifting-when
the burden of tax is
transferred from a
factor of production
through the factors of
distribution until it
finally settles down on
the ultimate purchaser
or consumer.

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Tax evasion connotes the integration of

three factors (ESC)
i. End to be achieved, i.e.
payment of less than that
known by the taxpayer to be
legally due, or paying no tax
when it is shown that the tax is
due.
ii. An accompanying state of mind
which is described as being evil,
in bad faith, willful or deliberate
and not coincidental
iii. A course of action which is
unlawful. (CIR vs Estate of
Benigno Toda Jr. Gr No. 147188,
September 14, 2004).
TAX AVOIDANCE
Legal and not subject to
criminal penalty
Minimization of taxes
Lessening of tax liabilities
through maximization of
deductions,
exclusions,

TAX EVASION
Illegal and subject to
criminal penalty
Absence of tax payment
Scheme used outside of
those lawful means when
availed of to lessen or to

J.

Exemption from taxation

a. Meaning of exemption from taxation-a
grant of Immunity , express or implied
(or contractual), to particular persons or
corporations or to persons and
corporations of particular class from tax
which persons or corporations generally
within the same state or taxing district
are obliged to pay. It is freedom from
an charge or burden to which others
are subject (Greenfield vs Meer, 77 Phil.
394).
b. Nature of taxation-laws granting tax
exemption are construed in strictissimi
juris against the taxpayer and liberally
in favor of the taxing power. Taxation is
the rule and exemption is the
exception. The law does not look with
favor on tax exemptions and that he
would seek to be thus privileged must
justify it by words to plain to be
mistaken and too categorical to be
misinterpreted (Sealand Service v CA,
GR No. 57828, June 14,1993)
c. Kinds of tax exemption
i. Express-when exemptions are
expressly granted by the
Constitution, statutes, treaties,
franchises or similar legislative
acts
ii. Implied-whenever
particular
persons, properties or excises
are deemed exempt as they fall
outside the scope of the taxing
provision itself
iii. Contractual-exemptions
in
consideration of a contractual

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ELEMENTS OF TAXATION

and exemptions, and get way of his tax liabilities

minimization of income by
legal means. Should be
used by tax payers in good
faith and at arms length

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order to avoid or reduce tax liability. It

is a tax saving device within the means
sanctioned by law and should be used
by the taxpayer in good faith and at
arms length. (CIR vs Estate of Benigno
Toda Jr. Gr No. 147188, September 14,
2004).
c. Tax evasion-it is an illegal means of
escaping taxation. It connotes fraud
through the use of pretenses and
forbidden devices to lessen or defeat
taxes. (Yutivo Sons Hardware vs CTA, Gr
No. L-13203, January 28, 1961). Hence,
it subjects the taxpayer to further or
additional civil or criminal liabilities. Tax
evasion is sometimes referred to as tax
dodging.

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the

Note: Contractual tax exemptions must not be confused

with the tax exemptions granted under franchises which
are not contracts within the purview of the nonimpairment clause of the Constitution. A franchise is a
special privilege conferred by the governmental
authority, acting as such on an undertaking that is
within the scope of governmental functions. Contractual
tax exemptions covering matters that are not essentially
governmental in nature, such as those contained in the
government bonds and debentures, unlike in franchises,
may not be revoked without impairing obligations of
contracts.(Vitug and Acosta, Tax Law and
Jurisprudence2006 ed p35).
d. Rationale/grounds for exemption-the
inherent power of the state to impose
taxes naturally carries within it the
power to grant exemptions. The power
to exempt from taxation as well as the
power to tax, is an essential attribute of
sovereignty and may be exercised in the
Constitution expressly or by implication
prohibits action by the legislature on
the subject. It may arise through
valuable consideration; the government
cannot unilaterally revoke the tax
exemption.
e. Revocation of tax exemption- a grant of
an exemption is an act of liberality
which could be taken back by the
environment. Because taxation is the
rule and exception, the exemption may
thus be withdrawn at the pleasure of
the taxing authority (Mactan Cebu
International Airport Authority vs
Marcos, et al GR No 120082, September
11, 1996).
However if the tax
exemption constitutes a binding
contract and for valuable consideration,
the government cannot unilaterally
revoke the tax exemption.

K. Compensation and set-off

Compensation or set-off takes place when two persons,
in their own right, are creditors and debtors of each
other (Art 1278 New Civil Code)
The doctrine presupposes mutual obligation between
the parties. In taxation, the concept of set-off arises
where a taxpayer is liable to pay tax but the
government for one reason or another, is indebted to
the said taxpayer.
GENERAL RULE: No set-off is admissible against the
demands for taxes levied for general or local
government purposes since tax liability is legal, not
contractual, obligation. Taxes are not in the nature of
contracts between the parties but grow of duty to and
are positive acts of the government to the making and
enforcing of which, the personal consent of the
individual tax payer is not required (RP vs Mambulao, Gr
No L-17725.
L. Compromise
Compromise is an agreement between two or more
persons who, to avoid lawsuit, amicably settle their
differences on such terms as they can agree on. A
compromise by its very nature implies mutual
agreement by the parties in regard to the thing or
subject matter which is to be compromised.
Compromises are allowed and enforceable when the
subject matter thereof is not prohibited from being
compromised and the person entering into it is duly
authorized to do so (Vitug and Acosta, Tax Law and
Jurisprudence, 2006 ed,p.48).
Persons allowed to enter into compromise?
The following are allowed to enter into compromise in
behalf of the government
a. Commissioner of Internal Revenue-may
enter, under certain conditions into a

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agreement
government.

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compromise for both the civil and criminal

liabilities of tax payer (Sec 204 NIRC)
b. Collector of Customs-with respect to
customs duties limited to cases were
legitimate authority is specifically granted,
such as in the remission of duties (Sec 709
TCC)
c. Customs Commissioner-subject to the
approval of the Secretary of Finance, on
cases involving the imposition of fines,
surcharges or forfeitures (Sec 2316, TCC)
d. Local Government Code-no provisions
regarding compromise, however tax (not
criminal) liability is not prohibited from
being compromised (Arts 2034 and 2035,
NCC)
M. Tax Amnesty
Tax amnesty is the general or intentional overlooking of
the State of its authority to impose penalties on persons
otherwise guilty of evasion or violation of a revenue or
tax law. It is a general pardon to taxpayers without
having to go through the tedious process of a tax case.
It only applies to past tax periods, hence of retroactive
application.

TAX EXEMPTION

IMMUNITY

Both
criminal Civil only
and civil

PERSON
AFFECTED

Pardon given to An immunity or

all tax payers
privilege,
a
freedom
from
charge
or
burden of which
others
are
subjected

APPLICATION

Retrospective

Prospective

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TAX AMNESTY

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