C.

STAGES/ASPECTS OF TAXATION
The stages/aspects of a system of taxation are as
follows: [LAcPR]
1. Tax Legislation (Levy or Imposition) This refers to
the enactment of a law by Congress authorizing the
imposition of tax. It further contemplates the
determination of the subject of taxation, purpose for which
the tax shall be levied, fixing the rate of taxation and the
rules of taxation in general.
2. Tax Administration (Assessment and Collection)
This is the act of administration and implementation of the
tax law by executive through its administrative agencies.
The act of assessing and collecting taxes is
administrative in character, and therefore can be
delegated. (Dimaampao, Tax Principles and Remedies
3rd Ed. 2008, p.21)
3. Payment The act of compliance by the taxpayer,
including such options, schemes or remedies as may be
legally available.
4. Refund The recovery of any tax alleged to have been
erroneously or illegally assessed or collected, or of any
penalty claimed to have been collected without authority,
or of any sum alleged to have been excessively, or in any
manner wrongfully collected.
Note: If what is delegated is tax legislation, the delegation
is invalid. If what is delegated is tax administration, the
delegation is valid. (Then there is no delegation to speak
of, because tax administration pertains to the executive or
administrative agencies)
D. BASIC PRINCIPLES OF SOUND TAX SYSTEM (FAT
)
1. Fiscal adequacy
a. Revenue raised must be sufficient to meet
government/public expenditures and other public
needs. (Chavez v. Ongpin, G.R. No. 76778, June 6,
1990)
2. Administrative feasibility
a. Tax laws must be clear and concise.
b. Capable of effective and efficient enforcement.
c. Convenient as to time and manner of payment; must
not obstruct business growth and economic
development.
3. Theoretical justice
a. Must take into consideration the taxpayers ability to
pay (Ability to Pay Theory).
b. Art. VI, Sec. 28(1), 1987 Constitution mandates that
the rule on taxation must be uniform and equitable
and that the State must evolve a progressive
system of taxation.
E. PURPOSES AND OBJECTIVES OF TAXATION
1. Revenue to raise funds or property to enable
the State to promote the general welfare and
protection of the people.
2. Promotion of general welfare taxation may be
used as an implement of police power to promote
the general welfare of the people.
3. Regulation of activities/industries
4. Reduction of Social inequality a progressive
system of taxation prevents the undue
concentration of wealth in the hands of few
individuals. Progressivity is based on the principle

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that those who are able to pay more should

shoulder the bigger portion of the tax burden.
5. Encourage economic growth the grant of
incentives or exemptions encourage investment
thereby stimulating economic activity.
6. Protectionism In case of foreign importations,
protective tariffs and customs are imposed
F. DEFINITION OF TAXES
-enforced proportional contributions from persons and
property by the law making body of the state by virtue of
its sovereignty for the support of government and for all
public needs.
G. ATTRIBUTES OR CHARACTERISTICS OF TAXES
(SLEP4 )
1. It is levied by the State which has jurisdiction over the
person or property
2. It is levied by the State through its Law-making body
3. It is an Enforced contribution not dependent on the will
of the person taxed.
4. It is generally Payable in money
5. It is Proportionate in character
6. It is levied on Persons and property
7. It is levied for a Public purpose.
H. TAX AS DISTINGUISHED FROM OTHER
IMPOSITIONS
TAXATION

POLICE
POWER
Authority who exercises the power
Government or
Government or
its political
its political
subdivision
subdivision
Purpose
To raise
revenue in order
to support of the
Government
Persons affected
Upon the
community or
class of

EMINENT
DOMAIN
Government or
public service
companies and
public utilities

Promotion of
general welfare
through
regulations

To facilitate the
taking of private
property for
public purpose

Upon
community or
class of

On an individual
as the owner of
a particular

TAX
Basis
Obligation created by law
Assignability
Not assignable
Mode of Payment
Payable in money or in
kind
Set-off
Not subject to set-off
Effect of non-payment
May result to
imprisonment
Interest
Bears interest only if
delinquent
Prescription
Governed by the special
prescriptive periods
provided for in the NIRC

DEBT
Obligation based on
contract, express or
implied
Assignable
Payable in kind or in
money
Subject to set-off
No imprisonment (except
when debt arises from
crime)
Interest depends upon
the written stipulation of
the parties
Governed by the
ordinary periods of
prescription

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TAX
Definition
An enforced proportional
contribution from persons
and property for public
purpose/s.
Basis
Demand of sovereignty
Amount
Generally the amount is
unlimited
Purpose
For the support of the
government
Authority
May be imposed by the
State only
TAX
Purpose
Imposed to raise revenue
Basis
Collected under the
power of taxation
Amount
Generally, amount is
unlimited
Subject
Imposed on persons,
property, rights or
transaction
Effect of Non-Payment
Non-payment does not
make the business illegal
Time of Payment
Normally paid after the
start of business
TAX
Definition
An enforced proportional
contribution from persons
and property for public
purpose/s.
Purpose
To raise revenue
TAX
Nature
An enforced proportional
contribution from persons
and property for public
purpose/s.
Subject
Imposed on persons,
property rights or
transactions
Person Liable
A personal liability of the
taxpayer

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TOLL
A consideration paid for
the use of a road, bridge
or the like, of a public
nature.

Purpose
For the support of the
government
Scope
Regular exaction

Contribution to the cost of

public improvement
Exceptional as to time
and locality

I. CLASSIFICATION OF TAXES
Demand of proprietorship
Amount is limited to the
cost and maintenance of
public improvement
For the use of anothers
property
May be imposed by
private individuals or
entities
LICENSE FEE
For regulation and control
Collected under police
power
Limited to the necessary
expenses of regulation
and control
Imposed on the exercise
of a right or privilege
Non-payment makes the
business illegal
Normally paid before the
commencement of the
business
PENALTY
Sanction imposed as a
punishment for a violation
of the law or acts deemed
injurious; violation of tax
laws may give rise to
imposition of penalty.
To regulate conduct
SPECIAL ASSESSMENT
An enforced proportional
contribution from owners
of lands especially those
who are peculiarly
benefited by public
improvements

1. As to object / subject matter

a. Personal/Poll or Capitation tax A fixed
amount imposed upon all persons, or upon all persons of
a certain class, residents within a specified territory,
without regard to their property or occupation.
E.g. Community tax
b. Property tax Tax imposed on property, whether real
or personal, in proportion either to its value, or in
accordance with some other reasonable method of
apportionment.
E.g. Real Property tax
c. Excise / Privilege tax a charge upon the performance
of an act, the enjoyment of a privilege, or the engaging in
an occupation. An excise tax is a tax that does not fall as
personal or property.
E.g. Income tax, Estate tax, Donors tax, VAT
Note: This is different from the excise tax under the NIRC
which is a business tax imposed on items such as cigars,
cigarettes, wines, liquors, frameworks, mineral products,
etc.
d. Custom Duties
- is the name given to taxes on the importation and
exportation of commodities, the tariff or tax assessed upon
merchandise imported from, or exported to, a foreign
country. (Nestle Phils. v. Court of Appeals, et al., G.R. No.
134114, July 6, 2001)
2. As to purpose
a. General Discal or Revenue levied solely for the
general purpose of the Government.
Ex. Income Tax, Domestic Tax
b. Special or Regulatory levied for special purpose
Ex. Tariffs and certain duties on imports
3. As to who bears the burden:
a. Direct one that is demanded from the person who
also shoulders the burden of tax.
E.g. Income tax, Estate tax and Donors tax
b. Indirect one which is shifted by the taxpayer to
someone else.
E.g. VAT and Other percentage taxes
4. As to proportionality or graduation:
a. Progressive A tax rate which increases as the
tax base or bracket increases.

Levied only on land

E.g. Income tax, Estate tax and Donors tax

b. Regressive The tax rate decreases as the tax
base or bracket increases.
c. Proportional A tax of a fixed percentage of
amount of the base (value of the property, or amount
of gross receipts etc.)

Not a personal liability of

the person assessed

E.g. VAT and Other Percentage taxes

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5. As to scope/ or authority to impose:

a. National tax Tax levied by the National
Government.
E.g. Income tax, Estate tax, Donors tax, Value
added tax, Other Percentage taxes and
Documentary Stamp taxes
b. Local or Municipal A tax levied by a local
government.
6. As to scope:
a. General/Fiscal or Revenue tax imposed solely
for the general purpose of the government.
E.g. Income tax and Donors tax
b. Special / Regulatory or Sumptuary tax levied for
specific purpose, i.e. to achieve some social or
economic ends
E.g. Tariff and certain duties on imports

a. Domestic Double Taxation - When the taxes are

imposed by the local and national government within
the same State.
b. International Juridical Double Taxation - occurs
when there is an imposition of comparable taxes in two
or more states on the same taxpayer in respect of the
same subject matter and for identical periods.
Schemes to avoid IJDT
1. Territorial Based System foreign source income
is normally exempted from domestic tax;
2. Imposition of tax on the worldwide income of their
individual citizens and residents and domestic
corporations
Schemes to avoid of double taxation
A: Local legislation and tax treaties may provide for:
1. Tax credit an amount subtracted from taxpayers tax
liability in order to arrive at the net tax due.

E.g. Real Estate tax and Community tax

7. As to determination of the amount / tax rates:
a. Specific tax of a fixed amount imposed by the
head or number, or by some standard of weight or
measurement.
E.g. Excise tax on cigar, cigarettes and liquors
b. Ad valorem tax based on the value of the
property with respect to which the tax is assessed. It
requires the intervention of assessors or appraisers to
estimate the value of such property before the
amount due can be determined.
E.g. VAT, Income tax, Donors tax and Estate tax
8. As to Tax Base:
a. Gross Taxation does not admit of any
deductions.
b. Net Taxation admits of deductions in arriving at the
taxable base.
J. DEFINE DOUBLE TAXATION.
Otherwise described as direct duplicate
taxation, the two taxes must be imposed on the same
subject matter, for the same purpose, by the same taxing
authority, within the same jurisdiction, during the same
taxing period; and the taxes must be of the same kind or
character. (City of Manila v. Coca Cola Bottlers
Philippines, G.R. No. 181845, Aug. 4, 2009)
Kinds of double taxation
1. As to validity
a. Direct Double Taxation (Obnoxious) - Double
taxation in the objectionable or prohibited sense since
it violates the equal protection clause of the
Constitution.
b. Indirect Double Taxation - Not repugnant to the
Constitution.
i. This is allowed if the taxes are of different nature or
character imposed by different taxing authorities.
ii. Generally, it extends to all cases when one or more
elements of direct taxation are not present.

This method relies on invoices, an entity can credit

against or subtract from the VAT charged on its sales or
outputs the VAT paid on its purchases, inputs and
imports. [Commissioner of Internal Revenue v. Seagate
Technology (Philippines), G. R. No. 153866, February 11,
2005 citing various cases and authorities; Abakada Guro
Party List (etc.) v. Ermita, etc., et al., G. R. No. 168056,
September 1, 2005 and companion cases)
If at the end of a taxable period, the output taxes
charged by a seller are equal to the input taxes passed
on by the suppliers, no payment is required. It is when
the output taxes exceed the input taxes that the excess
has to be paid. If however, the input taxes exceed the
output taxes, the excess shall be carried over to the
succeeding quarter or quarters. Should the input taxes
result from zero-rated or effectively zero-rated
transactions or from acquisition of capital goods, any
excess over the output taxes shall instead be refunded to
the taxpayer or credited against other internal revenue
taxes. [Commissioner of Internal Revenue v. Seagate
Technology (Philippines), G. R. No. 153866, February 11,
2005 citing various cases and authorities]
2. Tax deduction an amount subtracted from the gross
amount on which a tax is calculated.
3. Tax exemption a grant of immunity to particular
persons or entities from the obligation to pay taxes.
4. Imposition of a rate lower than the normal domestic
rate
K. TAX EXEMPTION
It is the grant of immunity, express or implied, to
particular persons or corporations, from a tax upon
property or an excise tax which persons or corporations
generally within the same taxing districts are obliged to
pay.

2. As to scope Classification of tax exemptions

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A: As to source/basis
1. Constitutional Immunities from taxation which
originate from the Constitution.
2. Statutory Those which emanate from legislation.
3. Contractual Agreed to by the taxing authority in
contracts lawfully entered into by them under enabling
laws.
4. Treaty
5. Licensing ordinance
As to manner/form
1. Express Expressly granted by organic or statute law.
2. Implied When particular persons, properties or
excises are deemed exempt as they fall outside the
scope of the taxing provision.
As to scope/ extent
1. Total Connotes absolute immunity.
2. Partial One where a collection of a part of the tax is
dispensed with.
As to object
1. Personal Granted directly in favor of certain persons.
2. Impersonal Granted directly in favor of a certain
class of property.
L. CONSTRUCTION AND INTERPRETATION OF TAX
LAWS
Q: What is the nature of tax laws?
A: Tax laws are:
1. Not political
2. Civil in nature
3. Not penal in character
How are tax laws construed?
1. Generally, no person or property is subject to tax
unless within the terms or plain import of a taxing statute.
2. Tax laws are generally prospective in nature.
3. Where the language is clear and categorical, the words
employed are to be given their ordinary meaning.
4. When there is doubt, tax laws are strictly construed
against the Government and liberally in favor of the
taxpayer.
Note: Taxes, being burdens, are not to be presumed
beyond what the statute expressly and clearly provides.
5. Provisions of the taxing act are not to be extended by
implication.
6. Tax laws are special laws
M. REGULATION
Requisites for validity of regulations:
1. It is issued under authority of law;
2. It must be within the scope and purview of te law;
3. It is reasonable;
4. It must be published in the official gazette or in a
newspaper of general circulation;
5. Where the regulations impose penal
administrative and the law should fix or define the
punishable violation of the administrative, and the
law should fix or define as penalty for the violation
of the r rule or regulation.
N. ESCAPE FROM TAXATION
1. Shifting
2. Capitalization
3. Tax Transformation
4. Transfer Pricing
5. Resorting to Tax Haven
6. Tax Deferral
7. Tax Shelter
8. Avoidance
9. Evasion

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1. Shifting
- The transfer of the burden of tax by the original payer or
the one on whom the tax was assessed or imposed to
another or someone else without violating the law.
Two kinds of shifting
1. Forward shifting When the burden of tax is
transferred from a factor of production through the factors
of distribution until it finally settles on the ultimate
purchaser or consumer.
2. Backward shifting When the burden is transferred
from the consumer through the factors of distribution to
the factors of production.
3. Onward shifting When the tax is shifted two or more
times either forward or backward.
In what kind of taxes does it apply?
A: It applies to indirect taxes since the law allows the
burden of the tax to be transferred. In case of direct tax,
the shifting of burden can only be via a contractual
provision.
Note: Examples of taxes when shifting may apply are
VAT, percentage tax, excise tax on excisable articles, ad
valorem tax that oil company pays to BIR upon removal of
petroleum products from its refinery.
3. Capitalization
It is the reduction in the price of the taxed object
equal to the capitalized value of future taxes which the
purchaser expects to be called upon to pay.
4. Avoidance
It is the scheme where the taxpayer uses legally
permissible alternative method of assessing taxable
property or income, in order to avoid or reduce tax liability.
Note: Also known as Tax Minimization, tax avoidance is
the tax saving device within the means sanctioned by law.
This method should be used by the taxpayer in good faith
and at arms length. (Commissioner v. Estate of Benigno
Toda Jr., G.R. No. 30554, Feb 28, 1983)
5. Transformation
It is the scheme where the manufacturer or producer
upon whom the tax has been imposed, fearing the loss of
his market if he should add the tax to the price, pays the
tax and endeavors to recoup himself by improving his
process of production, thereby turning out his units of
products at a lower cost.
6. Tax evasion
It is the scheme where the taxpayer uses illegal or
fraudulent means to defeat or lessen payment of a tax.
Note: Tax evasion is a scheme used outside of those
lawful means and when availed of, it usually subjects the
taxpayer to further or additional civil or criminal liabilities
(Commissioner v. Estate of Benigno Toda Jr. G.R. No.
30554, Feb. 28, 1983). Tax evasion is somestimes
referred to as Tax Dodging.
Elements to be considered in determining tax evasion
(ESC )
1. End to be achieved, i.e., payment of less than that
known by the taxpayer to be legally due, or non-payment
of tax when it is shown that the tax is due;
2. Accompanying State of mind which is described as
being evil, in bad faith, willful or deliberate and not
accidental; and
3. Course of action which is unlawful. (Commissioner of
Internal Revenue v. The Estate of Benigno P. Toda, Jr., ,
etc., G. R. No. 147188, September 14, 2004)

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Distinguish tax avoidance from tax evasion?

TAX AVOIDANCE
TAX EVASION
Validity
Legal and not subject to
Illegal and subject to criminal
criminal penalty
penalty

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Effect
Minimization of taxes

Almost always results in

absence of tax payment.

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