St.

Paul University Surigao

St. Paul University System
8400 Surigao City, Philippines

GENERAL PRINCIPLES OF TAXATION BEMAR F. CARANAY,CPA

I. CONCEPT
Taxation is the power by which the sovereign through its law-making body raises
revenue to defray the necessary expenses of government. Taxation also refers to the act
of imposing a tax by a sovereign state to raise revenue for the use and support of the
government.
 As a state power: Taxation refers to the inherent power of a sovereign state
acting through its legislature to impose a proportionate burden upon persons,
property rights or transaction to raise revenue to support government expenditure
and as a tool for general and economic welfare.
 As a process: Taxation refers to the act of imposing a tax by a sovereign state to
raise revenue for government expenses.
II. THEORIES IN TAXATION
a) Lifeblood Doctrine – taxes are the lifeblood of the government and their prompt and
certain availability is an imperious need. The collection must be made without hindrance
if the state is to maintain its orderly existence.
b) Necessity Theory – taxes are a necessary burden to preserve the State’s sovereignty and a
means to give the citizenry an army to resist aggression, a navy to defend its shores from
invasion, a corps of civil servants to serve, public improvements for the enjoyments of
the citizenry, and those which come within the State’s territory and facilities and
protection which a government is supposed to provide.
c) Benefits-Protection Theory – taxes are the based on the power of the State to demand and
receive taxes on the reciprocal duties of support and protection. This is otherwise known
as “Doctrine of Symbiotic Relationship”.
III. STAGES OF TAXATION

1. Levy or Enactment – the act of imposition by the legislature, such as by its enactment of
tax laws or statutes.
2. Assessment and Collection – the act of administration and implementation of the tax law
by the executive through its administrative agencies, notably the BIR and the Bureau of
Customs. Assessment can be dispensed with, as in the case of self-assessing taxes.
Assessment is important for (a) prescription and (b) surcharges and interest.
3. Payment – the act of compliance by the taxpayer.
IV. INHERENT POWER OF THE STATE

DEFINITION-

a) Taxation – the power by which the sovereign raises revenue to defray the necessary
expenses of government.
 b) Eminent Domain – the power of the state to take private property for public use upon
payment of just compensation. It is sometimes called expropriation.
c) Police Power – the power of the state to enact laws to promote public health, public
morals, public safety and the general welfare of the people.

SIMILARITIES:

1. They are indispensable to government existence.

2. They can exist independent of the constitution.
3. They are the means by which the state interferes with private rights and properties.
4. They are generally exercised by the legislature.
5. They contemplate an equivalent compensation or benefit.

DISTINCTIONS:

Taxation Eminent Domain Police Power

1. As to subject Imposed upon persons, Imposed upon private Imposed upon persons,
property, rights or real properties property, rights or
transactions transaction
2. As to purpose To raise revenue for To acquire private For regulation and
government expenses property for public use control
3. As to limitation Generally unlimited Limited to the fair value Limited to the cost of
of the expenses of license fee and other
regulation property control
4. As to act Taxpayers pays taxes Private property is taken Enforcement of laws for
involved for public use public welfare and
common good
5. As to benefits Protection & other Person receives a just Protection & other
received by the benefits from the compensation benefits from the
people government government
6. As to Inferior Superior Superior
relationship to
non-impairment
clause of the
constitution

V. GENERAL PRINCIPLES OF A SOUND TAX SYSTEM

a) Fiscal adequacy – revenues must be adequate to meet government expenditures and other
public needs.
b) Theoretical justice – taxes must be reasonable, just, unconscionable, fair and equitable,
not unjust or excessive. A sound tax system must take into consideration the taxpayer’s
ability to pay. This is a constitutional requirement.
c) Administrative feasibility – tax law must be least inconvenient for the taxpayer and easy
enough to implement for the government.

Tax measures that violate fiscal adequacy and administrative feasibility do not become
void on that point alone, for these are meant to make the system sound, not valid. But
 violation of theoretical justice is fatal because the constitution mandates the taxation be
equitable.
VI. NATURE OF TAXATION POWER
1) For Public Purpose;
 If for the welfare of the nation or greater portion of the population
 If it affects the area as a community rather than individuals
 If it is designed to support the services of government for some of the recognized
objects of the country.
2) Essentially a Legislative Function;
3) Territorial in operation
4) Tax exemption of the government
5) Subject to Constitutional and Inherent Limitations
VII. SCOPE OF THE POWER OF TAXATION
Cooley describes the power to tax as one that can reach anyone and any activity anytime
until the end. It is UNLIMITED, PLENARY, COMPREHENSIVE and SUPREME. As a
rule, the state thru the congress can tax anything at any time and at any amount.
1. Subject matter of the tax.
2. Situs of taxation.
3. Purpose of the tax.
4. Amount or rate of tax
5. Method of collection / Importance of Taxation
VIII. INHERENT LIMITATION
1. Taxes may be levied only for public purpose
2. The power to tax, being inherently legislative, may not be delegated.
3. The power to tax limited to territorial jurisdiction of the State.
4. The power to tax is subject to international comity.
5. The power to tax is subject to exemption from taxation of governmental agencies/
entities.
IX. CONSTITUTIONAL LIMITATION
1. Due process of law (Art. III, Sec. 1)
2. Equal protection of law (Art. III, Sec. 1)
3. Rule of uniformity and equity in taxation (Art. VI, Sec. 28 (1))
4. Progressive system of taxation (Art. VI, Sec. 28 (1))
5. Non-impairment clause (Art. III, Sec. 10)
6. Non-imprisonment for non-payment of poll tax (Art. III, Sec. 20)
7. Bills to originate from the House of Representatives (Art. III, Sec. 24)
8. President’s power to veto separate items of revenue or tariff bills (Art. VI, Sec. 27 (2))
9. President’s power to tax (Art. VIII, Sec. 28 (2))
10. Exemption from property taxation of religious, charitable or educational entities,
nonprofit cemeteries, churches and convents appurtenant thereto…actually, directly and
exclusively used for religious, charitable or educational purposes shall be exempt from
taxation. (Art. VI, Sec. 28 (3))
11. The congress may not deprive the Supreme Court of its jurisdiction in all cases involving
the legality of any tax (Art. VIII, Sec. 2)
 12. Tax exemptions granted to non-stock, non-profit educational institutions (Art. XIV, Sec.
4 (3))
13. Grant of tax exemptions (Art. VI, Sec. 28 (4))
14. All money collected on any tax levied for special purpose shall be treated as a special
fund and paid out for such purpose only
X. CONTRACTUAL LIMITATION
These are restriction on the taxing power imposed by previously existing contracts
entered into by the government with another party who may be another state or its own
citizens.
XI. MEANING OF TAXES
The enforced proportional contribution from persons and property levied by law making
body of the state by virtue of its sovereignty for the support of the government and all
public needs. (“Cooley’s definition,” 1 Cooley 62)
XII. KINDS OF TAXES

1. What are the kinds of taxes as to subject matter?

a. Personal, poll or capitation tax – tax imposed on persons residing within a specific
territory. Example : Basic Community Tax
b. Property tax –tax imposed on property, whether real or personal.
Example: Real estate tax
c. Excise tax – tax imposed on the exercise of a right or privilege. Also called
“Privilege tax”
Example: Income tax. Estate tax, donor’s tax, etc,
2. What are the kinds of taxes as to who bears the burden?
a. Direct tax – tax imposed upon a person who is directly bound to pay it; tax which the
taxpayer cannot shift to another. Example : Income tax, estate tax, donor’s tax
b. Indirect tax – tax which forms part of the purchase price; tax which the taxpayer can
shift to another. Example: Excise tax on certain goods, other percentage taxes, value
added tax
3. What are the kinds of taxes as to determination of amount?
a. Specific tax – tax based on weight, number or some other standards of weight or
measurement. Example: Excise tax on distilled spirits, wines, cinematographic films
b. Advalorem tax – tax imposed based on the value of the taxable item. Example: Real
estate tax
4. What are the kinds of taxes as to purpose?
a. General tax – tax imposed for general purposes of the government.
Example: Income tax, value added tax
b. Specified tax- tax imposed for a special purpose or purposes.
Example: Protective tariff and customs duties, Special Educational Fund (SEF) Tax,
Special Assessments
5. What are the kinds of taxes as to jurisdiction/scope or authority imposing tax?
a. National tax- tax imposed on a national and for the national government.
Example: National Internal Revenue taxes
b. Local tax – tax imposed on a local level for the support of local governments.
 6. What are the kinds of taxes as to graduation or rate?
a. Proportional tax- the tax rate of which is fixed or constant.
Example: Corporate Income Tax, value added tax
b. Progressive tax- the tax rate increases as the taxable amount or tax bracket increases.
Example: Individual income tax, estate tax, donor’s tax
c. Regressive tax – the tax rate decreases as the taxable amount or tax bracket increases.
We have no regressive tax in the Philippines.

B. Tax distinguished from OTHER CHARGES and FEES

1. Differentiate tax from toll

Tax
a. Demand of sovereignty
b. Generally amount is unlimited
c. For the support of the government
d. May be imposed by the State only
TOLL
Demand of proprietorship
Amount is limited to the cost and maintenance of
public improvement.
For the use of another’s property
May be imposed by private individuals or entities

2. Differentiate tax from special assessment

Tax SPECIAL ASSESSMENT

a. Imposed on persons, property rights or Levied only on lands
transactions
b. For the support of the government Contribution to the cost of public improvement
c. Regular exaction Exceptional as to time and place

3. Differentiate tax from license fee

Tax LICENSE FEE

a. Imposed to raise revenue
b. Collected under the power of government
c. Generally amount is unlimited
d. Imposed on persons, property, rights or
transaction
e. Non-payment does not make the business
illegal
For regulation and control
Collected under the 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

4. Differentiate tax from penalty

Tax PENALTY
a. Imposed to raise revenue Imposed to regulate conduct
b. May be imposed by the State only May be imposed by the private entity

5. Differentiate tax from customs duty

Tax CUSTOM’S DUTY

a. Imposed upon persons, property, rights or Imposed on imported or exported goods
 transactions
b. It comprehends more than the term It is also a tax
customs duty

6. Differentiate tax from debt

Tax DEBT
a. Based on law Based on contract
b. Not assignable Assignable
c. Payable in money Payable in kind or in money
d. Not subject to set-off Subject to set-off
e. Non-payment may result to imprisonment No imprisonment (except when debt arises from
crime)
f. Bears interest only if delinquent Interest depends upon the stipulation of the parties.

7. Differentiate tax from tithe

Tax TITHE
a. Based on law Based on religious obligation
b. Rates vary Generally fixed at 10% of one’s earning

The following are national taxes imposed under special laws

a. Customs duties
b. Sugar adjustment taxes
c. Taxes on narcotic drugs
d. Specific educational fund taxes
e. Science fund tax
f. Energy taxes on aircraft, motorized watercraft, and electrical power consumption
g. Travel tax
h. Private motor vehicle tax
XIII. SITUS OF TAXATION
Refers to the place of taxation, or the state or political unit which has jurisdiction to
impose tax over its inhabitants. It defines boundaries of the taxing power in defining the
objects of taxation. The following factors are determinants to the suits of taxation:
1. Nature, kind or classification of the tax being imposed;
2. Subject matter of the tax (person, property, rights or activity);
3. Source of income being taxed;
4. Place of the excise, privilege, business or occupation being taxed;
5. Citizenship of the taxpayer; or
6. Residence of the taxpayer.
XIV. CHARACTERISTICS OF TAXES
1. Enforced contribution
2. Impose by the legislative body
3. Proportionate in character
4. Payable in the form of money
5. Imposed for the purpose of raising revenue
6. Used for public purpose
 7. Enforced on some persons, properties or rights
8. Commonly required to be paid at regular intervals
9. Imposed by the sovereign state within its jurisdiction

XV. INTERPRETATION
1. Doubts on the validity of tax measures are resolved in favor of the government.
2. Doubts on whether the taxing authority has the power to impose the tax are resolved in
favor of the taxing authority.
a. In the case of the national government, taxation is the rule and not the exception,
since taxation inherent in sovereignty. Limitations being the exception, authority
must be upheld.
b. In the case of local governments, in view of the general and broad constitutional
delegation of tax power, subject only to limitations prescribed by law, the power
exists unless otherwise provided.
(A) When the tax law is valid and the authority exists, doubts in the language of the law
as to whether a taxpayer is covered by the tax or not are resolved in favor of the
taxpayer.
(B) Doubts as to the validity of tax exemptions are resolved liberally in favor of the
government and strictly against the taxpayer, except:
a. Law itself provides;
b. Exemptions in favor of the government;
c. Exemptions in favor of traditionally exempt; e.g. churches, educational
institutions
d. Special circumstances to special classes of persons, e.g. in favor of earthquake
victims.
XVI. DOUBLE TAXATION

Double taxation means the taxing (i) the same tax period (ii) of the same thing or
activity (iii) twice (iv) for the same purpose, and (v) with the same kind or character of
tax.
Although the Supreme Court considers double taxation by the same taxing
authority (known as direct duplicate taxation) “obnoxious”, double taxation in itself is not
valid defense against the validity of a tax measure, not being forbidden by the
Constitution nor by the inherent limitations of taxation.
Note that no double taxation exist where the objects of the tax are not the same
(e.g. copra and soap) or where the taxes are not of the same kind (e.g. production and
sale).
XVII. ESCAPES FROM TAXATION
The following are forms of escapes from taxation:
a) Tax avoidance – tax saving device within the means sanctioned by law. If used by the
taxpayer (i) in good faith and (ii) at arm’s length, then it is valid.
b) Tax evasion- scheme used outside of those lawful means. When used by the taxpayer, it
subjects him to additional civil or criminal liabilities.
 c) Tax exemption – is the grant of immunity to particular persons or corporations or to
persons or corporations of a particular class from a tax which persons and corporations
generally within the same state or taxing district are obliged to pay.
d) Tax amnesty- a waiver by the government’s right to collect the tax. It is immunity from
all civil, criminal and administrative liabilities arising from non-payment of taxes.

Kinds of shifting
a. Forward shifting- this takes place when the burden of the tax is transferred from a
factor of production thru the factors of distribution until it finally settles on the
ultimate purchaser or consumer.
b. Backward shifting- this is effected when the burden of the tax is transferred from the
consumer or purchaser thru the factors of distribution to the factor of production.
c. Onward shifting- this occurs when the tax is shifted two or more times either forward
or backward.
XVIII. OTHER DOCTRINES/ CONCEPTS IN TAXATION
1. EQUITABLE RECOUPMENT
This doctrine of law states that a tax claim for refund, which is prevented by
prescription, may be allowed to be used as payment for unsettled tax liabilities if
both taxes arise from the same transactions in which the overpayment is made
underpayment is due.
2. TAXPAYER’S SUIT
This remedy in law is affected through court proceedings and could only be
allowed if the act involves a direct and illegal disbursement of public funds
derived from taxation.
3. PROSPECTIVITY OF TAX LAWS
This principle in law states that a tax bill must only be applicable and operative
after becoming a law. The retroactive application of tax laws shall not be applied
unless there is clear intent of the legislature that such law shall also be impose on
past transactions.
4. IMPRESCRIPTIBILITY OF TAXES
This principle states that unless otherwise provided by the law itself, taxes in
general are not cancellable.
5. TAX SPARING RULE
The purpose of this rule is to reduce the impact of international double taxation
like that giving foreign corporations not engaged in trade or business the
preferential tax rate of 15% on dividends if his country of domiciliary allows a
tax credit of 20% otherwise they will pay the 35% regular rate.
6. PROGRESSIVE SYSTEM OF TAXATION
The purpose of this system is to impose taxes based on one’s ability to pay, those
in a better financial position to pay are taxed more than those who are not.

END
WHATEVER THE MIND OF MAN CAN CONCEIVE AND BELIEVE, IT