Income Taxation

Definition of Taxation Distinctions among the three (3) inherent powers

Taxation is the process or means by which the sovereign Taxation Police Power Eminent
Domain
(independent state) through its law-making body (the Nature Power to Power to Power to take
legislature), imposes burdens upon subjects and objects enforce make and private
within its jurisdiction for the purpose of raising contributions implement property for
to raise gov’t laws for the public use
revenues to carry out the legitimate objects of funds general with just
government welfare compensation
Authority Government Government May be
In simple terms, it is the act of levying a tax in apportion only only granted to
the cost of government among those who, in some public
service/utility
measure are privileged to enjoy its benefits and must companies
therefore bear its burden. Purpose For the support Promotion of The taking of
of the general private
It is the power inherent in every sovereign state being government welfare property for
essential to the existence of every government. through public use
regulation
Taxes are enforced proportional contributions or Persons Community or Community On an
Affected a class of or a class of individual as
charges from persons and property levied by the law- individuals. individuals. the owner of
making body of the state by virtue of its sovereignty for Applies to all Applies to all personal
the support of the government and all public needs. persons, persons, property
property and property and
The Three (3) inherent powers of the state excises that excises that
may be subject may be
Police Power- It is the power of the state for promoting thereto subject
thereto
public welfare by restraining and regulating the use of Scope Plenary, Broader in Merely a
liberty and property. It may be exercise only by the comprehensive, application, power to take
government. The property taken in the exercise of this supreme General private
power to property for
power is destroyed because it is noxious or intended for
make and public use
a noxious purpose. implement
law
Power of Taxation- It is the power by which the state Effect Contribution No transfer There is a
raises revenue to defray the necessary expenses of the becomes part or title. There transfer of
of public fund may just a title to
government
restraint on property
the injurious
Power of Eminent Domain-it is the power of the state
use of
to acquire private property for public purpose upon property
payment of just compensation Benefits In form of No direct and Market Value
Received protection and immediate of property
Similarities among the Three (3) inherent powers of benefits benefit but taken
received from only such as
the state
government may arise
from
1. They are inherent in the state
maintenance
2. They exist independently of the constitution of a healthy
although the conditions for their exercise may economic
standard of
be prescribed by the constitutions
society
3. Ways by which the state interfere with private rights and
Amount of No limit Sufficient to No
property Imposition cover cost of imposition.
4. Legislative in nature the license The owner is
5. Presuppose an equivalent compensation received, directly and the paid
or indirectly, by the persons affected necessary equivalent to
expenses of the pair value
police of his
surveillance property
 and It means that in the performance of its government
regulation
functions:
Purpose of Taxation
-The state cannot be estopped by the neglect of its
1. Primary: Revenue or Fiscal Purpose
agents/officers
The primary purpose on taxation on the part on the
-Erroneous application and enforcement of law by
government is to provide funds or property with which
public officers do not block the subsequent correct
to promote the general welfare and the protection of its
application of statues
citizen and to enable it to finance its multifarious
activities. A government can run its administrative set b. Collection of taxes cannot be enjoined (stopped) by
up only through public funding which is collected injunction
through form of tax.
Tax should be collected without unnecessary delay, its
2. Secondary: Regulatory Purpose (or collection however, should not be tainted with
Sumptuary/Compensatory) arbitrariness.

Taxation is employed as a devise for regulation or
control (implementation of State’s police power) by
means which certain effects or conditions envisioned by
the government may be achieved such as:
a. Promotion of General Welfare
b. Reduction of Social Inequality
c. Economic Growth
Theory and Basis of Taxation
1. Theory (Authority): Lifeblood Theory
Necessity Theory
c. Taxes could not be the subject of compensation or
set-off
Taxes cannot be subject to set-off or compensation
since claim for taxes is not a debt or contract.
d. Right to select objects (subjects) of taxation
The power to tax is essentially legislative in nature.
Hence, the right to select the object/subjects of
taxation rests with the congress. The matters within the
or competence of the legislature include the
determination of:

Necessity Theory “The power of taxation proceeds 1. The subject or object to be taxed
upon the theory that the existence of government is
2. The purpose of the tax as long as it is a public
a necessity
purpose
Lifeblood Doctrine “Taxes are the lifeblood of the
3. The amount or rate of the tax
government and their prompt and certain
availability is an imperious need” 4.Kind of tax
2. Basis of Taxation: Benefits Received or 5. Appointment of the tax
Reciprocity Theory
6. Sins of taxation
The basis is the reciprocal duties of protection and
7. The manner, means and agencies of collection of the
support between the state and its inhabitants
tax
Doctrine of Symbiotic Relationship “The state
e. A valid tax may result in the destruction of the tax
collects taxes from the subjects of taxation in order
payer’s property
that it may be able to perform the functions of
government. The citizens, on the other hand, pay The power to tax includes the “power to destroy”
taxes in order that they may be secured in the where the tax is a valid tax.
enjoyment of the benefits or organized society”
Kinds of Tax
Manifestation of the Lifeblood Theory
1. National Taxes
a. Rule of “No Estoppel against the government”
Are the ones paid to the government through the
Bureau of Internal Revenue (BIR). Our national taxation
system is based on the National Internal Code of 1997
or the Republic Act No. 8424 also known as the tax
Reform Act of 1997, as amended.
2. Local Taxes
On the other hand, Local Taxes are based on Republic
Act 7160, otherwise known as the Local Government
Code of 1991, as amended. These taxes and fees are
imposed by the local government units in every
province, city, municipality, and barangay, which are
given the power to levy such taxes by the code.
Types of National Taxes
Capital Gain Tax (BIR Form No. 1707)- is tax imposed on
the proceeds from sale, exchange, or other disposition
of capital assets located in the Philippines. Examples of
sold assets that are subject to capital gains tax include
properties, stocks, pieces of jewelry, and other high-
value goods.
Documentary Stamp Tax (BIR Form No. 2000) is
imposed on document instruments, loan agreements,
and papers that are used evidence of acceptance,
assignment, sale or transfer obligation, rights, or
property. Documentary stamps are usually found on
deeds of sale and bank promissory notes among others.
Donor’s Tax (BIR Form No. 1800) is levied on a donation
or gift for the gratuitous transfer of property between
two or more persons who are both still living at the time
of transfer. Even relief goods sent for donation are
charged this type of tax. (6 %)
Estate Tax (BIR Form No.1801) is required to be paid
before an estate transferred to the rightful beneficiary
or heir of a deceased person. This is based on a
graduated scheduled of tax rate. (6 %)
Excise Tax (BIR Form No. 2200) is tax on goods
produced for sale and subsequently sold within the
country. It is considered an indirect tax which means
the manufacturer is supposed to recover it by adding
the amount to the selling price. Sin tax on tobacco and
alcohol is an example of excise tax.
Forms Used in Excise Tax
 Alcohol Products (BIR Form No.2200 A)
 Automobiles and Non-Essential Goods (BIR
Form No. 2200 AN)
 Petroleum Products (BIR Form No. 2200 P)
 Tobacco Products (BIR Form No. 2200 T)
 Sweetened Beverages (BIR Form No. 2200 S)
Income Tax (BIR Form No.1700) is imposed on all
compensation and income received or earned from
practice of profession, conduct of trade in business, and
from properties.
Percentage Tax (BIR Form No. 2551) is a business tax
imposed on businesses not covered by Value Added Tax
and where gross annual receipts for sale of good and
services do not exceed on Php 750,000 (prior to TRAIN
law) 0-3 million (under TRAIN law) NVAT= 8 % and
VAT= 12%
Value Added Tax (BIR Form No. 2550) is another kind of
indirect tax that is passed on to the end consumer. It is
a form of consumption tax making it to the most
common tax type because all final sales are almost
always charged this tax.
Withholding tax on compensation (BIR Form No. 1601
C) is tax deducted from salaries of employees and it is
the company’s responsibility to remit the same to the
government. Other kinds of withholding tax are
Expanded Withholding Tax (BIR Form No. 1601 E) and
Withholding Tax on Government Money Payments.
eFPS- Electronic Filing and Payment System
Types of Local Taxes
Basic Real Property Tax is tax on real properties classed
follows: agricultural, commercial, industrial, residential,
timberland, and mineral (Municipality= 1% and City=
2%)
Franchise Tax is imposed by LGUs on business franchise
at a rate not more than 50% of 1 % of the gross annual
receipts of the previous taxable year
Business of Printing and publication Tax is collected
from any business that does printing or publication of
printed materials such as books, cards, pamphlets,
posters and tarpaulins.
Professional Tax is collected from doctors, lawyers,
engineers, and other professionals engaged in the
exercise and practice of professions that require
government examination or acquisition of license to
practice. (not exceed on 300 pesos)
Amusement Tax is tax on all forms of entertainment
such as movies, concerts, and plays. This tax is usually
already included in the ticket price. (not exceed of 10
%)

Community Tax, more commonly called cedula,

required from individuals from a base fee of Php5.00
and additional Php1.00 for every Php1,000 income

Annual Fixed Tax for Delivery Trucks and Vans

amounting to Php500 is collected by the LGU from
trucks and van which deliver goods such as beer, soda,
and/or cigarettes.

Barangay Tax is subjected on sari-sari stores and

retailed whose annual gross sales do not exceed
Php50,000 and accrued on the first day of January of
each year.

Barangay Clearance is paid as a legal permission for

particular individuals, hosts, or companies to conduct
an event or start a business in a barangay.

Scope of the Power of Taxation

The Supreme Court held that the power of taxation is

the most absolute of all powers of the government. It
has a broadest scope of all the powers of the
government because in the absence of limitations, it is
considered as comprehensive unlimited plenary &
supreme.

a. Comprehensive

b. Unlimited

c. Plenary

d. Supreme

Essential Elements of a tax

a. It is enforced contributions

b. It is generally payable in money

c. It is proportionate in character

d. It is levied on persons, property, or the exercise of a

right privilege

e. It is levied by the law-making body of the state

f. It is levied by public purpose