DONHONORI

OVENTURASTATEUNI
VERSI
TY
Col
l
egeofBusi
nessSt
udi
es

Chapt
er1
I
NTRODUCTI
ONTOTAXATI
ON

LEARNI
NGOUTCOMES:
Aft
ert
hischapt
er,r
eader
smustbeabl
etocompr
ehendanddemonst
rat
ethemast
eryoft
he
fol
l
owi
ng;
1.Conceptoft
axat
ionandi
tsnecessi
tyf
orev
erygov
ernment
2.Li
febl
ooddoct
ri
neandi
tsi
mpl
i
cat
ion
3.Theor
iesofcostal
l
ocat
ion
4.I
nher
entpowerofst
ate
5.Scopeoft
het
axat
ionpower
6.Li
mit
ati
onoft
het
axat
ionpower
7.St
agesoft
axat
ion
8.Conceptofsi
tusi
ntaxat
ion
9.Fundament
alpr
inci
plessur
roundi
ngt
axat
ion
10.Var
iousescapesf
rom t
axat
ion
11.Conceptoft
axamnest
y

WHATI
STAXATI
ON?
Taxati
onmaybedef
inedasaSt
atepower
,legi
slat
ivepr
ocess,andamodeofgov
ernmentcost
di
stri
buti
on
*Asast
atepower
-isani nherentpowerofthest
atet
o enf
orceapr
opor
ti
onalcont
ri
but
ionf
rom i
ts
subj
ect
sf orpubli
cpur
pose.
*Asapr
ocess
-is a pr
ocess oflev
ying t
axes bythe l
egi
slat
ure oft
he st
atet
o enf
orce pr
opor
ti
onal
cont
ri
buti
onsfr
om it
ssubject
sforpubl
i
cpurpose.
*Asamodeofcostdi
str
ibut
ion
 -i
samodebywhi cht
hest
ateal
l
ocat
esi
tscost
sorbur
dent
oit
ssubj
ect
swhoar
ebenef
it
ed
byi
tsspendi
ng.

THEORYOFTAXATI
ON
-gov
ernmentcannotexi
stwi
thoutasy
stem off
undi
ng.
-t
hisnecessi
tyf
orf
undi
ngi
sthet
heor
yoft
axat
ion.

THEBASI
SOFTAXATI
ON
-t
hemut
ual
i
tyofsuppor
tbet
weent
hepeopl
eandgov
ernmenti
sthebasi
soft
axat
ion.
*Gov
ernmentpr
ovi
desbenef
it
stot
hepeopl
eint
hef
orm ofpubl
i
cser
vices.
*Peopl
epr
ovi
desf
undst
hatf
inancet
hegov
ernment
.

RECEI
PTBENEFI
TISCONCLUSI
VELYPRESUMED
Everycit
izenandresi
dentoft
heSt
atedi
rect
lyori
ndi
rect
lybenef
it
sfr
om t
hepubl
i
cser
vices
render
edbyt hegov
ernment
.

THEORI
ESOFCOSTALLOCATI
ON
1)Benef
itr
ecei
vedt
heor
ies
-t
hemor
ebenef
itone'
srecei
vesf
rom gov
ernment
,themor
etaxesheshoul
dpay
.
2)Abi
li
tyt
opayt
heor
ies
-thosewhohav
emor
eshoul
dbet
axedev
eni
ftheybenef
itl
essf
rom t
he gov
ernment
,vi
ce
versa.
a)Ver
ti
calEqui
ty(
GrossConcept
)
-pr
oposesthatt
heext
entofone'
sabi
l
ityt
opayi
sdi
rect
lypr
opor
ti
onalt
othel
evelof
hi
staxbase.
b)Hor
izont
alEqui
ty(
NetConcept
)
-r
equi
resconsi
der
ati
onoft
hepar
ti
cul
arci
rcumst
anceoft
het
axpay
er.
LI
FEBLOODDOCTRI
NE
Taxesar
eessent
ial
andi
ndi
spensabl
etot
hecont
inuedsubsi
stenceoft
hegov
ernment
.
-wi t
houttaxest
hegov
ernmentwoul
dbepar
aly
zedf
orl
ackofmot
ivepowert
o act
ivat
e
oroperat
eit
.

I
MPLI
CATI
ONOFLI
FEBLOODDOCTRI
NE
1)Taxi
simposedev
eni
ntheabsenceofaconst
it
uti
onal
grant
2)Cl
aimsf
ort
axexempt
ionar
econst
ruedagai
nstt
het
axpay
ers
3)Thegov
ernmentr
eser
vest
her
ightt
ochooset
heobj
ectoft
axat
ion
4)Thecour
tsar
enotal
l
owedt
oint
erf
erewi
tht
hecol
l
ect
ionoft
axes

I
NINCOMETAXATI
ON
I
ncomer
ecei
vedi
nadv
ancei
staxabl
euponr
ecei
pt
Deducti
onofcapit
alexpendi
tur
eandpr
epay
ment
sisnotal
l
owedasef
fect
ivel
ydef
erst
he
col
lect
ionofi
ncometaxes
Al
oweramountofdeduct
ionsi
spr
efer
redwhenacl
aimabl
eexpensei
ssubj
ectt
oli
mit
Ahi
ghert
axbasei
spr
efer
redwhent
het
axobj
ecthasmul
ti
plet
axbases.

I
NHEREHTPOWEROFSTATE
1)Taxat
ionpower–ist
hepoweroft
heSt
atet
oenf
orcepr
opor
ti
onalcont
ri
but
ionf
rom i
ts
subj
ect
stosustai
nit
sel
f
2)Pol
icePower–i
sthegener
alpoweroft
hest
atet
oenactl
awst
opr
otectt
hewel
l
-bei
ng
oft
hepeople
3)EminentDomai
n–powerofSt
atet
otakepr
ivat
epr
oper
tyf
orpubl
i
cuseaf
terpay
ingj
ust
compensati
on

COMPARI
SONOFTHETHREEPOWEROFTHESTATE
I
NHERENTLI
MITATI
ONSOFTAXATI
ON
1)TERRI
TORI
ALI
TYOFTAXATI
ON(
Sit
us)
-t
axcanbei
mposedonl
ywi
thi
nthet
err
it
ori
esoft
heSt
ate.
Except
ion:
1.Inincomet axat
ion,resi
dentcit
izensanddomest
iccor
por
ati
onsar
etaxabl
eoni
ncome
der
ivedwit
hinandoutsidethePhi
l
ippines
2.Intr
ansf
ert
axati
on,resident
sorciti
zenssuchresidentci
ti
zens,
non-
resident
sci
ti
zensand
resi
dental
i
ensaretaxableontransf
ersofproper
tieslocat
edwithi
noroutsidet
hePhil
i
ppi
nes.

2)I
NTERNATI
ONALCOMI
TY
-al
lst
atesar
eequal
l
ysov
erei
gnorconsul
arof
fi
cesnotsubj
ectt
oincome.
-per
tai
nst
omut
ual
cour
tesyorr
eci
proci
tybet
weenst
ates.
-whenastat
eenter
str
eat
ieswi
thot
herst
ates,
iti
sboundt
ohonort
heagr
eement
sasamat
ter
ofmutual
court
esy.

3)PUBLI
CPURPOSE
-t
axi
sint
endedf
orcommongood.Forpubl
i
cpur
pose.I
tcannotbeexer
ciset
oanypr
ivat
e
i
nter
est
.

4)EXEMPTI
ONOFTHEGOVERNMENT
-gover
nmentdoesnott
axi
tsel
fast
hiswi
l
lnotr
aiseaddi
ti
onalf
undsbutwi
l
limput
eaddi
ti
onal
cost
s.
-gov
ernmentproperti
esandincomefrom essent
ialpubli
cfunct
ionsarenotsubj
ectf
ort
axati
on
buti
ncomeofgov ernmentfr
om propert
iesandactiv
iti
esconductedforpr
ofi
t(i
ncl
udi
ngincome
fr
om GOCC)issubjecttot
ax.

5)NON-
DELEGATI
ONOFTHETAXI
NGPOWER
-t
hel
egi
slat
ivet
axi
ngpoweri
svest
edexcl
usi
vel
yinCongr
essandi
snon-
del
egabl
e.
Except
ionst
other
uleofnon-
del
egat
ion;
a.Undertheconsti
tuti
on,t
heLGU’sar
eall
owedt
oexer
ciset
hepowert
otaxt
oenabl
e
them t
oexer
cisethei
rfi
scal
aut
onomy.
b.Undert
heTari
ffandCust
om Code,t
hePr
esi
denti
sempower
edt
ofi
xtheamountof
tar
if
fst
obefl
exi
blet
otr
adecondi
ti
ons.
c. Othercasesthatr
equir
eexpedi
entandef
fect
iveadmi
nist
rat
ionandi
mpl
ement
ati
onof
assessmentandcoll
ect
ionoft
axes

CONSTI
TUTI
ONALLI
MITATI
ONOFTAXATI
ON:
1)ASPECTOFDUEPROCESS
-t
axl
awsshoul
dnei
therbehar
shnoroppr
esi
ve.
Substanti
veDueProcess-taxmustbei
mposedonlyforpubl
icpurpose,
col
l
ectedonl
y
underauthori
tyofaval
idl
awandonlybythetaxi
ngpower.Anassessmentwit
houtl
egal
basisviol
atedther
equi
rementst
hedueprocess.
Pr
oceduralduepr
ocess–t
hegov
ernmentshal
lobser
vet
het
axpay
er’
sri
ghtt
onot
iceand
hear
ing.
underNI
RC,assessment
sshallbemadewit
hin3yearsfrom t
heduedat
eoff
il
ingoft
he
retur
norfr
om thedat
eofactualfi
l
ing,
whi
cheveri
slater
.

2)EQUALPROTECTI
ONOFLAW
-Nopersonshal
lbedeni
edtheannual
prot
ect
ionofl
aw.Shoul
dbet
reat
edequal
l
ybot
hint
erms
ofr
ight
sconferr
edandobli
gat
ionsi
mposed.
-Thi
srul
eappl
i
eswher
etaxpay
ersar
eundert
hesame/si
mil
arci
rcumst
ancesandcondi
ti
ons.

3)UNI
FORMI
TYRULEOFTAXATI
ON
-Ther
uleshoul
dbeuni
for
m andequi
tabl
e.
-Eachcl
asst
axdi
ff
erent
ly,
butundert
hesamecl
assar
etaxedt
hesame.
(
Exampl
eCor
por
ati
ons,
wit
hhol
dingt
axofpr
ofessi
onal
)
-Uni
for
mit
yisr
elat
iveequal
i
ty.

4)PROGRESSI
VESYSTEM OFTAXATI
ON
Taxr
atei
ncr
easeast
hebasei
ncr
eases.

-i
sconsi
stentwi
tht
axpay
er'
sabi
l
ityt
opay
.
-ai
dsi
nanequi
tabl
edi
str
ibut
ionofweal
tht
osoci
etybyt
axi
ngt
her
ichmor
ethant
hepoor
.

5)NON-
IMPRI
SONMENTFORNON-
PAYMENTOFDEBTORPOLLTAX
-Asapoli
cy,nooneshal
lbeimpr
isonedbecauseofhi
spov
ert
y,andnooneshal
lbei
mpr
isoned
former
einabil
i
tytopaydebt
.
-Unl
ess,
itwasacqui
redi
nbaddebt
,itconst
it
utesest
afaascr
imi
nal
off
ensepuni
shabl
ebyl
aw.
-Non-
paymentofdebtcompri
sespri
vat
einter
estwhi
l
enon-
pay
mentoft
axcompr
isespubl
i
c
i
nter
est.Hence,
non-
paymentoftaxi
sacrime.
-Theconst
it
uti
onalguar
anteeonnon-i
mpr
isonmentf
ornon-
pay
mentofdebtdoesnotext
endt
o
non-
paymentoftax,
exceptpol
ltax.

6)NONI
MPAI
RMENTOFOBLI
GATI
ONANDCONTRACT
TheStat
eshoul
dsetanexampleofgoodfait
h.I
tshoul
dnotsetasi
deit
sobl
i
gat
ionsf
rom
cont
ract
sbyheexerci
seoftaxat
ionpower.(
Example:
Taxholi
days)

7)FREEWORSHI
PRULE
-Exer
ciseofr
eli
gion–exempt
edt
oincomet
axsuchasof
fer
ings.
-t
ransact
ionst
hatar
epr
opr
iet
aryandcommer
cial
innat
urear
etaxabl
e.

8)EXEMPTI
ONOFRELIGIOUS,
CHARI
TABLEOREDUCATI
ONALENTITI
ES,NON-PROFI
T
CEMETERI
ES,CHURCHESANDMOSQUES,LANDANDIMPROVEMENTSFROM PROPERTY
TAX.
-Notexempt
edi
fnotusedi
nthepr
imar
yreasonofbei
ngexempt
ed.
-Exempti
onappli
esforproper
ti
esact
ual
l
y,di
rect
lyandexcl
usi
vel
yusedf
orchar
it
abl
e,r
eli
gious
andeducati
onal
purposes.
Doct
ri
neofUse-appl
i
edi
nthePhi
l
ippi
nes
-onl
yproper
ti
esdev
otedf
orr
eli
gious,
char
it
abl
eandeducat
ional
act
ivi
ti
esar
eexemptf
rom
r
ealpr
opertyt
ax.
Doct
ri
neofOwner
shi
p-notappl
i
edi
nthePhi
l
ippi
nes
-propert
iesofr
eli
gious,
chari
tabl
eandeducat
ional
act
ivi
ti
eswhet
herornotusedi
nthepr
imar
y
operati
onsareexemptfrom r
ealproper
tyt
ax.

9)NON-
APPROPRI
ATI
ONOFPUBLI
CFUNDSFORTHEBENEFI
TOFANYCHURCH,
SECTOR
SYSTEM OFRELI
GION
-t
osuppor
tfreedom ofr
eli
gion,
governmentshoul
dnotf
avoranypar
ti
cul
arsy
stem ofr
eli
gion
byappr
opr
iat
ingpubli
cfundsorpropert
ysupportt
her
eof
.
-however
,compensati
onofpri
est
s,i
mamsorreli
giousmi
nister
sworkingwit
ht hemili
tar
y,
penali
nst
it
uti
ons,or
phanagesorl
epr
osar
ium i
snotconsi
deredrel
i
giousappropri
ati
on.

10)EXEMPTI
ONFROM TAXESOFTHEREVENUES,
ANDTHEASSETSOFNON-PROFI
T,NON-
STOCKEDUCATI
ONALINSTITUTI
ONSINCLUDI
NGGRANTS,
ENDOWMENTS,
DONATIONS,OR
CONTRIBUTI
ONFOREDUCATIONALPURPOSES
-Theexempt
ionsappl
yonl
yforr
evenuesandasset
sdev
otedpur
elyeducat
ional
pur
poses.
-gover
nmenteducat
ionali
nst
it
uti
onsar
eexempt
edf
rom i
ncomet
axwhi
l
epr
ivat
eeducat
ional
i
nsti
tut
ionst
oami ni
mal 10%i
ncometax.

11)CONCURRENCEOFAMAJORITYOFALLMEMBERSOFCONGRESSFORTHEPASSAGEOF
ALAW GRANTINGEXEMPTI
ON.
-Theconst
itut
ionr
equi
rest
hev
oteoft
hemaj
ori
tyofal
lmemberoft
hecongr
essi
nthegr
antof
taxexempt
ion.

12)NON-
DIVERSI
FICATI
ONOFTAXCOLLECTI
ONS
-taxcoll
ecti
onsshouldbeusedonl
yforpubl
i
cpur
poseandshoul
dnev
erbedi
ver
sif
iedorused
forpri
vatepurpose.

13)NON-
DELEGATI
ONOFTAXI
NGPOWER
-thepri
ncipleofcheckandbalancesr
equi
rest
hatt
axat
ionpoweraspar
tofl
awmaki
ngbe
vestedexclusi
vel
yincongress.
However
,del
egat
ionmaybemadeonmat tersi
nvol
vingexpedi
entandef
fect
iveadmi
nist
rat
ion
andi
mplementat
ionofassessmentandcol
lect
ionoftaxes.

14)NON-
IMPAI
RMENTOFTHEJURISDI
CTI
ONOFTHESUPREMECOURTTOREVI
EW TAX
CASES–ALLCASEI
NVOLVI
NGTAXESCANBERAI
SEDANDBEFINALLYDECI
DEDBYTHE
SUPREMECOURTOFTHEPHILI
PPI
NES.
-notwi
thst
andi
ngtot
heexi
stenceoftheCour
tofAppeal
s,al
lcasesi
nvol
vi
ngt
axescanbe
rai
sedtoandfi
nal
l
ydeci
dedbyt heSupr
emeCourt
.
15)APPROPRICATI
ONS,
REVENUE,TARI
FFSHALLORI
GINATEEXCLUSI
VELYI
NTHEHOUSEOF
REPRESENTATIVE,
BUTTHESENATEMAYPROPOSEORCONCURWI THAMENDMENTS.
-l
awsthataddi
ncomet othenati
onalt
reasur
yandthoseal
lowsspendi
ngt
her
einmustor
igi
nat
e
fr
om HouseofRepr
esentati
veswhil
etheSenatemayconcurwi
thamendment
s.

16)EACHLOCALGOVERNMENTUNI
TSHALLEXERCI
SETHEPOWERTOCREATEITSOWN
SOURCESOFREVENUEANDSHALLHAVEAJUSTSHAREINTHENATI
ONALTAXES

STAGESOFTHEEXERCI
SEOFTAXATI
ONPOWER
1.Lev
yofI
mposi
ti
on
Thisi
stheprocessofenact
mentofat axl
awbycongr
essandi
scal
l
edi
mpactof
taxat
ionorl
egisl
ati
veactoftaxat
ion.

Mat
ter
sofl
egi
slat
ivedi
scr
eti
oni
ntheexer
ciseoft
axat
ion
1.Det
ermi
ningt
heobj
ectt
axat
ion
2.Set
ti
ngt
het
axr
ateoramountt
obecol
l
ect
ed
3.Det
ermi
ningt
hepur
posef
ort
hel
evywhi
chmustbepubl
i
cuse
4.Ki
ndoft
axt
obei
mposed
5.Appor
ti
onmentoft
het
axbet
weent
henat
ional
andl
ocal
gor
v
6.si
tusofTaxat
ion
7.Met
hodofcol
l
ect
ion

2.AssessmentandCol
lect
ion
Thi
sst
agei
sref
err
edt
oasi
nci
denceoft
axat
ionoradmi
nist
rat
iveactoft
axat
ion.
Thel
awi
simpl
ement
edbyt
headmi
nist
rat
ivebr
anchoft
hegov
ernment
.
I
mplementat
ioni
nvol
vesassessmentort
hedet
ermi
nat
ionoft
het
axl
i
abi
l
iti
esof
t
axpayer
sandcoll
ect
ion.

SI
TUSOFTAXATI
ON
Si
tusi
sthepl
aceoft
axat
ion.
1.BusinessTaxSi
tus–Busi
nessar
esubj
ectt
otaxi
nthepl
acewher
ethebusi
nessi
s
conducted.
 2.I
ncomeTaxsi t
usonserv
ices–Ser
vicesfeearesubj
ectt
otaxwheretheyar
erender
ed.
(
Ex.For
eigncorpor
ati
onl
easesar
esident
ialspacet
oanon-r
esi
dentabroad)
3.Incomet
axsi
tusonsal
eofgoods–t
hegai
nonsal
eissubj
ectt
otaxi
nthepl
aceof
sale

BUSI
NESSTAXSI
TUS
Busi
nessar
esubj
ectt
otaxi
nthepl
acewher
ethebusi
nessi
sconduct
ed.

I
NCOMETAXSI
TUSONSERVI
CES
I
ncomeTaxsit
usonservi
ces–servi
cefeeissubj
ectt
otaxwheretheyar
erender
ed.(
Ex.
For
eigncor
por
ati
onl
easesaresi
denti
alspacetoanon-
resi
dentabr
oad)

I
NCOMETAXSI
TUSONSALEOFGOODS
-t
hegai
nonsal
eissubj
ectt
otaxi
nthepl
aceofsal
e.
I
ll
ust
rat
ion:
Whi
l
einChina,
anon-residentOFW ci
ti
zenagreedwithaChi
nesefr
iendtosel
lhi
s
di
amondneckl
acetothelat
ter.Theysti
pul
atedthatthedel
iver
yoft
heit
em will
bemadeaweek
l
ateri
nthePhi
l
ippi
nes.Thesalewasconsummat edasagreed.
Thecont
ractofsal
eisconcensual
andi
sper
fect
edbyt
hemeet
ingofmi
ndsoft
hecont
ract
ing
par
ti
es.

PROPERTYTAXSI
TUS
Pr
oper
ti
esar
etaxabl
eint
hei
rlocat
ion.
JGSummi
tHol
dingsI
nchav
eapr
oper
tyonPhi
l
ippi
nesandout
sideoft
hecount
ry.
Heneedst
opayr
eal
proper
tyt
axi
nthePhi
l
ippi
nesandaswel
li
not
hercount
ryi
frequi
red.
Per
sonsar
etaxabl
eint
hepl
aceoft
hei
rresi
dence.

PERSONALTAXSI
TUS
Per
sonsar
etaxabl
eint
hepl
aceoft
hei
rresi
dence.

OTHERFUNDAMENTALSDOCTRI
NEI
NTAXATI
ON
1)Mar
shal
lDoct
ri
ne
-Thepowert
otaxi
nvol
vet
hepowert
odest
roy
.
-I
tcanbeusedt
odi
scour
ageundesi
rabl
eact
ivi
ti
esoroccupat
ion.

2)Hol
me’
sDoct
ri
ne
-Maybeusedt
obui
l
dorencour
agebenef
ici
alact
ivi
ti
esori
ndust
ri
esbyt
hegr
antoft
ax
i
ncent
ives.
Exampl
e:Hol
me’
sDoct
ri
ne–Taxhol
i
day
sinecozones

3)Pr
ospect
ivi
tyofTaxLaws
-Taxlawsar
egeneral
l
yprospect
ivei
noper
ati
onasexpostf
act
olaworl
awt
hatr
etr
oact
sis
prohi
bit
edi
ntheconst
itut
ion.
Exampl
e:congr
esscanl
evyt
axoni
ncomeear
neddur
ingper
iodsoff
orei
gnoccupat
ionev
en
aft
ert
hewar.

4)Non-
compensat
ionorsetof
f
-t
axesar
enotsubj
ectt
ocompensat
ionoraut
omat
icset
-of
fbecauset
axesar
enotdebt
s.
-taxpayer
scannotdelaypaymentoft
axtowai
tfort
her
esol
uti
onofal
awsui
tinv
olv
inghi
s
pendingclai
m agai
nstthegover
nment.
Except
ions:
a.Wheret
hetaxpayer
'sclai
m hasal
readybecomedueanddemandablesuchaswhent
he
gover
nmental
readyrecognizedt
hesameandappropri
ati
onforr
efundwasmade.
b.Casesofobv
iousov
erpay
mentoft
axes
c.Local
taxes

5)Non-
assi
gnmentoft
axes
-t
axobl
i
gat
ionscannotbeassi
gnedort
ransf
err
edt
oanot
herent
it
ybycont
ract
.

6)I
mpr
escr
ipt
ibi
li
tyi
ntaxat
ion
-Pr
escr
ipt
ion-i
sthel
apsi
ngofr
ightduet
othepassageoft
ime.
-thegovernment'
sri
ghtt
ocol
l
ectt
axesdoesnotpr
escr
ibeunl
esst
hel
awi
tsel
fpr
ovi
desf
or
suchprescri
pti
on.
1)Wi
thAssessment-t
axpr
escr
ibesi
fnotcol
l
ect
edwi
thi
n5y
ear
sfr
om t
hedat
eof
assessment
.
2)Wi
thoutassessment-taxpr
escr
ibesi
fnotcol
l
ect
edbyj
udi
cial
act
ionwi
thi
n3y
ear
sfr
om
t
hedateofretur
nisrequi
redtobefi
l
ed.
-t
axduefrom t
axpay
erswhi
chdonotf
il
ear
etur
nort
hosewhof
il
edf
raudul
entr
etur
nsdonot
pr
escr
ibe.

7)Doct
ri
neofest
oppel
-anymi
srepresent
ati
onmadebyonepar
tyt
owardanot
herwhor el
i
edingoodf
ait
hwi
l
lbehel
d
tr
ueandbindingagai
nstt
heper
sonwhomadethemisr
epresent
ati
on.
-Thegov
ernmenti
snotsubj
ectt
oest
oppel
.
1)t
heer
rorofanygov
ernmentempl
oyeedoesnotbi
ndt
hegov
ernment
.
2)theer
roneousappl
i
cat
ionoft
hel
awofpubl
i
cof
fi
cer
sdonotbl
ockt
hesubsequentcor
rect
appl
i
cati
onofthesame.

8)Judi
cialI
nter
fer
ence
-cour
tsarenotall
owedtoi
ssuei
njunct
ionagai
nstt
hegov
ernmentpur
sui
tst
ocol
l
ectt
axast
his
wouldunnecessar
il
ydef
ert
axcol
lecti
on.

9)St
ri
ctConst
ruct
ionofTaxl
aws
-Whenthelawclear
lypr
ovi
desfortaxat
ion,
taxat
ionist
hegener
alr
uleunl
esst
her
eisacl
ear
exempt
ion.Taxat
ionist
herul
e,exempti
onistheexcept
ion.
VagueTaxLaws-ar
econst
ruedagai
nstt
hegov
ernmentandi
nfav
oroft
het
axpay
ers.
VagueExempt
ionLaws-ar
econst
ruedagai
nstt
het
axpay
erandi
nfav
oroft
hegov
ernment
.

DOUBLETAXATI
ON
Doublet
axat
ionoccurswhent
hesamet
axpay
eri
staxedt
wicebyt
hesamet
ax
j
uri
sdi
cti
onfort
hesamet hi
ng.
El
ement
s:
1.Pr
imar
yEl
ement–Sameobj
ect
2.Secondar
yEl
ement
s–
a.Samet
ypeoft
ax
b.Samepur
poseoft
ax
c. Samet
axi
ngj
uri
sdi
cti
on
d.Samet
axper
iod

TYPESOFDOUBLETAXATI
ON:
1.Di
rectDoubl
eTaxat
ion
-t
hisoccur
swhenal
loft
heel
ementofdoubl
etaxat
ionexi
stsf
orbot
himposi
ti
ons.
Exampl
e:I
ncomet
ax10%onmont
hlysal
esand2%i
ncomet
axonannual
sal
es.

2.I
ndi
rectDoubl
eTaxat
ion
-t
hisoccur
swhenatl
eastoneoft
hesecondar
yel
ement
sofdoubl
etaxat
ioni
snotcommon
f
orbothimposi
ti
ons.
Example:Nat
ionalgov
ernmentandl
ocal
gov
ernmentl
evi
esbusi
nesst
axont
hesal
esor
gr
ossrecei
ptsofthebusi
ness.

HOW CANDOUBLETAXATI
ONMI
NIMI
ZED?
Thei
mpactofdoubl
etaxat
ioncanbemi
nimi
zedbyanyoracombi
nat
ionoft
hef
oll
owi
ng:
a.Pr
ovi
sionoft
axexempt
ion
b.Al
l
owi
ngf
orei
gnt
axcr
edi
t(deduct
ionf
ort
axespai
dabr
oad)
c. Al
l
owi
ngr
eci
procal
taxt
reat
mentbet
weenhomecount
ryandaf
orei
gncount
ry
d.Ent
eri
ngi
ntot
reat
iesorbi
l
ater
alagr
eement
s

ESCAPESFROM TAXATI
ON
-ar
ethemeansav
ail
abl
etot
het
axpay
ert
oli
mitorav
oidt
hei
mpactoft
axat
ion.

CATEGORI
ESOFESCAPESFROM TAXATI
ON
A.Thoset
hatr
esul
ttol
ossofgov
ernmentr
evenue
1.TaxEvasi
on–alsoknownast
axdodgi
ng,
ref
erst
oanyactort
ri
ckt
hatt
endst
oil
l
egal
l
yreduceor
avoi
dthepaymentoft
ax.
-t
hiscanbeperpet
rat
edbyundueunder
stat
ementofi
ncome,
over
stat
ementofexpensesornon-
decl
arat
ionofi
ncome.

2.Taxav
oidanceal
soknownast
axmi
nimi
zat
ion
-ref
erst
oanyactort
ri
ckt
hatr
educesort
otal
l
yescapest
axesbyanyl
egal
l
yper
missi
ble
means.
-t
hiscanbedonebysel
ect
iont
axopti
onsall
owedbyt
hel
awwhi
chmi
nimi
zest
axl
i
abi
l
ityor
bycaref
ultaxpl
anni
ngt
oreducet
axexposur
e.

3.TaxExempt
ion–al
soknownast
axhol
i
day
.
-r
efer
stothei
mmuni
typr
ivi
l
egeorf
reedom f
rom bei
ngsubj
ectt
oat
axwhi
chot
her
sar
e
subj
ectto.

B.Thoset
hatdonotr
esul
ttol
ossofgov
ernmentr
evenue
1.Shi
ft
ing
1.For
wardshif
ti
ng–shif
ti
ngwhi chfol
l
owsthenormalf
lowdi
str
ibut
ion(
from
manuf
actur
ertowhol
esal
er.Retai
l
ertoconsumer
).
2.Backwar
dshif
ti
ng–t hi
sist
herever
seoff
orwar
dshif
ti
ng.Buyershave
consi
der
abl
emarketpowerandcommodit
ieswi
thnumeroussubsti
tut
es.
3.Onwar
dShi
ft
ing–t
axshi
ft
ingt
hatexhi
bit
sfor
war
dshi
ft
ingorbackwar
dshi
ft
ing.
2.Capi
tal
izat
ion
-t
hisper
tai
nst
otheadj
ust
mentoft
hev
alueofanassetcausedbychangesi
ntaxr
ates.
3.Tr
ansf
ormat
ion
-thi
spert
ainst
otheel
imi
nat
ionofwast
esorlossesbythet
axpay
ert
ofor
m sav
ingst
o
compensatef
orthet
axi
mposit
ionori
ncr
easeintaxes.
TAXAMNESTY
Amnest
y–gr ant
edbygovernmentforer
ri
ngtaxpay
erstogivet
hem achancet
operfor
m
andenablet
hem tohaveafr
eshstart
.It
sanabsolut
eforgi
venessorwai
verbythegov
ernment
onit
srightt
ocoll
ectandisr
etr
ospecti
ve.

TAXCONDONATI
ON
-i
sthef
orgi
venessoft
hetaxobl
i
gat
ionofacer
tai
ntaxpay
erundercer
tai
njust
if
iabl
egr
ounds.
Al
soref
err
edtoastaxremi
ssi
on.
-Taxamnest
y(ci
vi
landcr
imi
nal
)whi
l
eTaxcondonat
ioncov
ersci
vi
ll
iabi
l
ity
.
EXERCI
SES
Tr
ueorFal
se

1.Emi
nentdomai
ninv
olv
esconf
iscat
ionofpr
ohi
bit
edcommodi
ti
est
opr
otectt
hewel
l
-
bei
ngofthepeopl e
2.Ther
eshouldbedi rectrecei
ptofbenef
itbefor
eonecouldbecompel
ledtopaytaxes.
3.Thereci
procal dut
yofsupportbetweenthegover
nmentandthepeopleunder
scorest
he
basi
softaxation
4.I
nter
nati
onal comityconnotescourt
esybetweennat
ions.
5.Thegovernmentshoul dtaxit
sel
f.

Mul
ti
pleChoi
ce

1.Thepowert oenf orcepr opor tionalcontri

buti
onf rom t hepeopl eforthesuppor tofthe
governmenti s
a.Taxat ion
b.Pol icepower
c. Emi nentdomai n
d.Expl oi tation
2. Thi
stheor yunder scorest hatt axesar eindi
spensabletot heexist
enceoft hest
ate.
a.Doct ri
neofequi tabler ecoupment
b.TheLi febl oodDoct r
ine
c. Thebenef itreceivedt heor y
d.TheHol mesDoct r
ine
3.Whichdoesnotpr oper l
ydescr ibethescopeoft axati
on?
a.Compr ehensi ve
b.Supr eme
c. Di scret ionar y
d.Unl imi ted
4.Whichlimi t
at ionoft axationi st heconceptof"situsoftaxat i
on"based?
a.Ter ritor i
ality
b.Publ i
cpur pose
c. Inter nat ional comi t y
d.Exempt i
onoft hegov ernment
5.Whichst atementi sincor rect?
a.Ev eryper sonmustcont ri
butehisshareingov ernmentcosts.
b.Theexi st enceofagov er nmentisexpectedtoi mpr ovet
hel i
vesofthepeople.
c. Thegov ernmentpr ov idespr otecti
onandot herbenef i
tswhilethepeopl eprov
ide
suppor t.
d.Onl yt hosewhoar eabl et opayt axcanenj oyt hepr i
vil
egesandpr otect
ionofthe
gov er nment
6.Thisref
er st ot hepr i
v i
l
egeori mmuni tyfr
om ataxbur denwhi chothersaresubj
ectto:
a.Excl usi on
b.Deduct ion
c. Taxhol iday
d.Reci pr oci ty
7.TheConst i
tut ional exempt i
onofr eli
giousorcharit
ableinstit
uti
onsrefer
sonl yt
o
 a.Real pr oper tyt ax
b.I ncomet ax
c. Proper tytaxandi ncomet ax
d.Busi nesst ax
8.Whi choft hef oll
owi ngi snotani nher entl imitationoft hepowert otax?
a.Taxshoul dbel ev iedf orpubl icpur pose.
b.Taxat i
oni sl i
mi tedt oi tst erritorialjurisdiction.
c. Taxl awsshal l beuni f
or m andequi table.
d.Exempt i
onofgov er nmentagenci esandi nstrumental
iti
es
9.Thepr ov i
sionsi ntheConst itutionr egar dingt axat i
onar e
a.Gr ant soft hepowert ot ax
b.Li mi tationst ot hepowert ot ax
c. Grant sandl i
mi t at
ionst ot hepowert ot ax
d.Li mi tationsagai nstdoubl et axat ion
10.Whenal egisl ativebodyt axesper sonsandpr oper ty,ri
ght
sandpr i
vi
legesundert hesame
taxablecat egor yatt hesamer ate, thisi sref erredt oascompl i
ancewi t
ht heconsti
tuti
onal
l
imi tat
ionof :
a.Equi ty
b.Uni for mi ty
c. Duepr ocess
d.Equal protect ioncl ause
11.Licensingofbusi nessorpr ofessi oni sanexer ciseof
a.Pol icepower
b.Taxat i
on
c. Emi nentdomai n
d.Al loft hese
12.Whi choft hef oll
owi ngi snotaconst i
tutional li
mi tati
onofthepowert otax?
a.Non- impai rmentofobl i
gat ionorcont ract s
b.Duepr ocessandequal pr otect ionoft hel aw
c. Non- appr opr iationf orr eligiouspur poses
d.Non- del egat i
onoft het axi ngpower
13.Statement1:Congr esscanexer ciset hepoweroft axati
onev enwithoutConst i
tuti
onal
delegationoft hepowert ot ax.
Statement2:Onl yt hel egislat urecanexer ciset hepoweroft axati
on, eminentdomai n,
and
policepower .

Whichst atementi scorrect?

a.St atement1
b.St atement2
c. St atement s1and2
d.Nei therstatement1nor2
14.I
nexer ci
si ngtaxation,t
hegov er
nmentneednotconsi der
a.I nher entli
mi t
ati
ons
b.Justcompensat ion
c. Duepr ocessofl aw
d.Const i
tuti
onalli
mi t
ations
15.Ram istheonl ypracti
cinglungtransplantspeci
ali
sti
nBaguioCit
y.TheCi t
yGovernmentof
Baguiopassedal ocal ordi
nancesubj ecti
ngthepract
iceofl
ungtranspl
antto2%taxbased
onreceipts.Ram obj ectedclaimingthatothertr
anspl
antspeci
ali
stsinotherr
egi
onsofthe
 count
ryar
enotsubj
ect
edt
otax.

I
sRam'scontenti
onvali
d?
a.Yes, becausetherul
eoft axati
onshoul dbeuni for
m andequitabl
yenf
orced.
b.Yes, becauseRam istheonlyonesubj ect
.Otherpracti
ti
onerswhowouldlater
pr
acticewouldnotbecov eredbyt heor di
nance.
c. No,becausetheordinancewoul dcov erallt
ranspl
antspecial
istwhowouldpract
ice
i
nBagui oCit
y.Theuniformityrul
ewoul dnotbev i
olat
ed.
d.No, becausesubject
ingthenewi ndustrytotaxati
onwouldhampereconomi cgrowth.

REFERENCES:

I
ncomet
axat
ion(
Laws,
Pri
nci
plesandAppl
i
cat
ion)byRexB.Bangawan,
CPA,
MBA.