NATURE OF TAXATION their moral and material

values
____________________________________________________________

Income Tax

Income Tax is defined as a tax on all yearly profits arising from Not
Mandatory Proportionate
property, professions, trades, or offices, or as a tax on the Contractual
person’s income, emoluments, profits, and the like.

Tax Basic principles of sound tax system are Fiscal Adequacy,

Tax is an enforced proportional contribution imposed upon
persons, property, or rights levied by the State by virtue of its
sovereignty for the support of government and for all public
needs.
____________________________________________________________
Tax is an enforced proportional contribution imposed upon
persons, property, or rights levied by the State by virtue of its
sovereignty for the support of government and for all public
needs.
Administrative Feasibility, Theoretical Justice or Equality.
Fiscal Adequacy
Collection of the government must be adequate to sustain its
legitimate expenses. This requires that sources of revenues must
be adequate to meet government expenditures and their
variations.
Administrative Feasibility
Tax laws should be capable of just and effective administration
that even an ordinary taxpayer may comprehend.

Theoretical Justice or Equality

ENFORCED PROPORTIONAL CONTRIBUTION
The rule of taxation shall be uniform and equitable. The Congress
shall evolve a progressive system of taxation. [Sec. 28 (1), Art. VI,
1987 Constitution] Theoretical Justice or Equality
Not
Mandatory Proportionate The rule of taxation shall be uniform and equitable. The Congress
Contractual
shall evolve a progressive system of taxation. [Sec. 28 (1), Art. VI,
1987 Constitution]

Uniform Equitable
Tax is generally payable by money.
All subjects and objects Tax imposition must be fair,
____________________________________________________________
similarly situated shall be just, reasonable and
treated alike both in proportionate to the
privileges and liabilities. taxpayer’s ability to pay. The
higher the income, the
Not
Mandatory Proportionate higher the tax (progressive
Contractual
tax).

Lifeblood Theory

Taxes are the lifeblood of the government and so should be

collected without unnecessary hindrance. It is said that taxes are
what we pay for civilized society. Without taxes, the government
would be paralyzed for lack of the motive power to activate and
operate it.

Necessity Theory

The power of taxation proceeds upon theory that the existence of

government is a necessity; that it cannot continue without means
to pay its expenses; and that for those means it has the right to
compel all citizens and property within its limits to contribute.

Benefits-protection Theory (Symbiotic Relationship) Types of Tax as to Graduation

Taxation is founded on the reciprocal duties of protection and Progressive Regressive Proportionate Digressive
support between the State and its inhabitants. The rate of tax The rate of tax The rate of tax is A fixed rate is
increases as decreases as based on a fixed imposed on a
Taxpayer Government the tax base the tax base percentage of certain
Every person must share The Government should or bracket or bracket the tax. amount and
increases increases. diminishes
in the running of the respond in the form of gradually on
Government tangible and intangible sums below it.
benefits to improve the lives Income Tax Income Tax
of the people and enhance on Individual Corporation,
Final Income
 Tax, Capital • Such other taxes that
Gains, Tax VAT, may be imposed and
collected by the BIR
Other
Percentage
taxes, Real
Property Tax KIND OF TAXES AS TO IMPOSING AUTHORITY

Personal, Poll or Property Tax Privilege/Excise

Theoretical Justice or Equality Capitation Tax Tax
Tax of a fixed Imposed on Imposed upon
The rule of taxation shall be uniform and equitable. The amount imposed property, real or performance of an
Congress shall evolve a progressive system of taxation. [Sec. 28 on persons personal, in act, enjoyment or
(1), Art. VI, 1987 Constitution] residing within a proportion to its privilege, or
specified value or in engaging in an
Direct Tax Indirect Tax territory, whether accordance with occupation.
The taxpayer cannot shift The taxpayer can shift the citizens or not, some other
the burden to another. burden to another. without regard to reasonable
Income tax, Estate tax, VAT, Percentage tax, Excise their property or method of
Donor’s tax, Community tax taxes on specified goods, the occupation or apportionment.
Customs Duties business in which
they may be
engaged.

Not EXECUTIVE ACT

Mandatory Proportionate
Contractual
Assessment and collection

This process involves the act of administration and

____ implementation of tax laws by the executive through its
administrative agencies such as the Bureau of Internal Revenue
Its imposition is in no way dependent upon the will or assent of or Bureau of Customs.
the person taxed. It is not contractual, either express or implied,
but positive acts of government. Hence, taxes are not subject of Powers and Duties of the BIR
set-off or compensation.
• Assessment and collection of all national internal taxes,
Except: (1) Both the obligations from the government and the fees, and charges.
taxpayer are due and demandable, (2) It is fully liquated. • Enforcement of all forfeitures, penalties and fines
connected therewith.
____________________________________________________________
• Execution of judgments in all cases decided in its favor
Tax by the CTA and the ordinary courts; and
• Administration of the supervisory and police powers
Tax is an enforced proportional contribution imposed upon conferred upon it by the Tax Code or other special laws.
persons, property, or rights levied by the State by virtue of its
sovereignty for the support of government and for all public TAXPAYER’S ACT
needs.
Payment
Aspects of Taxation
This process involves the act of compliance by the taxpayer in
contributing his share to pay the expenses of the government.
Payment of tax also includes the options, schemes or remedies
Taxpayer’s Act as may be legally open or available to the taxpayer.
Legislative Act Executive Act Taxpayer’s Act and Executive
Act
TAXPAYER’S ACT AND EXECUTIVE ACT

Refund

LEGISLATIVE ACT A claim for refund must first be filed with the Commissioner of
Internal Revenue. But a suit or proceeding must be filed within
Levy or imposition two years from the date of payment of the tax or penalty
regardless of any supervening cause that may arise after
Taxation is inherently legislative. The power of taxation is vested payment.
on and exercised by the legislative department. The
determination of what should be taxes, when, how, or where lies Based on the Principle of Solutio Indebiti
in the legislative department.
When the BIR received something when there was no right to
KIND OF TAXES AS TO IMPOSING AUTHORITY demand it, it has the obligation to return it.

Imposed by National Government Imposed by the Local Government ____________________________________________________________

• Income Tax • Business Tax
• Estate and Donor’s Taxes • Professional Tax
• Value-Added Tax • Amusement Tax Tax
• Other Percentage Taxes • Community Tax
• Excise Taxes • Franchise Tax Tax is an enforced proportional contribution imposed upon
• Documentary Stamp • Real Property Tax
Taxes
persons, property, or rights levied by the State by virtue of its
• Other taxes, fees, and
charges sovereignty for the support of government and for all public
needs.
INHERENT IN SOVEREIGNTY • Inherently Legislative
• Territorial
The power to tax is an attribute of sovereignty. Taxation is an • Tax exemption of government entities, agencies, and
inherent power of the State. instrumentalities
People + Territory + Government, Sovereignty = STATE • International comity

INHERENT POWERS OF THE STATE Kinds of Taxes

Taxation Police Power Eminent Domain According to

Purpose Raise revenue General welfare Social justice Who bears the burden Direct taxes, Indirect taxes
Concept Enforced Regulation Public use Rates/Graduation Progressive, Proportional,
contribution
Authority National National Nation Regressive
Government Government or Government or Object Personal, Property, Excise
of Political Political Political
Subdivision Subdivision Subdivision; may
Scope/Authority National, Local
be granted to Purpose General, Special
public service Amount Specific, Ad Valorem, Mixed
companies or
public utilities.
Benefits Protection Indirect Benefits Market Value of
Received and benefits the Property ____________________________________________________________
from the
government
Amount No limit Commensurate to No amount Tax
Imposed cover cost of license imposed; the
and necessary owner is paid just Tax is an enforced proportional contribution imposed upon
expenses compensation
persons, property, or rights levied by the State by virtue of its
sovereignty for the support of government and for all public
____________________________________________________________ needs.

Tax Income Tax

Tax is an enforced proportional contribution imposed upon It is defined as a tax on all yearly profits arising from property,
persons, property, or rights levied by the State by virtue of its professions, trades, or offices, or as a tax on the person’s income,
sovereignty for the support of government and for all public emoluments, profits, and the like.
needs.

PURPOSE OF TAXATION

To raise revenues in order to defray the necessary and legitimate

expenses of the government.

Taxes are imposed for a public purpose. The proceeds of the tax
must be used for:

• the support of the State or,

• some recognized objects of government or directly to
promote the welfare of the community.

TESTS FOR DETERMINING PUBLIC PURPOSE

Duty Test Is the tax in furtherance of the duty of the

State as a government to provide?
Promotion Will the tax directly promote the welfare of
of General the community in equal measure?
Welfare Test
Character of Is the public welfare ultimately benefited by
the Direct the promotion of the direct object of the
Object of the expenditure?
Expenditure

____________________________________________________________

Characteristics of Taxation

• An enforced contribution
• It must be progressive
• Generally payable in money
• Levied by the legislative
• For public purpose

Inherent Limitations

• Public purpose