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Basis Principle (Tax and Other Charges)

1. Tax defined and essential characteristics of tax

a. Tax is an enforced contribution levied by the State by virtue of the sovereignty on persons and
property within its jurisdiction for the support of the government and all public needs.
b. Essential Characteristics of Tax.
1) It is an enforced contribution;
2) It is levied pursuant to legislative authority;
3) It is proportionate in character;
4) It is payable in money;
5) It is levied on persons and property within the jurisdiction of the State;
6) It is levied and collected for the purpose of raising revenue to be used for public purpose;
7) It is commonly required to be paid at regular intervals (not all taxes).

2. Classification of taxes
a. As to scope
1) National imposed by the national Government (e.g. income tax, estate tax, donor’s tax, value
added tax, other percentage taxes, documentary stamp tax.)
2) Local or Municipal imposed by municipal corporations (e.g. real estate tax, community tax)
b. As to who bears the burden
1) Direct. Tax which is determined from the person who also shoulders the burden of tax or tax which
the taxpayer cannot shift to another (e.g. income tax, estate tax, donor’s tax)
2) Indirect. Tax which is demanded from one person in the expectation and intention that he shall
indemnify himself at the expense of another or tax which can be shifted to another person (e.g.
value-added tax, other percentage taxes)
c. As to the determination of the amount
1) Specific. Tax of fixed amount imposed by the head or number, or by some standard of weight or
measurement. It requires no assessment other than a listing or classification of the subjects to be
taxed (e.g. excise tax on cigar, cigarettes and liquors)
2) Ad valorem. Tax of fixed proportion of 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 from each taxpayer can be determined (e.g. VAT, income tax,
donor’s tax and estate tax).
d. As to purpose
1) General/Fiscal/Revenue. Tax imposed solely for the general purpose of the government, i.e., to
raise revenue for government expenditures (e.g. income tax, donor’s tax and estate tax).
2) Special/Regulatory. Tax imposed for a specific purpose, i.e., to achieve some social or economic
ends irrespective of whether revenue is actually raised or not (e.g. tariff and certain duties on
imports).
e. As to object or subject matter
1) Personal/Poll/Capitation. Tax of a fixed amount imposed on individual, whether citizens or not,
residing within a specified territory without regard to their property or the occupation in which he
may be engaged (e.g. community tax)
2) Property. 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 estate tax).
3) Excise. Any tax which does not fall within the classification of a poll tax or a property tax. This is a
tax on the exercise of certain rights or privileges (e.g. income tax, estate tax, donor’s tax, VAT and
other percentage taxes).
Note: This is different from excise tax which is a business tax imposed on items such as cigars,
cigarettes, wines, liquors, fireworks, mineral products, etc.
f. As to rates or gradation
1) Proportional. Tax based on a fixed percentage of amount of the property, receipts, or other bases
to be taxed (e.g. VAT, OPT)
2) Progressive. Tax the rate of which increases as the tax base or bracket increases (e.g. income tax,
estate tax and donor’s tax).
3) Regressive. Tax the rate of which decreases as the tax base or bracket increases.

3. Regressive System of Taxation

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a. A regressive tax must not be confused with regressive system of taxation. In a society where the
majority of the people have low income, it exists when there are more indirect taxes imposed than
direct taxes.
b. The low-income sector of the population as a whole buys more consumption goods on which indirect
taxes are collected. The burden of indirect taxes rests more on them than on the more affluent groups.
c. Studies reveal that the progressive elements of income and other taxes have not sufficiently offset the
regressive effects of the indirect as a whole.

4. Distinction of Tax from Other Charges

a. From Toll
1) Toll is a sum of money collected for the use of something, generally applied to the consideration
which is paid for the use of road, bridge or the liker of a public nature.
2) Distinction between toll and tax
Toll Tax
a) Whose demand Demand of proprietorship Demand of sovereignty
b) Paid for what Paid for use of another person's Paid for the support of the
property Government
c) Basis Amount is based on the cost of Amount is based on the
construction or maintenance of the necessities of the State
public improvements used
d) Authority that May be imposed by the Government Imposed by Government
imposes or by private entities only
b. From special assessment
1) Special assessment is an enforced proportional contribution from owners of lands for special
benefits resulting from public improvements.
2) Distinction between special assessment and tax
Special assessment Tax
a) Levied on what Levied on land only Levied on persons, property or
the exercise of privilege
b) Whose personal Not a personal liability of the person Personal liability of the person
liability assessed taxed
c) Basis Based wholly on the special benefits Based on the necessities of
to the property assessed the government without any
special benefit directly
accruing to the taxpayer
d) Application Exceptional both as to time and place Has general application
c. From license fee
1) License fee or permit is a charge imposed under the police power for the purpose of regulations.
2) Distinctions between license fee and tax
License fee Tax
a) Imposed for Imposed for regulation Imposed for revenue
what
b) Exercise of what Involves an exercise of police power Involves exercise of taxing
power
power
c) Amount of Amount is limited to the necessary Amount is generally not
expenses of regulations
imposition limited
d) Subject of Imposed on the right to exercise a Imposed on persons,
imposition privilege property and the right to
exercise a privilege
e) Purpose Legal compensation or reward of an Enforced contribution
officer for specific services assessed by sovereign
authority to defray public
expenses
f) Consequence for Failure to pay makes the act or Failure to pay does not
business illegal necessarily make the
failure to pay business illegal
d. From debt
1) Distinctions between debt and tax
Debt Tax
a) Basis Based on contract Based on law
b) Assignability Assignable Generally not assignable

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c) Payment mode May be paid in kind Generally payable in money

d) Set-off or May be subject to set-off or Generally not subject to set-
compensation off or compensation
compensation
e) Consequence No imprisonment for non-payment Imprisonment for non-
for failure to payment except poll tax
pay
f) Prescriptive Governed by ordinary prescriptive Governed by special
period period prescriptive period
g) Interest Draws interest when stipulated or Does not draw interest
when there is default except when delinquent
e. From penalty
1) Distinctions between penalty and tax
Penalty Tax
a) Purpose Designed to regulate conduct Aimed at raising revenue
b) Authority that Imposed by Government or private Imposed by Government only
imposes entities
f. Other charges/related terms
a. Subsidy is pecuniary aid directly granted by the government to an individual or private commercial
enterprise deemed beneficial to the public.
b. Revenue refers to all the funds or income derived by the government, whether from tax or any
other sources.
c. Internal revenue refers to taxes imposed by the legislature other than duties on imports and
exports.
d. Customs duties (or simply duties) are taxes imposed on goods exported to or imported from a
country. Customs duties are really taxes but the latter is broader.
e. Tariff may be used in one of the following three senses:
1) A book of rates drawn usually in alphabetical order containing the names of several kinds of
merchandise with the corresponding duties to be paid for the same.
2) The duties payable on goods imported or exported.
3) The system or principles of imposing duties on the importation or exportation of goods.

5. National Taxes Under Special Laws, Sources of Tax Laws, Basic Tax Laws in the Philippines
a. National Taxes Imposed Under Special Laws
a) Customs duties;
b) Sugar adjustment tax;
c) Tax on narcotic drugs;
d) Specific educational fund tax;
e) Science fund tax;
f) Energy taxes on aircraft, motorized watercraft and electric power consumption;
g) Travel tax;
h) Private motor vehicle tax
b. Sources of Tax Laws
a) Constitution;
b) Statutes or laws;
c) Presidential decrees;
d) Revenue regulations;
e) Administrative rulings and opinions;
f) Judicial decisions;
g) Provincial, city, municipal and barangay, ordinances;
h) Treaties and international agreements
c. Basic Tax Laws of the Philippines
a) National Internal Revenue Code;
b) Tariff and Customs Code;
c) The Local Tax Code;
d) The Real Property Tax Code.

6. Exemptions from Taxation

a. Exemption from taxation is a grant of immunity, express or implied, to particular persons, or
corporations, or to persons or corporations of a particular class, from a tax upon property, or an excise
tax which persons and corporations generally within the same faxing district, are obliged to pay.

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b. Classification of exemptions
1) Express or affirmative- These are express provisions in the Constitution, statutes, treaties,
ordinances, franchises or contracts.
2) Implied or exemption by omission - This occurs when a tax is levied on certain classes of persons,
properties or transactions without mentioning other classes. Those not mentioned are deemed
exempted by omission.
c. Interpretation of exemption grant. Exemption grants are strictly construed against the person, entity
or property claiming exemption. One claiming must justify such claim by clear and positive grant.

7. Tax Avoidance vs. Tax Evasion

a. Tax avoidance (tax minimization) is the use by the taxpayer or legally permissible methods in order to
reduce tax liability.
b. Tax evasion (tax dodging)Ms the use by the taxpayer of illegal means to defeat or lessen the payment
of tax.

8. Relationship Among Impact, Shifting and Incidence of Taxation

The impact of taxation corresponds to the imposition of the tax, shifting refers to the transfer of tax and
incidence consists of the payment of the tax.
9. Shifting
a. Shifting is the transfer of the burden of a tax by the original payer or the one to whom the tax was
assessed or imposed to another or someone else.
b. Kinds of shifting:
1) Forward shifting - This takes place when the burden of the 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 - This is effected when the burden of the tax is transferred from the customer or
purchaser through the factors of distribution to the factor of production.
3) Onward shifting- This occurs when tax is shifted two or more time either forward or backward.

Basic Principles (Tax and Other Charges)