GENERAL PRINCIPLES

TAXATION

− is an inherent power of the sovereign state

− exercised by the legislature
− imposing proportionate burden upon persons, rights, properties and transactions
− to raise revenue
− for the defrayal of government expenses
INHERENT POWER OF THE STATE
1. Taxation Power
2. Police Power
3. Power of Eminent Domain
COMPARISON OF THE THREE POWERS OF THE STATE
Point of Taxation Police Power Eminent Domain
Difference
Exercising Authority Government Government Government & Private
Utilities

Purpose For the support of the To protect the general For public purposes
Government welfare of the people

Persons Affected Community or class of Community or class of Owner of property

individuals individuals

Amount of Imposition Unlimited Limited No amount imposed

Importance Most important Most Superior Important

Relationship with the Inferior to the “Non-
constitution Impairment Clause” of the
Constitution
Limitation Constitutional and inherent
limitations
Superior to the “Non- Superior to the “Non-
Impairment Clause” of the Impairment Clause” of the
Constitution Constitution
Public Interest and Due Public Purpose and just
Process compensation

SCOPE OF TAXATION
1. Comprehensive
2. Unlimited
3. Plenary
4. Supreme
INHERENT LIMITATIONS
1. Public Purpose – either direct or indirect
2. Exemption of the Government – except GOCC – exempt: SSS, GSIS, PHIC, and Local Water Districts
3. Non-delegation of the Taxing Power – International Taxes: President; Local Taxes: LGU
4. Territoriality of Taxation – except: Resident Citizen and Domestic; Corporations: Income Tax; Residents or
Citizens: Transfer Tax
5. International Comity
CONSTITUTIONAL LIMITATIONS

• Due process of law

• Equal protection of the law
• Uniformity
• Progressive system
• Non-impairment for non-payment of debt or poll tax
• Non-impairment of obligation and contract
• Free worship rule
• Exemption of religious or charitable entities, non-profit cemeteries, churches and mosques from property taxes
• Non-appropriation of public funds or property for the benefit of any church, sect or system of religion
• Exemption from taxes of the revenues and assets of non-profit, non-stock educational institutions
• Concurrence of a majority of all members of congress
• Non-diversification of tax collections
• Non-delegation of the power of taxation
• Non-impairment of the jurisdiction of the supreme court to review tax cases
• The requirement that appropriations, revenue, or tariff bills shall originate exclusively in the house of
representatives
• The delegation of the taxing power to local government units
DOUBLE TAXATION
 Direct
 Indirect
ELEMENTS OF DOUBLE TAXATION
1. Same object
2. Same type of tax
3. Same purpose of tax
4. Same taxing jurisdiction
5. Same tax period
ESCAPES FROM TAXATION
Those that result to loss of government revenue:
A. Tax Evasion
→ Act or trick that tends to illegally reduce or avoid the payment of tax
B. Tax Avoidance
→ Act or trick that reduces or totally escapes taxes by any legally permissible means
 C. Tax Exemption
→ Immunity, privilege or freedom from being subject to tax which others are subject to
Those that do not result to loss of government revenue:
A. Shifting
→ The process of transferring tax burden to other taxpayer
B. Capitalization
→ Adjustment of the value of the asset caused by changes in tax rates
C. Transformation
→ Elimination of wastes or losses by the taxpayer to form savings to compensate for the tax imposition or increase
in taxes
TAX AMNESTY VS TAX CONDONATION
TAX AMNESTY

− General pardon granted by the Government for erring taxpayer.

− It is an absolute forgiveness or waiver by the Government on its right to collect and its retrospective in application
− Covers both civil and criminal liability
TAX CONDONATION

− Is the forgiveness of the tax obligation of a certain taxpayer under certain justifiable grounds.
− This is also referred to as tax remission.
− Covers civil liabilities
EXERCISED BY THE LEGISLATURE

TAXATION LAW
TYPES OF TAXATION LAW
Tax Law

→ Laws that provide for the assessment and collection of taxes

Tax Exemption Laws

→ Laws that grant certain immunity from taxation

SOURCES OF TAXATION LAWS

• Constitution
• Statutes and presidential decrees
• Juridical decision
• Executive orders and batas pambansa
• Administrative issuances
• Local ordinances
• Tax treaties with foreign countries
• Revenue regulations
TYPES OF ADMINISTRATIVE ISSUANCES
I. Revenue Regulations
II. Revenue Memorandum Orders
III. Revenue Memorandum Rulings
IV. Revenue Memorandum Circulars
V. Revenue Bulletins
VI. BIR Rulings
TAX

− Is an enforced proportional contribution levied by the lawmaking body of the state to raise revenue for public use
ELEMENTS OF A VALID TAX
I. Must be levied by the taxing power having jurisdiction over the object of Taxation
II. Must not violate constitutional and inherent limitations
III. Must be uniform and equitable
IV. Must be for public purposes
V. Must be proportional in character
VI. Generally payable in money
CLASSIFICATION OF TAXES
As to purpose:

• Fiscal or revenue tax

• Regulatory
• Sumptuary
As to subject matter:

• Personal, poll or capitation

• Property Tax
• Excise or Privilege Tax
As to amount:

• Specific Tax
• Ad Valorem Tax
As to incidence:

• Direct Tax
• Indirect Tax
As to rate:

• Proportional Tax
• Progressive or Graduated Tax
• Regressive Tax
• Mixed Tax
As to imposing authority:

• National Tax
• Local Tax
TAX VERSUS:
➢ Revenue, License Fee, Toll, Debt, Special Assessment, Tariff, Penalty
PRINCIPLES OF A SOUND TAX SYSTEM
FISCAL ADEQUACY

→ Sources of Government Funds must be sufficient to cover Government costs

THEORETICAL JUSTICE

→ Taxation should consider the taxpayer’s ability to pay

ADMINISTRATIVE FEASIBILITY

→ Tax laws should be capable of efficient and effective administration to encourage compliance
TAX COLLECTION SYSTEMS
1. Withholding System on Income Tax
• Withholding Tax on Compensation
• Expanded Withholding Tax
• Final Withholding Tax
2. Withholding System on Business Tax
3. Voluntary Compliance System
4. Assessment or Enforcement System
CHIEF OFFICIALS OF THE BUREAU OF INTERNAL REVENUE
1 comissioner
4 deputy commissioners, each to be designated to the following:
• Operations Group
• Legal Enforcement Group
• Information Systems Group
• Resource Management Group
• Tax Reform Administration Group
• Special concerns Group