INCOME

TAXATION
UNDER THE TRAIN
LAW

Jesrelle Vhon G. Habana, CPA, MBA

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INTRODUCTION

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 CHAPTER 1
TAXATION AND THE INCOME TAX

PRINCIPLES OF TAXATION

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1. TAXATION DEFINED
Taxation - the power inherent in every
sovereign state to impose a charge or
burden upon persons, properties or rights, to
raise revenues, for the use and support of the
government.

2. NATURE AND SCOPE OF TAXATION

As to nature, taxation is an inherent power
of the state, and is essentially a legislative
power.
As to scope, in the absence of limitations
prescribed by the fundamental law or
constitution, the power of taxation is unlimited
and comprehensive, and if there is any
limitation at all, it is the sense of responsibility of
the members of the legislature to their
constituents.
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 3. TAXATION DISTINGUISHED FROM
EMINENT DOMAIN.
• Taxation reaches all the persons, properties,
etc., covered by the tax, while eminent
domain reaches only a particular owner of
property. There is payment of money by a
taxpayer in taxation, while there is taking of
property by the government in eminent
domain. In taxation, the taxpayer is
presumed to receive a benefit from the
government, while in eminent domain, the
property owner receives a benefit by way of
just compensation.
4. TAXATION DISTINGUISHED
FROM POLICE POWER.
• Taxation is for the purposes of raising
revenues, while police power is for purposes of
regulation.
• In taxation, there is no limit on the amount of
the tax that may imposed, while in police
power, the licenses fee must be, as a general
rule, just enough to carry out regulation. 5
5. LIMITATIONS ON THE POWER OF TAXATION.
(a) Inherent limitations:
1. The tax must be levied for a public purpose;
2. The power of taxation cannot be delegated;
3. The rule on double taxation. (Double taxation
means taxing a person, property or right
twice within the same year by the same
taxing authority.);
4. Government instrumentalities and agencies
through which the government exercises
sovereign power are exempt from tax, in the
absence of a clear proof of contrary inherent
in the law;
5. The power of taxations limited to the territorial
jurisdiction of the taxing state;
6. The tax laws cannot apply to the property of
foreign governments (international comity.) 6
5. LIMITATIONS ON THE POWER OF TAXATION.
(b) Constitutional Limitations (Examples)
1. No law impairing the obligations of
contracts shall be passed;
2. No person shall be imprisoned for debt or
non-payment of a poll tax;

3. The rule on taxation shall be uniform and

equitable;
4. Charitable institutions, churches,
parsonages, mosques, and non-profit
cemeteries, and all kinds of lands,
buildings and improvements actually,
directly or exclusively used for religious or
charitable purposes, shall be exempt
from taxation. 7
 6. BASIC PRINCIPLES OF A
SOUND TAX SYSTEM.
a) Fiscal adequacy. The sources of
revenues, as a whole, should provide
enough funds to meet the expanding
expenditures of the government;

b) Theoretical justice. Taxes must be

based on the taxpayer’s ability to
pay;
c) Administrative feasibility. The tax must
be clear to the taxpayer, not unduly
burdensome and discouraging to
business, convenient as to time and
manner of payment, and capable of
enforcement by competent public
officials. 8
7. TAX DEFINED.
A tax is a forced burden, charge, exaction, imposition or
contribution assessed in accordance with some
reasonable rule of apportionment, by authority of a
sovereign state, upon the person, or property, or rights
exercised, within its jurisdiction, to provide public
revenues for the support of government, the
administration of the law, or the payment of public
expenses.

8. ESSENTIAL
CHARACTERISTICS OF A TAX.
(a) It is a forced contribution;
(b) It is in accordance to legislative authority in the exercise
of the taxing power;
(c) It is proportionate in character;
(d) It is payable in money;
(e) It is imposed for the purpose of raising revenue;
It is to be used for a public purpose. 9
 9. TAX DISTINGUISHED FROM
LICENSE FEE.
TAX LICENSE FEE
Taxes are imposed License fees are levied under
under the taxing power the police power of the state.
of the state for
purposes of revenue.
Taxes are forced License fees are exacted
contributions for the primarily to regulate certain
purpose of maintaining businesses or occupations.
government functions.
Taxes are generally License fees must not
unlimited as to amount unreasonably exceed the
expenses of issuing the license
and of supervision, unless the
business or occupation being
regulated is non-useful.

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10. TAX DISTINGUISHED FROM SPECIAL ASSESSMENT.
TAX SPECIAL
ASSESSMENT
Imposed regardless of Imposed because of an
public improvements. increase in the
value of land benefited
by a public improvement.
A contribution of a A contribution of a person
taxpayer for the for the construction of a
support of the public improvement.
government.
May be a regular Exceptional both as to
exaction on a taxpayer time and locality.
anywhere
within the jurisdiction of
the taxing authority.
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 11. CLASSIFICATION OF TAXES.
(a) As to subject matter
(1) Personal, capitation or poll tax.- A fixed
amount upon all persons, or upon all persons
of a certain class, residents within a specified
territory, without regard to their property or
occupation. (Example: Cedula)
(2) Property tax. A tax assessed against all
properties. (Example: Real Property Tax)
(3) Excise tax. A charge upon the
performance of an act, the enjoyment of a
privilege, or the engaging in an occupation.
An excise tax is a tax which is not a personal
tax or a property tax. (Example: alcohol and
cigarettes)

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 11. CLASSIFICATION OF TAXES.
(b) As to who bears the burden:
(1) Direct tax. - One which is demanded from
the person whom the law intends or desires to
pay it. (Income Tax)
(2) Indirect tax. - One which is shifted by the
taxpayer to someone else. (VAT)
(c) As to determination of the amount:
(1) Specific tax. - A tax which imposes a
specific sum by the head or number, or some
standard of weight or measurement, and which
requires no assessment other than by the listing
and classification of the subjects to be taxed.
(2) Ad valorem tax. - A tax or duty upon the
value of the article or subject of taxation. A tax
of so much per centum of the invoice or
appraised value of the goods subject to the tax.
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 11. CLASSIFICATION OF TAXES.
(d) As to purpose:
(1) General tax. At tax levied for general
purposes of government.
(2) Special tax. - A tax levied for a special
purpose.

(e) As to scope:
(1) National tax. -A tax levied by the
National Government.
(2) Local tax. -A tax levied by a local
government.

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 11. CLASSIFICATION OF TAXES.
(f) As to proportionality:
(1) Progressive - A tax in which the
increase in the tax rate is proportionate
to the increase in the tax base.

(2) Regressive - A tax in which the

increase in the tax rate is not proportional
to the increase in the tax base.
(3) Proportional - A tax of a fixed
percentage of amount of the base
(value of the property, or amount of gross
receipts, etc.).

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INCOME TAX
is succinctly defined as a tax on
income, whether gross or net (27 Am. Jur.,
308). It is an imposition by the government
where the test of faculty in taxation is
income. In the Philippines, the income tax
in the National Internal Revenue Code is:

(a) A national tax. It is imposed by the National

Government;
(b) An excise tax. It is a burden /not) laid directly
upon persons and properties. It is neither a capitation
or poll tax, nor a property tax;
(c) A direct tax. It is demanded from the person
whom the law intends to impose it, and cannot be
shifted by the taxpayer to some other person.
(d) A general tax. It is levied for the general
purposes of the government;
(e) An ad valorem tax. It is levied on value or
amount of the income of the taxpayer. 16
 (a) Special laws, as they give
preferential income tax treatment to
certain taxpayers, under certain
conditions;
(b) Revenue regulations;
THE
(c) Revenue circulars;
PHILIPPINE (d) Rulings of the Bureau of Internal
INCOME TAX Revenue;
(e) Opinions of the Secretary of
The Philippine Justice;
income tax law is (f) Decisions of the Supreme Court of
not the National the Philippines;
Internal Revenue (g) Decisions of the Court of
Code only. Also Appeals;
included are: (h) Decisions of the Court of Tax
Appeals; and
(i) Decisions of inferior courts. 17
THANK
YOU!

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