Module 1

Introduction
to Taxation
Prepared by Mrs. Nelia I. Tomas, CPA, LPT

Income Taxation Laws, Principles and Application 2021. Banggawan, Rex

LEARNING OBJECTIVES
After completing the lesson, the students must be able to comprehend and
demonstrate mastery of the following:

 Concept of taxation and its necessity for every government

 Lifeblood doctrine and its implication to taxation
 Theories of government cost allocation
 Inherent power of the State
 Scope of the taxation power
 Limitations of the taxation power
 Stages of taxation
 Concept of situs of taxation
 Fundamental principles surrounding taxation
 Various escapes from taxation
 Concept of tax amnesty and condonation
Definition of Taxation
Taxation may be defined as a State power, a legislative process and
government cost distribution.

The Theory of Taxation

Every government provides a vast array of public services including
defense, public order and safety, health, education, and social
protection among others. A system of government is indispensable to
every society. Without it, the people will not relish the benefits of a
civilized and orderly society. However, the government cannot exist
without a system of funding. The government’s necessity for funding
is the theory of taxation.
 The Basis of Taxation

Government People

The government provide benefits to The people provide the funds that
the people in the form of public finance the government.
services.
 Theories of Cost Allocation

01 02 A
Benefit Received Ability to Pay The Lifeblood
Theory Theory Doctrine

the more benefit one one should be taxes are essential

receives from the required to contribute and indispensable to
government, the based on his relative the continued
more taxes he capacity to sacrifice subsistence of the
should pay for the support of the government, without
government it, the government
would be paralyzed
 Taxation

Inherent Powers
of the State Police Power

Eminent
Domain
Scope of Taxation Power
The scope of taxation is widely regarded as comprehensive, plenary,
unlimited and supreme.

Limitations of the Taxation Power

 Inherent Limitations
 Constitutional Limitations
Inherent Limitations
01 Territoriality of Taxation (subject to exceptions)

02 International Comity

03 Public Purpose

04 Exemption of the Government

05 Non-delegation of the Taxing Power

Exceptions to the rule of non-delegation
 Under the Constitution, local government units are allowed to
exercise the power to tax to enable them to exercise their fiscal
autonomy.
 Under the Tariff and Customs Code, the President is
empowered to fix the amount of tariffs to be flexible to trade
conditions.
 Other cases that require expedient and effective administration
and implementation of assessment and collection of taxes.
 Constitutional Limitations
Due Process of law Progressive System
Aspects of Due Process:
 Substantive due process of Taxation
 Procedural due process

Equal Protection of Non-imprisonment for

Non-payment of debt
the Law or poll tax

Non-impairment of
Uniformity Rule in
obligation and
Taxation
contract
 Constitutional Limitations
Exemption from taxes of
Free Worship Rule non-profit, non-stock
educational institutions

Exemption from property taxes Concurrence of a majority

of religious or charitable of all members of Congress
entities, non-profit cemeteries, for the passage of law
churches, and mosques….
granting tax exemption

Non-appropriation of
public funds or property for Non-diversification
the benefit of any church, of tax collections
sect or system of religion
 Constitutional Limitations

The requirement that

Non-delegation appropriations, revenue or
of the power of tariff bills shall originate
exclusively in the
taxation House of Representatives

Non-impairment The delegation of taxing

of the jurisdiction of power to local
the supreme court to government units
review tax cases
Stages of the Exercise of
Taxation Power
01 Levy or Imposition
This process involves the enactment of a tax law by Congress and is
called impact of taxation. It is also called the legislative act in taxation.
Matters of legislative discretion in the exercise of taxation
 Determining the object of taxation
 Setting the tax rate or amount to be collected
 Determining the purpose for the levy which must be public use
 Kind of tax to be imposed
 Apportionment of the tax between the national and local government
 Situs of Taxation
 Method of collection

02 Assessment and collection

Tax law is implemented by the administrative branch of the government.
Implementation involves assessment of the determination of the tax
liabilities of taxpayers and collection. This stage is referred to as incidence
of taxation or the administrative act of taxation.
 Situs of Taxation
The place of taxation….

Example of Business Situs Rules

a. Business Tax Situs – place where the business is conducted

Income Tax Situs on:

b. Services – where services are rendered
c. Sale of goods – place of sale
d. Property tax situs – location of the property
e. Personal tax situs – place of residence
Other Fundamental Doctrines in Taxation

Marshall Doctrine “The power to tax involves the power to destroy”.

“Taxation power is not the power to destroy while

Holme’s Doctrine the court sits”.

Prospectivity of tax laws A law that retroacts in prohibited by the Constitution

Other Fundamental Doctrines in Taxation

Non-compensation
Tax is not a debt, hence, it is not subject to set-off.
or set-off

Non-assignment Tax obligations cannot be assigned or transferred to

of taxes another entity by contract.

Imprescriptibility The government’s right to collect taxes does not prescribe

in taxation unless the law itself provides such prescription.
Other Fundamental Doctrines in Taxation

Any misrepresentation made by one party toward another who

Doctrine of Estoppel relied in good faith will be held true and binding against that
person who made the misrepresentation.

Generally, the courts are not allowed to issue injunction

Judicial Non-interference against the government’s pursuit to collect tax.

Strict Construction Taxation is the rule; exemption is the exception. Vague tax
laws are construed against the government and in favor of the
of Tax Laws taxpayers. Vague tax exemption laws are construed against
the taxpayer and in favor of the government.
 Double Taxation
What is Double Taxation? What are the types of double
taxation?
Double taxation occurs when the
same taxpayer is taxed twice by a. Direct double taxation – occurs
the same tax jurisdiction for the when all the element of double
same thing. taxation exists for both
impositions.

b. Indirect double taxation – occurs

when at least one of the secondary
elements of double taxation is not
common for both impositions.

What are the elements of double How can double taxation be

taxation? minimized?
a. Primary element: same object a. Provision of tax exemption
b. Secondary elements: b. Allowing foreign tax credit
 Same type of tax c. Allowing reciprocal tax
 Same purpose of tax treatment
 Same taxing jurisdiction d. Entering into treaties or
 Same tax period bilateral agreements
 Escapes from Taxation
Categories

01 Those that result to loss of government revenue

a. Tax Evasion – also known as tax dodging, refers to any act or trick that
tends to illegally reduce or avoid the payment of tax.
b. Tax Avoidance – also known as tax minimization, refers to any act or trick
that reduces or totally escapes taxes by any legally permissible means.
c. Tax Exemption – also known as tax holiday, refers to the immunity,
privilege or freedom from being subject to a tax which others are subject
to. It may be granted by the Constitution, law or contract.

02 Those that do not result to loss of government revenue

a. Shifting – the process of transferring tax burden to other taxpayers.
b. Capitalization – pertains to the adjustment of the value of an asset caused by
changes in tax rates.
c. Transformation – pertains to the elimination of wastes or losses by the
taxpayer to form savings to compensate for the tax imposition or increase in
taxes.
Tax Amnesty
It is a general pardon granted by the government for erring taxpayers
to give them a chance to reform and enable them to have a fresh start
to be part of society with a clean slate. It is an absolute forgiveness or
waiver by the government on its right to collect and is retrospective in
application.

Tax Condonation
It is forgiveness of the tax obligation of a certain taxpayer under
certain justifiable grounds. This is referred to as tax remission.
 Questions to Ponder

1. Define taxation.
2. Differentiate the theory and the basis of taxation.
3. Identify the theories of government cost allocation. Explain each.
4. Enumerate and explain the inherent powers of the state.
5. Discuss the limitations to the power of taxation.
6. Explain the stages of the exercise of taxation power.
7. Explain the concept of situs.
8. Differentiate tax amnesty and tax condonation.
 Required Readings and Other
Learning Resources

1. Chapter 1, pp.1 - 20:Banggawan, Rex B. 2021. INCOME

TAXATION LAWS, PRINCIPLES, AND APPLICATIONS. Real
Excellence Publishing., Pasay Default Barangay, Pasay City,
Philippines.

2. https://www.pwc.com/ph/en/publications/pdf/pwcph-tax-code-
2019.pdf
 Learning Activities/Self-Tests

Chapter 1, pp. 21 - 34:Banggawan, Rex B. 2021. INCOME

TAXATION LAWS, PRINCIPLES, AND APPLICATIONS. Real
Excellence Publishing., Pasay Default Barangay, Pasay City,
Philippines.
 Appendix: Course Materials Evaluation
Adopted: BEST PRACTICES AND SAMPLE QUESTIONS FOR COURSE EVALUATION SURVEYS. Retrieved from
https://assessment.provost.wisc.edu/best-practices-and-sample-questions-for-courseevaluation-surveys//.