8/17/22

GENERAL PRINCIPLES AND

CONCEPTS OF TAXATION

ACC133
Atty. Daphne Dianne D. Mendoza, CPA

TAXATION
It is the inherent power by
which the sovereign
through its law-making
body raises revenue to
defray the necessary
expenses of government.

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CHARACTERISTICS OF TAXATION (LIL)

◦ A. Legislative in nature
◦ B. Inherent power of the sovereign state
◦ C. Limitations - subject to inherent, constitutional and
contractual limitations

PURPOSE OF TAXATION
◦ A. Raise Revenue – to provide funds or property with
which the State promotes the general welfare and
protection of its citizens
◦ B. Non-Revenue
◦ Promotion of general welfare
◦ Regulation
◦ Reduction of social inequality
◦ Encourage economic growth
◦ Protectionism

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THEORIES AND BASES OF TAXATION

◦ A. Lifeblood Theory (Importance of taxation)
◦ 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.
Hence, despite the natural reluctance to surrender part
of one’s hard-earned income to the taxing authorities,
every person who is able to must contribute his share in
running of the government.

THEORIES AND BASES OF TAXATION

◦ B. Necessity Theory (Theory of taxation)
◦ The power to tax is an attribute to sovereignty emanating
from necessity. It is necessary burden to preserve the
State’s sovereignty and a means to give citizenry an army
to resist an aggression, a navy to defend its shores from
invasion, a corps of civil servants to serve, public,
improvements designed for the enjoyment of the citizenry
and those which come within the State’s territory, and
facilities and protection which a government is supposed
to provide.

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THEORIES AND BASES OF TAXATION

◦ C. Benefits-Protection Theory (Basis of taxation)
◦ Taxation is described as a symbiotic relationship
whereby in exchange of the benefits and protection
that the citizens get from the Government, taxes are
paid.

BASIC PRINCIPLES OF A
SOUND TAX SYSTEM (FAT)
◦ A. Fiscal Adequacy – sufficiency to meet government
expenditures and other public needs
◦ B. Administrative Feasibility – capability of being
effectively enforced
◦ C. Theoretical Justice – based on the taxpayer’s ability to
pay and must be progressive
◦ D. Consistency with Economic Goals

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CLASSIFICATIONS OF TAXES
As to subject matter: Example of Personal
A. Personal Tax – taxes are of Tax: Community Tax
fixed amount upon all persons of Certificate
a certain class within the
jurisdiction without regard to
property, occupation or business
in which they may be engaged

B. Property Tax – assessed on Example of Property

property of a certain class
Tax: Real Property Tax

CLASSIFICATIONS OF TAXES
As to subject matter:
C. Excise Tax – imposed on Example of Excise
the exercise of a privilege Tax: Income tax,
Donor’s tax and
Estate tax
D. Custom Duties – duties
charged upon the
commodities on their being Example of Custom
imported into or exported Duties: Tariffs
from a country

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CLASSIFICATIONS OF TAXES
As to burden:
A. Direct Tax – both the incidence Example of Direct
of or liability for the payment of
the tax as well as the impact or
Tax: Income Tax
burden of the tax falls on the
same person
Example of Indirect
B. Indirect Tax – incidence of or Tax: VAT
liability for the payment of the
tax falls on one person but the
burden thereof can be shifted
or passed on to another

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CLASSIFICATIONS OF TAXES

As to purpose:
A. General Tax – levied for the general or
ordinary purposes of the Government

B. Special Tax – levied for special purposes

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CLASSIFICATIONS OF TAXES
As to measure of application:
A. Specific Tax – imposes a specific sum by
the head or number by some standard of
weight or measurement

B. Ad Valorem Tax – tax upon the value of

the article or thing subject to taxation

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CLASSIFICATIONS OF TAXES

As to taxing authority:
A. National Tax – levied by the National
Government

B. Local Tax – levied by the local

government

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CLASSIFICATIONS OF TAXES
As to rate:
A. Progressive Tax – rate or amount of tax increases
as the amount of income or earning to be taxed
increases

B. Regressive Tax – tax rate decreases as the

amount of income to be taxed increases

C. Proportionate Tax – based on a fixed proportion

of the value of the property assessed

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Taxation Police Power Eminent Power

- inherent power of - inherent power of the - inherent power of the

the sovereign state sovereign state interferes sovereign state to take
through its law- with private rights to private property upon
making body raises promote general welfare payment of just
revenue to defray the compensation for public
necessary expenses use

THREE
of government
As to To raise revenue To promote general welfare To facilitate the State’s
purpose: through regulations need of property for public

INHERENT Amount of
exaction:
No limit Limited to the cost of
use
No exaction; but private
regulation, issuance of the property is taken by the

POWERS Benefits No special or direct

license or surveillance
No direct benefit is
State for public purposes
A direct benefit results in

OF THE
received: benefit is received by received; a healthy the form of just
the taxpayer; merely economic standard of compensation to the
general benefit of society is attained property owner.

STATE Non-
protection
Contracts may not be
impairment of impaired
Contracts may be impaired Contracts may be impaired

contracts:
Transfer of Taxes paid become No transfer but only restraint Transfer is effected in favor
Property part of public funds in its exercise of the State
Rights:
Scope: All persons, property, All persons, property, right Only upon a particular
rights and privileges and privileges property

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TAX LICENSE FEE

Based on the power of Emanates from police
taxation power

To generate revenue Regulatory

Amount is unlimited Amount is limited to the

cost of (1) issuing the
license, and (2) inspection TAX VS
LICENSE FEE
and surveillance

Non-payment does not Non-payment makes the

make the business illegal business illegal
but maybe a ground for
criminal prosecution

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TAX DEBT

An obligation imposed by law Created by contract

Due to the government in its May be due to the

sovereign capacity government but in its corporate
capacity
Payable in money Payable in money, property or
services

Does not draw interest except

in case of delinquency
Draws interest if stipulated or
delayed
TAX VS
Not assignable

Not subject to compensation or

Assignable

Subject to compensation or
DEBT
set-off set-off

Non-payment is punished by No imprisonment in case of

imprisonment except in poll tax non-payment (Art. III Sec. 20
1987 Constitution)

Imposed only by public Can be imposed by private

authority individual

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TRUE OR FALSE: TAX MAY BE SUBJECT

TO COMPENSATION OR SET-OFF?
◦Taxes cannot be the subject of
compensation or set-off because taxes
are not contractual obligations but
arise out of duty to the government.
However, set-off may be allowed if it is
for the advantage of Government.

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LIMITATIONS TO THE POWER OF TAXATION

A.Inherent – not embodied in the constitution,
these are limitation based on the very nature of
the power of taxation
B.Constitutional – those expressly found in the
Constitution or implied from its provisions
C.Contractual – limitations based on contract
entered between the state and another

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DIFFERENT INHERENT LIMITATIONS

◦A. Public purpose of taxes
◦B. Non-delegability of the taxing power
◦C. Territoriality or situs of taxation
◦D. Tax exemption of the government
◦E. International comity

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A. Public purpose
◦Tests:
◦1. Duty Test – whether the thing to be furthered by
the appropriation of public revenue is something
which is the duty of the State, as a government, to
provide
◦2. Promotion of General Welfare Test – whether
the proceeds of the tax will directly or indirectly
promote the welfare of the community in equal
measures

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B. Non-delegability of the taxing

power

◦General Rule: The power of taxation is peculiarly

and exclusively exercised by the legislature. For
the power emanates from, through, and by the
people. Hence, a delegated authority could no
longer be further delegated.

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B. Non-delegability of the taxing

power
◦ Exceptions:
◦ 1. Authority of the President to fix tariff rates, import
and export quotas, tonnage and wharfage dues, and
other duties or imposts (Art. VI, Sec. 28 (2), 1987
Constitution)
◦ 2. Power of local government units to levy taxes, fees
and charges (Art. X, Sec. 5, 1987 Constitution)
◦ 3. Delegation to administrative agencies,
implementation and collection

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C. Situs of Taxation

◦The power to tax is limited only to persons,

property or businesses within the jurisdiction
or territory of the taxing power.

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Factors that Determine

the Situs of Taxation
1. Kind or classification of the tax being levied
2. Situs of the thing or property taxed
3. Citizenship of the taxpayer
4. Residence of the taxpayer
5. Source of the income tax
6. Situs of the excise, privilege, business or
occupation being taxed

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KIND OF TAX SITUS

Personal or community tax Residence or domicile of the taxpayer
Real property tax Location of property (Lex rei sitae)
Personal property tax Tangible: where it is physically located or permanently kept

Intangible: subject to Sec. 104 of the NIRC and the principle of

mobilia sequuntur personam
Business tax Place of business
Excise or privilege tax Where the act is performed or where the occupation is pursued
Sales tax Where the sale is consummated
Income tax Consider (1) citizenship, (2) residence, and (3) source of income
(Sec. 42, 1997 NIRC)
Transfer tax Residence or citizenship of the taxpayer or location of property
Franchise tax State which granted the franchise
Corporate tax Law on incorporation

SITUS OF TAXATION

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