FUNDAMENTAL

PRINCIPLES
OF TAXATION

MARJ JULES LORAIN V. JUNTILLA, CPA

DEFINITION OF
TAXATION
DEFINITION OF 3

TAXATION
• TAXATION AS A POWER
This refers to the inherent power of
the state to demand enforced
contribution for public purpose to
support the government.
DEFINITION OF 4

TAXATION
• TAXATION AS A PROCESS
Taxation is a legislative act of laying tax to
raise income for the government to defray
its necessary expenses.
DEFINITION OF 5

TAXATION
• TAXATION AS A MODE OF COST
ALLOCATION
Taxation is a means of allocating burden
to the people.
TAXATION AS A
POWER OF THE
GOVERNMENT
 TAXATION AS A 7

POWER OF THE GOVERNMENT

POWER OF
POWER OF POLICE EMINENT
TAXATION POWER DOMAIN
• The power • The power to • The power to
to take enact laws to take private
property for promote the property for
the support general welfare public use upon
of the of the people. It payment of just
government is wider in compensation.
and for application
public use. because it is the
general power
to make laws.
SIMILARITIES OF 8

THE THREE POWERS

• All three powers are necessary attributes
of sovereignty, resting upon necessity.
• All are inherent powers of the state.
• All are legislative in nature.
• They are ways in which the State
interferes with private rights and
property.
• They exist independently with the
Constitution although the condition for
their exercise may be prescribed or limited
by the Constitution.
SIMILARITIES OF 9

THE THREE POWERS

• They all presuppose an equivalent
compensation received by the persons
affected by the exercise of the power,
whether directly, indirectly, or remote.
• The exercise of these powers by the
local government units may be limited
by the national legislature.
Note: Police power can be used to raise revenue for the
government (ex. License fee)
DIFFERENCES AND SIMILARITIES 10

Point of Difference Taxation Police Power Eminent Domain

Exercising authority Government Government Government and private
entities
Necessity of Delegation is not There must be There must be due
Delegation necessary since it is delegation before local delegation before local
inherent. governments could government or private
exercise it. party may exercise it.
Purpose Revenue and support of Protection of well-being Property is taken for
the government of the people public use
Persons affected Community or class of Community or class of Operates on the owner
individuals individuals of the property
Effect of transfer of Money paid as taxes There is no transfer of There is transfer of right
property rights becomes part of the title, at most there is to property whether it be
public fund restraint on the injurious of ownership or lesser
use of property right
Amount of Imposition Unlimited Sufficient to cover the No imposition, the
costs of regulation owner is paid the fair
market value of his
property
DIFFERENCES AND SIMILARITIES 11

Point of Difference Taxation Police Power Eminent Domain

Importance Most important of the Most superior
three
Relationship with the Inferior to the “Non- Superior to the “Non- Superior and may
Constitution Impairment Clause” of Impairment Clause” of override the “Non-
the Constitution the Constitution Impairment Clause”
because the welfare of
the state is superior to
private contracts
Limitation Constitutionally and Public interest and the Public purpose and just
inherently restricted requirement of due compensation
process
TAXATION AS A
PROCESS
 13

THE STAGES OF TAXATION

LEVY OR ASSESSMENT PAYMENT

IMPOSITION AND
COLLECTION
 LEVY OR 14

IMPOSITION
• This process involves passing tax laws or
ordinances through the legislature or a local
lawmaking body (e.g. Sanggunian). The tax laws
to be passed shall determine those to be taxed
(person, property or rights), how much is to be
collected (the rate and the base of tax), and how
taxes are to be implemented (the manner of
imposing and collecting tax; i.e. tax remedies). It
may also include the grant of tax exemptions, tax
amnesties, or tax condonation.,
 ASSESSMENT AND 15

COLLECTION
• This process involves the act of administration
and implementation of tax laws by the
executive through its administrative agencies
such as the Bureau of Internal Revenue
(BIR)or Bureau of Customs (BOC).
 16

PAYMENT
• This process involves the act of compliance by
the taxpayer in contributing his share to pay
the expenses of the Government. Payment of
tax also includes the options, schemes or
remedies as may be legally open or available
to the taxpayer.
 17

REFUND
• This is a process of claiming for tax illegally
collected or mistakenly paid. For a refund request
to prosper, it must first be filed with the
Commissioner of Internal Revenue (CIR). A suit
or proceeding may be filed within the period
provided by law from the date of payment of the
tax or penalty regardless of any supervening
cause that may arise after payment. The
Commissioner may, even without a written claim
therefor, refund or credit any tax, where on the
face of the return, such payment appears clearly
to have been erroneously paid.
TAXATION AS A
MODE OF COST
ALLOCATION
THE LIFE BLOOD
DOCTRINE
Taxes are indispensable to the
existence of the state. Without
taxation, the state cannot raise
revenue to support its operations.
 NATURE AND CHARACTERISTICS OF
THE POWER OF TAXATION
• For public purpose
• Inherently legislative in nature
• Subject to international comity or treaty
• Not absolute being subject to constitutional
and inherent limitations
• Exaction payable in money
• Territorial
 PURPOSE OF TAXATION
1. Primary Purpose - to raise revenue
2. Secondary Purposes:
a. Regulatory
b. Compensatory
 22

MODES OF COST
ALLOCATION
BENEFIT RECEIVED ABILITY TO PAY
THEORY THEORY
• Tax payment should be • Tax payments should
based on benefits be based relative to
received. the ability of
• Everyone is taxpayers to pay.
conclusively presumed • Assessments of
to receive benefits from ability to pay:
the government. a. Vertical Equity
b. Horizontal Equity
 23

THE THEORY AND

BASIS OF TAXATION
• THEORY: “The existence of government
is a necessity, and it cannot continue
without means to support itself.”
• BASIS: “The government and the people
have the reciprocal and mutual duties if
support and protection.”
THE SCOPE AND
LIMITATIONS OF
TAXATION
 25

THE SCOPE OF
TAXATION
Taxation is supreme,
comprehensive, unlimited,
and plenary. It includes the
power to destroy.
 CURRENT OBJECTS 26

OF TAXATION
1. Business
2. Interests
3. Transactions
4. Rights
5. Acts
6. Persons
7. Properties
8. Privileges
 LIMITATIONS OF 27

TAXATION POWER
A. Constitutional Limitations
B. Inherent Limitations (TIP-End)
1. Territoriality of taxation
2. Subject to international comity or treaty
3. Tax exemption of the government
4. Tax is for the public purpose
5. Non-delegation of the power of taxation
Note: Items 4 and 5 are also Constitutional Limitations
SITUS OF
TAXATION
 29

SITUS OF TAXATION
This is the place of taxation.
 APPLICATIONS OF 30

SITUS
1. Persons – residence of the taxpayer
2. Community development tax – residence or domicile of the
taxpayer
3. Business taxes – where the business was conducted or place
where the transaction took place
4. Privilege or occupation tax – where the privilege is exercised
5. Real property tax – where the property is located
6. Personal property taxes –
7. Income – place where the income is earned or residence or
citizenship of the taxpayer
8. Transfer taxes – residence or citizenship of the taxpayer or location
of the property
9. Franchise taxes – the state that grants the franchise
10. Corporate taxes – depend on the law of incorporation
DOUBLE TAXATION
 32

Taxing the object or subject

within the territorial jurisdiction
twice, for the same period,
involving the same kind of tax
by the same taxing authority.
 33

KINDS OF
DOUBLE TAXATION
DIRECT INDIRECT

• This is objectionable • No constitutional

and prohibited because violation involved.
it violates the
constitutional provision
on uniformity and
equality.

International Double Taxation – a double taxation

caused by two different taxing authorities (one
domestic and one foreign)
 REMEDIES OF 34

DOUBLE TAXATION
1. Provision for tax exemption
2. Allowance for tax credit
3. Tax for principle of reciprocity
4. Enter into treaties or agreements with foreign
government
FORMS OF ESCAPE
FROM TAXATION
 36

FORMS OF ESCAPE
FROM TAXATION
A. Those that will not result in loss
of revenue to the government
B. Those that will result to loss of
revenue to the government
 37

WILL NOT RESULT TO

LOSS OF REVENUE
1. Shifting – the process of transferring the tax burden
from the statutory taxpayer to another without
violating the law
2. Capitalization – the seller is willing to lower the price
of the commodity provided the taxes will be
shouldered by the buyers
3. Transformation – the manufacturer absorbs the
additional taxes imposed by the government without
passing it to the buyers for fear of loss of his market.
Instead, it increases quantity of production, thereby
turning their units of production at a lower cost
resulting to the transformation of the tax into a gain
through the medium of productions.
 38

WILL RESULT TO LOSS OF

REVENUE
1. Tax Evasion – resorting to acts and devices that
illegally reduces or totally escape the payment of
taxes that are due to the taxpayer. They are
prohibited and are therefore subjects to
penalties.
2. Tax Avoidance – the reduction or totally
escaping payment of taxes through legally
permissible means that are not prohibited and
therefore are not subject to penalties.
3. Tax Exemption – an immunity, privilege or
freedom from payment of a charge or burden to
which others are obliged to pay.
 39

KINDS OF
EXEMPTIONS
1. Express
2. Implied
3. Total
4. Partial
 40

TAX
TAX AMNESTY
CONDONATION
• A general pardon or • This means to remit
intentional overlooking or to desist or refrain
by the state of its
form exacting or
authority to impose
penalties on persons imposing a tax. It
otherwise guilty of tax cannot extend to
evasion or violation of refund of taxes
tax laws. The purpose it already paid when
to give the erring obtaining
taxpayer a chance to condonation.
reform and become
part of the society with
a clean slate.
 41

PRINCIPLES OF A SOUND
TAX SYSTEM
1. Fiscal Adequacy – sources of revenue should
be sufficient to meet the demand for public
expenditure.
2. Administrative Feasibility – tax laws must be
capable of convenient, just and effective
administration.
3. Theoretical Justice – tax must be imposed
with equity and certainty and must consider
the taxpayers ability to pay and benefits
received.
 THANK YOU!!!
SOURCE:
PRINCIPLES OF TAXATION – REX B. BANGGAWAN, CPA, MBA