I.

General Principles of Taxation

Definition of Taxation/Purpose and Scope of Taxation

Taxation may be defined as a state of power, a legislative process and a

mode of government cost distribution.

1. As a state of power
Taxation is an inherent power of the state to enforce proportional
contribution from its subjects for public purpose.
2. As a process
Taxation is a process of laying taxes by the legislature of the State to
enforce proportional contributions from its subjects for public purpose.
3. As a mode of cost distribution
Taxation is a mode by which the State allocates its costs or burden to
its subjects who are benefited by its spending.

Theory of Taxation

Every government provides a vast (large) array of public services

including defense, public order and safety, health, education, and social
protection among others.

The Basis of Taxation

The government provides benefit to the people in the form of public

services and the people provide the funds that finance the government.

The mutuality of support between the people and the government.

Meaning of Taxes (Searched)

Wikipedia

Tax is money that people have to pay to the government. The

government uses the money it gets from taxes to pay for things. For example,
taxes are used to pay for people who work for the government, such as the
military and police, provide services such as education and health care, and to
maintain or build things like roads, bridges and sewers.

Investopedia

Taxes are mandatory contributions levied on individuals or

corporations by a government entity—whether local, regional, or national

Blogspot

Taxes are enforced proportional contributions from persons and property

levied by the law-making body of the state by virtue of its sovereignty for the
support of the government and all public needs..

Essential Characteristic of Taxes (Searched)

According to Blogspot

(1) It is an enforced contribution.

(2) It is generally payable in money.
(3) It is proportionate in character.
(4) It is levied (imposed or charged) on persons or property.
(5) It is levied by the state which has jurisdiction over the person or
property.
(6) It is levied by the law-making body of the state
(7) It is levied for public purpose or purposes.

Theories of Cost Allocation

Taxation is a mode of allocating government costs or burden to the

people. In distributing the costs or burden, the government regards the following
general considerations in the exercise of its taxation power.

1. Benefited received theory

Presupposes that the more benefit one receives from the
government, the more taxes he should pay.
 2. Ability to pay theory
Presupposes that taxation should also consider the taxpayer’s
ability to pay.

Aspects of Ability to pay theory

1. Vertical Equity (gross concept)
- proposes that the extent of one’s ability to pay is directly
proportional to the level of his tax base.
2. Horizontal Equity (net concept)
- requires consideration of the particular circumstance of the
taxpayer.

The Lifeblood Doctrine

CIR vs. ALGUE

Taxes are essential and indispensable (absolutely necessary) to the

continued subsistence (survivability) of the government. Without taxes, the
government would be paralyzed for lack of motive power to activate or operate it.

VERA vs. FERNANDEZ

Taxes are the lifeblood of the Government and their prompt (cue) and
certain availability are imperious (commanding) need. Upon taxation depends the
Government’s ability to serve the people for whose benefit taxes are collected.

Inherent Powers of the State (inherent means natural, intrinsic, built-in)

1. Taxation Power – to enforce proportional contribution from its subjects

to sustain itself
2. Police Power – to enact laws to protect the well-being of the people
3. Eminent Domain – to take private property for public use after paying
just compensation\

Limitations of the taxation power

A. Inherent Limitations
1. Territoriality of Taxation
 2. International Comity (comity means mutual respect and
cooperation between different individuals, groups, or nations)
3. Public purpose
4. Exemption of the government
5. Non-delegation of the taxing power (non-delegation means
cannot be transferred)

B. Constitutional Limitations
1. Due process of law
2. Equal protection of the law
3. Uniformity law in taxation
4. Progressive system of taxation
5. Non-imprisonment of non-payment of debt or poll tax
6. Non-impairment of obligation and contract
7. Free worship rule
8. Exemption of religious or charitable entities, non-profit
cemeteries, churches and mosque from property taxes
9. Non-appropriation of public funds or property for the benefit of
any church, sect or system of religion
10. Exemption from taxes of the revenues and assets of non-profit,
non-stock educational institutions
11. Concurrence of a majority of all members of Congress for the
passage of a law granting tax exemption
12. Non-diversification of tax collection
13. Non-delegation of the power of taxation
14. Non-impairment of the jurisdiction of the Supreme Court to
review tax cases
15. The requirement that appropriations, revenue or tariff bills shall
originate exclusively in the House of Representatives
16. The delegation of taxing power to local government units

Stages of the Exercise of Taxation Power

1. Levy or imposition – this process involves the enactment of a tax law

by congress and its called impact of taxation. It is also referred as the
legislative act in taxation.

Congress is composed of two bodies:

- The House of representatives
- The Senate
 2. Assessment and Collection – the tax law is implemented by the
administrative branch of the government. Implementation involves
assessment or the determination of the tax liabilities of taxpayers and
collection. This stage referred to as incidence of taxation or the
administrative act of taxation.

Classification of Taxes (Searched)

According to Knoji

Taxes are classified:

According to the subject matter or object, taxes are either

Personal, Poll or Capitation, Property and Excise.

 Personal, Poll or Capitation Tax

is the fixed amount that is imposed to a person

that is residing within a specific territory. This is
regardless to their property, occupation or business.

 Property Tax

is the tax that is imposed on ones property;

whether with is a real property or personal property in
proportion with the property’s value.is the fixed
amount that is imposed to a person that is residing
within a specific territory. This is regardless to their
property, occupation or business.

 Excise Tax

is a tax that is imposed upon the performance

of an act as well as the enjoyment of a privilege or the
engaging in a particular occupation.

According to who bears the burden, taxes are either direct or

indirect.

 Direct Tax
 is the tax that is directly demanded from and paid by the
taxpayers.

 Indirect Tax

is the tax that is demanded from a certain person in the

intention as well as expectation that the particular person shall
indemnify himself at the expense of another.

According to the determination of the amount, taxes are further

classified to specific and Ad valorem.

 Specific Tax

is the tax that is of fixed amount that is imposed by the

head or number, or by some of the standard of the weight and
measurement

 Ad Valorem Tax

is the Tax that is of fixed proportion in relation with the

value of the property in respect to which the tax is assed.

According to the purpose, taxes are further classified as General,

Fiscal or revenue and Special of regulatory.

 The General, Fiscal or revenue tax

is the tax that is intended for the general purposes or

expenses of the government.

 The Special or Regulatory Tax

is the tax that is intended for a specific purpose.

According to the Scope, the taxes are classified to either National

or municipal or Local.

 the taxes are imposed by the National Government itself

while in the municipal or local, the taxes are imposed by the
local government.
 According to the graduation or rate, taxes are further classified into
Proportional, Progressive or Graduated and Regressive.

 Proportional Tax

is the tax that is based upon the fixed percentage vis-à-

vis the amount of the property or other bases on which to be
taxed.

 Progressive Tax

is the tax rate increase upon the increase of the base rate.

 Regressive Tax
is the tax rate decrease upon the increase of the base rate.

Situs of Taxation (or location of taxation/where the taxation takes place)

Situs is the place of taxation. It is the tax jurisdiction that has the power to
levy taxes upon the tax object. Situs rules serves as frames of reference in
gauging whether the tax object is within or outside the tax jurisdiction of the
taxing authority.

Examples of Situs Rules:

1. Business Tax Situs- businesses are subject to tax in the

place where business is conducted.

2. Income Tax Situs on Service – Service fees are subject to

tax where they are rendered.

3. Income Tax Situs on Sale of Goods – The gain on sale is

subject to tax in the place of sale.

4. Property Tax Situs – Properties are taxable in their

location.

5. Personal Tax Situs – Persons are taxable in their place of

residence
(INCASE NOTE. NOT INCLUDED IN THE POINTERS)

Other Fundamental Doctrines in Taxation

1. Marshall Doctrine – Taxation power can be used as an instrument of

police power.
2. Holme’s Doctrine – Taxation power may be used to build or
encourage beneficial activities or industries by the grant of tax
incentives.
3. Prospectivity of Tax Laws – Tax laws are generally prospective in
operation. An ex post facto law or a law that retroacts is prohibited by
the Constitution.
4. Non-compensation or set-off – Taxes are not subject to automatic
set-off or compensation.
5. Non-assignment of taxes – tax obligations cannot be assigned or
transferred to another entity by contract.
6. Imprescriptibility in Taxation – As a rule, taxes do not prescribe
unless the law itself provides for prescription.
7. Doctrine of Estoppel – Under the doctrine of estoppel, any
misinterpretation made by one party toward another who relied therein
good faith will be held true or blinding against that person who made
that misinterpretation.
8. Judicial Non-Interference – Generally, courts are not allowed to issue
injunction against the government’s pursuit to collect tax as this would
unnecessarily defers tax collection. This rule is anchored to the
Lifeblood Doctrine.
9. Strict Construction of Tax Laws – When the law clearly provides for
taxation is the general rule unless there is a clear exemption.

Double Taxation

Double taxation occurs when the same taxpayer is taxed twice by the
same tax jurisdiction for the same thing.

Elements of Double Taxation

1. Primary Element: Same Object

2. Secondary Elements:
a. Same type of Tax
b. Same purpose of tax
c. Same taxing jurisdiction
 d. Same Tax Period

Types of Double Taxation

1. Direct Double Taxation – this occurs when all the element of

double taxation exists for both impositions.
2. Indirect Double Taxation – this occurs when at least one of the
secondary elements of double taxation is not common for both
impositions.

How double taxation be minimized?

The impact of double taxation can be minimized by any one or a

combination of the following

a. Provision of tax exemption

b. Allowing foreign tax credit (deduction for taxes paid abroad)
c. Allowing reciprocal tax treatment between the home country and
a foreign country
d. Entering into treaties or bilateral agreements

Escape from Taxation

Escape from taxation are the means available to the taxpayer to limit or
even avoid the impact of taxation.

Categories of Escapes from Taxation

A. Those that result to loss of government revenue

1. Tax Evasion – also known as tax dodging, refers to any
act or trick that tends to illegally reduce or avoid the
payment of tax.
2. Tax Avoidance – also known as tax minimization, refers
to any trick that reduces or totally escapes taxes by any
legally permissible means.
3. Tax Exemption – also known as tax holiday, refers to
immunity, privilege or freedom from being subject to a tax
which others are subject to.

B. Those do not result to loss of government revenue

1. Shifting – the process of transferring tax burden to other
taxpayers.
Forms of Shifting
 A. Forward – shifting of tax which follows the normal
flow of distribution (i.e from manufacturer to
wholesalers, retailers to consumers).
B. Backward – the reverse of forward shifting. It is a
common with non-essential commodities where
buyers have considerable market power and
commodities with numerous substitute products.
C. Onward – any tax shifting in the distribution
channel that exhibits forward or backward.

2. Capitalization – occurs when the value of assets adjusts

to accommodate increase in taxes.
3. Transformation – occurs when wastes or losses are
eliminated by the taxpayer to form savings to
compensate for the tax imposition or increase in taxes.

Tax Amnesty

Amnesty is a general pardon granted by the government for erring (error)

taxpayers to give them chance to reform and to enable them a fresh start to be
part of a society with a clean state.

Tax Condonation

Tax condonation is forgiveness of the tax obligation of a certain taxpayer

under certain justifiable grounds. This is also referred to as tax remission.

Tax Amnesty vs. Tax Condonation

Amnesty covers both civil and criminal liabilities but condonation covers
only civil liabilities of the taxpayer.

Amnesty operates retrospectively by forgiving past violation. Condonation

applies prospectively to any unpaid balance of the tax; hence, the portion already
paid by the taxpayer will not be refunded.

Amnesty us also conditional upon the taxpayer paying the government a

portion of the tax whereas condonation requires no payment.