TAXATION

FABM 2 Q2
WEEK4
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 TAXATION
Taxation is the inherent power of the sovereign,
exercised through the legislature, to impose
burdens upon subjects and objects within its
jurisdiction for the purpose of raising revenues
to carry out the legitimate objectives of
government.
PURPOSES OF TAXATION
1. Primary purpose
To provide funds or property with which to
promote the general welfare and protection of
its citizens and to enable it to finance its
multifarious activities.

2. Secondary purposes
• To strengthen anemic enterprises by giving tax
exemptions;
• To protect local industries against foreign
competition through impositions of high customs
duties on imported goods;
• To reduce inequalities in wealth and income by
imposing progressively higher tax rates; and
• To prevent inflation by increasing taxes or ward off
depression by decreasing them
 SCOPE OF
TAXATION

The power of taxation is the most absolute of all

powers of the government (Sison v. Ancheta 130
SCRA 654). It has the broadest scope of all the powers
of government because in the absence of
limitations, it is considered as unlimited, plenary,
comprehensive and supreme.

However, the power of taxation should be exercised

with caution to minimize injury to the
proprietary rights of the taxpayer. It must be exercised
fairly, equally, and uniformly (Roxas v. CTA, 23
SCRA 276).
THEORY AND BASIS
OF TAXATION

Theory
The power of taxation proceeds upon the theory that
the existence of the government is a
necessity; that it cannot continue without means to
pay its expenses; and that it has a right to
compel all its citizens and property within its limits to
contribute (lifeblood principle).

Basis
The basis of taxation is found on the reciprocal duties
of protection and support between
the State and its inhabitants. In return for his
contribution, the tax payer received benefits and
protection from the government. (Benefit received
principle).
BASIC PRINCIPLE OF A
SOUND TAX SYSTEM
1. Fiscal Adequacy – The sources of revenue should
be sufficient to meet the demands of public
expenditures. This can be obtained by creating new
taxes or by changing the rates applicable to
existing taxes.

2. Equality or Theoretical Justice- The tax burden

should be proportionate to the taxpayer’s ability to
pay (this is the so-called ability to pay principle).

3. Administrative Feasibility- The tax law should

be capable of convenient, just and effective
administration.
 LIMITATIONS TO THE
POWER OF TAXATION
Although taxation power is supreme, its exercise is not
absolute because it is subject to inherent
and constitutional restrictions. As an inherent power, its very
purpose and nature restrict taxation. Tax
power should be exercised for its very nature, purpose and
jurisdiction. Our Constitution assumes the
existence of taxation and it also provides some provisions to
limit the exercise of tax power. Therefore, if
a tax law violates the Constitution, such law shall be declared
null and void (Sison vs Ancheta, GR No.
59431)
LIMITATIONS TO THE POWER OF TAXATION

The inherent limitations are natural restrictions to

safeguard and ensure that the power of taxation
shall be exercised by the government only for the
betterment of the people whose interest should be
served,
enhanced and protected.

1. Taxes may be levied only for public purpose.

2. Being inherently legislative, taxation may not be

delegated

3. Tax power is limited to territorial jurisdiction of the

state

4. Taxation is subject to international comity (mutual

recognition); and

5. Government entities are generally tax-exempt

LIMITATIONS TO THE POWER OF TAXATION

The constitutional limitations are provisions

of the fundamental law of the land that
restrict the supreme, plenary, unlimited and
comprehensive power to tax by the state

As a rule, the Constitution does not create the

power to tax on the State. It simply defines and
regulates the exercise of tax power in order to
safeguard the interest of affected taxpayers.
LIMITATIONS TO THE POWER OF TAXATION

The Constitutional provision that limit the exercise of the power to tax are as
follows:
1. Due Process of law.
2. Equal protection of law.
3. Rule of uniformity and equity.
4. Non-imprisonment for nonpayment of poll tax.
5. Non-impairments of contracts.
6. Non-infringement of religious freedom.
7. No appropriation for religious purposes.
8. Exemptions of religious, charitable or educational entities, non-profit
cemeteries and
churches from taxation.
9. Exemptions of revenues and assets of non-stock, non-profit educational
institutions
and donations for educational purposes from taxation.
10. Concurrence by a majority of all members of the Congress for the passage of
a law
granting any tax exemption.
11. Power of the president to veto any particular item or items in a revenue or tariff
bill.
12. Non-impairment of the jurisdiction of the Supreme Court in tax cases
 SITUS OF TAXATION
Situs of taxation literally means place of taxation.

As a general rule, the taxing power cannot go beyond the territorial limits of the taxing
authority. Hence, the state or sovereign where the subject or object to be taxed has a situs that
gives
the state or sovereign the authority to levy and collect the tax. Below are some examples for the
Situs

rules:

In the case of business and occupation, they are taxed in the place where the business is
conducted or the place where the occupation is engaged.

For services, they are subject to tax where they are rendered.

For the sale of goods, they are subject to tax in the place of sale.

For real properties, they are subject to tax based on their location.

For personal properties, they are subject to tax based on the place of residence of its owner
TAXES

The enforced proportional contributions from persons and properties levied by the lawmaking
body of the state by virtue of its sovereignty for the support of the government and all public
needs.
ESSENTIAL ELEMENTS OF A TAX

01 Enforced contribution.

02 Generally payable in money.

03 Proportionate in character.
Levied on persons, property or the
04 exercise at a right or privilege.
Levied by the state which has jurisdiction
05
over the subject or object of taxation.
Levied by the law-making
06
body of the state.
07
06 Levied for public purpose or purposes.
 CLASSIFICATION
OF TAXES
As to subject matter or object

1. Personal, poll or capitation tax-Tax of a fixed amount imposed on persons residing within a
specified territory, whether citizens or not, without regard to their property or the occupation or
business in which they may be engaged. Example: Community tax.

2. Property tax- Tax imposed on property, real or personal, in proportion to its value or in
accordance with some other reasonable method of apportionment.

3. Excise tax-A charge imposed upon the performance of enact, the enjoyment of a privilege, or the
engagement in occupation

As to purpose

1. General/Fiscal/Revenue tax-A general/fiscal/revenue tax is that imposed for the purpose of

raising public funds for the service of the government.

2. Special/regulatory tax-A special/regulatory tax is primarily imposed for the regulation of useful
or non-useful occupation or enterprises or for the regulation or protection of industries imbued
with public interest, and secondarily for the purpose of raising public funds.
 CLASSIFICATION
OF TAXES

As to who bears the burden

1. Direct tax-A direct tax is demanded from the person who also shoulders the burden of the tax. It
is a tax which the taxpayer is directly or primarily liable and which he or she cannot shift
to another.

2. Indirect tax-An indirect tax is demanded from a person in the expectation and intension that he or
she shall indemnify himself or herself at the expense of another, falling finally upon the ultimate
purchaser or consumer. A tax which the taxpayer can shift to another.

As to scope of the tax

1. National tax-That tax imposed by the national government

2. Local tax-A local tax is imposed by municipal corporations or local government units (LGU’s).
 CLASSIFICATION
OF TAXES
As to the determination of amount

1. Specific tax-A specific tax is a tax of fixed amount, imposed by the head or number or by some
other standard of weight or measurement. It requires no assessment other than the listing or
classification of the objects to be taxed.

2. Ad valorem tax-An ad valorem tax is a tax of fixed proportion of the value of the property with
respect to which the tax is assessed. It requires the intervention of assessors or appraisers to
estimate the value of such property before the amount due from each taxpayer can be
determined.

As to graduation or rate

1. Proportional tax-Tax based on a fixed percentage of the amount of the property receipts or other
basis to be taxed. e.g. Real estate tax.

2. Progressive or graduated tax-The tax rate of which increases as the tax base or bracket increases.
e.g. Income tax

3. Regressive tax-Tax the rate of which decreases as the tax base or bracket increases. There is no
such tax in the Philippines.
 THANKS

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