GENERAL PRINCIPLES OF

TAXATION

2023
 General Principles of Taxation
TAXATION
✓ inherent power of the sovereign (necessary attribute of sovereign)
✓ exercised through the legislature
✓ to impose burdens upon subjects and objects within its jurisdiction
✓ to raise revenues to carry out the legitimate objects of government.

* Tax law in the Philippines covers national and local taxes.

National taxes refer to national internal revenue taxes imposed

and collected by the national government through BIR
Local taxes refer to those imposed and collected by the local government.
Sources of Tax Laws
1987 Constitution
- technically not a source of tax laws instead it sets limitations

Laws
- The NIRC is the primary source of Philippine tax laws, which was
recently amended by TRAIN, CREATE, and Bayanihan 2.

- The Local Government Code covers local taxation

Treaties
Bilateral or multilateral agreements between/among states.
Sources of Tax Laws
Administrative Material

Revenue Regulations (RRs) are issuances signed by the Secretary of Finance,

upon recommendation of the Commissioner of Internal Revenue, that specify,
prescribe or define rules and regulations for the effective enforcement of the
provisions of the National Internal Revenue Code (NIRC) and related statutes.

Revenue Memorandum Orders (RMOs) are issuances that provide

directives or instructions; prescribe guidelines; and outline processes, operations,
activities, workflows, methods and procedures necessary in the implementation
of stated policies, goals, objectives, plans and programs of the Bureau in all areas
of operations, except auditing.
Sources of Tax Laws
Administrative Material

Revenue Memorandum Rulings (RMRs) are rulings, opinions and

interpretations of the Commissioner of Internal Revenue with respect to the
provisions of the Tax Code and other tax laws, as applied to a specific set of
facts, with or without established precedents, and which the Commissioner may
issue from time to time for the purpose of providing taxpayers guidance on the
tax consequences in specific situations. BIR Rulings, therefore, cannot contravene
duly issued RMRs; otherwise, the Rulings are null and void ab initio.

Revenue Memorandum Circular (RMCs) are issuances that publish

pertinent and applicable portions, as well as amplifications, of laws, rules,
regulations and precedents issued by the BIR and other agencies/offices.
Sources of Tax Laws
Case Law
✓ Supreme Court decisions form part of the law of the land.
✓ Court of Appeals and Court of Tax Appeals decisions which have
become final and executory are also recognized interpretations of
Philippine tax law.

Local Government Tax Law

✓ It is based on the constitutional grant of the power to tax to the
local governments.
✓ power to create its own sources of revenues and to levy taxes,
fees, and charges which shall accrue to the local governments.

✓ With respect to national taxes, local Government units shall have

a just share, as determined by law, in the national taxes which
shall be automatically released to them.
NATURE OF TAXATION POWER
(ELITE PS)

 E- Essentially Legislative function

 L- subject to Limitations (Inherent and
Constitutional Limitations)
 I-Inherent power of the State
 T- Territorial in operation
 E- Exemption of the Government
 P- for Public Purpose
 S- Strongest of the inherent powers
Essentially Legislative function

✓ It entails the enactment of laws.

✓ The legislature determines the coverage, object, nature, extent,
and situs [CONES] of the tax to be imposed.

The Scope of the Legislative power to tax involves the:

1. The determination of:
 nature – kind of taxes;
 object – purpose;
 extent - amount or rate of tax;
 coverage – subjects and objects;
 apportionment of the tax – general or limited application;
 situs – place of imposition;
 method of collection;
2. The grant tax exemptions and condonations;
3. The power to specify or provide for administrative as well as judicial remedies
LIMITATIONS TO THE POWER OF TAXATION

✓ Although taxation power is supreme, its exercise is not absolute.

✓ The limitations are intended to protect the objects of taxation
against the Government’s abusive implementation.

INHERENT LIMITATIONS - natural restrictions

1. The levy of taxes must be for a public purpose.
2. Exemption from taxation of government entities.
3. Non-delegation of the legislative power to tax.
4. Territorial in application. Meaning, it is applied within the territorial
jurisdiction of the taxing authority.
5. International Comity - courteous recognition and respect by one
State to another. It is based on the principle in international law
that all states are equally sovereign.
CONSTITUTIONAL LIMITATIONS

A. Provisions indirectly affecting taxation

i. Observance of due process of law and equal
protection of the laws. (Section 1, Article III)
ii. Equal protection clause (Section I, Article III)
iii. Religious freedom (Section 5, Article III)
iv. Freedom of the press (Section 4, Article III)
v. Non-impairment of obligations of contracts
(Section 10, Article III)
CONSTITUTIONAL LIMITATIONS
B. Provisions directly affecting taxation
1. Prohibition against imprisonment for non-payment of poll tax
2. Uniformity and equality of taxation
3. Grant by Congress of authority to the president to impose tariff rates
4. Prohibition against taxation of religious, charitable entities, and
educational entities
5. Prohibition against taxation of non-stock, non-profit educational
institutions
6. Majority vote of Congress for grant of tax exemption
7. Prohibition on use of tax levied for special purpose
8. President’s veto power on appropriation, revenue, tariff bills
9. Non-impairment of jurisdiction of the Supreme Court
10. Grant of power to the LGUs to create its own sources of revenue
11. Origin of Revenue and Tariff Bills
12. No appropriation or use of public money for religious purposes
INHERENT POWER OF THE SOVEREIGNTY
✓ Taxation is imposed by a sovereign state within its jurisdiction,
even without a specific provision in the constitution.

✓ Only the national government can exercise the inherent power of

taxation of the State. The Local Government Units (LGUs) do
not possess the inherent power.

LGUs may have the power to tax PROVIDED:

❑ There is EXPRESS CONSTITUTIONAL

PROVISION granting them the power to tax
❑ There is a VALID DELEGATION of tax
power through a statute.
TERRITORIAL
- Exercised only within the territorial jurisdiction, the taxing authority

SITUS OF TAXATION

TYPE OF
NATURE OF TAX WITHIN OUTSIDE
TAXPAYER

INCOME TAX Resident Citizen ✓ ✓

Non-Resident Citizen ✓ x
Resident Alien ✓ x
Non-Resident Alien ✓ x
TRANSFER TAX Resident Citizen ✓ ✓
Non-Resident Citizen ✓ ✓
Resident Alien ✓ ✓
Non-Resident Alien ✓ x
Business tax ✓ x
TAX EXEMPTION OF THE GOVERNMENT
✓ The state’s immunity from taxation is inherent in its power to impose tax.
✓ Government agencies performing governmental or constituent functions
are exempt from taxation. Conversely, government agencies performing
proprietary functions are generally subject to tax in the absence of tax
exemption in their charters.

PUBLIC PURPOSE
✓ Public taxes are public money;
✓ It must be used to finance recognized public needs.
✓ Tax money should be used to promote the welfare of the nation

STRONGEST POWER
✓ Taxation is the strongest of the inherent powers because, without money,
the government cannot survive nor dispense its functions effectively.
BASIS OF TAXATION

A. Taxation and the Lifeblood Doctrine

Taxation is a way of apportioning the cost of government among those who in

some measure are privileged to enjoy the benefits and must therefore bear its
burdens.

The power of taxation is essential because the government can neither exist
nor endure without taxation. Taxes are the lifeblood of the government and
their prompt and certain availability is an imperious need. The government's
ability to serve and protect the people depends largely upon taxes.
JUSTIFICATIONS OF THE POWER OF TAXATION

Principle of Necessity
Tax is considered the lifeblood of the government; its availability is
of the essence.

Benefits-Received Theory
Payment of taxes is based on the reciprocal duties of the
government with its inhabitants.

Symbiotic Relationship Theory

The government cannot provide protection to its citizens.
PURPOSE OF TAXATION

REVENUE
✓ To raise revenue to support the functions of the government

REGULATORY PURPOSE
✓ Regulate inflation
✓ Achieve economic and social control
✓ Serve as key instrument for social control
✓ May encourage foreign trade

COMPENSATORY PURPOSE
✓ May be used to make-up for the benefits
received
✓ Related to the ability to pay principle and
equitable distribution of wealth and income.
OBJECTS OF TAXATION
- Refers to the subject to which taxes are imposed

❖ PERSONS
❑ NATURAL- individual tax payers
❑ JURIDICAL PERSONS- corporation, partnerships, cooperatives

❖ PROPERTIES
❑ REAL-immovable properties
❑ PERSONAL- movables
❑ TANGIBLE- those which may be seen/ touched
❑ INTANGIBLE- rights, patents, stocks, franchises, trademark

❖ EXCISE OBJECTS
❑ TRANSACTIONS- act of conducting activities related to business or
profession
❑ PRIVILEGE- benefit derived though gratuitous transfer
❑ RIGHTS- a power, faculty or demand inherent in one person and
incidental to another
❑ INTEREST- an advantage accruing from anything
SCOPE OF TAXATION (CUPS)
In the absence of limitations by the constitution, the power to tax is

✓ PLENARY
-complete. Under the NIRC, the BIR may avail of certain remedies
to ensure the collection of taxes.

✓ COMPREHENSIVE
- with wide extend of application

✓ SUPREME
- insofar as the selection of the subject of taxation is concerned.

✓ Under a decision of the SC – “UNLIMITED”

- It is so unlimited in force and searching in extent that courts
scarcely venture to declare that it is subject to any restrictions,
except those that such rests in the discretion of the authority which
exercises it
STAGES OF TAXATION (3 STAGES, L-A-P)

LEVY
✓ Involves the imposition of taxes.
✓ It is the passage of laws or ordinances through the legislature.
✓ It is within the scope of legislative power to tax; it cannot be delegated.

HOUSE OF REPRESENTATIVES
- Origination of appropriation, revenue or tariff bills

Note:

If the president fails to communicate his approval or disapproval within

30 days after the date of receipt thereof, the bill becomes a law.
STAGES OF TAXATION (3 STAGES, L-A-P)

ASSESSMENT
✓ Assessment is the administration and implementation of tax laws.
✓ It is mainly exercised by the BIR and the BOC

PAYMENT
✓ Payment involves the act of compliance by taxpayer in contributing
his share to defray the legitimate expenses of the government.

Note:

Levy and Assessment - Impact of taxation;

Payment = Incidence of taxation
PRINCIPLES OF A SOUND TAX SYSTEM (3)

FISCAL ADEQUACY
Fiscal Adequacy entails that the sources of revenue of the government
should be sufficient to meet the demand of the public expenditures
regardless of business condition.

ADMINISTRATIVE FEASIBILITY
Administrative feasibility which means that the tax law should be
capable of convenient, just and effective administration

Application of Administrative Feasibility

✓ Collection of taxes at source (withholding tax)
✓ Assigning of duly authorized banks to collect taxes
✓ Quarterly filing and payment of income taxes
✓ Electronic filing of tax returns
THEORETICAL JUSTICE-
Theoretical justice is founded on the belief that the tax burden must
be proportionate to the taxpayer’s ability to pay.
DOCTRINES IN TAXATION

❖ PROSPECTIVE APPLICATION OF LAW

✓ Its application only commences upon its effectivity.
✓ The scope of tax laws must only cover PRESENT and FUTURE
transactions.

Gen Rule: Ex post facto laws are not applicable.

Except: If there is a clear intent of legislature that such law shall be
applied on past transactions

❖IMPRESCRIPTIBILITY OF TAXES
✓ taxes in general are not cancellable
✓ There is no time limit on the right of the BIR to assess taxes on
unreasonable accumulated earnings.

Except: when the law provides for the prescriptive period for which the tax
may be collected.
DOCTRINES IN TAXATION

❖DOUBLE TAXATION
An act of sovereign by taxing twice for the same purpose, in the same
year, upon the same property, or activity , of the same person, and with
the same kind or character of tax, when it should be taxed once.

INDIRECT DOUBLE TAXATION

➢ double taxation in its broad sense
➢ It may be countered though
i. Tax exemptions
ii. Reciprocity clause/ tax treaty
iii. Tax credit
iv. Allowance for deductions (eg.Vanishing deductions in Estate tax)

DIRECT DOUBLE TAXATION

➢ Prohibited
➢ It comprises imposition of the same tax, on the same property, for the same
purpose by the same taxing authority DURING the same taxing period.
DOCTRINES IN TAXATION

❖ESCAPE FROM TAXATION

✓ TAX EVASION (unlawful)
✓ TAX AVOIDANCE (lawful)
❑ Tax option- taxpayers may choose to pay lower taxes in some
transactions as permitted by law.
❑ Shifting (VAT)- transferring of tax burden to another
❑ Capitalization- reduction in the price of the taxed object equal to the
future taxes to be paid by purchaser
❑ Transformation- uses cost minimization to pay their taxes
❑ Exemption – “Taxation is the rule, the exemption is the exception”
▪ Exemption is a privilege that is personal (it cannot be transferred
without the consent of the State)
▪ “He who claims tax exemption must be able to justify his claim”
DOCTRINES IN TAXATION

❖ESCAPE FROM TAXATION

Classification of Tax Exemption

▪ Expressed- granted by statutory laws
▪ Implied- if there is a law enumerating those who will pay,
those who are not included are deemed excluded
▪ Contractual- granted by the government through contracts,
under existing laws.

❑ Tax Amnesty- there is tax amnesty when the State grants general pardon
or intentionally overlooks its authority to impose penalty on persons guilty
of tax evasion

❑ Tax Condonation or Remission- cancellation of taxes. If the State

refrains from exacting, inflicting or enforcing something as well as to restore
what has already been taken
DOCTRINES IN TAXATION

❖EXEMPTION FROM TAXATION

❖EQUITABLE RECOUPMENT
-
The doctrine of equitable recouptment allows a taxpayer whose claim for
refund has prescribed to set-off his tax liability with his claim of
overpayment.
- a claim for refund may be allowed to be used as payment for unsettled tax
liabilities IF both taxes arise from the same transaction
- Overpayment is made, at the same time, underpayment is due
DOCTRINES IN TAXATION

❖SET-OFF TAXES
Gen Rule: Taxes are not subject to set-off or legal compensation

Except:
✓If both claims are DUE, DEMANDABLE and FULLY LIQUIDATED
-It is only when the tax assessment and the claim of the taxpayer for a
refund had been finally adjudged thereby resulting to both as due,
demandable, and fully liquidated that set-off or compensation may be
allowed. (Domingo v. Garlitos, 8 SCRA 443)
✓If there is ACTUAL COMPROMISE between the taxpayer and the tax
officer
✓Obvious overpayment of taxes
✓Local taxes
DOCTRINES IN TAXATION

❖TAXPAYER SUIT
- is effected though court proceeding could only be allowed if the act
involves a direct and illegal disbursement of public funds derived from
taxation

❖COMPROMISE
- generally allowed and enforceable when the subject matter thereof is
not prohibited from being compromised, and the person entering such
compromise is duly authorized to do so.
- Persons allowed to do compromise:
i. BIR commissioner
ii. Collector of customs- customs duties limited to cases where
legitimate authority is specifically granted
iii. Customs commissioner
DOCTRINES IN TAXATION

❖POWER TO DESTROY
- based on MARSHALL DICTUM
- power to tax is a power to destroy because the taxpayer HAS
NO OPTION but to pay the taxes imposed to him

❖POWER TO BUILD
- Under the HOLMES DOCTRINE, the power to tax should not be
viewed as the power to destroy.
- The burden to tax is merely a MEANS TO NATION BUILDING,
and a consequence to taxation
OTHER CHARGES/ FEES
TAX LICENSE FEES
Levied in the exercise of taxation power Levied in the exercise of police power
License fees are imposed for primarily for
Primary purpose is to generate revenue
regulatory purpose. Revenue is incidental.
Collection is limited to the cost of the
No limit as to the amount of tax license and the expenses of police
surveillance and regulation
Normally paid after the start of the Normally paid BEFORE commencement
business of the business

TAX DEBT
Based of law Based on contract or judgment
Nonpayment – taxpayer may be
No imprisonment for failure to pay a debt
imprisoned
Mode of payment- generally payable in May be payable in money, property or
money services
Imposed by public authority Can be imposed by primary individuals
Prescriptive period of tax is determined Civil code governs the prescriptive period
under NIRC of debt
TAX AND TOLL

TAX TOLL
Definition- A sum of money for the use of something,
Enforces proportional contribution from A consideration which is paid for the use of
persons and property a property which is paid for the use of a
property which is of a public nature; eg:
road, bridge

A demand of sovereignty A demand of proprietorship

May be imposed only by the government May be imposed by the government or
private individuals or entities
TAX VS SPECIAL ASSESSMENT
TAX
Enforced Proportional contribution from
persons and properties
Levied on : Persons, Property; Acts
Personal liability of the taxpayer
TAX VS PENALTY
TAX
Enforced proportional contribution from
persons and property
Intended to raise revenue
May be imposed only by the government
SPECIAL ASSESSMENT
An enforced proportional contribution
from owners of lands especially or
peculiarly benefited by public
improvements
Levied only on land
Not a personal liability of the person
assessed; his liability is limited only to the
land involved
PENALTY
Sanction imposed as a punishment for
violation of a law or acts deemed injurious;
violation of tax laws may give rise to
imposition of penalty
Designed to regulate conduct
May be imposed by: Government or
Private Individual or entities
THANK YOU, CLASS!

“Always do your best while knowing that

your worth is not and never will be
dependent on what you accomplish.”