GENERAL PRINCIPLES &

CONCEPTS OF TAXATION
JACQUELINE LESLIE S. IGNACIO, CPA, REB,REA,
MBA
TAXATION
(Definition)
A process or act of imposing a charge by
governmental authority on property, individuals or
transactions to raise money for public purposes.
A power by which an independent state, through
its law-making body, raises and accumulates
revenue from its inhabitants to pay the necessary
expenses of the government.
A means by which the Sovereign (independent
State) through its law-making body demands for
revenue in order to support its existence and carry
out its legislative objectives.
NATURE OF TAXATION
Inherent Power of Sovereignty
Essentially a Legislative Function
For Public Purposes
The Strongest of All the Inherent Powers of
the Government
Territorial in Operation
Subject to Constitutional and Inherent
Limitations
Tax exemption of government



BASIS OF TAXATION
NECESSITY - taxation is the lifeblood
or bread and butter of the govt.
RECIPROCAL DUTIES of protection
& support between the State & its
inhabitants
- based on the
benefits- received principle
OBJECTIVES OF TAXATION
Revenue Purposes to raise revenue
for the support of the government
Regulatory Purposes Sumptuary ;
to regulate inflation, achieve economic &
social stability, & to serve as key instrument
for social control.
Compensatory Purposes a tax may
be used to make up for the benefit received.

PROCESS OF TAXATION
Levy or Imposition - through the passages of
laws or ordinances
Assessment and Collection through BIR
or BOC
*1
st
2 stages of taxation referred to as
Impact of Taxation
Payment of the Tax also involves the option
schemes or remedies of the taxpayer
- referred to as Incidence of
taxation.
PRINCIPLES OF A SOUND TAX
SYSTEM
Fiscal Adequacy sufficient sources of govt.
revenue to meet the demand of public
expenditures
Equality or Theoretical Justice the tax
burden must be proportionate to the taxpayers
ability to pay.
Administrative Feasibility tax laws must be
capable of convenient, just and effective
exercise.
Ex.: collection of taxes at source (withholding
tax)
quarterly filing & payment of income taxes
INHERENT POWERS OF THE
STATE
Taxation Power
Police Power the inherent power of the State
to legislate for the protection of health, welfare,
and morals of the community.
- restricted by the due process
Clause of the Constitution.
Eminent Domain Power power of the State
to take private property for a public purpose even
without the owners consent (with just
compensation).
SIMILARITIES AMONG TAXATION,
EMINENT DOMAIN & POLICE POWER
Inherent in the State & legislative in nature &
character.
They constitute the 3 ways the State interferes
with private rights & properties
They presuppose an equivalent compensation.
Independent of the Constitution.
All necessary attributes of sovereignty.
Their exercise can only be limited by the
Constitution.
TAXATION VS. POLICE POWER &
EMINENT DOMAIN
Particulars Taxation Police Power Eminent
Domain
As to Concept Power to
enforce
contribution to
raise
government
funds
Power to
make and
implement
laws for the
general
welfare.
Power of the
State to take
private
property for
public use
with just
compensation
Particulars Taxation Police Power Eminent
Domain
As to Scope Power to raise
revenue for the
use & support
of the govt.
Broader
because it is a
general power
Merely the
power to take
private
property for
public use
upon payment
of just
compensation
As to Authority Exercised only
by the govt.
Exercised only
by the govt.
May be
granted by law
to public
service or
public utility
companies
Particulars Taxation Police Power Eminent
Domain
As to
Purpose
For the support
of the govt.
To promote
general
welfare.
For Public Use
As to
Necessity of
Delegation

Cannot be
delegated
Can be
expressly
delegated
Can be
expressly
delegated.

As to Person
Affected
Community or
Class of
Individual
Community or
Class of
Individual
Particular
Private
Property of an
Individual.
As to Benefits Protection by
the govt.
Indirect benefits
thru a healthy
economic
standard of
society
Market value of
the specific
property taken
from him.
Particulars Taxation Police Power Eminent
Domain
As to Amount
of Imposition
No limit on the
amount of tax
that may be
imposed.
Should only
be sufficient to
cover the cost
of regulation,
issuance of
the license &
police
surveillance
No imposition
because the
owner of the
property taken
is paid just
compensation
As to
relationship to
the
Constitution
Subject to
certain
Constitutional
constraints &
Inherent
Limitations
-INFERIOR to
the Non-
Impairment
Clause
Relatively free
from
Constitutional
Limitations
- SUPERIOR
to Non-
Impairment
Clause
Generally is
SUPERIOR to
& may override
the
Constitutional
Impairment
Clause
Particulars Taxation Police Power Eminent
Domain
As to Property
Taken
No Specific
Property
Taken.
There is a
restriction in the
use of the
Property
There is a
specific private
property taken
As to
Limitations
Constitutional
& Inherent
Limitations
Only for Public
Interest & Due
Process of Law
For Public
Purpose & Just
Compensation
OBJECTS OF TAXATION
- may refer to the subject to which taxes are
imposed.

CLASSIFICATION:
oPERSONS

Natural Persons individual
taxpayers
Juridical Persons corporations,
partnerships and any associations




o PROPERTIES
Real Properties immovable
properties (ex.: land & bldg.)
Personal Properties movable
properties (ex.: car)
Tangible Properties may be felt or
touched & corporeal
Intangible Properties are Rights
rather than physical objects (ex.:
patents, stocks, bonds, goodwill,
trademarks)

EXCISE OBJECTS
Transaction act of conducting
activities related to business (ex.:
lending, selling, borrowing)
Privilege a benefit derived through
gratuitous transfer by fact of death or
donation
Right a power, faculty or demand
inherent in one person and incidental to
another.
Interest an advantage accruing from
anything.

SCOPE OF TAXATION
UNLIMITED
COMPLETE (PLENARY)
COMPREHENSIVE
SUPREME



INHERENT LIMITATIONS
Public Purpose
Non-delegation, being inherently
legislative in nature.
Territorial Jurisdiction
International Comity
Tax-exemption of government entities

CONSTITUTIONAL LIMITATIONS
Due process of law
Equal protection of law
Rule of uniformity & equity
Non-impairment of contracts
Presidents veto power
Property tax exemption of religious,
charitable, or educational entities, non-
profit cemeteries, churches and convents
DOCTRINES IN TAXATION
1. Prospective application of tax laws
A tax bill must only be applicable and
operative after becoming a law.
2. Imprescriptibility of Taxes
Unless otherwise stated by the tax law
itself, taxes in general are not cancelable.
Ex. No time limit for BIR to collect
unreasobale accumulated earnings of the
corporation.
Double Taxation
An act of the sovereign by taxing
twice for the same purpose in the same
year upon the same property or activity of
the same person, when it should be taxed
once, for the same purpose and with the
same kind of character of tax.



Indirect Double Taxation 2 or more
pecuniary impositions; DT in its broad
sense, usually allowed as long as there is
no violation of the equal protection and
uniformity clauses of the Constitution.
(Ex. Real Property Tax and Income tax on
real estate property leased for earning
purposes.)
Direct Double Taxation prohibited
because it violates the Constitutional
provisions of uniformity and equal
protection




Escape from Taxation
Tax Evasion unlawful means to evade or
lessen the payment of tax, therefore subject to
civil or criminal penalties
Ex.: Non-inclusion of sales; deliberate
fabrication of expenses

Tax Avoidance Tax Minimization; Legal
means of escaping payment of tax.
Ex.: Selling shares of stock through a stock
exchange in order to avail of the lower tax rates.



FORMS OF TAX AVOIDANCE
TAX OPTION Ex. Selling of investments in
stocks directly to the buyer instead of thru the
stock market
SHIFTING Ex. VAT
TRANSFORMATION Producer absorbs the
payment of tax
EXEMPTION grant of immunity; express or
implied; based on reciprocity, public policy and
contracts; not presumed; strictly construed
against the taxpayer; highly disfavored

Equitable Recoupment tax claim for
refund may be used as payment for
unsettled tax liabilities if both taxes arises
from the same transaction in which
overpayment and underpayment is due.
Set-Off Taxes taxes are not subject to
set-off or legal compensation.
Taxpayer Suit A taxpayer will file suit
in court for illegal disbursement of public
funds derived from taxation.



Compromises a contract whereby the
parties, by reciprocal concessions, avoid
litigation or put an end to one already
commenced.
Power to Destroy Marshall Dictum; a lawful
tax cannot be defeated just because its
exercise would be destructive or bring about
insolvency to a taxpayer.
Power to Build Holmes Doctrine; a means
to nation-building
Tax Power is a tool that creates, builds and
sustains the upliftment of social condition of
the people in general


SITUS OF TAXATION
The place of taxation or the state or
political unit which has jurisdiction to
impose tax over its inhabitants.
Protection is the basic consideration
that justifies tax situs.

TAX SITUS DETERMINANTS
Nature, kind or classification of the tax
being imposed;
Subject matter of the tax (person, property,
rights or activity);
Source of the income being taxed;
Place of the excise, privilege, business or
occupation being taxed;
Citizenship of the taxpayer; and
Residence of the taxpayer

TAXES
- are forced burdens, charges, exactions,
impositions or contributions assessed in
accordance with some reasonable rule
of apportionment, by authority of a
sovereign state, upon the person,
property, or rights exercised, within its
jurisdiction, to provide public revenues
for the support of the government, the
administration of the law, or the payment
of public expenses.
ESSENTIAL CHARACTERISTICS OF
TAXES
Enforced contribution
Imposed by the legislative body
Proportionate in character
Payable in the form of money
Imposed for the purpose of raising
revenue
Used for a public purpose
Enforced on some persons,
properties or rights
Commonly required to be paid at
regular intervals
Imposed by the sovereign state
within its jurisdiction

CLASSIFICATION OF TAXES
As to purpose
Revenue or Fiscal to raise revenue for
the government
Regulatory, Special or Sumptuary - for
achievement of social or economic goals
Ex.: Protective Tariff on import duties to
control foreign trade
Compensatory for equitable distribution
of wealth and income

As to Object or Subject Matter
Personal, Poll or Capitation
Property
Excise
As to Determination of Amount
Ad valorem taxes are fixed in
proportion to the value of a property (ex.:
real estate tax)
Specific fixed in amount based on
some standard of weight or
measurement, head or number, length or
volume (ex.: excise tax on distilled spirits
and wines)

As to who bears the burden
Direct taxes are non-transferable,
demanded from persons bound by law to
pay it. (ex.: Community tax, )
Indirect taxes can be shifted to another
(ex.: VAT)
As to scope or authority collecting the tax
National ex.: Estate and Donors Taxes,
Income Tax, VAT, Excise Tax, Custom
Duties and DST)
Local or Municipal (Ex.: Community Tax,
Municipal License Tax, Professional Tax,
and Real Estate Tax)



As to Rate or Graduation
Proportional or Flat Rate rate of tax is
based on fixed percentage of the
property ( ex.: VAT and Real Estate
Tax)
Progressive or Graduated Rate tax
rate increases as the tax baseor
bracket increases (ex.: Income tax,
Estate Taxes and Donors Taxes)
Regressive Rate
Digressive Rate fix rate on a certain
amount but diminishes gradually on
sums below it.
Mixed Tax

OTHER CHARGES/FEES
PENALTY a sanction as a punishment for
violations of law or acts deemed injurious
REVENUE all funds or income derived by
the government whether from tax or from
other sources ( ex.:donations, commercial
revenues)
DEBT an obligation to pay or render
service
TOLL compensation for the use of
somebody elses property
LICENSE FEE to restrain or regulate business
CUSTOMS DUTIES impositions on imported
goods brought into the country to protect local
industry
SUBSIDY monetary aid from the government;
not a tax
TARIFF a schedule or list of rates, duties or
taxes on imported goods
MARGIN FEE a tax on foreign exchange
SPECIAL ASSESSMENT for govt to reimburse
itself for certain extended benefits regarding
construction of public works.
TAX LAWS

National Internal Revenue Code
VAT Reform Law
Local Tax Ordinances
- are civil in nature. They are neither
political nor penal in nature.
INTERPRETATION AND APPLICATION
OF TAX LAWS
Tax statute must be enforced as written.
Imposition of tax burden is not presumed.
Doubts should be resolved liberally in favor of
the taxpayer.
Tax exemptions are strictly construed against
the taxpayer.
Tax laws are applied prospectively.
Tax laws prevail over civil laws.
SOURCES OF PHILIPPINE TAX LAWS
Constitution of the Philippines
Supreme or Fundamental Law of the land.
Statutes laws by the legislative dept. of
the govt.
Judicial Decisions by the Court of Tax
Appeals or Supreme Court
Executive Orders by the President or
any administrative authority under his
direction

Tax Treaties and Conventions
Revenue Regulations by the Dept. of
Finance
BIR Revenue Memo. Circulars and
BOC Memo. Orders
BIR Rulings
Local Tax Ordinances