FUNDAMENTALS

OF TAXATION
Chapter 13
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TAX
• A compulsory financial charge or some type
of levy imposed upon a taxpayer by a
governmental organization in order to fund
various public expenditures.

• Government's main source of funds for

necessary expenses.

• A failure to pay along with evasion of or

resistance to taxation, is punishable by law.
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TAXATION
• A state power exercised through the
country's legislative body.

• The process of collecting fees from

individuals who earn income or who own
properties or businesses.

• In the Philippines, tax laws are passed both

in the House of Representatives and the
Senate.
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2 STAGES OF TAXATION
• Imposing of tax.

• Collection of tax.
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PURPOSE
• To raise revenues from all possible sources
to support government expenditures and
services to promote the general well-being
and protection of its citizens.
• To safeguard newly-opened industries by
extending tax exemptions to pioneering
new enterprises.
• To shield domestic producers by levying
higher custom duties on imported goods.
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CANONS OF TAXATION
Fiscal Adequacy
• Taxes collected by the BIR must be sufficient to
fun the necessary government expenditures and
basic services in a given fiscal year.
• This also means that revenues must be capable of
adjusting to variations in public expenditures.
Administrative Feasibility
• Payment of taxes must be taxpayer-friendly.
• Payment of taxes must be accessible and
convenient.
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CANONS OF TAXATION
Administrative Feasibility
• The time payment and manner of collection must
not be burdensome to the taxpayers.
Theoretical Justice
• The “ability-to-pay” principle.
• Tax burden must be proportionate to the taxpayer’s
level of income.
 BASIS OF TAXATION
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1. The Constitution, the 5. Judicial decisions on tax

fundamental law of the cases by the Supreme
land Court
2. Statutes, laws passed by 6. Provincial, city, and
the Congress municipal ordinances;
3. Presidential Decrees 7. Observance of
4. Bureau of International international agreements;
Revenue rules and 8. Administrative rulings and
regulations; opinions.
 OBJECTS OF TAXATION
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1. Individuals who earn a considerable amount of income as a

worker, or as a businessman in partnerships or
corporations, including those who inherited a property or
given a gift or donation of a considerable value
2. Tangible and intangible properties, whether personal
properties (movable properties) that can be moved or
relocated or real properties (immovable properties)
3. Transactions, consumptions interests, imports and
exports; and privileges.
 SITUS OF TAXATION
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1. Income tax - this is paid either in the place where the

income is earned or the place of residence of the taxpayer.
2. Real property tax this is paid where the property is situated.
3. Personal property tax - taxes on intangible properties are
paid in the place where the property is located, similar to
real property tax. Situs of taxation of intangible properties
is the owner’s domicile. This refers to the place of
permanent residence of the owner.
4. Business and occupation taxes this is paid in the place
where the business or occupation is located.
 LIMITAIONS ON
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TAXATION
• Taxations is limited to
certain provisions.

TWO TYPES OF
LIMITATION
•Inherent limitation

•Constitutional limitation
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INHERENT LIMITATIONS

These are specific limitations that are not

affected by changes in the provisions of the
Constitution.
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INHERENT LIMITATIONS
1. The tax revenues must only be used for
public purposes.

- The revenues collected from the people must

be returned to them in different forms.
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INHERENT LIMITATIONS
2. There should be proper delegation of
legislative power to tax.

- The 1987 Constitution delegates to Local

Government Units (LGUs) the power to tax
subject to such limitations as may be provided
by Congress.
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INHERENT LIMITATIONS
3. Government entities are exempted.

-Taxing the government itself will not

generate income. That is why it is exempted
from taxation.
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INHERENT LIMITATIONS
4. There are territorial jurisdictions.

- Only those persons, properties, and

transactions situated within the territorial
limits of state are taxable.
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INHERENT LIMITATIONS
5. There is an observance of international
law.

- Foreign ambassadors and their properties

enjoy reciprocal tax exemptions.
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CONSTITUTIONAL
LIMITATIONS
Constitutional limitations of taxation are those
limitation provided in Constitution.
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CONSTITUTIONAL
LIMITATIONS
1. Observance of due process of law.

- Article III, Section 14.1 of Constitution says

that “No person shall be hold to answer for
criminal offense without due process of law”.
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CONSTITUTIONAL
LIMITATIONS
2. Equal protection of the law.

- No person shall be deprived of life, liberty, or

property without due process of law, nor shall
any person be denied the equal protection of
the laws ( Article III Section 1).
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CONSTITUTIONAL
LIMITATIONS
3. Uniform and equity rule.

- The rule of taxation must be uniform ,

equitable, and progressive (Article IV, Section
28.1).
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CONSTITUTIONAL
LIMITATIONS
4. Non-imprisonment for non-payment of
poll tax.

- No person shall be imprisoned for debt or

non-payment of a poll tax (Article III, Section
20).
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CONSTITUTIONAL
LIMITATIONS
5. No appropriation for religious purposes.

- No public money or property shall be appropriated, applied,

paid or employed: directly or indirectly , for use, benefit, or
support of any sect, church, denomination, sectarian institution
or system of religion; or any priest, preacher, minister or other
religious teacher, or dignitary is assigned to the armed forces or
to any penal institution or government orphanage or
leprosarium. (Article VI, Section 29.2).
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DOUBLE TAXATION
Double taxation refers to an instance when an
income, a property, or a transaction was
imposed with two or more taxes by taxing
authority in the same year.
 THE QUESTION OF
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GOVERNMENT TAXING
ITSELF
• The government may be taxed if it derives profit in the
exercise of its proprietary capacity, but not when the revenues
were gained from the exercise of governmental responsibility.
• The government functions in its governmental capacity when
it serves the people and delivers basic services to them.
• The government acts in a proprietary capacity when it
functions for profit.
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TAX AVOIDANCE
1. Shifting

- is the process through which tax payer escapes

the burden of a tax.
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TWO TYPES OF SHIFTING

• Forward Shifting

• Backward Shifting
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TAX AVOIDANCE
2. CAPITALIZATION

- reducing the price to a taxable product or

service to lower the tax that will be imposed
on its consumption. For example, a salesman
would offer a lower price for a real state in
order to lower the real state tax.
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TAX AVOIDANCE
3. TAX AVOIDANCE

- Minimizing of taxes. For example, using

legitimate tax deductions, setting up tax
defferal plans, and taking tax credits.
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TAX AVOIDANCE
4. TAX EVASION

- Not paying taxes. For example, not reporting

income, reporting more expenses than you
can, not paying taxes that you owed and
understating your tax amount owed.
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TAX AVOIDANCE
5. TAX EXEMPTION

- This means the bestowal of immunity by the

taxing authority on a taxpayer from the
obligation of tax payment. For instance,
winning thr lottery is tax-exempt.
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Prepared by:

• Saro, Aliah
• Sta.Ana, Allen Joy
• Valdez, Geraldine
• Velasco, Mc Denver
• Villarosa, Stephanie
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