OVERVIEW General Principles and Concepts of Taxation Without Bar Questions

DEFINITION OF TAXATION
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. (51 Am. Jur. 341; 1 Cooley 72 – 93)
Means Process
DEFINITION OF TAXATION
As a power, it refers to the inherent power of a

state,
As a process, it passes a legislative undertaking through the

enactment of tax laws by the Congress which will be
implemented by the Executive Branch of the government
through its Bureau of Internal Revenue (BIR)
As a means, it is a way of collecting and
apportioning the cost of government among
those who are privileged to enjoy its benefits. (
Commissioner vs. Algue Inc. February 17, 1988)
The Sovereign State is born and will exist
continuously with ESSENTIAL POWERS.
INHERENT POWERS OF
SOVEREIGN STATE
Necessary for the
survival of the
Government
INHERENT POWERS OF SOVEREIGN STATE
DISTINCTIONS OF TAXATION,
POLICE POWER, AND EMINENT DOMAIN
As to CONCEPT
As to PURPOSE
As to AUTHORITY
As to NECESSITY OF DELEGATION
As to PERSON AFFECTED
As to BENEFITS
As to AMOUNT OF IMPOSITION/EXACTION
As to RELATIONSHIP TO CONSTITUTION/
As to SUPERIORITY of CONTRACTS
As to LIMITATIONS
SIMILARITIES AMONG TAXATION,
EMINENT DOMAIN AND POLICE POWERS
•They are inherent powers of the state;
•They constitute the three ways by which

the state interferes with the private rights
and property;
•They are all necessary attributes of sovereignty.
They are legislative in nature and character;
•They all underlie and exist independently of the

Constitution; The provisions in the Constitution
are just limitations on the exercise of these powers.
SIMILARITIES AMONG TAXATION,
EMINENT DOMAIN AND POLICE POWERS
•They all underlie and exist

independently of the Constitution;
•The provisions in the Constitution are just

limitations on the exercise of these powers.
POLICE The exercised of Police Power is
POWER RESTRICTED BY Article III,
Section 1 of the Philippine
Constitution
“No person shall be

The power to deprived of life,
protect citizens liberty, or property
and provide for without due process
safety and welfare of law, “
of society.
The exercised of the Power
POWER OF of Eminent Domain is
EMINENT RESTRICTED BY Article III,
DOMAIN Section 9 of the Philippine
Constitution
“Private Property
shall not be taken
The power to
take private for public use
property for without just
public use compensation.”
POWER OF
TAXATION
Subject to
INHERENT and
CONSTITUTIONAL
The power to enforce
LIMITATIONS
contributions to
support the
government and
other inherent
powers of the State.
NATURE OF TAXATION POWER
INHERENT POWER OF SOVEREIGNTY
Essentially a LEGISLATIVE FUNCTION
For PUBLIC PURPOSES
TERRITORIAL IN OPERATION
TAX EXEMPTION OF GOVERNMENT
STRONGEST AMONG THE INHERENT

POWERS OF THE GOVERNMENT
Subject to CONSTITUTIONAL and INHERENT

LIMITATIONS
R E H E N S IVE
COMP o ns,
ve r s p e r s
as it co v it ies, UNLIMITED.
s es , a c t i
busines t s a nd
n s , rig h
professio PLENARY
privileges. c o m p le t e. Under
as it is may
C , t h e B IR
SUPREME
. the NIR dies to
It is suprem ta in r e m e
e i ns o av a il o f c er
selection o far as the e c o lle ct ion of
f the subjec e n s ure th
t of taxation taxes.
is concerne
d
POWER TO TAX IS THE POWER TO DESTROY
Taxation is a DESTRUCTIVE POWER

which interferes with the personal and
property rights of the people and takes from
them a portion of their property for the
support of the government.
POWER TO TAX IS NOT THE POWER TO DESTROY
WHILE THIS COURT SITS.
The Constitution as the fundamental law of overrides any
legislative act that runs counter to it.
Any tax law that violates the Constitution must be declared by

the court null and void.
Any abusive act in relation to the imposition of tax that leads in

the destruction of the natural and fundamental rights, which no
free government could consistently violate, it is the duty of the
judiciary to hold such act unconstitutional.
POWER OF
TAXATION
Subject to
INHERENT and
CONSTITUTIONAL
The power to enforce
LIMITATIONS
contributions to
support the
government and
other inherent
powers of the State.
Subject to INHERENT and
CONSTITUTIONAL LIMITATIONS
violation of these inherent limitations is

tantamount to taking a property without due
process of law
a tax law that violates the Constitution, shall

be declared null and void.
Any tax law that contradicts the limitation of

taxation is also unconstitutional
y. cleo d. sabado-andrada, cpa, mba
INHERENT LIMITATIONS
INHERENT
LIMITATIONS
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
INHERENT LIMITATIONS
Taxation is subject
to international
comity
•Tax pow
a y b e er is limit
•Taxes m for territorial jurisdic ed to
d on l y tion of
levie the State;
public
s e s; n tly
purpo g in he r e
•Bein e, taxation ;
is l a tiv g a ted
leg e de le
•Government entities may no t b
are generally tax-
exempt.
FOR PUBLIC PURPOSE
It has been held that tax has been

utilized for public purpose if the
welfare of the nation or the
greater portion of its population
has benefited with its use.
(Gomez vs. Palomar, 25 SCRA 827)

FOR PUBLIC PURPOSE
SETTLED CASES OF “PUBLIC PURPOSE”

Unem s/
Public nt ploym a n dr o a d
ve m e ent d i n g s re
Imp ro relief Bui l r u c tu
n f r a st
I
Local Police
Forces Industries classified as
(subsidies) under indispensable under P.D.
R.A. 6141 1987
Construction of home Promotion of science
sites and invention
FOR PUBLIC PURPOSE
SETTLED CASES OF “PUBLIC PURPOSE”
Eductional Subsidy Pensions

to deserving
retirees
Rehabilitation of
the Oil Industry’s
sugar industry Protection
Upliftment of the
Socialized Housing
underprivileged
PROHIBITION AGAINST DELEGATION
OF TAXING POWERS
The LAW-MAKING BODY of the government exercises

the power of taxation.
GENERAL RULE:
In strict sense, the power to make tax laws CANNOT

be DELEGATED.
PROHIBITION AGAINST DELEGATION
OF TAXING POWERS
EXEMPTIONS: (CAN BE DELEGATED)
1. The power to tax can be delegated

to the LOCAL GOVERNMENT UNITS
(LGU)

Basis for the delegation of taxing power
to the local government units:
“Each local government unit shall have the power to

create its own sources of revenue, fees, charges,
subject to guidelines and limitations as the Congress
may provide consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments.”
Article X, Section 5 of the Constitution; Section 133 of R.A. 7160

2. Delegation to Administrative Bodies.
Only if the power delegated is

ministerial and advisory
since said powers are not legislative but only admi
nistrative in nature.
(power to value property, assess and collect taxes)

SUMMARY:
If what is delegated to a non-

legislative body is TAX LEGISLATION,
the delegation is INVALID.
BUT, if what is involved is only TAX

ADMINISTRATION, the delegation is allowed and
valid and the non-delegability rule is not violated.

3. The Congress may, by law, authorize the President to impose

tariff rates, import and export quotas, etc, subject to the
limitations and guidelines as the Congress may impose,
consistent with the national development program of the
government.
Article VI, Section28 (2) of the Constitution

TAX EXEMPTION OF THE GOVERNMENT
The state cannot be taxed without its consent;

otherwise, such is derogation to its
sovereignty.
The State immunity from taxation is inherent

in its power to impose tax.

GENERAL RULE
TAX EXEMPTION applies only to

government entities through which
the government immediately and
directly exercises GOVERNMENTAL
FUNCTIONS.

EXCEPTION to the GENERAL RULE:
Government Entities performing

PROPRIETARY FUNCTIONS are
generally subject to tax.
EXCEPTION to the EXCEPTION:
When the provisions in their

charters or the law creating them
provides for a tax exemption.
SUMMARY:
Agencies performing governmental functions are
exempt from tax unless expressly taxed.
WHILE, agencies performing proprietary

functions are subject to tax unless expressly
exempted.

Govt. of the
Philippines/ National
RP Government
NOT INTERCHANGEABLE
Republic of
the Philippines
It is synonymous with “Government

of the Republic of the Philippines”.
It is the corporate governmental
authority through which the functions
of the government are exercised
through the Philippines .
National
Government
It refers to the entire machinery of the
central government as distinguished
from the different forms of local
governments. It is composed of the
three (30 great departments: the
executive, legislative and the judicial.

Govt. of the
Philippines/ National
RP Government
Does not include Includes all the bureaus
Government and instrumentalities
Owned and including Government
Controlled Owned and Controlled
Corporations Corporations (GOCCs)
(GOCCs)
GENERAL RULE:
National
Section 27(C) of the NIRC
Government
Includes all the bureaus Income received

and instrumentalities by GOCCs is
including Government
SUBJECT TO
Owned and Controlled
Corporations (GOCCs) TAX.
EXEMPTION:
Section 27(C) of the NIRC
4 tax exempts
GOCCs
4 tax exempts GOCCs

under Section 27(C), NIRC
1. GSIS Government Service Insurance System

2. SSS Social Security System
3. PHIC Philippine Health Insurance Corporation
4. PCSO Philippine Charity Sweepstakes.
Note: PAGCOR was deleted from list of exempt

GOCCs per R.A. No. 9337
1 tax exempt GOCC

under R.A. 9679 otherwise known as
New PagIBIG Fund Law of 2009
Pag IBIG
Pagtutulungan sa Kinabukasan:
Ikaw, Bangko, Industriya at Gobyerno

TERRITORIALITY
General
Rule
The power to tax can only be exercised

WITHIN the territorial jurisdiction of a taxing
authority.
Tax laws are not applicable to the
property of foreign government.

TERRITORIALITY
Taxation is bound to observe
INTERNATIONAL COMITY
Basis of this Rule:
Section 2, Article II of the Constitution “ The
Philippines renounces war as an instrument of
national policy, adopts the generally accepted
principles of international law as part of the law of
the land and adheres to the policy of peace,
equality, justice, freedom, cooperation, and amity
with all nations.”

TERRITORIALITY
Taxation is bound to observe
INTERNATIONAL COMITY
Basis of this Rule:
Principle of International Law:
“Sovereign Equality Among States”
“ states are juridically equal, enjoy the same

rights, and have equal capacity in their
exercise.”

TERRITORIAL IN OPERATION/
TERRITORIALITY
EXCEPTION
when there exists a “privity of relationship”

between the taxing State and the object of tax.

TERRITORIAL IN OPERATION/
TERRITORIALITY
Where privity of relationship exists, the state can

still exercise its taxing powers over its citizen
outside its territory.
Basis of this Rule:
“the right to tax is the capacity of the
government to provide benefits and protection
to the object of the tax.

PROVISIONS OF THE FUNDAMENTAL

LAW OF THE LAND that restrict the
comprehensive, unlimited, plenary and
sunpreme exercise by the State of its
inherent power to tax.

DUE PROCESS OF 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 of the 1987 Constitution

DUE PROCESS OF LAW
v id e
Gi v e N
OTIC Give taxpayer fair Pro ING
the tax E to opportunity to assert his EAR
payer H t he
substantial rights before to er
a y
competent court taxp
Before he shall be denied or

deprived of his property for
non-payment of tax.
EQUAL PROTECTION OF 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.”

that all persons subject to legislation shall be treated

alike under similar circumstances and conditions
both in the privileges conferred and liabilities
imposed
There is denial of equal protection of laws if there is

discrimination in the implementation of tax laws

SUBJEC
T
to
reasonable classification


REQUISITES of VALID
reasonable classification
a p p ly
Must to all
a l l y
equ o f the
m b e rs
Must be germane to me c l a s s
the purpose of the same
law
RULE OF UNIFORMITY and EQUITY
“The rule of taxation shall be uniform and

equitable. Congress shall evolve a
progressive system of taxation.”
Article VI, Section 28 of the 1987 Constitution

All taxable property situated

alike shall be subjected to
the tax
operates with the same

UNIFORMITY force and effect in every
place where the subject
may be found,
PROGRESSIVE SYSTEM OF TAXATION
tax laws shall give emphasis on direct rather than

indirect taxes or on the ability-to-pay principle
of taxation
The tax rate INCREASES as the amount of

taxable income INCREASES
Is a tax law adopting a regressive system of taxation

VALID?
YES. “Congress shall evolve a

progressive system of taxation.”-this is
only a mere directive upon Congress, not
legally enforceable. The Congress is not
mandated to prescribe, but to evolve
progressive system of taxation.
REGRESSIVE SYSTEM OF TAXATION
The tax rate DECREASES as the amount of

taxable income INCREASES

The burden of tax falls

equally and impartially
upon all the persons and
property subject to it.
Equality in taxatio
n is similar to
EQUALITY PROGRESSIV
E SYSTEM
OF TAXATION

primary requisite of equity principle
a progressive tax rate shall be applied equally

to all persons, firms and corporations, and
transactions placed in similar
classification and situation.
Sison, Jr. vs. Ancheta,
(130 SCRA 654, July 25, 1984)
a progressive tax
rate shall be
applied equally
to all persons, CLASSIFICATIONS
firms and OF TAXPAYERS
corporations,
and transactions
placed in
similar
classification
and situation.
CLASSIFICATIONS OF TAXPAYERS
SUMMARY-for Individual
Situs of Income
Taxpayers Within Outside
Citizens:
Resident citizen Taxable Taxable
Nonresident citizen Taxable Nontaxable
Aliens:
Resident alien, NRAETB and Taxable Nontaxable
NRANETB
Special Taxpayers:
Citizen Taxable Taxable
Aliens Taxable Nontaxable
CLASSIFICATIONS OF TAXPAYERS
SUMMARY-for Corporate Taxpayers
DOMESTIC RESIDENT NON-RESIDENT
CLASSIFICATIONS CORPORATIONS FOREIGN FOREIGN
CORPORATIONS CORPORATIONS
SOURCES OF Within and Within Within

TAXABLE without the Philippines the Philippines
INCOME the Philippines
INCOME IN TAXABLE TAXABLE GROSS

GENERAL INCOME INCOME INCOME
(R.A. 9337) Normal Tax Rate Normal Tax Final Tax Rate
35% from July 1, Rate 35% from July 1,
2005 to 35% from July 1, 2005 to
December 31, 2005 to December 31,
2008 December 31, 2008
30% effective 2008 30% effective
January
y. cleo d. sabado-andrada, cpa, mba1, 2009 30% effective January 1, 2009
NO IMPRISONMENT
FOR NON-PAYMENT of POLL TAX
“no person shall be imprisoned for debt or non-

payment of a poll tax.”

NO IMPRISONMENT
POLL COMMUNI
TAX TY TAX
a tax imposed on a person as a resident

within a territory of the taxing authority
without regard to his property, business or
occupation.
NO IMPRISONMENT
the prohibition of imprisonment applies only to

the nonpayment of poll tax.
imprisonment for nonpayment of other

taxes or imposition of fine would not be
contrary to the Constitution.

PROHIBITION AGAINST IMPAIRMENT OF OBLIGATIONS

OF CONTRACTS
“no law impairing the obligation of contracts

shall be passed”
Section 10 Article III, 1987

Constitution

PROHIBITION AGAINST IMPAIRMENT OF OBLIGATIONS

OF CONTRACTS
If the State will enter into a contract, it

does so upon the same terms and
conditions as entered into by a private
individual or corporation and may not
assert its sovereignty as justification in
impairing a contractual obligation
which it has assumed.
PROHIBITION AGAINST INFRINGEMENT OF RELIGIOUS

FREEDOM
No law shall be made respecting an establishment of

religion, or prohibiting the free exercise thereof. The free
exercise and enjoyment of religious profession and
worship, without discrimination or preference, shall
forever be allowed. No religious test shall be required for
the exercise of civil or political rights.
Section 5 Article III, 1987
Constitution
PROHIBITION: re: APPROPRIATION OF
PROCEEDS OF TAXATION
“No public money or property shall ever be

appropriated, applied, paid or used directly or indirectly for
the use, benefit, or support of any sect, church,
denomination, sectarian , institution, or system of religion,
or for the use, benefit or support of any priest, preacher,
minister, or other religious teacher or dignitary as such,
except when such priest, preacher, minister, or dignitary is
assigned to the armed forces, or to any penal institution, or
government orphanage or leprosarium.”

PROHIBITION: re: APPROPRIATION OF

PROCEEDS OF TAXATION
BASIS:
Tax principle that taxes can only be levied for

public purposes
principle of the separation of the church and the

State.

PROHIBITION AGAINST TAXATION OF RELIGIOUS,
CHARITABLE AND EDUCATIONAL ENTITIES
EXEMPTION FROM REAL PROPERTY TAXES
“Charitable institutions, churches, parsonages or

convents appurtenant thereto, mosques and non-
profit cemeteries and all lands, buildings and
improvements actually, directly and exclusively used
for religious, charitable or educational purposes
shall be exempt from taxation.”
Article VI, Section 28 (3) of the 1987 Constitution

The Supreme Court, however, held that such tax

exemption for the above provision should be
applicable only to REAL PROPERTY TAXES
and not to transfer taxes.

To be exempted from taxation, the real property

must be exclusively used for religious, educational
and charitable purposes.
the issue of ownership is not relevant, as long as the
real property is used exclusively for religious,
educational and charitable purposes, THEN IT
SHALL BE EXEMPTED FROM REAL ESTATE TAX.

“idle lands or property” used by others for other

purposes although owned by religious, educational
and charitable institutions could be subjected to
real estate tax


income derived from these “idle lands or property”

not related to the exercise or performance of
religious, educational and charitable purposes or
functions shall be subject to internal revenue
taxes---INCOME TAX.
PROHIBITION AGAINST TAXATION OF NON-STOCK, NON

PROFIT EDUCATIONAL INSTITUTIONS
All revenues and assets of non-stock, non-profit

educational institutions used actually, directly, and
exclusively for educational purposes shall be
exempt from taxes and duties. Upon the
dissolution or cessation of the corporate existence of
such institutions, their assets shall be disposed of in
the manner provided by law.
Article XIV, Section 4 (3) 1ST PAR. of the 1987 Constitution

Proprietary educational institutions, including those

cooperatively owned, may likewise be entitled to
such exemptions, subject to the limitations
provided by law, including restrictions on
dividends and provisions for reinvestment.
Article XIV, Section 4 (3) 2ND PAR. of the 1987 Constitution


Subject to conditions prescribed by law, all

grants, endowments, donations, or contributions
used actually, directly, and exclusively for
educational purposes shall be exempt from tax.
Article XIV, Section 4 (4) of the 1987 Constitution

CONGRESS GRANTING TAX EXEMPTION
“No law granting any tax exemption shall be

passed without the concurrence of a
majority of all the members of the
Congress.”

CONGRESS GRANTING TAX EXEMPTION
GRANT OF Absolute Majority Vote of

TAX EXEMPTIONS the
MEMBERS of Congress
WITHDRAWAL OF Relative majority vote is

TAX EXEMPTIONS sufficient/ majority of the
attendees constituting quorum
PRESIDENT’s VETO POWER
“Every bill passed by the Congress shall, before

it becomes a law be presented to the
President. If he approves the same, he shall
sign it; otherwise, he shall veto it and return the
same with his objections at large in its journal
and proceed to reconsider it….”

The power of the President to

V E TO refuse to sign into law (can be tax
POWER laws) a bill that has been passed
by a legislature.
ITE
POWE
M
R
VET
VETO
O
If the President vetoed the bill, two-thirds

(2/3) of the members of the House are required
to make such bill to become a law.
The power of the President to “remit fines and

forfeitures” does not include civil penalties
regarding nonpayment of tax and other violation of
tax laws.

SUPREME COURT’S JURISDICTION

OVER TAX CASES
“The Supreme Court shall have the power to

review, revise, reverse, modify or affirm on
appeal or certiorari, as the laws or the Rules of
Court may provide, final judgments and orders
of lower courts in all cases involving the legality
of any tax, impost, assessment, or toll or any
penalty imposed in relation thereto.”
Article VIII, Section 5 (2)(b) of the 1987 Constitution


OVER TAX CASES
“no law shall be passed increasing the

appellate jurisdiction of the Supreme Court
as provided in this Constitution without its
advice and concurrence.”


OVER TAX CASES
The Power of Judicial Review in taxation is

limited only to the interpretation and
application of tax laws.

REVENUE BILLS SHALL ORIGINATE FROM THE HOUSE
OF REPRESENTATIVES
All appropriation, revenue or tariff bills, bills

authorizing increase of the public debt, bills of
local application, and private bills, shall
originate exclusively in the House of
Representatives, but the Senate may propose or
concur with amendments.

INFRINGEMENT OF PRESS FREEDOM
No law shall be passed abridging the

freedom of speech, of expression, or
of the press, or the right of the people
peaceably to assemble and petition
the government for redress of
grievances.

GRANT OF FRANCHISE
No franchise, certificate, or any other form of

authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to
corporations or associations organized under the
laws of the Philippines, at least sixty per centum of
whose capital is owned by such citizens; x x x The
participation of foreign investors in the governing body
of any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive
and managing officers of such corporation or
association must be citizens of the Philippines.
y. cleo d. sabado-andrada, cpa, mbaArticle XII, Section 11 of the 1987 Constitution

TAXES as GENERAL FUNDS of the GOVERNMENT
“All money collected on any tax levied for a

special purpose shall be treated as a special
fund and paid out for such purpose only. If the
purpose for which a special fund was created has
been fulfilled or abandoned, the balance, if
any, shall be transferred to the general funds
of the Government.”
Taxation power exists inseparably with the
State because it is essential for the existence
of the government. (Luzon Stevedoring Co. vs. CTA, July
29, 1988).
WITHOUT TAXATION, NO REVENUE
Without revenue, no continuing government
Without government, no civilization.

government cannot exist without any means
to pay its expenses – a necessary burden to
preserve the State’s sovereignty.
Taxation is the “lifeblood” or the “bread and

butter” of the government
SILENT PARTNER in PROVIDING
INCOME/GIVING PROTECTION TO ITS
CITIZENRY
GOVERNMENT
pay taxes to support the government
PEOPLE
symbiotic relationship and partnership
between the taxing authority and the subject of taxation
REVENUE PURPOSE
PRIMARY PURPOSE
TO RAISE REVENUE TO SUPPORT THE GOVERNMENT

REGULATORY PURPOSE or SUMPTUARY PURPOSE
SECONDARY or NON REVENUE OBJECTIVE
o c ia l Encourage Tool to protect

e s
reduc lity growth of local TRADE
inequa industries RELATION
Implement the police

power of the state
ASPECTS, STAGES OR PROCESSESS
OF TAXATION
FIRST ASPECT,
involves the passage of tax

LEV TAX
laws or ordinances through
Y POLICY
the legislature.

the effectivity of the tax law
commences upon its approval
and its scope would only
cover the present and
future transactions.
PROSPECTIVITY
OF TAX LAWS
retroactive application of tax
laws shall not be applied
unless there is a clear intent
of the legislature that such law
shall also be imposed on past
transactions.

Ex Post NOT APPLICABLE for TAX
FACTO LAW PURPOSES
a law is said to be ex post facto if it provides for the

infliction of punishment upon a person for an act done
when such act was committed, is not
which,
subject to any punishment.

OF TAXATION
SECOND ASPECT,
involves the act of
ASSESSMEN
administration and
T implementation of the tax
TAX
laws by the executive
ADMINI
branch of the government
S-
TAX TRATIO
involves the act of
PAYMENT/ N
collecting the tax.
COLLECTION “tax collections”
OF TAXATION
TAX PAYMENT/COLLECTION METHODS
PAY AS YOU
PAY AS YOU EARN ARE ASSESSED
PAY AS YOU PAY AS YOU FILE

TRANSACT

OF TAXATION
LEV involves the passage of tax
TAX
Y laws or ordinances through
POLICY
the legislature.
involves the act of

ASSESSMEN administration and
T implementation of the tax
TAX
laws by the executive
ADMINI
branch of the government
S-
TAX TRATIO
involves the act of
PAYMENT/ N
collecting the tax.
COLLECTION “tax collections”
tax laws shall give emphasis on direct

rather than indirect taxes or on the ability-
to-pay principle of taxation
The tax rate INCREASES as the amount

of taxable income INCREASES

Not over P10,000 5%

Over P10,000 but not P500 + 10% of the excess over
over P30,000 P10,000
Example: Over P30,000 but not P2,500 + 15% of the excess over
The over P70,000 P30,000
Over P70,000 but not P8,500 + 20% of the excess over
INDIVIDU
over P140,000 P70,000
AL TAX Over P140,000 but not P22,500 + 25% of the excess over
SYSTEM over P250,000 P140,000
Over P250,000 but not P50,000 + 30% of excess over
over P500,000 P250,000
Over P500,000 P125,000 + 32% of the excess over
P500,000

REGRESSIVE SYSTEM OF TAXATION
The tax rate DECREASES as the

amount of taxable income INCREASES

PRINCIPLES OF A SOUND TAX SYSTEM
PRINCIPLES OF A SOUND TAX SYSTEM
•Equality or Theoretical Justice

the tax imposed should be
proportionate to the taxpayer’s
ability to pay.
•Fiscal A
dequacy
the sourc
should be es of re
should be venue
meet the sufficient
demands to
expenditu of public
res.
PLACE OF TAXATION
Defines BOUNDARIES of the taxing power over

the objects of taxation IN TERMS OF
LOCATION whether or not they shall be subject
to tax.
Basic
consideration
that justifies
TAX SITUS
GOVERNMENT PROTECTION
DETERMINING FACTORS
TO THE
SITUS OF TAXATION
Residence of the taxpayer; Citizenship of

the taxpayer
Subject matter of the
tax Source of the
(person, property, rights income being taxed;
or activity);
Nature, kind or classification of the tax being imposed

Place of the activity, privilege,
business or occupation being taxed;
GENERAL RULES OF TAX SITUS
Source or Location
of Object (Taxable?)
Within the Outside the
Nature of Citizenship Residency Philippines Philippines
Tax
I
.
Income Tax Filipino Resident Yes Yes
Filipino Nonresident Yes No
Aliens Resident Yes No
Aliens Nonresident Yes No
I
I
. Transfer Tax Filipino Resident Yes Yes
Filipino Nonresident Yes Yes
Aliens Resident Yes Yes
Aliens Nonresident Yes No
I
I
I Business Yes No
.
Tax
DOUBLE
TAXATION
act of the sovereign by when it should be

TAXING TWICE
-for the same TAXED ONCE
purpose -for the same
-in the same year
-upon the same
purpose and
property or with the same kind
activity of the of character of tax.
same person
KINDS OF DOUBLE TAXATION
Imposition of comparable taxes in two or

more states on the same taxpayer in
respect of the same subject matter and for
identical periods

It arises when the taxes are imposed by the

local or national government within the same
state.

PROHIBITED

ESCAPE FROM TAXATION
TAX TAX
EVASIO O I DAN
AV
N CE
Also called “TAX MINIMIZATION”
A scheme wherein taxpayer uses and valid if used by the taxpayer
UNLAWFUL means to defeat or in GOOD FAITH
lessen the payment of tax
A scheme wherein taxpayer
Taxpayer is subject to civil uses LEGALLY PERMISSIBLE
and/or criminal liabilities means to reduce or totally
escape payment of taxes.
SEVERAL FORMS OF TAX
AVOIDANCE TO MINIMIZE TAX
LIABILITY
Shifting
Tax Option
Transformation
Exemption

SEVERAL FORMS OF TAX AVOIDANCE TO
MINIMIZE TAX LIABILITY
Taxpayers may choose to pay lower

Tax Option tax rate in some transactions as
permitted by Tax Laws.
Selling shares of stock
Selling directly to the buyer- 5 % to 10% tax based on capital gains
Selling through stock market- ½ of 1% based on the selling price.

Shifting Transfer of tax burden to another.
Exemplified by INDIRECT TAXES
Value-Added Tax,
Percentage Tax and
Excise Tax

The producer absorbs the

payment of tax to reduce prices
to maintain market share.
Transformation Additional tax expense can be
recovered by the producer by
improving the process of
production. The tax is
transformed into a gain
through the medium of
production
A grant of immunity, expressed or

implied, to a persons or corporations of
a particular class, from a tax upon
TAX
property or an excise which persons
EXEMPTION
and corporation generally within the
same taxing district are obliged to pay.

r esum ed
TAX N ot p
EXEMPTION
ued
Strictly constr
TAX
ain st t he t axp ayer
DEDUCTIONS ag
principles Personal in natu
TAX AMNESTY re and
cannot be
transferred/assig
TAX ned by
the person to wh
CONDONATIONS om it is
given without the
consent of the S
y. cleo d. sabado-andrada, cpa, mba tate.
EX TAX
EM v e in
PT pe c t i
ION Pro s i on
li c a t
ap p
Immunity from c
ivil
liability only.
It is an immunity or privilege, a freedom

from a charge or burden to which others
are subjected
TA
AM X
NE
STY
d o n giv en
ne r a l p ar
Ge a ye rs
a x p
to all t
li es onl y t o p ast
Immunity from a App
ll tax periods.
criminal, civil and
administrative lia Retroactive in
bilities application.
arising from non
-
payment of taxe
s.

EX TAX
EM
PT
ION
The condonation of a tax

versus liability is equivalent and is in
the nature of a tax exemption
it should be sustained only when

AX ONS
T TI expressed in explicit terms, and
A
D ON it can not be extended beyond
N
CO
the plain meaning of those
terms.
TAX TAX
EXEMPTION
versus EXCLUSIONS
TAX TAX
EXEMPTION
versus DEDUCTIONS
Distinguish a “Exclusion from Gross Income” from

“Deductions from Gross Income”?
2001 BAR Examination

Items/receipts NOT
TAX INCLUDED in the
EXCLUSIONS determination of the
Taxable Income
Exempt from Income Tax
Not included in
the Income Tax
Return
Not Taxable

Definition of Tax/Taxes
are :
-enforced proportional contributions
-from persons and property,
-levied by the state by virtue of its sovereignty
-for the support of the government and for all
its public needs.
ESSENTIAL ELEMENTS/CHARACTERISTICS OF A TAX
Enforced The imposition of tax is not

Contribution dependent upon the will or assent of
the person being taxed.
Proportionate The imposition of tax is based on

in Character the ability to pay; higher income –
higher tax rates
Money is the preferred payment of

Generally taxes. If property is taken to satisfy
payable in tax liability, the property is sold
money through public auction to satisfy the
tax obligation;
Levied ON persons, property, acts, privileges or transactions

Levied BY the State which has jurisdiction or control over the

subject to be taxed
Levied BY the Legislature
Levied FOR public purpose
PAID at regular periods or intervals

TAXES DISTINGUISHED FROM OTHER IMPOSITIONS
TAX versus LICENSE
Levied in the exercise of Emanates from the police

the power of taxation power of the State.
Purpose is to generate revenue Imposed for regulatory

purposes
SPECIAL
TAX versus
ASSESSMENT
Levied on land, persons, Levied on land. Collected by the
property, income, and business government for the purpose of reimbursing
itself for certain benefits regarding
construction of public works
As a rule, it cannot be made a

Personal liability of the taxpayer personal liability of the persons
assessed.
Based on necessity and Based solely on benefits
partially on benefits
Special application only as to
General application a particular time and place.
TAX versus TOLL
Levied for the support Compensation for the use

of government of another’s property.
Imposed only by the State Imposed by the

government or private
individual
PENALT
TAX versus
Y
Civil Liability. Only when

a person fails to pay his civil A punishment for the
obligation to pay taxes that commission of the crime
he will be criminally liable
TAX versus TARIFF
Includes various kinds of

enforced contributions A kind of tax imposed on
imposed upon persons for articles which are traded
the attainment of public internationally
purposes.
TAX versus DEBT
Based on law Based on contract or judgment
Failure to pay may result in Failure to pay does not

imprisonment result to imprisonment
Generally payable in money Can be payable in money,
property or service
Can not be assigned Can be assigned
Not subject to May be subject to

compensation or set-off compensation or set-off
Does not draw interest Draws interest if stipulated

unless delinquent or delayed
TAX versus DEBT

Not subject to May be subject to
compensation or set-off compensation or set-off
REQUISITES OF LEGAL COMPENSATION
Article 1279, New Civil Code:

taxes are not
government and the
subject to set-off taxpayer are NOT
or legal mutual creditor and
compensation debtor of each other.
government and the
taxes are not subject to
taxpayer are NOT mutual
set-off or legal
creditor and debtor of each
compensation
other.
CLASSIFICATION OF TAXES
BASIS FOR CLASSIFICATION OF TAXES
ACCORDING TO:
Subject or Object Who bears he burden

Purpose Determination of Amount
Rate As to Scope or imposing authority
IMPRESCRIPTIBILITY
OF TAXES
General Rule:
taxes in general are not cancelable
Exemptions:
unless otherwise the limitation are

provided by the tax laws or the tax code
itself.
IMPRESCRIPTIBILITY
OF TAXES
LIMITATIONS in the ASSESSMENT and
COLLECTION OF TAXES as provided for
by the TAX CODE
Sections 203 and 222 of the NIRC

IMPRESCRIPTIBILITY
OF TAXES
RULES in Section 203 and 222 of the NIRC
LIMITATION for ASSESSMENT OF
TAX
Within
3
YEARS If filed after the
date prescribed
From the date
by law, from the
prescribed by
date of
law to file a
ACTUAL
return
FILING.
IMPRESCRIPTIBILITY
OF TAXES
If no return is filed
BUT, If the return filed is false or

fraudulent
PERIOD TO ASSESS IS WITHIN

TEN (10) YEARS
Discovery of the OMISSION,
FROM
FRAUD or FALSITY
IMPRESCRIPTIBILITY
OF TAXES
LIMITATIONS in the ASSESSMENT and
COLLECTION OF TAXES as provided for
by other TAX LAWS
Section 4 of R.A. 9135 and

Section 194 of R.A. 7160

IMPRESCRIPTIBILITY
OF TAXES
Section 4, R.A. 9135
TARIFF and CUSTOMS CODE
“When articles have been entered and passed free of duty
of final adjustment duties made, with subsequent delivery,
such entry and passage free from duty or settlements of
duties will, after the expiration of three (3) years, from
the date of the final payment of duties and in the absence
of fraud or protest or compliance audit pursuant to the
provisions of this Code, BE FINAL AND CONCLUSIVE
UPON ALL THE PARTIES, unless the liquidation of the
import entry was merely tentative.”

IMPRESCRIPTIBILITY
OF TAXES
Section 194 R.A. 7160
LOCAL GOVERNMENT CODE
General Rule:
Local taxes, fees or charges
Assessed within FIVE (5) years

from the date they became due.

IMPRESCRIPTIBILITY
OF TAXES
Section 194 R.A. 7160
LOCAL GOVERNMENT CODE
Exemption:
In case of fraud, intent to evade
payment of local taxes, fees or charges
Assessed within TEN (10) years from discovery

of the fraud or intent to evade payment
effected through court proceedings
and could only be allowed if the act
involves a direct and illegal
disbursement of public funds
derived from taxation

THE NATIONAL INTERNAL REVENUE TAXES
Sec. 21 of NIRC
PercentageTaxes Documentary
Stamp Taxes Donor’s Tax
E- Excise Income
VAT Tax Tax
Estat Such other taxes as may be

e imposed
Taxe and collected by the BIR
s
•Direct TAXES
are those taxes paid by the persons who
are bound by law to pay the tax. These
taxes are non-transferrable.
•Indirect TAXES
are those demanded in the first instance
from one person but the burden thereof can
be shifted or passed to another. These taxes
are transferrable.

Sec. 21 of NIRC
DIRECT TAXES
Donor’s Tax
Estat
Income
e
Tax
Taxe
s

Sec. 21 of NIRC
INDIRECT TAXES
Percentage Taxes Documentary

Stamp Taxes
E-VAT Excise Tax

OVERVIEW General Principles and Concepts of Taxation Without Bar Questions

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OVERVIEW General Principles and Concepts of Taxation Without Bar Questions

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DEFINITION OF TAXATION

A power by which an Independent State,

As a power, it refers to the inherent power of a

As a process, it passes a legislative undertaking through the

•They constitute the three ways by which

•They all underlie and exist independently of the

•They all underlie and exist

•The provisions in the Constitution are just

“No person shall be

TAX EXEMPTION OF GOVERNMENT

STRONGEST AMONG THE INHERENT

Subject to CONSTITUTIONAL and INHERENT

Taxation is a DESTRUCTIVE POWER

Any tax law that violates the Constitution must be declared by

Any abusive act in relation to the imposition of tax that leads in

violation of these inherent limitations is

a tax law that violates the Constitution, shall

Any tax law that contradicts the limitation of

NATURAL RESTRICTIONS to safeguard and

It has been held that tax has been

y. cleo d. sabado-andrada, cpa, mba

SETTLED CASES OF “PUBLIC PURPOSE”

SETTLED CASES OF “PUBLIC PURPOSE”

Eductional Subsidy Pensions

The LAW-MAKING BODY of the government exercises

In strict sense, the power to make tax laws CANNOT

EXEMPTIONS: (CAN BE DELEGATED)

1. The power to tax can be delegated

y. cleo d. sabado-andrada, cpa, mba

“Each local government unit shall have the power to

y. cleo d. sabado-andrada, cpa, mba

2. Delegation to Administrative Bodies.

Only if the power delegated is

y. cleo d. sabado-andrada, cpa, mba

If what is delegated to a non-

BUT, if what is involved is only TAX

y. cleo d. sabado-andrada, cpa, mba

3. The Congress may, by law, authorize the President to impose

Article VI, Section28 (2) of the Constitution

y. cleo d. sabado-andrada, cpa, mba

The state cannot be taxed without its consent;

The State immunity from taxation is inherent

y. cleo d. sabado-andrada, cpa, mba

TAX EXEMPTION applies only to

y. cleo d. sabado-andrada, cpa, mba

Government Entities performing

EXCEPTION to the EXCEPTION:

When the provisions in their

WHILE, agencies performing proprietary

y. cleo d. sabado-andrada, cpa, mba

It is synonymous with “Government

y. cleo d. sabado-andrada, cpa, mba

Includes all the bureaus Income received

4 tax exempts GOCCs

1. GSIS Government Service Insurance System

Note: PAGCOR was deleted from list of exempt

1 tax exempt GOCC

y. cleo d. sabado-andrada, cpa, mba

The power to tax can only be exercised

y. cleo d. sabado-andrada, cpa, mba

y. cleo d. sabado-andrada, cpa, mba

“ states are juridically equal, enjoy the same