MEANS of AVOIDING or

MINIMIZING the BURDEN of

TAXATION
FUNDAMENTAL PRINCIPLES OF TAXATION
 MEANS of AVOIDING or MINIMIZING the BURDEN of
TAXATION
1. SHIFTING
• Shifting is the transfer of the burden of a tax by the
original payer or the one on whom the tax was
assessed or imposed to someone else.
• Transferred is not the payment of the tax but the
burden of the tax.
• Only indirect taxes may be shifted; direct taxes
cannot be shifted
 Forms of shifting:
a. Forward Shifting - This is the shifting of
tax which follows the normal flow of
distribution. The tax imposed to producers
but pass to consumers
It is common with essential commodities
and services such as food and fuel.
b. Backward Shifting - This is the reverse of the forward
shifting. It is the transfer of a burden of a tax from the buyer,
who is legally obligated to pay to the seller. It is common
with non-essential commodities where buyers have
considerable market power and commodities with numerous
substitute products.

c. Onward shifting- This refers to any tax shifting in the

distribution channel that exhibits forward shifting or backward
shifting.
 MEANS of AVOIDING or MINIMIZING the BURDEN of
TAXATION
2. TRANSFORMATION
• An escape from taxation where the producer or
manufacturer pays the tax and endeavor to recoup
himself by improving his process of production
thereby turning out his units of products at a lower
cost.
 MEANS of AVOIDING or MINIMIZING the BURDEN of
TAXATION
3. EVASION
• Tax evasion is the use by the taxpayer of illegal or
fraudulent means to defeat or lessen the payment of
a tax . It is also known as “tax dodging”. It is connotes
fraud through the use of pretenses or forbidden
devices to lessen or defeat taxes.
 MEANS of AVOIDING or MINIMIZING the BURDEN of
TAXATION
4. TAX AVOIDANCE
• Tax avoidance is the exploitation by the taxpayer of
legally permissible alternative tax rates or methods
of assessing taxable property or income in order to
avoid or reduce tax liability.
• It is politely called “tax minimization” and is not
punishable by law
 MEANS of AVOIDING or MINIMIZING the BURDEN of
TAXATION
5. TAX EXEMPTION
• It is also known as tax holiday, refers to the immunity
privilege or freedom from being subject to a tax which
others are subject to.
 Tax exemptions may be granted by the Constitution, law or
contract
 All forms of tax exemptions can be revoked by Congress except
those granted by the Constitution and those granted under
contracts.
 MEANS of AVOIDING or MINIMIZING the BURDEN of
TAXATION
5. TAX EXEMPTION
• Tax exemption is the grant of immunity to particular persons
or corporations or to persons or corporations of a particular
class from a tax which persons and corporations generally
within the same state or taxing district are obliged to pay .
• It is an immunity or privilege; it is freedom from a financial
charge or burden to which others are subjected.
• Exemption is allowed only if there is a clear provision
therefor.
 MEANS of AVOIDING or MINIMIZING the BURDEN of
TAXATION
5. TAX EXEMPTION
• It is not necessarily discriminatory as long as there is a
reasonable foundation or rational basis.
• In the construction of tax statues, exemptions are not
favored and are construed against the taxpayer.
 MEANS of AVOIDING or MINIMIZING the BURDEN of
TAXATION
Grounds for granting tax exemptions
a. May be based on contract
b. May be based on some ground of public policy
c. May be based on grounds of reciprocity or to lessen the rights of
international double or multiple taxation
 MEANS of AVOIDING or MINIMIZING the BURDEN of
TAXATION
Nature of Power to Grant Tax Exemption
a. National Government – The power to grant tax
exemptions is an attribute of sovereignty for the
power to prescribe who or what persons or property
shall not be taxed.
It is inherent in the exercise of the power to tax that the
sovereign state be free to select the subjects of taxation
and to grant exemption therefrom.
 MEANS of AVOIDING or MINIMIZING the BURDEN of
TAXATION
Nature of Power to Grant Tax Exemption
b. Local Government – Municipal corporations are
clothed with no inherent power to tax or to grant tax
exemptions. But the moment the power to impose a
particular tax is granted, they also have the power to
grant exemption therefrom unless forbidden by some
provision of the Constitution or the law.
• The legislature may delegate its power to grant tax
exemptions to the same extent that it may exercise
the power to exempt.
MEANS of AVOIDING or MINIMIZING the BURDEN of
TAXATION
KINDS OF EXEMPTION
As to basis:
• Constitutional – immunities from taxation which
originate from the constitution
• Statutory – Immunities from taxation which
emanates from legislation
 MEANS of AVOIDING or MINIMIZING the BURDEN of
TAXATION
KINDS OF EXEMPTION
As to form:
• Express – exemptions expressly granted by statute
• Implied– when particular persons, property, or rights
are deemed exempt as they fall outside the scope of
the taxing provision itself
 MEANS of AVOIDING or MINIMIZING the BURDEN of
TAXATION
KINDS OF EXEMPTION
As to extent:
• Total– connotes absolute immunity
• Partial– one where a collection of a part of the tax is
dispensed with
 MEANS of AVOIDING or MINIMIZING the BURDEN of TAXATION

PRINCIPLES GOVERNING TAX EXEMPTIONS

• Exemptions from taxation are highly disfavored in law.
He who claims an exemption must be able to justify his
claim by the clearest grant of organic or statute law
because tax exemptions are not presumed.
• If ambiguous, there is no tax exemption.
• He who claims exemption must be strictly construed.
No law granting any tax exemption shall be passed
without the concurrence of majority of all members of
Congress
 MEANS of AVOIDING or MINIMIZING the BURDEN of TAXATION

o AMNESTY
• It is the general or intentional overlooking by the State
of its authority to impose penalties on persons
otherwise guilty of evasion or violation of a revenue or
tax law.
• It partakes of an absolute forgiveness or waiver of the
Government of its right to collect.
• It is a way to give tax evaders, who wish to relent and
are willing to reform a chance to do so.
• It involves immunity from all criminal, civil and
administrative liabilities from non-payment of taxes
 MEANS of AVOIDING or MINIMIZING the BURDEN of
TAXATION
6. CAPITALIZATION
• The reduction of selling price of income producing property
by an amount equal to the capitalized value or future taxes
that may be paid by the purchaser