GENERAL

PRINCIPLES OF
TAXATION
TAXATION
 As a state power - inherent power of the State to enforce a proportional
contribution from its subjects for public purpose.

 As a process – is a process of levying taxes by the legislature of the State to

enforce proportional contributions from its subjects for public purpose

 As a mode of cost distribution – is a mode by which the State allocates its cost
and burden to its subjects who are benefited by its spending.
THEORIES OF COST
ALLOCATION
 Benefit Received Theory – the more benefit one receives
from the government, the more taxes he should pay.
 Ability To Pay Theory – Those who have more should be
taxed more even if they benefit less from the government.
THEORY OF TAXATION: WHY
IS THERE A NEED TO IMPOSE
TAX?
 Every government provides a vast array of public services
including defense, public order and safety, health, education and
social protection among others.
 A system of government is important to every society. Without it,
the people will not relish the benefits of a civilized and orderly
society. However a government cannot exists without a system of
funding.
 The government’s necessity of funding is the THEORY OF
TAXATION.
LIFEBLOOD DOCTRINE
 Taxes are essential and indispensable to the continued
subsistence of the government.
 Without taxes, the government would be paralyzed for
lack of motive power to activate and operate it.
 Upon Taxation depends the government’s ability to
serve the people for whose benefit taxes are collected.
BASIS OF TAXATION
 The government provides benefits to the people in form of
public services, and the people provide the funds that
finance the government.

 This mutuality of support between the people and

government is referred to as BASIS OF TAXATION.
BASIS OF TAXATION
Public Service

Government People

Taxes
INHERENT POWERS OF THE
STATE
 A government has its basic needs and rights which co-
exists with its creation.
 No government can sustain or effectively operate without
these powers
 From the time the government is created, these powers are
available right away.
3 INHERENT POWERS OF THE
STATE
Taxation Power

Police Power

Eminent Domain
TAXATION POWER
 Is the power of the State to enforce proportional
contribution from its subjects to SUSTAIN ITSELF.
 The government sustains itself by the POWER OF
TAXATION.
POLICE POWER
 Is the general power of the State to enact laws to protect
the well-being of the people.
 Is the inherent power of the State to legislate for the
protection of health, general welfare, safety and morals of
the public. It involves the power to regulate both liberty
and property for the promotion of public good.
POWER OF EMINENT DOMAIN
 Is the inherent power of the State to take private property for a
public purpose. The constitution limits the exercise of this power by
providing that “Private property shall not be taken for public use
without just compensation.
 (Example: Road widening)
COMPARISON OF 3 POWERS
OF THE STATE
Point of Difference Taxation Police Power Eminent Domain

Exercising Authority Government Government Government and private

utilities

Purpose For the support of the To protect the general For Public Use
government welfare of the people
Persons Affected Community of class of Community of class of Owner of the Property
individuals individuals

Amount of Imposition Unlimited (Based on Limited (imposition is No amount imposed

government’s need) limited to cover the
regulation)
Limitation Constitutional and Public Interest and due Public Purpose and just
inherent limitations process compensation
ASPECTS OF
TAXATION(PROCESS)
1. Levying or imposition of the Tax- this process involves enactment or passage of tax laws by
Congress and is called IMPACT OF TAXATION. It is also referred to as LEGISLATIVE ACT
IN TAXATION.
 Congress is composed of House of Representatives and Senate(Legislative Branch of the
Government)
2. Assessment and Collection (Executive/Administrative in nature)
Assessment- it is the process of determining the correct amount of tax due
Collection and payment- act of compliance by Taxpayer
IMPORTANT NOTES:
 Assessment and Collection are done by executive branch of the
government(BIR)

 As mandated by Constitution, TAX BILLS or proposed tax laws

MUST ORIGINATE FROM HOUSE OF REPRESENATIVES.
However, senate may concur and each bodies may have their own
version of bills but TAX BILLS cannot originate exclusively from
the Senate.
SCOPE OF TAXATION POWER
 The scope of taxation is widely regarded as
COMPREHENSIVE, PLENARY,UNLIMITED, AND
SUPREME. (CUPS)

 However despite the unlimited nature of taxation, it is not

absolute. Taxation has its own inherent limitations and
constitutional limitations.
INHERENT LIMITATIONS(TIP-
EN)
 Territoriality
 International Comity
 Public Purpose
 Exemption of the government
 Non-delegation of taxing power
DOUBLE TAXATION
 Occurs when the same taxpayer is taxed twice by the same tax
jurisdiction for the same thing.
 ELEMENTS:
 1. Same object
 2. Same type of tax
 3. Same Taxing jurisdiction
 4. Same Tax Period
 5. Same Purpose of Tax
TYPES OF DOUBLE TAXATION
Indirect Double
Direct Double Taxation Taxation
 This occurs when all the  Lacks one or more of the
element of double taxation elements of direct double
exists for both impositions taxation.
 Discouraged  Permissible
CONSTITUTIONAL
LIMITATIONS
 Due Process of Law
 Equal Protection of the Law
 Uniformity rule in Taxation
 Progressive System of Taxation
 Non-imprisonment for non-payment of debt or poll tax (personal tax or cedula)
 Non-impairment of obligation and contract
 Free worship rule
 Exemption of religious or charitable entities, educational entities from real property tax
(actually, directly and exclusively used for religious, charitable, educational purposes)
 Non-appropriation of Public funds
CONSTITUTIONAL
LIMITATIONS
 Exemption from taxes of the revenues and assets of non-profit, non-stock educational
institutions
 Concurrence of majority of all members of Congress for passage of tax law granting tax
exemption
 Non-delegation of power of taxation (the power to impose taxes is delegated to legislative
branch of the government)
 Non-impairment of jurisdiction of Supreme Court to review tax cases
 Requirement of appropriations, revenue, or tariff bills originate exclusively in the House of
Representatives
 The delegation of taxing power to local government units
ESCAPES FROM TAXATION
 Tax Evasion or Tax Dodging – refers to any act or trick that tends to illegally reduce or avoid
the payment of tax. (e.g; gross understatement of income, non-declaration of income,
overstatement of expenses or tax credit)

 Tax Avoidance or Tax Minimization – refers to any act or trick that reduces or totally
escapes taxes by any legally permissible means (e.g: minimizing tax options, tax carry overs
or tax credit, careful tax planning)

 Tax Exemption or Tax Holiday – refers to immunity, privilege, or freedom from being
subject to tax, granted by Constitution, law or contract. (e.g; Salary of minimum wage earners)
TAX AMNESTY VS. TAX
CONDONATION
Tax amnesty Tax Condonation

 General pardon by govt for erring  Forgiveness of tax obligation of a certain

taxpayers to give them a fresh start taxpayer under certain justifiable grounds
 Covers civil and criminal liabilities  Covers only civil liabilities
 Operates retrospectively by forgiving past  Applies prospectively
violations
 Requires no payment
 Conditional upon paying the government a
portion of tax
TAX LAWS – LAWS THAT PROVIDE FOR THE
ASSESSMENT AND COLLECTION OF TAXES
National Internal Revenue Code (NIRC)
Tariff and Customs Code
The Local Tax Code
The Real Property Tax Code
SOURCE OF TAXATION LAWS
 Constitution
 Statutes and Presidential Decrees
 Judicial Decisions or case laws
 Executive Orders and Batas Pambansa
 Administrative Issuances
 Local Ordinances
 Tax Treaties and Conventions with foreign countries
 Revenue Regulations
TYPES OF ADMINISTRATIVE
ISSUANCES
 Revenue Regulations
 Revenue Memorandum Orders
 Revenue Memorandum Rulings
 Revenue Memorandum Circulars
 Revenue Bulletins
 BIR Rulings
GAAP VS TAX LAWS
 GAAP will be used in recording transactions in the
taxpayer’s books but in preparation of tax returns,
taxpayers are mandated to follow tax law in cases of
conflict with GAAP.
TAX
 Enforced proportional contribution levied by lawmaking body of the State to raise revenue for public
purpose.
 Elements of a Valid Tax:

1. It is levied on persons, property, or the exercise of a right or privilege.

2. Must not violated Constitutional and inherent limitations.
3. Tax must be uniform and equitable.
4. Tax must be for public purpose.
5. Tax must be proportional in character. Payment of taxes should be based on the ability to pay theory
or theoretical justice.
6. Tax is generally payable in money.
CLASSIFICATION
OF TAXES
ACCORDING TO SCOPE OR
EXERCISING AUTHORITY
National Tax Municipal or Local Tax

 Imposed by National Government  Imposed by local government units

 Exs: Income Tax, Estate Tax, Donor’s  Exs: Real Property Tax, Professional Tax,
Tax, VAT, OPT, Excise Tax, and Community Tax
Documentary Stamp Tax
ACCORDING TO SUBJECT
MATTER
Personal, Capitation or Poll Tax Excise

 Fixed amount imposed upon persons of a
certain cases without regard to property,
trade or business. (e.g:community tax or
cedula)
 Property Tax
 Imposed upon performance of an act; the
exercise of a right, or the engaging in
business or profession.
(e.g: VAT, Donor’s Tax, Estate Tax, Income
Tax, Excise Tax)

-imposed on property Note: Excise Tax may also refer to sin tax
applied on non-essential goods like
(e.g: real property tax) cigarettes and liquors
ACCORDING TO WHO BEARS
THE BURDEN OF TAX
Direct Tax
 Demanded from the person who shoulders
the burden of tax and cannot be shifted or
passed to another taxpayer.
 Person who is obliged to pay the TAX is
the person who actually pays the TAX.
 Example: Individual Income Tax
Indirect Tax
 Demanded from one person but whose
burden can be shifted or passed on to
another taxpayer.
 Example: Business Tax (VAT)
 Person obliged to pay the TAX: Seller
 Person who actually pays the tax: Buyer
ACCORDING TO RATE
APPLIED
Proportional Progressive

 Based on fixed percentage of the tax base  Tax rate increases as the tax base
(e.g: Corporate Income Tax, VAT, Estate increases. (e.g: Income tax on individuals
Tax) under graduated rates)

 Regressive

tax rate decreases as tax base increases

ACCORDING TO
MEASUREMENT OF THE
AMOUNT DUE
Specific Ad Valorem

 Tax of a fixed amount(Php) imposed by  Tax of a fixed proportion(%) of the value

the head or number, or by some standard of the property.
basis of measurement (ie. Excise tax on
 Real property tax
cigarettes and liquors)
PRINCIPLES OF SOUND TAX
SYSTEM (FAT)
 Fiscal Adequacy - means that the sources of revenue should be sufficient to meet the demands
of public expenditures.
 Equality or Theoretical Justice – means that taxation should consider the taxpayer’s ability
to pay.
 Administrative Feasibility – means that tax laws should be capable of effective
administration to encourage compliance. Government should make it easy for the taxpayer to
comply by avoiding administrative bottlenecks and reducing compliance cost (e-filing and e-
payment of taxes, substituted filing system for employees)
TAX VS. LICENSE
Tax License

 To raise revenue  To regulate action, businesses, industries,

 Subject to constitutional and inherent
limitations on the power to tax
 Unlimited in amount
 Does not make the business illegal
profession
 Not subject to the limitations on taxation
 Limited to the cost of regulation
 Makes the business illegal
TAX VS. SPECIAL
ASSESSMENT
Tax Special Assessment

 Is an amount imposed upon persons,  Is levied by the government on lands

properties or privileges adjacent to a public improvement
 It is imposed on land only and is intended
to compensate the government for a part
of the cost of the improvement.
TAX VS. TARIFF
Tax Tariff

 Is an amount imposed upon persons,  Is amount imposed on imported or

properties or privilege, transactions exported product
TAX VS. TOLL
Tax Toll

 Demand of sovereignty; amount of tax  Demand of ownership; amount of toll is

depends upon the needs of the dependent upon the value of the property
government. leased.
TAX VS. DEBT
Tax Debt

 Arises from law  Arises from private contract

 Non-payment of tax leads to imprisonment  Non-payment of debt does not lead to
imprisonment
TYPES OF TAX SYSTEM
ACCORDING TO IMPOSITION
 1. Progressive – employed in taxation of income of individuals,
and certain local business taxes (Tax rate increases as the tax base
increases)
 2. Proportional – employed in taxation of corporate income tax
rate
 3. Regressive – not employed in the Philippines