A.
GENERAL CONCEPTS AND PRINCIPLES OF TAXATION
Learning Objectives. At the end of this module, students are expected to:
a) Understand the inherent powers of the State
b) Understand the purposes of taxation
c) Identify the nature, scope and limitations of taxation
d) Have knowledge on the basic principles of a sound tax system
e) Identify the situs of taxation
f) Identify the sources of tax laws
g) Identify other doctrines in taxation
TAXATION – the process by which the sovereign, through its law-making body,
imposes burdens for the purpose of raising revenues to carry out legitimate
objects of the government
TAXES – the enforced contributions levied by the law-making body of the state for the
support of the government and all the public needs.
3 INHERENT POWERS OF THE STATE
1. Police Power- the power of promoting public welfare and regulating the use of
liberty and property.
2. Power of Taxation – the power which raises revenue for the expenses of the government
3. Power of Eminent Domain – the power to acquire private property for public purpose
upon payment of just compensation
PURPOSES OF TAXATION
1. Primary: Revenue or Fiscal Purpose
- to provide funds or property with which to promote general welfare and
protection of its citizens
2. Secondary: Regulatory Purpose
- employed as a devise for regulation or control
• Effects: - Promotion of General Welfare
- Reduction of Social Inequality
- Economic Growth
THEORIES OF TAXATION
1. Necessity Theory
- to preserve the state’s sovereignty
- a means to give for protection and facilities
2. Lifeblood Theory
- used to continue to perform the government’s basic function of serving and
protecting its people
- give tangible and intangible benefits
Basis of Taxation – The government may be able to perform its functions while the
citizens may be secured in the enjoyment of the benefits.
MANIFESTATION OF LIFEBLOOD THEORY
1. Rule of “No Estoppel against the government”
2. Collection of taxes cannot be stopped by injunction
Court of Tax Appeals – have the authority to grant injunction to restrain
collection of internal revenue tax, fee or charge
3. Taxes could not be the subject of compensation or set-off
Tax is compulsory not bargain.
4. Right to select objects (subjects) of taxation
a) Subject or object to be taxed
b) Purpose of the tax (as long as it is a public purpose)
c) Amount or rate of the tax
d) Kind of tax
e) Apportionment of the tax
f) Situs (place) of taxation
g) Manner, means, and agencies of collection of the tax
5. A valid tax may result in the destruction of the taxpayer’s property.
Lawful tax cannot be defeated.
Bring out the insolvency of the taxpayer
Forfeiture of property through police power
NATURE, SCOPE AND LIMITATIONS
OF TAXATION
SCOPE OF TAXATION
The power of taxation is the most absolute of all the powers of the government.
a) Comprehensive – covers all (persons, businesses, professions)
b) Unlimited – absence of limitations
c) Plenary – it is complete
d) Supreme –
ESSENTIAL ELEMENTS OF TAX
a) It is an enforced contribution.
b) It is generally payable in money.
c) It is proportionate in character.
d) It is levied on persons, property or right.
e) It is levied by the law-making body of the state.
f) It is levied for public purpose.
ASPECTS OF TAXATION
a) Levying or imposition of tax
b) Assessment or determination of the correct amount
c) Collection of tax
NATURE/ CHARACTERISTICS OF THE STATE’S POWER OF TAX
a) It is inherent in sovereignty.
-can enforce contribution in the absence of law
b) It is legislative in character.
-cannot be exercised by executive and juridical branches
c) Exemption of government entities, agencies and instrumentalities.
d) International Comity
e) Limitation of territorial jurisdiction
f) Strongest among all the inherent powers of the state
Agencies performing governmental function are tax exempt unless expressly taxed
Agencies performing proprietary functions are subject to tax unless
expressly exempted
GOCCs performing proprietary functions are subject to tax, however the
following are granted tax exemptions:
Government Service Insurance System (GSIS)
Social Security System (SSS)
Philippine Health Insurance Corporation (PHIC)
Philippine Charity Sweepstakes Office (PCSO)
Local Water Districts (RA 10026)
CLASSIFICATION OF TAXES
1. As to scope:
National- imposed by the national government
Local – imposed by the local government
2. As to subject matter or object:
Personal, poll, or capitation – tax of a fixed amount
imposed upon individual residing within a
specified territory.
Property – tax imposed on property in proportion to its value
Excise – tax on certain rights and privileges (sin
products or imported goods)
3. As to who bears the burden:
Direct – taxpayer cannot shift to another
Indirect – indemnify himself at the expense of another
4. As to determination of fixed amount:
Specific- tax of fixed amount by number, standard of
weight, or measurement
Ad valorem – tax of fixed proportion of the value
of the property
5. As to purpose:
Primary, Fiscal, or Revenue Purpose
Secondary, Regulatory, Special, or Sumptuary Purpose
6. As to graduation or rate:
Proportional – tax based on fixed percentages of amount
Progressive – tax the rate of which increases as the
tax base or bracket increases
Regressive - tax the rate of which decreases as the
tax base or bracket increases
7. As to taxing authority:
National – imposed under National Internal Revenue
Code, collected by Bureau of Internal
Revenue
Local – imposed by LGUs
BASIC PRINCIPLES OF A SOUND
TAX SYSTEM
ELEMENTS OF SOUND TAX
SYSTEM
a. Fiscal Adequacy – sources must be adequate
b. Theoretical Justice or Equity – tax should be proportionate
c. Administrative Feasibility – law must be capable of effective and efficient enforcement
LIMITIATIONS ON THE STATE’S POWER TO TAX
1. Inherent Limitations
2. Constitutional Limitations
Progressive System – emphasis on direct taxes
Regressive System – more indirect taxes imposed
Regressive Tax Rates – tax rates which decreases as tax base or
bracket increases
SITUS OF TAXATION
FACTORS IN DETERMINING THE SITUS OF TAXATION
a. Subject matter ( person, property, or activity)
b. Nature of tax
c. Citizenship
d. Residence of the taxpayer
e. Source of Income
f. Place of excise, business or occupation being
taxed
OTHER DOCTRINES IN TAXATION
TOLL is a sum of money for the use of something which is paid of the use of a road,
bridge or public nature.
PENALTY is a sanction imposed as a punishment for violation of law or acts deem injurious.
SPECIAL ASSESSMENT is an enforced proportional contribution from owners of
the lands for special benefits resulting from public improvements.
Characteristics: a. Levied only on land
b. Not a personal liability of the person assessed
c. Based wholly on benefits (not necessary)
d. Exceptional both as to time and place
REVENUE refers to all funds or income derives by the government.
SUBSIDY is a pecuniary aid directly granted by the government to an individual or
enterprise deemed beneficial to the public.
PERMIT or LICENSE is a charge imposed under the police power for purposes of regulation.
CUSTOMS DUTIES are taxes imposed on goods exported from or imported into a country.
TARIFF is the system of imposing duties on the importation or exportation of goods.
DIRECT DOUBLE TAXATION means taxing twice:
1. By the same taxing authority, jurisdiction or taxing district
2. For the same purpose
3. In the same year or taxing period
4. Same subject or object
5. Same kind or character of the tax
MEANS OF AVOIDING THE BURDEN OF TAXATION
1. Shifting – the transfer of the burden of tax by the original payer to someone else
2. Transformation – the producer pays the tax and endeavor to recoup himself by
improving his process of production
3. Evasion – the use of illegal means to defeat or lessen tax
4. Tax Avoidance – the exploitation of legally permissible alternative tax rates of
assessing taxable income to reduce tax liability
5. Exemption – the grant of immunity to particular persons of a particular class
6. Capitalization – the reduction in the selling price of income producing property
by an amount equal to the capitalized value
7. Avoidance – the tax saving device within the means sanctioned by law.
SOURCES OF TAX LAWS
1. Constitution
2. National Internal Revenue Code
3. Tariff and Customs Code
4. Local Government Code (Book II)
5. Local tax ordinances/ City or municipal tax codes
6. Tax treaties and international agreements
7. Special Laws
8. Decision of the Supreme Court and the Court of Tax Appeals
9. Revenue rules and regulations and administrative ruling and opinion
