1 TAXATION

General Principles of Taxation a) Imposition of tariffs on imported goods to local industries.

b) The adoption of progressively higher tax rates to reduce

POWER- The inherent power of State to impose proportionate burden
from among the citizenry for the respective share in the cost of running in
inequalities in wealth and income.
the government and the delivery of its institutional mandate to serve and
c) The increase or decrease of taxes to prevent inflation or ward
protect.
off depression.
MEANS- The few ways by which the State raises revenue to support its
existence and operations. Theory and basis of Taxation

PROCESS- The method of imposing a tax to raise revenue by the The power of taxation proceeds upon the theory that the
legislative act of the Congress in passing a law ordinance. existence of government is a necessity; that it cannot continue
without means to pay its expenses; and that for these means,
Taxation it has a right to compel all its citizens and property within its
limits to contribute.
-is the inherent power of the sovereign, exercised through
the legislature, to impose burdens upon subjects and The basis of taxation is found in the reciprocal duties of
objects within its jurisdiction for the purpose of raising protection and support between the State and its inhabitants.
revenues to carry out the legitimate objects of government. In return for his contribution, the taxpayer received benefits
and protection from the government. This is the so-called
-It is also defined as the act of levying a tax, i.e. the process “benefits received principle".
or means by which the sovereign, through its law-making
body, raises income to defray the necessary expenses of Life blood or necessity Theory
government. It is a method of apportioning the cost of
-The life blood theory constitutes the theory of taxation, which
government among those who, in some measure, are
provides that the existence of government is a necessity; that
privileged to enjoy its benefits and must therefore bear its
government cannot continue without means to pay its
burdens.
expenses; and that for these means it has a right to compel its
citizens and property within its limits to contribute.
TAXES
Illustrations of lifeblood theory
are the enforced proportional contributions from persons
and property levied by the law-making body of the State by 1. Collection of taxes cannot be enjoined by injunction.
virtue of its sovereignty for the support of the government 2. Taxes could not be the subject of compensation or set off.
and all public needs. 3. A valid tax may result in destruction of the taxpayer’s
property.
Essential elements of a Tax:
4. Taxation is an unlimited and plenary power.
1. It is an enforced contribution.
2. It is generally payable in money. Benefit-received principle
3. It is proportionate in character.
-This principle serves as the basis of taxation and is founded on
4. It is levied on persons, property, or the exercise of a right or
the reciprocal duties of protection and support between the State
privilege.
and its inhabitants. Also called “symbiotic relation” between the
5. It is levied by the State which has jurisdiction over the subject
State and its citizens.
or object of taxation.
6. It is levied by the law-making body of the State. Nature or characteristics of the State’s power to tax
7. It is levied for public purpose or purposes.
1. It is inherent in sovereignty; hence, it may be exercised
although it is not expressly granted by the Constitution.
PURPOSE OF TAXATION
2. It is legislative in character; hence, only the legislature can
1. Revenue or fiscal: impose taxes (although the power may be delegated).
The primary purpose of taxation on the part of the government is 3. It is subject to Constitutional and inherent limitations; hence, it
to provide funds or property with which to promote the general is not an absolute power that can be exercised by the
welfare and the protection of its citizens and to enable it to finance legislature anyway it pleases.
its multifarious activities.
DELEGATION OF POWER OF TAXATION
Exceptions to the non-delegation rule

2. Non-revenue or regulatory:  Delegation to the President

- congress may authorize, by law, the President to fix tariff
(Sumptuary Purpose of Taxation ) rates; import and export quotas; tonnage and wharfage dues; and
others within the national development program
Taxation may also be employed for purposes of regulation or
control. • Delegation to local government units

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- congress may grant to a municipal corporation the power to

tax certain matters; it can also provide for exemptions or even take
back the power. Special assessment vs. tax
• Delegation to administrative agencies
-delegation, by law, to Fiscal Incentives Review Board (FIRB) 1.A special assessment is an enforced proportional contribution
the review and restoration tax exemption privileges and granting from owners of lands specially or peculiarly benefited by public
of tax incentives to GOCCs improvements.

2. A special assessment is levied only on land.

3. A special assessment is not a personal liability of the person

assessed; it is limited to the land.

4. A special assessment is based wholly on benefits, not

necessity.

5. A special assessment is exceptional both as to time and place;

a tax has general application.

Some rules:
An exemption from taxation does not include exemption
from a special assessment. The power to tax carries with it the
power to levy a special assessment.

TOLL TAX
sum of money for the use of enforced proportional contributions
something. It is the consideration, from persons and property levied by
which is paid for the use of a road, the State by virtue of its sovereignty
bridge, or the like, of a public nature for the support of the government and
all public needs.
demand of proprietorship demand of sovereignty.
paid for the use of another’s paid for the support of
property government.
the amount paid as depends no limit on the amount collected
upon the cost of construction or as long as it is not excessive,
maintenance of the public unreasonable, or confiscatory.
improvement used
may be imposed by the Imposed only by the government
government or by private
Tariff / Duties individuals or entities
The term tariff and custom duties are used interchangeably in the Tariff
and Customs Code or PD No. 1464. · Customs duties, or simply duties,
are taxes imposed on goods exported from or imported into a country.
Custom duties are really taxes but the latter term is broader in scope.
PENALTY TAX
Tariff may be used in one of three senses:
is any sanction imposed as a enforced proportional
1. A book of rates drawn usually in alphabetical order containing the
punishment for violation of law or contributions from persons and
names of several kinds of merchandise with the corresponding duties to for acts deemed injurious property levied by the State by
be paid for the same; or virtue of its sovereignty for the
2. The duties payable on goods imported or exported; or support of the government and all
3. The system or principle of imposing duties on the importation or public needs
exportation of goods. designed to regulate conduct Designed to generate revenue
may be imposed by the Imposed only by the government
government or by private
individuals or entities
Licensure or regulatory fee tax
legal compensation or reward of enforced contribution from
an officer for specific services persons or property by the law- Pay debt Pay tax
making body generally based on contract, Based on laws
imposed for regulation levied for revenue express or implied
assignable Cannot generally be assigned
involves the exercise of police taxing power may be paid in kind Generally paid in money
power may be the subject of set off or Cannot be the subject
Amount should be limited to the No limit compensation
necessary expenses of inspection Person can be imprisoned A person cannot be imprisoned
and regulation for non-payment, except toll tax
imposed only on the right to imposed also on persons and governed by the ordinary periods governed by the special
exercise a privilege property of prescription prescriptive periods provided for
If failure to pay, makes the act or does not necessarily make the in the NIRC
business illegal act or business illegal. draws interest when it is so does not draw interest except

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stipulated or where there is only when delinquent himself or herself at the expense of another, falling finally
default upon the ultimate purchaser or consumer. A tax which the
Survey of Philippine Taxes taxpayer can shift to another
A.Internal revenue taxes • As to scope of the tax
1. Income tax
2. Transfer taxes National tax
a.Estate Tax
b. Donor’s Tax -is imposed by the national government.
3. Percentage taxes
Local tax
a. Value Added Tax
b. Other Percentage Taxes -is imposed by municipal corporations or local
4. Excise taxes government units (LGUs).
5. Documentary stamp tax
B. Local/Municipal Taxes • As to the determination of amount
C. Tariff and Customs Duties
Specific tax
D. Taxes/Tax incentives under special laws
-is a tax of a fixed amount imposed by the head or number
Classification of Taxes or by some other standard of weight or measurement. It
requires no assessment other than the listing or
• As to subject matter or object classification of the objects to be taxed.
Personal, poll or capitation tax Ad valorem tax
Tax of a fixed amount imposed on persons residing within
a specified territory, whether citizens or not, without -is a tax of a fixed proportion of the value of the property
regard to their property or the occupation or business in with respect to which the tax is assessed. It requires the
which they may be engaged, i.e. community tax. intervention of assessors or appraisers to estimate the
value of such property before the amount due from each
Property tax taxpayer can be determined.
Tax imposed on property, real or personal, in proportion • As to gradation or rate
to its value or in accordance with some other reasonable
method of apportionment. 1.Proportional tax

Excise tax - Tax based on a fixed percentage of the amount of the

property receipts or other basis to be taxed.
A charge imposed upon the performance of an act, the
enjoyment of a privilege, or the engaging in an occupation. Example: real estate tax.

• As to purpose 2. Progressive or graduated tax

General/fiscal/revenue tax - Tax the rate of which increases as the tax base or bracket
increases.
-is that imposed for the purpose of raising public funds for
the service of the government. Example: income tax. Digressive tax rate: progressive rate
stops at a certain point. Progression halts at a particular
Special/regulatory tax stage.
-A special or regulatory tax is imposed primarily for the 3. Regressive tax
regulation of useful or non-useful occupation or enterprises
and secondarily only for the purpose of raising public -Tax the rate of which decreases as the tax base or
funds. bracket increases. There is no such tax in the Philippines.

• As to who bears the burden Tax Systems

Direct tax Constitutional mandate

-A direct tax is demanded from the person who also · The rule of taxation shall be uniform and equitable. The
shoulders the burden of the tax. It is a tax which the Congress shall evolve a progressive system of taxation. [Section
taxpayer is directly or primarily liable and which he or she 28(1), Article VI, Constitution
cannot shift to another.
Three basic principles of a sound tax system
Indirect tax
1. Fiscal adequacy
-An indirect tax is demanded from a person in the It means that the sources of revenue should be sufficient
expectation and intention that he or she shall indemnify to meet the demands of public expenditures. [Chavez v.
Ongpin, 186 SCRA 331]
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2. Equality or theoretical justice 5. Philippine Amusement and Gaming Corporation

It means that the tax burden should be proportionate to
the taxpayer’s ability to pay. This is the so-called “ability (PAGCOR)
to pay principle.” Prohibition against appropriation of proceeds of taxation
3. Administrative feasibility for the use, benefit, or support of any church
It means that tax laws should be capable of convenient,
just and effective administration • Section 29, Article VI, Constitution
1.No money shall be paid out of the Treasury except in
Power to tax is exclusively legislative in nature pursuance of an appropriation made by law.
The power to tax is peculiarly and exclusively legislative
2. No public money or property shall be appropriated,
and cannot be exercised by the executive or judicial branches of
the government. Hence, only Congress can impose taxes. applied, paid, or employed directly or indirectly, for the use,
benefit, or support of any church, denomination, sectarian
Matters within the competence of the legislature institution or system of religion, or of any priest, preacher,
1.The subject or object to be taxed. minister or other religious teacher, or dignitary as such
2. The purpose of the tax so long as it is a public purpose except when such priest, preacher, minister or dignitary is
3. The amount or rate of the tax. assigned to the armed forces, or to any penal institution, or
4. The manner, means, and agencies of collection of the tax. government orphanage or leprosarium.

3. All money collected on any tax levied for a special

Inherent Limitations
purpose shall be treated as a special fund and paid out for
1.Purpose must be public in nature such purpose only. If the purpose for which a special fund
2. Prohibition against delegation of the taxing power was created has been fulfilled or abandoned, the balance, if
3. Exemption of government entities, agencies and any, shall be transferred to the general funds of the
instrumentalities government.
4. International comity Prohibition against taxation of real property actually, directly and
5. Limitation of territorial jurisdiction exclusively used for religious, charitable and educational
Public purpose in taxation purposes
This is one of the inherent limitations of the power to
 Charitable institutions, churches and parsonages or
tax and is synonymous to “governmental purpose.” A tax must
convents appurtenant thereto, mosques, non-profit
always be imposed for a public purpose, otherwise, it will be cemeteries, and all lands, buildings, and improvements,
declared as invalid. actually, directly, and exclusively used for religious,
The term “public purpose” has no fixed connotation. charitable, or educational purposes shall be exempt
The essential point is that the purpose of the tax affects the from taxation. [Section 28 (3) , Article VI, Constitution]
inhabitants as a community and not merely as inhabitants.  This is an exemption from real property tax only.
 The exemption in favor of property used exclusively for
charitable or educational purposes is not limited to
It has been said that the best test of rightful taxation is property actually indispensable therefore, but extends to
that the proceeds of the tax must be used: facilities which are incidental to and reasonably
a) for the support of the government; or necessary for the accomplishment of said purposes.
b) some of the recognized objects of government; or [Abra Valley College v. Aquino, 162 SCRA 106]
c) to promote the welfare of the community.
Prohibition against taxation of the revenues and assets
of non-stock, non-profit educational institutions
Reasons for exempting governmental entities  All revenues and assets of non-stock, non-profit
• Government will be taxing itself to raise money for itself. educational institutions used actually, directly, and
• Immunity is necessary in order that governmental exclusively for educational purposes shall be exempt
functions will not be impeded. from taxes and duties. Upon the dissolution or cessation
of the corporate existence of such institutions, their
What government entities are exempt from income tax? assets shall be disposed of in the manner provided by
law. [Section 4, Article XIV, Constitution]
1.Government Service Insurance System (GSIS)  This exemption from corporate income tax is embodied
2. Social Security System (SSS) in Section 30 of the NIRC which includes a non-stock,
3. Philippine Health Insurance Corporation (PHIC) non-profit educational institution.
4. Philippine Charity Sweepstakes Office (PCSO)

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Note: however the last paragraph of Section 30 which

states: “Notwithstanding the provisions in the preceding
paragraphs, the income of whatever kind and character of
the foregoing organizations from any of their property, real
or personal, or from any of their activities conducted for
profit, regardless of the disposition made of such income,
shall be subject to tax imposed under this Code.”

Taxation of proprietary educational institutions

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
investment. [Section 4 (3), Article XIV, Constitution]

Under Section 27(B) of the NIRC, proprietary

educational institutions and hospitals which are non-profit
shall pay a tax of ten percent (10%) on their taxable
income except for passive incomes which are subject to
different tax rates.
Situs in Taxation
-means place of taxation. It is the State or political unit
which has jurisdiction to impose a particular tax.

The determination of the situs of taxation depends on

various factors including the:
1.Nature of the tax;
2. Subject matter thereof (i.e. person, property, act or activity;
3. Possible protection and benefit that may accrue both to the
government and the taxpayer;
4. Residence or citizenship of the taxpayer; and
5. Source of the income.

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