1ho General Principles

Saint Ferdinand College
College of Business Education

Taxation
GENERAL PRINCIPLES OF TAXATION
What is taxation?
 As a state power
- Taxation is an inherent power of the state to enforce a proportional contribution from its subjects for
public purpose.
 As a process
- Taxation is a process of levying taxes by the legislature of the State to enforce proportional contributions
from its subject for public purpose,
 As a mode of cost distribution
- Taxation is a mode by which the state allocates its costs or burden to its subjects who are benefited by its
spending.
Three Inherent Powers of the State

1. Taxation Power is the power of the state to enforce proportional contribution from its subjects to sustain itself.
2. Police Power is the general power of the State to enact laws to protect the well-being of the people.
3. Eminent Domain is the power of the State to take private property for public use after paying just
compensation.
Comparison of the three powers of the State

Point of Difference Taxation Police Power Eminent Domain
Purpose To raise revenues for the To promote the general To facilitate the state’s,
expenses of the State. welfare through need for property for
regulations. public use.
Amount of Exaction No limit Limited to the cost of No exaction but private
regulation, issuance of the property is taken for
license and/or public use.
surveillance.
Benefits Received No special or direct No direct benefit is A direct benefit result in
benefit is received by an received by an individual. the form of just
individual taxpayer. The A healthy economic compensation to the
public receives the standard of society is property owner.
general benefit of attained.
protection of person,
property and the
promotion of general
welfare.
Non-impairment of Contracts Obligations in contracts Obligations and contracts Obligations and contracts
may not be impaired may be impaired by the may be impaired by the
except for tax exemptions government. government.
bilaterally agreed upon.
Transfer of Property Rights Taxes paid becomes part No transfer, but only Transfer is effected in
of public funds. restraint in the exercise of favor of the state.
property rights.
Scope All persons, property, All persons, property, Only upon a specific
rights and privileges rights, privileges and property.
liberty.
Authority which exercises Exercised by the Exercised by the May be exercised by
the power government or its government or its political public service
political subdivisions subdivisions corporations or private
entities operating public
utilities if granted by law
The Theory of Taxation – the government’s necessity for funding.
The Basis of Taxation – the mutuality of support between the government and its people.
The Lifeblood Doctrine – taxes are the lifeblood of the government. Without taxes, the government will be paralyzed
for lack of motive power to operate.
Stages or Coverage of Taxation
Taxation covers three (3) separate aspects of government activity, namely:
1. Levying or imposition. This process involves the enactment of a tax law by congress and is called impact of
taxation. It is also referred to as the legislative act in taxation.
 As mandated by the constitution, tax bills must originate from the House of Representatives.
2. Assessment and Collection.
Assessment. The process of determining the correct amount of tax due.

Collection and payment. The act of compliance with the tax law by the taxpayer.
 Assessment and collection are executive or administrative in nature. Done by the Bureau of Internal
Revenue
Scope of the Taxation Power

Comprehensive, Plenary, Unlimited, Supreme
Limitations of the Taxation Power

A. Inherent Limitations (TIPEN-DD)
Territoriality
International Comity
Public Purpose
Exemption of the government
Non-Delegation of the taxing power
Double Taxation
B. Constitutional Limitations
1. Due process of law
2. Equal protection of the law
3. Uniformity rule in taxation
4. Progressive system of taxation
5. Non-imprisonment for non-payment of debt or poll tax
6. Non-impairment of obligation and contract
7. Free worship rule
8. Exemption of religious or charitable entities, non-profit cemeteries, churches and mosque from property
taxes
9. Non-appropriation of public funds or property for the benefit of any church, sect or system of religion.
10. Exemption from taxes of the revenues and assets of non-profit, non-stock educational institutions.
11. Concurrence of a majority of all members of the Congress for the passage of a law granting tax exemption
12. Non-diversification of tax collections
13. Non-delegation of the power of taxation
14. Non-impairment of the jurisdiction of the Supreme Court to review tax cases
15. The requirement that appropriations, revenue or tariff bills should originate exclusively in the House of
representatives
16. The delegation of taxing power to local government units
Double Taxation
- Occurs when the same taxpayer is taxed twice by the same tax jurisdiction for the same thing.
Elements of Double Taxation

1. Same object
2. Same type of Tax
3. Same purpose of Tax
4. Same Taxing Jurisdiction
5. Same Tax Period
A. Direct Double Taxation. This occurs when all the element of double taxation exists for both impositions.
B. Indirect Double Taxation. This occurs when at least one of the secondary elements of double taxation is not
common for both impositions.
Escapes From Taxation
1. Tax Evasion
2. Tax Avoidance
3. Tax Exemption
4. Shifting
5. Capitalization
6. Transformation
Tax Amnesty vs Tax Condonation
Tax Amnesty
 Absolute forgiveness or waiver by the government on its right to collect and is retrospective in
application
 Covers both civil and criminal liabilities
 Conditional upon the taxpayer paying the government a portion of the tax
Tax Condonation (also called tax remission)

 Forgiveness of the tax obligation of a certain taxpayer under certain justifiable grounds.
 Covers only civil liabilities
 Requires no payment
Taxation Law
- Refers to any law that arises from the exercise of the taxation power of the State.\
Types of taxation Law

1. Tax Laws. These are laws that provide for the assessment and collection of taxes
2. Tax Exemption Laws. These are laws that grant certain immunity from taxation.
Sources of Taxation Law

1. Constitution Law
2. Statutes and Presidential Decrees
3. Judicial Decisions or case laws
4. Executive Orders and Batas Pambansa
5. Local Ordinances
6. Tax Treaties and Conventions with Foreign Countries
7. Administrative Issuances - bir
a. Revenue Regulations
b. Revenue Memorandum Orders
c. Revenue Memorandum Rulings
d. Revenue Memorandum Circulars
e. Revenue Bulletins
f. BIR Rulings
Tax
- Is an enforced proportional contribution levied by the lawmaking body of the state to raise revenue for
public purpose
Elements of a Valid Tax (LM-CUPP)

1. Levied by the taxing power having jurisdiction over the object of taxation
2. Generally payable in money
3. Must not violate constitutional and inherent limitations
4. Tax must be for uniform and equitable
5. Tax must be for public purpose
6. Tax must be proportional in character
Classification of Taxes
A. As to purpose
1. Fiscal or Revenue Tax – a tax imposed for the general purpose
2. Regulatory – a tax imposed to regulate business, conduct, acts or transactions
3. Sumptuary – a tax levied to achieve some social or economic objectives
B. As to subject matter
1. Personal, Poll or Capitation – a tax on persons who are residents of a particular territory
2. Property Tax – a tax on real or personal properties
3. Excise or privilege tax – a tax imposed upon the performance of an act, enjoyment of a privilege or
engagement in an occupation
C. As to incidence
1. Direct Tax – When both the impact and incidence of taxation falls upon the same person
2. Indirect Tax – when the tax is paid by any person other than the one who is intended to do so.
D. As to amount
1. Specific tax – a tax of a fixed amount imposed on a per unit basis such as per kilo, liter or meter, etc.
2. Ad valorem – a tax of fixed proportion imposed upon the value of the tax object
E. As to rate
1. Proportional Tax – flat or fixed rate tax
2. Progressive or graduated tax – this is a tax which imposes increasing rates as the tax base increases
3. Regressive tax – this tax imposes decreasing tax rates as the tax base increases.
4. Mixed tax – this tax manifest tax rates which is a combination of any of the above types of tax.
F. As to imposing authority
1. National Tax
2. Local Tax
Tax System
 Refers to the methods or schemes of imposing, assessing and collecting taxes.
Types of tax systems according to imposition

1. Progressive
2. Proportional
3. Regressive
Types of tax system according to impact

1. Progressive system – emphasizes direct taxes
2. Regressive system – emphasizes indirect taxes
Principles of a sound tax system

1. Fiscal Adequacy
2. Theoretical Justice
3. Administrative Feasibility
Tax Administration
 Refers to the management of the tax system. Tax administration of the national tax in the Philippines is
entrusted to the Bureau of Internal Revenue which is under the supervision of the Department of Finance
Agents and deputies for collection of the National Internal Revenue Taxes
1. Commissioner of Customs and his subordinates with respect to the collection of national revenue taxes on
imported goods
2. The head of appropriate government offices and his subordinates with respect to the collection of energy
tax
Authorized Government Depositary Banks

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Saint Ferdinand College

College of Business Education

GENERAL PRINCIPLES OF TAXATION

Three Inherent Powers of the State

Comparison of the three powers of the State

Stages or Coverage of Taxation

Taxation covers three (3) separate aspects of government activity, namely:

2. Assessment and Collection.

Assessment. The process of determining the correct amount of tax due.

Scope of the Taxation Power

Limitations of the Taxation Power

Elements of Double Taxation

Escapes From Taxation

Tax Amnesty vs Tax Condonation

Tax Condonation (also called tax remission)

Types of taxation Law

Sources of Taxation Law

Elements of a Valid Tax (LM-CUPP)

Types of tax systems according to imposition

Types of tax system according to impact

Principles of a sound tax system

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