Taxation Notes

General Principles of Taxation
Taxation
- the power of the state to demand proportionate contribution from persons and
property in order to promote public welfare to defray the expenses of the
government
- Is a process or means by which the government, through its law making body,
imposes burdens upon subjects and objects within its jurisdiction for the
purposes of raising revenues to carry out the legitimate objective of government.
It is an inherent power of the state to enforce a proportional contribution from its
subject for public use.
Subject of Tax
1. Person – tax on persons who are residents of a particular territory
2. Property – tax on properties, real or personal
3. Privilege – tax imposed upon the performance of an act, enjoyment, of a privilege
or engagement in an occupation.
Purposes of Taxation
1. Primary – to raise revenue and funds to defeat the necessary expenses of the
government
2. Secondary – to regulate, to promote general welfare, to reduce social inequality,
and to promote economic growth.
The inherent powers of the state
- They exist independent of the constitution being fundamental power of the state
1. Police Power – it is the power to enact laws to promote the general welfare of the
people
2. Eminent domain – it is the power to take property for public use upon payment of
just compensation
3. Power of tax – it is the power to take property (generally money) for the support
of the government and for public purpose.
Police Power Eminent Domain Taxation
it is the power to
it is the power to take property
it is the power to enact laws take property for (generally money)
DEFINITION to promote the general public use upon for the support of
welfare of the people payment of just the government
compensation and for public
purpose.
Regulates liberty and Regulates property Regulate property
SCOPE
property rights rights
PURPOSE Promotion of general For public use To support the
welfare government.
PERSONS Community or class of Only the owner of Community or class
AFFECTED individual private property of individual
Exercised by
Exercised only by government and Exercised only by
AUTHORITY
government public utility the government
company
Compensation is
Compensation is intangible,
Compensation is the protection and
BENEFITS altruistic feeling that
the fair value of the public improvement
RECEIVED individual has contributed to
property taken instituted by the
public
government
Sufficient to cover the cost
AMOUNT of the license and
No imposition No limit
COLLECTED necessary expenses to
regulation
Basic Principle of Sound Tax System

1. Fiscal Adequacy – the sources of government revenue must be sufficient to meet
government expenditures and other public needs
2. Administrative Feasibility – tax law must be capable of convenient, just and
effective administrative – free from confusion and uncertainty
3. Theoretical justice – a good tax system must be based on the taxpayer’s ability to
pay. This suggest that taxation must be progressive conformably with the
constitutional mandate that congress shall be evolve a progressive system of
taxation.
Theories and Basis of Taxation
1. Lifeblood Theory – The power of taxation is essential because the government
can neither exist nor endure without taxation. The government cannot continue to
perform its basic functions of serving and protecting its people without means to
pay its expenses
2. Benefit-Protection theory – taxes are what we pay for a civilized society. The
government and people have a reciprocal and mutual duties of support and
protection to one another.
3. Ability to pay theory – this theory presupposes that those who have more should
be taxed more even if they benefit less from the government. Those who have
less shall contribute less even if they receive more of the benefit from the
government.
Stages or process of taxation (LAP)
1. Levy or Imposition – this process involves the passage of tax laws or ordinances
through the legislature
2. Assessment and collection – This process involves the act of administration and
implementation of tax laws by the executive through its administrative agencies
such as the Bureau of Internal Revenue or Bureau of Customs
3. Payment of Tax – This process involves the act of compliance by the tax payer in
contributing his share to pay the expenses of the government.
Major Characteristics of Tax
1. Inherent
2. Legislative in nature
3. Subject to inherit and Constitutional Limitation
Subject to inherit and Constitutional Limitation (TIPEN)
Inherent Limitation
1. Territoriality of Taxation – government can only demand tax obligations upon its
subject or resident within the territorial jurisdiction. There is no basis in taxing
foreign subjects abroad since they do not derive benefits from our government
2. International comity – this principles states that each country observes mutual
courtesy or reciprocity between them. Government do not tax income and
properties of other governments, Additionally, embassies or consular offices of
foreign government in the Philippines including international organizations and
their non-Filipino staff are not subject to income taxes or property taxes.
3. Public purposes – taxes are intended for the common good. Taxation must be
exercised absolutely for public purpose only. It cannot be use for public interest
4. Exemption of the government – the government does not tax itself as this will not
raise additional funds but will only impute additional cost. Agencies and
Government Owned and Controlled Corporation (GOCCs) performing propriety
functions are subject to tax.
5. Non-delegation of the Taxing Power – Taxing Power is vested exclusively in
Congress and is non-delegable pursuant to the doctrine of separation of the
branches of the government to ensure a system of check and balances.
Exemption to the rule of non-delegation

1) The congress may authorize the President to fix, within specified limits,
subject and restriction to impose
• Tariff rate
• Import and export quotas
• Tonnage and wharfage dues
• Other duties or imposts within the framework of the national
development program.
2) The power of the local government unit (LGU) to impose taxes and fees is
always subject to the limitations which congress may prove, the LGU have
no inherent power to tax
3) Delegation to administrative agencies certain aspects of the taxing
process that are not really legislative in nature such as
• Power to value property
• Power to assess and collect taxes
• Power to perform details of computation, appraisement, or adjustment,
among others
Constitutional Limitation
1. Due Process of Law – no one should be deprived of his life, or property without
due process of law. The law established procedures which must be adhered in
making assessments and in enforcing collections. Failure of the government to
observe their rules violates the requirement of due process.
2. Equal Protection of the Law – Taxpayers under similar circumstances and
conditions should be treated equally both in terms of rights conferred and
obligations imposed. (Different tax in same class)
3. Uniformity of Taxation – requires the uniform application and operation, without
discrimination, of the tax in every place where the subject of tax is fund (Different
tax in Different class)
4. Progressive System of Taxation – Tax rated increases as the tax base increase.
This is consistent with the taxpayer’s ability to pay and reduces social inequality.
5. Non imprisonment for Non-payment of Poll Tax – No one shall be imprisoned for
mere inability to pay debt. Non-payment of poll tax is only punishable by a
surcharge.
6. Free Worship Rule – Properties and revenue of religion institutions such as
offerings are not subject to tax. This exemption does not extend to income
properties or activities of religious institutions that are proprietary or commercial
in nature.
7. Exemption of Religion, Charitable or Education Entities, Non-profit Cemeteries,
Churches and Mosque from Property taxes – Constitutional exemptions from
property tax applies for properties actually directly, and exclusively used for
chartable, religious and educational.
8. Non Appropriation of Public Funds for the Benefit of any Church or System of
Religion – to support freedom of religion, the government should not favor any
particular system of religion by appropriating public funds or property in support
thereof.
9. Concurrence of a Majority of ALL Members of Congress to Pass Law Granting
Exemption
10. Tax Bills shall Originate Exclusively in the House of Representatives, but Senate
may Propose Amendments
11. Non-Diversification of Tax Collection – Tax should never be diversified or used
for private purpose – absolutely for public use
12. Non-Delegation of the Power of Taxation
13. Non-Impairment of the Supreme Court Jurisdiction – Congress cannot take away
from the Supreme Court the power given to it by the Constitution as the final
arbiter of tax cases
14. Each Level Government Unit Shall Exercise the Power to Create its Own
Sources of Revenue – this is a constitutional recognition of the local autonomy of
local government and an express delegation of the taxing power
15. Exemptions from Taxes of the Revenues and Assets of Non-Profit, Non-Stock
Educational Institutions
Power of Legislature
To determine the following
1. The subject or object to be taxed
2. The purpose of the tax as long as it is a public purpose
3. The amount or rate of the tax
4. Kind of tax
5. Apportionment of the tax
6. Situs of Taxation
7. The manner, means and agencies of collection of Tax

Taxation Notes

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Taxation Notes

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General Principles of Taxation

Basic Principle of Sound Tax System

Exemption to the rule of non-delegation

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