A REVIEW OF THE GENERAL PRINCIPLES OF TAXATION By: Atty. Rommel Mirasol A. Three Inherent Powers of the State 1.

Police Power (Salus Populi Est Suprema Lex) ² power of the state to enact rules and regulations for the general welfare of the people; 2. Eminent Domain ² power of the state to take private property for public use, upon payment of just compensation 3. Taxation - is the process or means by which the sovereign, through its lawmaking body, raises income to defray the necessary expenses of the government. B. Two-fold Nature of Taxation 1. Inherent in character ² it means that it co-exists with the State. - if there is a state, it is understood that the State ,thru its government has the power to tax its citizens - it dusnt need a law. 2. Legislative in Character ² the power to tax is EXCLUSIVELY lodged in the Congress. - what are the three branches of the govt? What are its functions? - example , law saying that wearing a BLUE shirt is illegal. Congress makes the law, administrative dept, enforces the law, judiciary settles conflict whether the law means Dark Blue, or Light Blue. C. Doctrines or Theories about the Importance of Taxation 1. Lifeblood Theory - Taxes are the lifeblood of the government and their prompt and certain availability are an imperious need. A government cannot continue to exist and operate without financial means. This inherent power gives the government the right to tax citizens and properties within its jurisdiction. Taxation is likened to a human body·s blood. With out blood, we cannot survive. In the same way, the state, the country cannot survive without taxes 2. Necessity Theory - Taxation is a power predicated upon necessity. It is a necessary burden to preserve the State·s Sovereignty. Ex. a. Navy to defend the state·s shores from invasion; b. Public improvement for the enjoyment of its citizens and those who are within its territory; c. Army to resist aggression.

How can taxes protect local industries from foreign competition? . Encourage local industry for economic progress. . taxation is also used for purposes other than money. So. This theory should dispel or eradicate the notion that taxes are nothing but arbitrary methods of exacting money from the people. Benefits-protection Theory .high tariff rates on imported products . Higher income tax base. one objective of taxation is of course raising money to defray the expenses of the government.our local industries and products are protected b.taxes aim to reduce this. despite of the natural reluctance of a person to surrender part of their hard-earned income to the government. .. Taxation is viewed as a give and take system between the people and the government.Taxes are what we pay for civilized society. profit or income. Reduce Social Inequality by the equitable distribution of property. higher income tax rate. Revenue Objectives You are all familiar with the term revenue right? Revenue means raising money. gambling businesses c. Non Revenue Objectives (PIER) Aside from raising money for govt expenses. lower. In turn. night clubs. Without taxes. Inequality is ever present. 2. Implementation of the Police Power of the State. We give taxes. the government would be paralyzed for the lack of the motivation to activate and operate it. the govt takes them. every person who is able to must contribute his share in the running of the government.rmember Police Power? The power to enact laws that regulate private rights? -clue. Lower. the govt gives us protection thru its projects and services D. The government for its part is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material value. Protection of Local Industries. Objectives of Taxation 1. By granting tax exemptions to local industries d.3. Hence. How? a.

Inherent Limitations (PINET) They are inherent because it automatically attaches with the power of taxation. If the revenue raised thru taxation duz not meet the expenses. It sounds like a title of a john grisham novel or a movie. then there is no use for taxes at all.by the government..Feasible.. c. 3. So from cradle to the grave. By the term feasible. They do not need a law for their existence. That is why. . a. 2.. This is simple and practical.. Aspects of Taxation 1. collection. d. By Congress 2. Public Purpose. b. Administrative Feasibility ² tax laws must be clear and concise. Otherwise. taxation is a very intrusive and comprehensive power of the government. it is important that there should be limitations on the power of taxation. by administrative dept. G.to administer.. Through BIR We discussed the three branches earlier. Theoretical Justice ² tax imposed must be based on the taxpayer·s ability to pay. taxation affects our lives. The most dramatic sounding principle of taxation. What does this mean. Agencies and instrumentalities from taxation. capable of proper and effective enforcement and not burdensome. Collection of the Tax levied ² Administrative.. what do u understand by the phrase Administrative feasibility. Limitations on the Power to Tax 1.. It is comprehensive because.E. it may be abused by those who are in power. it affects us from the moment we are born until we die and even beyond that. by the congress. International Comity. Making of tax laws. Levying of the Tax ² Legislative. Non Delegation of Taxing Power Exemption of govt. Basic Principles of a Sound Tax System (FAT) 1. If there is taxation. Now. there are these limitations. F. Fiscal Adequacy ² revenue raised must be sufficient to meet government expenditures.

value added tax. Direct ² Tax demanded from persons who are intended or bound by law to pay the tax. 1. Basically it follows the same principle as the religious entities. Personal. b. Real Estate Tax c. Value-added tax.because in VAT. Territoriality. donor·s tax. the seller in turn pushes this burden to . Classification of Taxes So what are the kinds of taxes? How are they classified? It is important for us to be familiar with the classification because it affects the rates of taxes. Indirect tax ² tax which the tax payer can shift to another. these limitations. Constitutional Limitations ² Limitations provided for by the different provisions of the Constitution.e. Community tax. As the name implies. exist because they are provided for by the Constitution. Income tax. the enjoyment of a privilege or engaging in an occupation. Property tax ² tax imposed on property whether real or personal Ex.churches. estate tax. im just gonna discuss a few important ones. As to subject matter a. and other duly recognized religious organizations are exempt from paying taxes in so far as their income from religion related activities are concerned. Ex. income tax. then they may be taxed Take for example the Gideon Case Another example would be the exemption of Educational Institutions from taxation. But. sects. 2. the person to be taxed is actually the seller. Excise tax ² tax imposed on the performance of an act. Why is VAT called an Indirect tax? . their manner of collection and as to who has the authority to collect these taxes. 2. But if they engage in businesses that are proprietary. Ex. There are a lot actually. customs duties. and no longer connected with the spreading of the ´good wordµ. The tax is imposed on the activity of SELLING. H. Exemption of Religious Entities from taxation . Community tax b. As to who bears the burden a. poll or capitation ² tax of a fixed amount imposed on individuals Ex. Ex.

needs an independent appraiser to determine its value. Ad Valorem ² Tax of a fixed proportion of the value of property. Gasoline Tax. General. Regressive ² tax rate decreases as the tax base increases. b. b. etc. real estate taxes b. Internal revenue taxes. etc. Ex. 3. Ex. cigars. c. As to graduation or rate a. tariff and customs duties. Proportional ² tax based on a fixed percentage of the amount of property income or other basis to be taxed. Income tax. fireworks. Ex. Special or Regulatory ² Tax imposed for a special purpose regardless of whether revenue is raised or not. National tax ² tax imposed by the national government. weight. Real Estate Tax. Specific ² Tax imposed based on a physical unit of measurement. donor·s tax. estate tax. or length or volume. Municipal or local ² tax imposed by the national governments for specific needs. Ex. Progressive or graduated ² tax rate increases as the tax base increases. b.the buyers by making it a part of the cost of the goods or services purchased by the consumer or customers. As to authority imposing the tax or scope a. As to Purpose a. As to determination of amount a. fiscal or revenue ² tax with no particular purpose or object for which revenue is raised. Percentage taxes. value added tax. Protective tariffs or customs duties on certain imported goods to protect local industries against foreign competition. Ex. and is intended to achieve some social or economic end. Tax on wines. but is simply raised for whatever need may arise. Ex. 4. Ex. as by head or number. municipal licenses 6. . Real estate taxes. Income tax. 5. Ex.

or ur cellphones or laptops to pay ur taxes? . and 6. . It is only fitting that it should be enacted by the very people who we elected to represent us in the government. it is the legislative department or the congress who enacts tax laws. other wise. It is levied by the law making body (legislative department). Meaning it depends on the tax payer·s ability to pay. Essential Characteristics of a Tax 1. Why are taxes an enforced contribution? Its because there is law which mandates or tells us that we must pay taxes. there are corresponding penalties for its non payment. when its time to file ur income tax returns but u don·t have cash to pay the BIR. I. The situs of taxation is determined by a number of factors: This is in accordance with the principle of Territoriality of Taxation.Ex. Imagine if taxes could be paid in kind? It would be utter chaos.namely the congressmen. Value-added tax. Situs of taxation this refers to the place of taxation. It is imposed for the purposes of raising revenues. Why is it that taxes are payable in money? Why not in kind? Like. 3. 2.. Why is this? It is because taxation is grant by the people who allow themselves to be taxed. As we have discussed last meeting. Rmember theoretical justice? 4. our tax system must be one that is practicable and easy to administer.it means that. J. It is proportionate in character. It is generally payable in money.the answer is Administrative feasibility. The rule is that the State may rightfully levy and collect the tax where the subject being taxed has a situs under its jurisdiction.. 5. It is an enforced contribution. Who can rmember what that means? . why cant u insist that ull use ur chickens. Question. It is to be used for public purpose.

it is a personal tax as we have discussed. an import duty or a real property tax.. and 4. or place where the income was earned. If a land property is located in dgte. It may be an income tax. Citizenship of a tax payer. Gratuitous transfer of property ² taxpayer·s residence or citizenship.not any other city or municipality. The rule is that the place that can tax these is the place where the owners of these properties reside. 2. 5.1. occupation being practiced and transaction completed. 6. Examples are trademarks. Nature of the tax ² or which tax to impose. So the rule is that only the municipality or the city in which the person resides can tax him with the community tax 2. feel them but they are capable of ownership. patents. 4. situs is the domicile of the owner unless he has acquired a situs elsewhere. 3. Real property or tangible personal property ² location of the property Example for this is ur real estate tax. or location of the property. Intangible personal property ² as a rule. Subject matter ² or what is being taxed. touch them. 3. Business. an act or activity. Persons ² residence of a tax payer Take for example the community tax. He may be a person or it may be a property. copywrights. occupation and transaction ² place where business is being operated. Residence of the tax payer. Indome ² taxpayer·s residence or citizenship. then only the city of dgte may tax it. These are intangible properties.meaning u cannot see them. .. Rules on the situs of taxation 1.

5. Decisions of the Supreme Court and the Court of Tax Appeals.. Since u are compared to the SC. There·s this joke that goes around the legal community. The exeption to the general rule stated above is with regards to tax exemptions.. As i have mentioned during our last meeting. Tax Laws Sources of tax laws 1. city. interpretation of tax laws is in favour of the taxpayer so as to avoid any abuses on the part of the government. You can no longer appeal. and 7. think again. one of which is ´ur so beautiful.µ girls. Which means that if u have a case. However.. From the day a person is born. your face is like the supreme courtµ it may sound really flattering. till the day he dies and even beyond that. and it reaches the supreme court. what he myt be saying is that. municipal and barangay ordinances subject to limitations set forth in the Local Government Code. Interpretation and Construction of Tax Statutes The recognized rules in interpretations of other laws also apply to tax laws. and you can no longer appeal from it. Rulings issued by the Commissioner of Internal Revenue and Opinions by the Secretary of Justice.. u myt think na ´this guy really thinks im beautiful coz im compared to the highest court in the country. Constitution.it becomes final. 4.K. rmember.and uses pick up lines. taxation is ever present. From cradle to the grave. Treaties or international agreements the purpose of which is to avoid or minimize double taxation. Girls. ´ur face no longer has an appealµ 6. Tax exemptions are highly disfavored by law and are not to be presumed nor implied but must be clearly expressed. Taxation is a very intrusive power of the state. Revenue Regulations by the Department of Finance. 2. 3. A tax exemption must be .or a law student hits on you.. Decisions of the Supreme Court become law. if a lawyer. Provincial. As in other laws. Statutes and Presidential Decrees. the intention of the law makers is the primary concern... Because of the comprehensiveness of this power. the doubt must be resolved in favour of the tax payers and against the taxing authority (government). if there is a doubt as to in determining the law makers· intentions. and the court decides on it.

3. and pays the tax due upon filing. The taxpayer calculates the tax by himself or through an accountant. and fines. penalties. Execution of judgments in all cases decided in its favour by the CTA and ordinary courts. A revenue law is said to be national revenue law when it is applicable all over the country. through impartial and consistent enforcement of internal revenue laws. take testimony of persons. 3.strictly interpreted against the tax payer and in favor of the government and a grantee claiming exemption must clearly prove his right to such exemption in pursuance to law. Interpret tax laws and decide tax cases. Make assessments and prescribe additional requirement for tax administration and enforcement. Enforcement of all forfeitures. for and at the least cost to the government. Powers and Duties of the BIR y Composed of the Commissioner and 7 Deputy Commissioners Duties of Commissioner: 1. Duties of the Deputy Commissioners 1. The Bureau of Internal Revenue y y A bureau of the Department of Finance (Administrative) Mission is to collect taxes efficiently and effectively. Tax Collection System y y RA 8424 (Tax Reform Act of 1997) retained the ´self-assessment systemµ of the old law. 2. 2. Assessment and collection of all national internal revenue taxes. examine. files it with the proper tax office. fills up his tax return. Obtain information and to summon. and . Internal Revenue Laws Revenue law is a law passed for the purpose of authorizing the levy and collection of taxes in some form to raise revenue. fees and charges.

µquitsµ Example.. 4. this year. But if the intent of the law makers is to apply it retroactively. A person cannot refuse to pay a tax because the government owes him an amount equal to or greater than the tax being collected. Same property is taxed twice The purpose for the tax is the same Imposed by the same taxing authority Imposed within the same place or jurisdiction Imposed during the same taxing period Same kind or character of tax Set Off of Taxes Taxes are not subject to set off or legal compensation. 2.. L. and she owes u the same amount. 3. u can set off ur overpayments against the taxes u owe. There is direct double taxation when the following occurs: 1. Remember lifeblood theory?it tells that there is a need for the prompt and early collection of taxes. Prospectivity simply means. u owe her a dept of say 100. taxes dus not work in the same way. Why? Because taxes are not ordinary contractual obligations unlike a simple debt. Administration of supervisory and police powers conferred to it. it has to effect tomorrow and in the years to come.and not to affect the past. Now.4. However. . u have this thing called ´set offµ or to put in more simpler terms. u both can say that since u owe each other the same amount. if it is direct double taxation. Now. In law. if a tax law is enacted to day.. 5. it invalidates the law. such law must clearly state that the intention is such. 6. U cannot say that because last year u over paid ur taxes. This is not allowed. Double Taxation Double taxation per se is not forbidden if it is only indirect double taxation. u can set off ur debts and it will have the effect of releasing you from ur contractual obligation towards each other. Miscellaneous Doctrines Regarding Taxation Prospectivity of Tax Laws Taxes must be imposed prospectively and not retroactively. Taxes are obligations that are provided for by law it self.

which is a sad reality prevailing today is the under valuation of properties sold. . Occurs when the taxpayer resorts to unlawful means to lessen or to get away from his tax liability.. How does this happen? Say for example . and it is the obligation of every Filipino citizen to pay taxes. There·s the legal way out. Escape from Taxation Tax avoidance ² this is legal and allowed.. One example of this. Tax Evasion ² illegal and prohibited. and there is the illegal way out.. This happens when a tax payer minimizes his tax liabilities by taking advantage of legally available tax planning opportunities. is there a way out of it? Is there any escape from taxation? There is.If taxation is that important. U get to ask. Otherwise known as tax minimization.

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