STATE POLICY ON TAXATION UNDER RA 8424 (PPCE) - PRINCIPLE OF NECESSITY – the existence of the government is a necessity

and it cannot continue without means to support itself.

- To PROMOTE sustainable economic growth through rationalization of
- BENEFIT RECEIVED THEORY - mutual and reciprocal duty of support and
Philippine internal tax system and tax administration
protection between the government and people.
- To PROVIDE as much as possible an equitable relief to a greater number of
- LIFEBLOOD DOCTRINE – taxes are the lifeblood of the government without it
taxpayers
can neither exist nor endure. Without money the government cannot deliver
- To CREATE a robust environment for business to enable them to compete
services to the people or function and serve the people.
better in regional and global market
- To ENSURE that government s able to provide the needs of the people within FUNDAMENTAL PRINCIPLES OF TAXATION
its territorial jurisdiction
- Each subject of every state ought to contribute to the support of the
POWER OF TAXATION government as nearly as possible in proportion to the revenue which they
respectively enjoy under its protection (Ability to pay principle)
- AS TO POWER – it refers to the inherent power of the state to demand
- The tax measure ought to be so construed as both to take out and keep out of
enforced contribution upon its subjects and objects within its territorial
the pockets of the people as little as possible over and above what it brings
jurisdiction for public purpose to support the government
into the public treasury (uniform and equitable)
- AS A PROCESS – it is the legislative of laying a tax to raise income for the
- The taxes which each person has to pay ought, as respect to the time and
government to defray its necessary expenses. It is the means whereby the
manner of payment and the sum to be paid, to be certain and not arbitrary
government distributes the burden of its cost among those who enjoy its
(just)
benefits.
- The tax measure ought to be levied at the time and in the manner in which it is
THE LEGAL BASIS OF THE POWER OF TAXATION (BSPPU) most likely to be convenient to the taxpayer who pays it (convenient)

- BENEFIT-RECEIVED THEORY (mutual and reciprocal duty of support and THEORY OF TAXATION
protection between the government and people)
- The power of taxation proceeds from the theory that the existence of
- The sovereign power of the state over its people and property
government is a NECESSITY and the grant of protection and benefits by the
- The presumption of receipts/enjoyment of benefits and protection by the
state to its citizens. Without funds the government cannot continue to pay its
people
expenses, support itself and deliver basic services to the people and because
- To protect new conditions by imposing special duties
of this it has a right to compel all its citizens residents and property within its
- To uplift social conditions by imposing regulatory taxes/licenses
limits to contribute.
THE UNDERLYING PRINCIPLES BEHIND THE POWER OF TAXATION
THE NATURE OR CHARACTERISTICS OR ATTRIBUTES OF THE POWER OF
TAXATION

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 - It is for public purpose - To avoid increasing the tax burden of the average taxpayers
- It is inherently legislative - To assess sectors of the economy not yet taxable bearing their proportionate
- It is subject to international comity or treaty share of the costs of the government
- It is an exaction payable in money - To place emphasis on progressive rather than retrogressive factors in the tax
- It is territorial system, with the ability to pay as the principal criterion
- It is not absolute because its exercise is subject to constitutional limitations - To avoid impairing appropriate business incentives
and inherent restrictions - To adopt measures that will assure effective and efficient tax collection
- To use the tax structure as a legislative instrument for achieving social and
WHEN DOES THE POWER OF TAXATION BEGIN
economic justice in the distribution of the fruits of our national economy
- It commences existence from the moment a state is born with the concurrence
IS THE POWER OF TAXATION ABSOLUTE
of the four elements.
- NO, it is not absolute because in the exercise of that power, the legislative
WHO EXERCISES THE POWER OF TAXATION
body is subject to the CONSTITUTIONAL, INHERENT and CONTRACTUAL
- Legislative body of the government limitations.
- Local government unit and barangay - Power of taxation is said to be SUPREME, PLENARY, UNLIMITED, and
- President COMPREHENSIVE.
- The state may at its discretion may:
DELEGATA POTESTAS NON POTEST DELEGARI - Determine the subject of taxation for general and particular purpose
HOW IS THE POWER OF TAXATION EXERCISED - Make appropriate changes in the selection or classifications of the properties
subject to or exempted from taxation
- Through the making of tax laws by the congress and tax ordinances by the - Determine the amount or rate of the tax to be imposed
local sanggunian and by the president, by making tax laws or tax ordinances. - Prescribe the amount or rate of the tax to be imposed
- Determine the time, and manner of means of collection
ORIGINATION RULE
- Prescribe the situs of taxation
- All appropriation, revenue or tariff bills shall originate exclusive from the house
OBJECTS OF TAXATION
of representatives because the members thereof are deemed more sensitive
to local needs of the people but the senate may adopt, amend, revise, modify - Business
and substitute the said bills - Interests
- Transactions
CITE SOME SPECIFIC POLICY GUIDELINES THAT LEGISLATORS SHOULD
- Rights
ADOPT IN THE ENACTMENT OF TAX LAWS
- Acts

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 - Persons inflation, tools on international bargains, promotes science and inventions, use
- Properties as an implement in the exercise of police power to promote general welfare
- Privileges
ELEMENTS OF THE TAX SYSTEM
COVERAGE OF THE LEGISLATIVE POWER OF THE GOVERNMENT TO TAX
- Tax structure
- The coverage, object, nature, extent and situs (CONES) - Tax administration
- The power to grant tax exemptions or condonation - Public tax consciousness
- The administrative or juridical remedies for the proper implementation of the
CHARACTERISTICS OF A SOUND TAX SYSTEM
tax measure
- Fiscal adequacy
ECOLOGY OF TAXATION
- Administrative feasibility
- This refers to the relation of taxation to the community, a study if the effects of - Theoretical justice
taxation upon the surrounding environment, on questions of support, survival
PHASES OR STAGES OF TAXATION
and sustenance and population
- Levy or imposition – it includes the selection of CONES, its purpose and
FLUXION OF TAXATION
prescribing the rules in taxation in general
- This refers to the flow, changes or evolution of taxation, causes and effects of - Assessment or collection
the development of its various aspects. - Payment of the tax

TAXATION AND ECONOMIC EFFICIENCY PRINCIPAL APPROACHES IN THE DISTRIBUTION OF TAX BURDEN

- Income effect – makes people economically efficient
- Substitution effect – makes people economically inefficient
PURPOSE OF TAXATION
- Primary – to raise or generate revenues and to mobilize resources
- Secondary or regulatory – to regulate the conduct of businesses or
professions, to achieve economic and social stability, to protect local industries
- Compensatory – reduces inequalities in wealth distribution, key instrument of
social control, strengthens anemic enterprises, provides incentives, check
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- Benefit approach – based on benefits received by the taxpayer
- Ability to pay approach – should be based relatively to the ability of taxpayers
to pay
POWER OF TAXATION SHOULD BE EXERCISED FOR A PUBLIC PURPOSE.
WHEN IS THERE A PUBLIC PURPOSE
- The purpose for which the tax is laid must not only directly benefit but also
indirect benefit or bring advantage to the people
- A tax measure is for a public purpose when
- It is designated to support the services of the government
- It is designated to realize governmental goals or objectives
 - It is designated to address public needs MAY THE POLICE POWER OF THE GOVERNMENT BE EXERCISED THROUGH
- It is for the purpose of responding to calamities or disasters and other TAXATION
emergencies
- Yes, because taxes may be levied for the promotion of the welfare of the
- It is designed to benefit the majority of the people, such as housing, education
public. It may be used to regulate businesses and profession.
and health programs, among others
- It enhances the social justice program of the government WHAT IS TAX
- The expenditure of public funds has a transcendental importance and far
reaching implication - It is an enforced proportionate contribution imposed upon persons, properties,
- It is for building of roads and bridges businesses, rights, interests, privileges, transactions and acts within the
- Promotion of science and technology territorial jurisdiction of the taxing authority exercised by the legislature for a
- Support to inventors and their inventions public purpose and generally payable in money.
- Development of the youth THE IMPORTANCE OF LIFEBLOOD DOCTRINE CAN BE MANIFESTED BY
WHO DETERMINES THE PUBLIC PURPOSENESS OF A TAX LAW - The prohibition against set-off of taxes
- The congress or the sanggunian of the LGU - Injunction rule against the tax collection
- Presumption of correctness of assessments
WHEN SHOULD THE PUBLIC PURPOSE OF THE TAX LAW EXIST
CANONS OF TAX
- It must exist at the time the tax proceeds are being used or at the time the tax
law is being enacted. - Proportionate to one’s ability to pay
- Certain and not arbitrary
DUTY TEST - Convenient to pay
- Economical to collect
- It is applied when there is a need to determine the public purpose of the tax
whether or not the appropriation or expenditure of public funds is related to the ELEMENTS OF A VALID TAX
duty of the state, as a government
- It must not violate the constitutional, inherent or contractual limitations of the
PROMOTION OF GENERAL WELFARE TEST taxation
- It must be uniform and equitable, not unjust, excessive, oppressive,
- It is used when there is a need to determine the public purpose in a tax
confiscatory or discriminatory
measure whether the law providing for it directly promotes the welfare of the
- It must be for a public purpose
community in equal measure
- The power imposing it must have jurisdiction over the object of taxation
- It must be proportionate in character

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 - Generally payable in money, at regular interval - Proportion or flat rate – 12% VAT
- Levied by the legislature that has jurisdiction over the object of taxation - Progressive tax – tax rate grows, tax base increases
- Regressive tax – tax rate, not proportional to tax base
WHAT ARE BASIC USES OF TAXES - Degressive tax – same
- It is necessary to preserve the state’s sovereignty - Mixed – progressive, then regressive
- It is indispensable for state’s survival and endurance
AS TO THE AUTHORITY IMPOSING THE TAX
- It is used for the payment of legitimate and necessary expenses of the
government - National tax
- It is needed to deliver the basic needs of the citizenry - Local tax
- It serves as a means to serve the people
WHY DISTINCTIONS ON IMPOSITION HAVE TO BE PROPERLY MADE
CLASSIFICATION OF TAXES
- Some limitations apply only to one and not to the other
AS TO PURPOSE - Exemptions from taxes does not include exemptions from license fees
- For purposes of municipal or local taxation, distinctions are important because
- Fiscal – income tax
the validity of a tax or license ordinance is determined by the nature of the
- Regulatory – business permit
imposition and authority of the municipal corporation enacting it.
AS TO SUBJECT MATTER
DISTINGUISH INDIRECT TAXES FROM WITHHOLDING TAXES
- Personal tax – cedula
- In indirect taxes the incidence of taxation falls on one person but the burden
- Property tax – annual real property tax
thereof can be shifted or passed on to another person.
- Excise tax – professional tax
- Withholding of taxes, the incidence and burden of taxation falls on the same
AS TO INCIDENCE entity, the statutory taxpayer.

- Direct tax – income tax DISTINCTIONS BETWEEN TAX AND REVENUE

- Indirect tax – VAT
TAX
AS TO AMOUNT
- Refers to the amount imposed
- Specific tax – tax on gasoline - It is one of the sources of government’s revenue
- Ad valorem tax – tax on automobiles
REVENUE
AS TO RATE
- Refers to the amount collected

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 - It is the product of taxation. it refers to all the funds derived by the government - Interest on tax delinquency is considered as interest on indebtedness
whether from tax or from other sources.
FEES AND CHARGES
TAX AND TARIFF
FEES – the inherent police power is used to support the collection of fees
- Tariff refers of a book of rates containing names of merchandises with
CHARGES – the principle of equity supports the collection of charges.
corresponding duties to be paid for the same
- Tariff refers to the duties payable on goods imported or exported DELINQUENT TAX AND DEFICIENCY TAX
- It is a system or principle of imposing duties on the importation or exportation
DELINQUENT TAX – the entire amount of the tax liability has not been paid
of goods
DEFICIENCY TAX – that remaining portion of the whole tax liability which remains still
TAX AND CUSTOMS DUTIES
unsettled
- Tax is a broader in terms.
LIMITATIONS ON THE POWER OF TAXATION
- Taxes are imposed on different subjects and objects, customs duties are
imposed on goods that are imported into or exported from our country. CONSTITUTIONAL LIMITATIONS
FACTORS THAT DETERMINE WHETHER AN IMPOSITION IS A TAX OR A LICENSE - Observance of due process of law
- The amount of the imposition WHEN THERE VIOLATION OF DUE PROCESS IN TAXATION
- The intent of the imposition
- The effect of the imposition - If the tax being imposed amounts to confiscation of property
- If the tax law is in violation of the inherent restrictions in the exercise of the
KINDS OF LICENSES power of taxation
- If the tax law is violative of the requisite of public purpose
- Those that are imposed to regulatory useful occupation
- If the subject or object of taxation is outside the territorial jurisdiction of the
- Those that are imposed to regulate non-useful or less desirable occupation
taxing authority
- Those that are imposed for revenue only
- If the taxpayer is not given an opportunity to be heard
WHEN A TAX IS CONSIDERED A DEBT - If the law is applied retroactively causing unjust, oppression, and confiscation
upon the property of the taxpayer
- When the tax is secured by a bond
- When its collection is being enforced by court action - Equal protection of law
- When the tax is the subject of a compromise agreement validly entered into - Uniformity of taxation
between the government and the taxpayer - Progressive scheme of taxation

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 - Non-imprisonment for non-payment of poll tax VERTICAL EQUITY AND HORIZONTAL EQUITY IN TAXATION
- Non-impairment of the obligation and contract rule
- Vertical equity – connotes a difference in the tax treatment between those who
- Free-worship clause
- Religious entities selling or distributing religious literature is subject to tax are financially well-off and those who have relatively less.
- Horizontal equity – implies that those who are similarly situated in life should
- Exemption of religious, charitable or educational entities, non-profit
be taxed similarly.
cemeteries, churches and mosque from property taxes.
- Exemption from taxes of the revenues and assets of non-profit, non-stock CLASSIFICATION STATUTE
educational institutions including grants, endowments, donations or
contributions for educational purposes - the power of the government to select the subjects of taxation and the
- Non-appropriation of public funds or property for the benefit of any church, apportionment of tax burden among them includes the power to make
sect or system of religion classifications.
- No money shall be paid out of the treasury except in pursuance of an REQUISITES
appropriation made by law
- Concurrence of a majority of all members of congress for the passage of law - The classification is based upon substantial distinction which makes the
granting tax exemption difference
- Non-diversification of tax collections - The classification is germane to the purpose of legislation or enactment
- Non-delegation of the power of taxation - It applies not only to the existing conditions but also to future instances
- Non-impairment of the jurisdiction of SC to review tax cases substantially identical to the present conditions
- Appropriations, revenue or tariff bills shall originate exclusively in the house of - It applies equally to those who belong to the same class
representatives but the senate may propose or concur with amendments
TAX LAW
- Each LGU shall exercise the power to create its own sources of revenue and
shall have a just share in the national taxes - Any law that provides for the assessment and collection of taxes for the
support of the government and other public purposes
INHERENT LIMITATIONS
TAX LAWS ARE SPECIAL LAWS
- Territorial
- Inherently legislative FOUR BASIC TAX LAWS OF THE PHILIPPINES
- Subject to international comity or treaty
- For public purpose - The NIRC of 1997
- Exemption of the government - The tariff and customs code of 1978
- Non-delegation of the power of taxation - The local tax code
- The real property tax code
CONTRACTUAL LIMITATIONS
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SOURCE OF OUR TAX LAWS TYPES OF REVENUE BILL
- Constitution - Statutes
- Statutes and presidential decrees - Revenue regulations
- Executive orders and batas pambansa - Circulars
- Local ordinances - Court decisions
- Revenue regulations - BIR/Administrative rulings
- Administrative issuances or BIR rulings - Legislative materials
- Judicial decisions
- Tax treaties and conventions with foreign countries REVENUE REGULATIONS
- These are formal pronouncement intended to clarify or explain the tax law and
NATURE OF TAX LAWS
carry into effect its general provisions by providing details of administration
- Civil in nature and in character. and procedure.
- They remain effective in times of war
- The ex post facto prohibition does not apply in taxation REQUISITES OF A VALID RR
- They do not deal with the organization and operation of the government - It must not be contrary to law, constitution or contravene its intentions
organs of the state - It must be published in the OG or newspaper
HOW IS TAX LAW INTERPRETED - It must conform to the legal provisions of the law it seeks to implement
- It must be useful, practical and necessary for law enforcement
- HORNBOOK DOCTRINE – a tax cannot be imposed without clear and - It must be reasonable to their provisions
express words for that purpose and the provisions of a taxing act are not to be - It must be within the authority conferred
extended by implication
WHEN ARE PROVISIONS OF REVENUE LAWS MANDATORY AND DIRECTORY
- PRINCIPLE OF PARI MATERIA – different statutes referring to the same
object should be construed with reference to each other as that all provisions - Mandatory – if they are intended for the security of the citizens or to insure
may be given intent equality in taxation or certainty as to the nature and amount of each person’s
REVENUE BILLS tax.
- Directory – if they are designed merely for the information and direction of the
- These are confined mainly to those bills whose purpose is to raise money by tax officers or to secure dispatch or methodical and systematic modes of
taxation and to those which have the purpose of increasing the funds for proceedings.
meeting the general governmental needs by compulsory imposition without
REVOCATION, MODIFICATION OR REVERSAL OF ANY OF THE RULES AND
giving any direct and immediate equivalent in return for the payment thereof.
REGULATIONS OR ANY OF THE BIR RULINGS OR CIRCULARS, MEMORANDUM

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PROMULGATED BY THE CIR CANNOT BE GIVEN RETROACTIVE EFFECT WHEN - These are the less general interpretations of the tax laws at the administrative
SUCH REVOCATION, MODIFICATION OR REVERSAL WILL BE PREJUDICIAL TO levels, being issued from time to time by the CIR, to clarify certain provisions
THE TAXPAYER of the tax law.
XPN HOW ARE BIR RULINGS CLASSIFIED
- Where the taxpayer deliberately misstates or omits material facts from his - RULINGS OF FIRST IMPRESSION
return or any document required of him by the BIR - RULINGS WITH ESTABLISHED PRECEDENTS
- Where the facts substantially gathered by the BIR are materially different from
the facts on which the ruling is based PROSECTIVITY OF TAX LAWS
- Where the taxpayer acted in bad faith - Tax laws are prospective in character and in application
DOCTRINE OF OPERATIVE FACT (SEC 226 NIRC) XPN
- This rule provides that taxpayers may rely upon a rule or ruling issued by the - Provided by law
CIR from the time the rule or ruling is issued up to its reversal by the CIR or by - Necessarily implied from the language used
the Court. - It involves income tax
REVENUE REGULATIONS AND BIR RULINGS - It is clearly the intent of the congress

- RR must be published to have the force and effect of law, BIR rulings do not TAXES ARE IMPRESCRIPTIBLE UNLESS THE LAW ITSELF PROVIDES FOR
PRESCRIPTION
need publication
- RR are issued by the SoF, BIR rulings are issued by the CIR REASONS WHY NATIONAL TAXES ARE NOT SUBJECT TO LEGAL
- RR are formal pronouncements intended to clarify or explain the tax law, BIR COMPENSATION
rulings are merely advisory service to the taxpayer, they are not conclusive
- RR are part and parcel of the tax law it seeks to implement, BIR rulings are - Lifeblood doctrine
not part and parcel they refer to - The government and the taxpayer are not creditor and debtor to each other
- RR have the force and effect of law, BIR rulings are administrative opinions on - Taxes are not in the nature of contracts between the parties but grew out of a
queries and do not have the force and effect of law duty
- RR are of general application, BIR rulings are of particular or specific XPNS
application
- RR are non-retroactive, BIR rulings is always retroactive - By operation of law
- In case of overpayment of a tax
BIR RULINGS OR ADMINISTRATIVE ISSUANCES

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PRINCIPLE OF STRICTISSIMI JURIS POWERS OF THE CIR
- Tax exemptions must be strictly construed against the taxpayer and liberally in - The original and exclusive power to interpret the provisions of the NIRC
favor of the government - The power to recommend the RR of a tax law to the SoF
- The power to issue BIR or Administrative rulings
XPNS - To decide tax cases relative to DROP (Disputed assessment, Refund, Other
- In favor of the government charges and Penalties)
- In favor of the traditional exemptees - To obtain information and to summon, examine and take testimony of persons
- When the law itself provides to effect tax collection
- Retirement laws - To make assessments
- In favor of special classes of taxpayers under special circumstances - BEOR
- To change tax period
POWERS OF THE BIR - To conduct inventory or surveillance
- Assessment and collection of taxes - To prescribe presumptive gross sales/receipts
- Enforcement of all forfeitures, penalties, fines and judgements in all cases - To prescribe real estate values
decided in its favor by the courts - To accredit tax agents
- Giving effects to and administering the supervisory and police powers INSTANCE WHERE AUTHORITY TO INVESTIGATE IS DISPENSED WITH
conferred by it by the NIRC and other laws
- Assignment of internal revenue officers and other employees to other duties - When taxpayer does not issue sales invoices or receipts
- Provisions and distributions to proper officials of forms, receipts, certificates - When taxpayer is found to keep private books of accounts
and stamps - When taxpayer is not provided with the necessary privilege tax receipts
- Issuance of receipts and clearances - When taxpayer is in possession of unpaid tax articles subject to excise tax
- Submits annual report, pertinent information to the congress and reports to the FACTORS THAT DETERMINE THE SITUS OF TAXATION
congressional oversight committee in matters of taxation
- Nature, kind and classification of the tax being imposed
POLICE POWERS OF THE BIR - Subject matter of the tax
- To make arrest and seizures - Citizenship of the taxpayer
- To administer oaths and takes testimony - Residence of the taxpayer
- In searching taxable articles - Source of income
- Remedy for enforcement of forfeiture - Place of exercise, business or occupation being taxed
- To sell and/or destroy forfeited property - Place where activity that produced the incomes was held or done

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FACTORS USED IN DETERMINING SOURCE OF INCOME
- Income from sale of shares of stock issued by domestic corporations
- Income from sale of foreign shares of stocks
- Rent income
- Interest income
- Dividend income
- Service income
- Royalty income
- Income from sale, exchange or disposition of real property
- Income from sale of personal property

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